The Great Depression - Term Paper Example

?Marysue Andreozzi History 161 April The Great Depression The Introduction Unprecedented economic recession, the crash in the stock market, shortage of jobs and insufficiency of opportunity to work… These descriptions were once a reality of American life. The economic and social plight of the American society took place between 1929 and 1939 and got the name of the Great Depression. Describing the phenomenon of the Great Depression, Lionel Robbins, an author of “The Great Depression” and the witness of the event, says: “There have been many depressions in modern economic history but it is safe to say that there has never been anything to compare with this”1. Harvey Green, too, calls the Great Depression “the longest and the most severe economic crisis in American history.” 2 The statistics of the unemployment during the Great Depression is striking: it was reported that back in 1933 as many as 30 million people found themselves out of work3. My goal in this paper is to explore what happened during the Great Depression, discuss how it happened, and what its impact on the American nation was. Causes of Great Depression What caused the most enduring depression in American economy? The authors of “Liberty, Equality, Power” name a few major causes of the stock market collapse and comment on how exactly it happened. As Green says, there cannot be found a single cause of the Great Depression, which came about “because of a confluence of powerful concurrents” (Green 72). Similarly, John Murrin et al name a few causes of the fatal crash which caused the economic downturn. Those were stock market speculation, mistakes by the federal reserve board, an ill-advised tariff, and a maldistribution of wealth4. Let us discuss the causes of the depression in detail. Stock market speculation was probably the biggest cause of the Great Depression. There was an unprecedented run-up in prices in the New York Stock Exchange in 1928-1929. It was obvious that money was pouring into the market. But in reality the majority of investors bought on a 10 per cent margin. In other words, they were known to put up just 10 per cent of the price of some stock while the rest was borrowed from banks or brokers.5 They wanted to resell their shares in the immediate future at considerably higher prices, so that they could pay back the borrowed money and get some nice profit. They managed to do this for a while, which only made them greedier. As a result, speculation became uncontrolled. The stock market was spiraling upward without any restrictions. Not surprisingly, when creditors started to hesitate about the possible earnings in October 1929 and wanted their money back, they were unable to get it: “the market crashed from its dizzying heights.”6 Also, many authors agree that roots of the depression lie in the Roaring Twenties. For example, Carol Marsh, the author of “The Great Depression and the New Deal” says that the depression was rooted in the dubious situation in the 1920s when many businesses made big profits but farmers did not7. As a result, lots of farmers lost so much at that time that they could hardly pay mortgage on their own farms. This led to financial failure of many banks. To illustrate, in the period in-between 1 July 1928 – 30 June 1929 - the time of the United States’ greatest prosperity - as many as 550 banks had to go out of business8. While the stock market collapse was the cause of the economic downturn, other factors contributed to the lengthy character of the Great Depression. One of the causes, as Murrin et al explain, was the poor decision-making and mistakes made by the Federal Reserve Board9. Specifically, in 1930-1931 it shortened the amount of money that was in circulation in addition to raising interest rates. Credit became really difficult to secure for the general public. Had it been done in the opposite way, the debtors would have been able to pay the creditors and economy would not have been plunged so deep in the ruinous depression10. One more cause was the highly unsuccessful Tariff Act of 1930. It raised tariffs on 75 agricultural and 925 manufactured products, which triggered tariff raises on American goods by the foreign governments. The legislation virtually killed the international trade. Last but not least, the crooked concentration of wealth in rich families that took place in the 1920s was also accountable for the fact the American economy could not recover for a long time. It enhanced the great disparity between the United States’ productive capacity and people’s ability to consume11. Magnitude of Great Depression The magnitude and breadth of the economic recession were impressive. Green in “The Uncertainty of Everyday Life, 1915-1945” and Swanson and Samuel in “Estimates of National Product and Income for the United States Economy, 1919–1941” provide the following data: The nation’s gross national product’s fall was from $104.4. billion in 1929 to $74.2 billion in 1932 12 By 1932, the level of unemployment was as high as 23.6%, and it was fixed to at the beginning of 1933 at 25% 13 The average annual wage in 1929 for an industrial laborer was around $1,550; by 1933, it had already dropped by one-third14. In 1929, 3.1 per cent of people (=1,5 million) were unemployed while in 1930 the number was 8.8 per cent (= 4.25 million), and in 1931 it equaled 16.1 per cent (8 million)15. For every single immigrant that entered the country back in 1932, three returned to the old country16. In 1932-1933 prices for agricultural products got so low that farmers lost a lot of money. Many of them dumped milk and killed the cattle just to raise prices17. The value of real estate dropped: while in 1926 a house cost $5,000, in 1933 it cost $3,30018. Additionally, the data collected by Murrel et al provide the evidence that from 1929 to 1932 the fall of the industrial production equaled 50 per cent; new investment fell from $16 billion to $1 billion; in 1931, over 2, 000 banks stopped working19. Relief: Roosevelt and First and Second New Deals. While the relief efforts of Herbert Hoover were quite unsuccessful at reversing the downfall, Franklin Delano Roosevelt, the new U.S. President that was inaugurated in 1933, became the symbol of hope for millions of Americans. Roosevelt with his new vision of the country’s future, his innovative understanding of liberty and freedom was a source of inspiration and belief in many distressed Americans. As Fischer in his “Liberty and Freedom: A Visual History of America's Founding Ideas” observes, “He learned to laugh in the face of his affliction, with his chin held high, head thrown back, cigarette holder at a jaunty angle, and a smile that radiated strength and optimism” 20. In order to fulfill his ideas of freedom and liberty, Roosevelt launched a series of legislated measures which aimed at stimulating the capitalist system in the United States (Fischer 483). However, it was not the only way out according to Roosevelt. Specifically, the newly elected President made efforts to expand the role of government regulation and private agency in those spheres of economy that he thought could not be managed for the sake of human rights within private enterprise21. Just as the New Deal measures attempted to restructure the economy and provide work and relief for the destitute along with stimulating the demand, they first of all included the increased expenditures of government costs and launching certain financial reforms. Briefly, the Securities Act passed in 1933 provided comprehensive regulation in the securities industry. It was supplemented by the Securities Exchange Act passed in 1934. Incidentally, both acts are in force today. FDIC (Federal Deposit Insurance Corporation) & Glass-Steagall Act provided federal insurance of all bank deposits that was aimed at government protection of up to 5, 000 of people’s savings22. The setting of the National Recovery Administration helped to defeat ‘cut-throat competition’ by setting certain codes of fair competitive conduct. NRA initiated setting minimum wages and prices, as well as conditions for competition, and labor standards in all U.S. industries23. The pass of the Civilian Conservation Corps Reforestation Relief Act enabled creating jobs for 2 million Americans24. Agricultural Adjustment Act of 1933 aimed at providing farmers with economic relief25. Its activity was generally successful as illustrated by the following data: between the years 1932 and 1935, the increase in farm income exceeded 50 percent, yet only partly due to federal programs26. The First New Deal was about considerable increase in production through a series of legislative acts. Still, it did not fully cope with the Depression. The pace of recovery was not as quick as some people wanted27. Both economists and politicians criticized Roosevelt for the NIRA regulations that restricted businesses, for the rates of poverty and unemployment that were still high. Facing the challenges from right and left, Roosevelt launched a new range of social and economic measures. These received a name the Second Big Deal. Within the latter, the WPA (Works Progress Administration) was created. It aimed to provide employment rather than welfare. The agency oversaw the construction of roads, schools, buildings, and airports. Through certain projects (the Federal Theater Project, Federal Writers Project, and the Federal Art Project) actors, musicians, painters, as well as writers were employed. The unemployed youth were given part-time jobs by the National Youth Administration. By the time, the WPA was closed in 1943 it had already provided help to a total of around 9 million people. Within the Second New Deal, the Social Security Act of 1935 was adopted that set up a system of insurance for the disabled, the elderly, and the jobless. Home Life During Depression Poverty, uncertainty, and hopelessness led to far-reaching effects on day-to-day lives of the American people. There was fixed a steady decline in marriages: in 1930-31 it was by 5.9 per cent while in 1931-32 it was by 7.5 per cent28. People started to have fewer children. In 1915, the registered birth rate per 1,000 Americans was 25 while in 1933 it was 6.5. The hard times did affect the consumer expenditures as well. For Instance, the sales of men’s clothing decreased by two-thirds, while the sales of women’s clothing fell by as much as 50 per cent. In 1933, the sales of jewelry were 85 per cent less than in 1926. This can be explained by the fact that food became the major struggle for the destitute. According to Green, “many city dwellers were reduced to ransacking garbage cans”29. Looking for fuel to provide warmth and possibility to cook was another challenge, with many people seeking wood. Under these circumstances, the levels of domestic violence including child abuse were growing. Hundreds of children would run away from home because parents could not provide food for them. Single men united to dwell in so-called “hoboes”. Those were encampments located in the vicinity of the rail lines and water where fires could be maintained. In the time of the Great Depression, some were as much as 1 mile long30. Women, too, young and old, single and married, were riding the rails in an attempt to find work. They were often threatened with rape. Conclusion All in all, the Great Depression brought unprecedented changes to American life in a variety of its aspects: economic, social, political, domestic, cultural, etc. The Great Depression developed as a result of considerable disparities in the American societies as well as the uncontrolled speculation in the stock market. It was exacerbated by the politically unwise measures of the Hoover administration. However, it could gradually be relived thanks to the efforts of the administration of the President Roosevelt. His policy of New Deal provided jobs for millions of the unemployed and secured many poor and destitute people. Home life, too, was dramatically affected by the depression with families falling apart and people placed on the margin of existence. Works Cited Fischer, David Hackett. Liberty and Freedom: A Visual History of America's Founding Ideas. Oxford University Press, 2004. Print. Green, Harvey. The Uncertainty of everyday life, 19145-1945. New York: Harper Collins Publishers, 1992. Marsh, Carole. The Great Depression & the New Deal. Gallopade International, 2005. Print. Murrin, John, Johnson, Paul, McPherson, James, Gerstle, Gary, Rosenberg, Emily, and Norman Rosenberg. Liberty, Equality, Power. Cengage Learning, 2008. Print. N.a. “The Depression in the United States – An Overview”. English. Illinois. Edu. N.d. Web. 1 April 2012. http://www.english.illinois.edu/maps/depression/overview.htm. Robbins, Lionel. The Great Depression. Ludwig von Mises Institute, 1971. Print. Read More