(Archive - Week of September 17, 2005)
Dorothea Lange's Migrant Mother depicts destitute pea pickers in California, centering on Florence Owens Thompson, a mother of seven children, age thirty-two, in Nipomo, California, March 1936.

The Great Depression
hose of you who were not born before the beginning of World War II, you did not live through the Great Depression. Hard times were upon us in the years, 1929-1940, before Democratic President Franklin D. Roosevelt, recovered our economy and citizens found work. I guess I could be called a "survivor." I was still living after the Great Depression, after all the battles I fought in with the 1st Marine Division, during World War II, and the Korean War. Men with families In Lawrence County, Tenn. stood in line for a job that paid 50 cents per day - from daylight to dark. We will soon have an American Depression, and it was caused in part by mother nature weather - hurricane damages during the past few years, but most of the reason was man made - the hundreds of billions of dollars for George W. Bush's price tag for his Iraq War. When President Bill Clinton left office after two terms, he left a balanced budget and billions of dollars in surplus. What did Bush do with that money? He gave 95 percent of it to his rich friends who contributed to his election, and he called it a "tax refund." The rest of us received no more than a $300 or $500 giveaway refund. How will we dodge the bullet and get our economy on track and pay on the debt that Bush has borrowed at a cost of $2 million daily just on the interest? He will cut benefits on the poor and middle class Americans. What is needed is an increase in taxes on the people who earn more than $100,000 annually - they are the ones that received the  big tax refund that he called it. I call it a payoff. Great Depression
From Wikipedia, the free encyclopedia. The Great Depression was a massive global economic recession (or "depression") that ran from 1929 to approximately 1939. It led to numerous bank failures, high unemployment, as well as dramatic drops in Gross Domestic Product (GDP), industrial production, stock market share prices and virtually every other measure of economic growth. It is generally considered to have bottomed out in 1933, but it was not until well after the end of World War II before such indicators as industrial production, share prices and global GDP surpassed their 1929 levels.

This family, the Wares, squatted on Terminal Island, California during the depression

What gave this downturn the name the "Great Depression" was that it was by far the largest sustained decline in industrial production and productivity in the century and a half for which economic records have been regularly kept, and the fact that its impact was felt throughout the entire industrialized world and their trading partners in less developed nations.

The term Great Depression can refer to the economic event, but it can also refer to the cultural period, often called simply "The Depression", and to the political response to the economic events.

Causes of the Great Depression

Police stand guard outside the entrance to New York's closed World Exchange Bank, March 20, 1931. Bank failures wiped out people's savings.

Economists, historians, and political scientists have posed several theories for the cause, or causes, of the Great Depression with surprisingly little consensus. It remains one of the most studied events of economic history. Major theories proposed include the stock market crash of 1929, collapse of the gold standard, collapse of international trade due to the Smoot-Hawley Tariff Act, Federal Reserve policy, and many other influences. Today, the generally accepted theory is that the Great Depression was caused by inappropriate monetary policy. That is that the policy pursued by the United States Federal Reserve during the years leading to the Great Depression caused a collapse in the money supply.

Theories from mainstream capitalist economics focus on the relationship between production, consumption and credit, as embodied in macro-economics and on personal incentives and purchasing decisions as embodied in micro-economics. In these theories attempts are made to order the sequence of events which imploded the industrialized world's monetary system and its trade relationships. Theories from Marxian or Marxist economics focus on the relationships of the control of production and the concentration of wealth. For Marxists, the Great Depression is the kind of crisis which capitalism is prone to, and its occurrence is not surprising. These theories were more influential at the time, because of the existence of a Communist government in the USSR, an area which covered present day Russia, Ukraine and the Central Asian republics.

Other heterodox theories of the Great Depression have been advanced and from time to time gain favor. These include long cycle activity and that the Great Depression was simply at the intersection of several concurrent long cycle troughs.

It has been the prevailing belief among economists for some time that the stock market crash of 1929 was not the primary cause of the Great Depression, pointing to telltale signs of an imminent economic disaster in various statistics leading up to the Depression, as well as the downturn in Europe which was already in progress.

The Wall Street crash is widely considered to be the event which ushered in the world-wide financial crisis. In the United States between 1929 and 1933, unemployment soared from approximately 3% to over 25%, while manufacturing output declined by one-third. Governments worldwide sought economic recovery by adopting restrictive autarkic policies; such as high tariffs, import quotas, and barter agreements; and by experimenting with new plans for their internal economies.

Unemployed men vying for jobs at the American Legion Employment Bureau in Los Angeles during the Great Depression.

Economic crises due to the depression created great problems throughout the United States and much of the world. Consumers reduced their purchases of luxury products and many businesses cut production. Big businesses, such as General Motors, saw their sales drop by 50% in the late 1920s and the early 1930s. This caused businesses to cut back on the numbers they employed, with thousands of workers losing their jobs.

When farm prices fell, small farmers went bankrupt and in the USA many lost their land due to bank foreclosure. By June of 1932, the American economy had shed about 55% of the work force. On 1932 July 8, the Dow Jones Industrial Average plunged to 41.22. The USA government tried to restore prosperity by spending on welfare and public works, this is termed the New Deal.

After the stock market collapse, the New York based banks became concerned over the security of overseas loans and called in their loans to Germany and Austria. However, without the American money, Germany was unable to continue making World War One reparations payments to France and Britain. This chain reaction meant they in turn could not repay their war loans to America. Therefore, the depression had spread to Europe. All governments were forced to cease paying both reparations and war loan repayments, although these in were still due and could in theory be called in.

The United States government tried to protect domestic industries from foreign competition by imposing the highest import duty in American history. In retaliation, other countries raised their tariffs on imports of American goods. As a result, global industrial production declined by 36% between 1929 and 1932, while world trade dropped by 62%.

Observers throughout the world saw in the massive program of economic planning and state ownership of the Soviet Union what appeared to be a depression-proof economic system, and a solution to the crisis in capitalism.

In Germany, unemployment increased drastically, fueling widespread disillusionment and anger. The institutions of the Weimar Republic, which had already been unable to maintain order in Germany, further deteriorated in the years from 1930 to 1932, while the Chancellor and finance expert Heinrich Bruning attempted to fix the economy by drastically cutting state spending. At the time, the NSDAP, or NAZI party, gained much popularity, winning the two general elections in 1932, which eventually led to the appointment of Adolf Hitler as Chancellor on January 30, 1933 (See Weimar Republic for details). In Nazi Germany, economic recovery was pursued through rearmament, conscription, and public works programs. In Benito Mussolini's Italy, the economic controls of his corporate state were tightened.

In the United Kingdom, the Labor government of Ramsay MacDonald, and later the Conservative-dominated "National Government", responded to the depression by imposing tariffs on all imports from outside the British Empire (arguably worsening the global situation), by cutting public spending, and by abandoning the Gold Standard which reduced the cost of British exports (see Great Depression in the United Kingdom.).

World War I veterans block the steps of the Capital during the Bonus March, July 5, 1932

In the United States, President Herbert Hoover made efforts to control the situation. However, hindsight shows that at first, he gravely underestimated the severity of the crisis, even announcing to U.S. Congress on December 3, 1929, that the worst effects of the recent stock market crash were behind them, and that the U.S. public had regained faith in the economy. Having realized his mistake, Hoover went before Congress again on December 2, 1930, to ask for a $150 million public works program to help generate jobs. However, one of the major problems was that with deflation, the currency that you kept in your pocket could buy more goods as prices went down. Another was that there had been no federal oversight of the stock market or other investment markets, and with the collapse, many stock and investment schemes were found to be either insolvent or outright frauds. Unfortunately, many banks had invested in these schemes and this may have precipitated a collapse of the banking system in 1932; Milton Friedman's monetary theories suggest that the inexperience of the newly-created Federal Reserve in managing the money supply exacerbated the problem. With the banking system in shambles, and people holding on to whatever currency that they had, there was minimal cash available for any activities that would cause positive change.

Philipinos cutting lettuce, Salinas, California, 1935

The response of the Hoover administration helped little; instead of increasing the money supply, the Hoover administration did the exact opposite and raised interest rates, falsely believing that inflation was the real danger. Many in the Hoover administration believed that as wages fell, the cost of production would drop and, as a result, production would pick up again--the depression would be self-correcting. Nobody at that time understood the effects of a calamitous drop in the money supply. For this reason, they saw no need for the government to intervene in the economy, a policy which proved disastrous.

Like their counterparts abroad, many Americans were disillusioned with their system of government, believing that Hoover's policies had driven the country to ruin. Shanty towns populated by unemployed people at the time were often dubbed Hoovervilles to highlight the President's fading popularity. During this period, several alternative political movements saw a considerable increase in membership. In particular, a number of high-profile figures embraced the ideals of Communism. Radio speakers, such as Father Charles Coughlin, saw their listening audiences swell into the millions as they sought easy scapegoats for the country's woes.

Upon accepting the Democratic nomination for president (July 2, 1932), Roosevelt promised "a new deal for the American people", a phrase that has endured as a label for his administration and its many domestic achievements. Upon being elected in 1932 he proposed the "New Deal", a platform of government programs based on Keynesian economics and intended to stimulate and revitalize the economy. The British and French governments also intervened in their economies to escape the worst effects of the depression.

Life during the Depression

Bud Fields and his family. Alabama. 1935 or 1936. Photographer: Walker Evans.

In the so-called Dust Bowl, a massive area of the Great Plains consisting mainly of Kansas, Oklahoma, and parts of Texas, people found themselves unable to make a living. On top of the economic crisis, the earth withered and blew away in a series of massive dust storms. For a farming people this was disastrous, and these migrants were led westward by advertisements for work put out by agribusiness in western states such as California. The migrants came to be called Okies, Arkies, and other derogatory names as they flooded the labor supply of the agricultural fields, driving down wages and increasing competition for jobs in areas which couldn't afford it. This story was dramatized in the famous novels The Grapes of Wrath   and Of Mice and Men n by John Steinbeck. Life was challenging for those in Southern states also and many migrated north by train to work in auto plants around Detroit.

One theory of the cause of the Great Depression holds that it was in large part due to the collapse of international trade as the result of restrictive trade practices globally. Many nations experienced a decline, though the severity and timing differed from country to country. For example, Britain hit its trough in the third quarter of 1932, while France did not reach its low point until April of 1937. Charles P. Kindleberger has provided the best international account of the Depression so far in his book The World in Depression .

Asia was also hit by the Great Depression due to its dependence on the trade of raw materials, predominantly rubber and tin, with Europe and America. These markets represented the biggest buyers of rubber and tin (for the automobile industry). Asian trade fell sharply as America and Europe were gripped by the depression. Companies in Asia responded by dismissing some of their workers.

Many of those workers who managed to keep their jobs had their pay reduced. Many people had to depend on the aid of their friends or relatives to find a job.

During the Great Depression a large proportion of skilled workers were unemployed, heightening the pressure of opportunity loss to the economy.

End of the Great Depression In the United States

Squatter's Camp, Route 70, Arkansas, October, 1935. Photographer: Ben Shahn

It was not until the U.S. entered World War II that Roosevelt's ideas for massive public expenditures and deficit spending truly began to bear fruit. Roosevelt's administration, of course, had little choice but to increase expenditures, given the war effort. Even given the special circumstances of war mobilization, New Deal policies seemed to work exactly as predicted, winning over many Republicans, who had been the New Deal's greatest opponents. When the Great Depression was brought to an end by the Second World War, it was obvious that the turnaround had been caused primarily by the reinforcement of business through government expenditure.

In truth Roosevelt had foreseen from early in his Presidency that only a solution to the international trade problem would finally end the depression, and that the New Deal was, to no small extent, a "holding action". He contemplated precipitating a war with Japan early on, in hopes of dealing with the problem early. However, the intensity of the economic crisis convinced him that before the world situation could be dealt with, the United States would have to put its own fiscal house back in order. His original conception was that the New Deal would restore circumstances which would allow for a return to balanced budgets and an international gold standard. It was only gradually that he came to the conclusion that it was essential to remake the U.S. economy in a more extensive fashion, particularly because of the "Roosevelt Recession" of 1937, when he had balanced the budget by restricting fiscal support to the economy.

Thus the statement "it was World War II that ended the Depression", while often asserted by partisans as proof that the New Deal "failed" is, in fact, the view that the architects of the New Deal themselves saw as the reality: that as long as Europe was marching towards war, Japan was engaged in imperial conquest, and the international debt and trading system were still organized in an attempt by creditors to be paid back for World War I at pre-war values for gold, that a full solution to the economic crisis was impossible.

New Deal programs sought to stimulate demand and provide work and relief for the impoverished through increased government spending, by:

The original implementation, in the form of the National Recovery Act, brought in direct unemployment relief, and allowed:

This is referred to as the First New Deal. It was centered around the use of the alphabet soup of agencies set up in 1933 and 1934, along with the use of previous agencies, to regulate and stimulate the economy.

The theories behind the New Deal matched the later prescriptions of British economist John Maynard Keynes, who advocated increased government spending in a financial crisis. In 1929 federal expenditures constituted only 3% of the GDP. Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics accused him of turning America into a socialist, or even Stalinist state. The primary purpose of the New Deal were as follows: to prevent the economy and banking system from going into a free fall; to provide effective relief until larger economic forces would end the slump; and to prevent those factors which had exacerbated the slump. The New Deal was both a program of national recovery and of reform. An interesting insight into what motivated Roosevelt came from the transition from the Hoover administration ? both men agreed that it was a global maladjustment of prices, debts and production that was causing the slump. The disagreement came over whether the US government should act first to try and negotiate an end to the root causes internationally, which was Hoover's view, or act for domestic recovery and reform until the international situation could be resolved, which was FDR's view.

The New Deal was rooted in new ideas, but also in economic orthodoxy of balanced budgets, and restraint of federal power. It represented bigger and broader government than ever before, but not as big as government would later become: spending on the New Deal was far smaller than on the war effort. In short, federal expenditures went from 3% of the GDP in 1929 to about 33% in 1945. The big surprise was just how productive America became: spending financially cured the depression. Between 1939 and 1944 (the peak of wartime production), the nation's output more than doubled. Consequently, unemployment plummeted?from 19% in 1938 (already down from 1933's 24.9% peak) to 1.2% in 1944?as the labor force grew by ten million. The war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, that it would return to Depression conditions and industrial output would fall to its pre-war levels. There is general agreement that it was World War II which finally provided the United States Federal Government with the political will to buy its way out of the Depression and resolve the global monetary crisis by the imposition of the Bretton Woods system.



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