Great Depression in the United States

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Man sleeping in a Baltimore fish market in July 1938.

The Great Depression in the United States began on "Black Tuesday" with the Wall Street crash of October, 1929 and rapidly spread worldwide. The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement. Although its causes are still uncertain, the basic cause was a sudden loss of confidence in the economic future. The usual explanations include numerous factors, especially high consumer debt, ill-regulated markets that permitted malfeasance by banks and investors, cutbacks in foreign trade, lack of high-growth new industries,[1] and growing wealth inequality, all interacting to create a downward economic spiral of reduced spending, falling confidence, and lowered production.

The initial government response to the crisis exacerbated the situation; protectionist policies like the 1930 Smoot-Hawley Tariff Act in the U.S. strangled global trade as other nations retaliated against the U.S. Industries that suffered the most included agriculture, mining, and logging as well as durable goods like construction and automobiles that people postponed.[2]

The economy eventually recovered from the low point of the winter of 1932-33, with sustained improvement until 1937, when the Recession of 1937 brought back 1934 levels of unemployment.

USA GDP annual pattern and long-term trend, 1920-40, in billions


[edit] Causes

Current theories may be broadly classified into two main points of view. First, there is orthodox classical economics, monetarist, Keynesian, Austrian Economics and neoclassical economic theory, which focuses on the macroeconomic effects of money supply, including Mass production and consumption. Second, there are structural theories, including those of institutional economics, that point to underconsumption and over-investment (economic bubble), or to malfeasance by bankers and industrialists.[3]

Soldiers of the California National Guard patrolling the Embarcadero in July 1934. There were 1,856 stoppages that year.[4]

There are multiple originating issues: what factors set off the first downturn in 1929, what structural weaknesses and specific events turned it into a major depression, how the downturn spread from country to country, and why the economic recovery was so prolonged.[5]

In terms of the initial 1931 downturn, historians emphasize structural factors and the stock market crash, while economists point to Britain's decision to return to the Gold Standard at pre-World War I parities ($10.98 Pound)[6]. The vast economic cost of World War I weakened the ability of the world to respond to a major crisis.

Economists dispute how much weight to give the stock market crash of October 1929. According to Milton Friedman, "the stock market in 1929 played a role in the initial depression." It clearly changed sentiment about and expectations of the future, shifting the outlook from very positive to negative, with a dampening effect on investment and entrepreneurship, but some feel that an increase in interest rates by the Federal government could have also caused the slow steps into the downturn towards the Great Depression.[7]

[edit] Political results of the depression

The depression caused minor political changes in the United States. Herbert Hoover's failure to prevent the depression caused him to lose the United States presidential election, 1932 to Franklin Delano Roosevelt. Roosevelt's economic recovery plan, the New Deal, instituted unprecedented large-scale federal relief programs aimed to aid the agricultural industry and support labor unions. Roosevelt's victory was important to American history, as he led the United States during World War II.

From 1933 to 1936 President Roosevelt argued a reconstruction of the economy would be needed to prevent another, or avoid prolonging, the current depression. New Deal programs, such as the National Recovery Administration (NRA), sought to stimulate demand and provide work and relief for the impoverished through increased government spending. A series of panels comprising business leaders in each industry set regulations which ended what was called "cut-throat competition," which kept forcing up prices and profits for everyone.[8]

The NRA, which ended in 1939, had these roles:[9]

  • Setting maximum prices and wages and competitive conditions in all industries. (NRA)
  • Encouraging unions that would raise wages, to 93% increase the purchasing power of the working class. (NRA)
  • Cutting farm production so as to raise prices and make it possible to earn a living in farming (done by the AAA and successor farm programs).

These reforms (together with relief and recover measures) are called by historians the First New Deal. It was centered around the use of an alphabet soup of agencies set up in 1933 and 1934, along with the use of previous agencies such as the Reconstruction Finance Corporation, to regulate and stimulate the economy. By 1935, the "Second New Deal" added social security; the Works Progress Administration (WPA), a national relief agency; and, through the National Labor Relations Board, a strong stimulus to the growth of labor unions. Unemployment fell by two-thirds in Roosevelt's first term (from 25% to 9%, 1933 to 1937) but then remained high until 1942.[10]

In 1929, federal expenditures constituted only 20% of the GDP. Between 1933 and 1939, they tripled, but the national debt remained about level at 40% of GNP. (The debt as proportion of GNP rose under Hoover from 20% to 40%; the debt as % of GDP soared during the war years, 1941-45.) After the Recession of 1937 and Republican victories in the 1938 elections, opponents of the New Deal, who called themselves conservatives, formed a bipartisan conservative coalition to stop further expansion of the New Deal and, by 1943, they had abolished all of the relief programs. Social Security continued. The labor laws were revised by conservatives in the Taft Hartley Act of 1947. The New Deal was, and still is, controversial and widely debated.[11] One small voluntary response survey from 85 PhD holding members of the Economic History Society, which the author stated may not be not representative of all economic historians, showed that there were statistically different opinions between economic historians who taught or studied economic history and those that taught or studied economic theory. The former were in consensus that the New Deal did not lengthen and deepen the depression, while the latter were more evenly divided. [12] The Great Depression and the New Deal remain a benchmark amongst economists for evaluating severe financial downturns, such as the economic crisis of 2008.[13]

[edit] Recession of 1937

Total employment in the United States from 1920 to 1940, excluding farms and WPA

By 1936, all the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938.[14]

The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold to act; Arnold was not effective, and the attack ended once World War II began and corporate energies had to be directed to winning the war.[15] By 1939, the effects of the 1937 recession had disappeared. Employment in private sector factories recovered to the level of the late 1920s by 1937, but did not grow much bigger until the war came and manufacturing employment leaped from 11 million in 1940 to 18 million in 1943. [16]

Another response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, in an effort to increase mass purchasing power. Business-oriented observers explained the recession and recovery in very different terms from the Keynesians. They argued the New Deal had been very hostile to business expansion in 1935–37, had encouraged massive strikes which had a negative impact on major industries such as automobiles, and had threatened massive anti-trust legal attacks on big corporations. All those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth.[17]

On the other hand, according to economist Robert Higgs, when looking only at the supply of consumer goods, significant GDP growth only resumed in 1946. (Higgs does not estimate the value to consumers of collective goods like victory in war)[18] To Keynesians, 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, it would return to Depression conditions and industrial output would fall to its pre-war levels. The incorrect prediction by Alvin Hansen and other Keynesians that a new depression would start after the war failed to take account of pent-up consumer demand as a result of the Depression and World War.[19]

[edit] Afterwards

A factory worker in 1942. Fort Worth, Texas.

The government began heavy military spending in 1940, and started drafting millions of young men that year;[20] by 1945, 17 million had entered service to their country. But that was not enough to absorb all the unemployed. During the war, the government subsidized wages through cost-plus contracts. Government contractors were paid in full for their costs, plus a certain percentage profit margin. That meant the more wages a person was paid the higher the company profits since the government would cover them plus a percentage.[21] Using these cost-plus contracts in 1941-1943, factories hired hundreds of thousands of unskilled workers and trained them, at government expense. The military's own training programs concentrated on teaching technical skills involving machinery, engines, electronics and radio, preparing soldiers and sailors for the post-war economy.[22]

Structural walls were lowered dramatically during the war, especially informal policies against hiring women, minorities, and workers over 45 or under 18. (See FEPC) Strikes (except in coal mining) were sharply reduced as unions pushed their members to work harder. Tens of thousands of new factories and shipyards were built, with new bus services and nursery care for children making them more accessible. Wages soared for workers, making it quite expensive to sit at home. Employers retooled so that unskilled new workers could handle jobs that previously required skills that were now in short supply. The combination of all these factors drove unemployment below 2% in 1943.[23]

[edit] Hoovervilles

One visible effect of the depression was the advent of Hoovervilles. "Hooverville" was the popular name for a town of cardboard boxes built by homeless men. The term was coined by Charles Michelson, publicity chief of the Democratic National Committee, named in honor of president Herbert Hoover whose policies were at the time blamed for the depression.[24] Residents lived in shacks and begged for food or went to soup kitchens. Authorities did not officially recognize these Hoovervilles and occasionally removed the occupants for technically trespassing on private lands, but they were frequently tolerated out of necessity. Democrats popularized related terms such as "Hoover blanket" (old newspaper used as blanketing) and "Hoover flag" (an empty pocket turned inside out). "Hoover leather" was cardboard used to line a shoe with the sole worn through. A "Hoover wagon" was an automobile drawn by horse because the owner could not afford gasoline; in Canada, these were known as Bennett buggies, after the Prime Minister.

[edit] Facts and figures

Effects of depression in the United States[25]:

  • 13 million people became unemployed. In 1932, 34 million people belonged to families with no regular full-time wage earner.[26]
  • Industrial production fell by nearly 45% between the years 1929 and 1932.
  • Homebuilding dropped by 80% between the years 1929 and 1932.
  • In the 1920s, the banking system in the U.S. was about $50 billion, which was about 50% of GDP.[27]
  • From the years 1929 to 1932, about 5,000 banks went out of business.
  • By 1933, 11,000 of the US' 25,000 banks had failed.[28]
  • Between 1929 and 1933, U.S. GDP fell around 30%, the stock market lost almost 90% of its value.[29]
  • In 1929, the unemployment rate averaged 3%.[30]
  • In 1933, 25% of all workers and 37% of all nonfarm workers were unemployed.[31]
  • In Cleveland, Ohio, the unemployment rate was 60%; in Toledo, Ohio, 80%.[26]
  • One Soviet trading corporation in New York averaged 350 applications a day from Americans seeking jobs in the Soviet Union.[32]
  • Over one million families lost their farms between 1930 and 1934.[26]
  • Corporate profits had dropped from $10 billion in 1929 to $1billion in 1932.[26]
  • Between 1929 and 1932 the income of the average American family was reduced by 40%.[33]
  • Nine million savings accounts had been wiped out between 1930 and 1933.[26]
  • 273,000 families had been evicted from their homes in 1932.[26]
  • There were two million homeless people migrating around the country.[26]
  • One Arkansas man walked 900 miles looking for work.[26]
  • Over 60% of Americans were categorized as poor by the federal government in 1933.[26]
  • In the last prosperous year (1929), there were 279,678 immigrants recorded, but in 1933 only 23,068 came to the U.S.[34][35]
  • In the early 1930s, more people emigrated from the United States than immigrated to it.[36]
  • The U.S. government sponsored a Mexican Repatriation program which was intended to encourage people to voluntarily move to Mexico, but thousands were deported against their will. Altogether about 400,000 Mexicans were repatriated.[37]
  • New York social workers reported that 25% of all schoolchildren were malnourished. In the mining counties of West Virginia, Illinois, Kentucky, and Pennsylvania, the proportion of malnourished children was perhaps as high as 90%.[26]
  • Many people became ill with diseases such as tuberculosis (TB).[26]
  • The 1930 U.S. Census determined the U.S. population to be 122,775,046. About 40% of the population was under 20 years.[38]

[edit] Late 2000s recession

Although some comparisons between the late 2000s recession and the Great Depression have been made, there remain large differences between the two events.[39] On January 4, 2009, Nobel prize winning economist Paul Krugman wrote that "This looks an awful lot like the beginning of a second Great Depression."[40] On February 20, 2009, Paul Volcker, an economic adviser to US President Barack Obama, said "I don't remember any time, maybe even in the Great Depression, when things went down [happened] quite so fast, quite so uniformly around the world."[41]

[edit] See also

[edit] References

  1. ^ Radio was a growth industry, but far smaller than the automobile and electric power industries that were growth engines before 1929.
  2. ^ Lester Chandler, America's Greatest Depression (1970).
  3. ^ Lester Chandler, America's Greatest Depression (1970).
  4. ^ 1934 - San Francisco General Strike,
  5. ^ Bordo, Goldin, and White , eds., The Defining Moment: The Great Depression and the American Economy in the Twentieth Century (1998).
  6. ^ Peter Temin, Barry Eichengreen
  7. ^ Randall E. Parker, ed. Reflections on the Great Depression (2002) interviews with 11 leading economists
  8. ^ Bernardit Bellushit, The Failure of the NRA (1975)
  9. ^ Ellis Hawtley, The New Deal and the Problem of Monopoly (1966)
  10. ^ Broadus Mitchell, Depression Decade: From New Era through New Deal, 1929-1941 (1964)
  11. ^ Parker, ed. Reflections on the Great Depression (2002)
  12. ^ Specifically, when asked whether "as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression," 74% of respondents who taught or studied economic history disagreed, 21% agreed with provisos, and 6% fully agreed. Among respondents who taught or studied economic theory, 51% disagreed, 22% agreed with provisos, and 22% fully agreed. Robert Whaples, "Where Is There Consensus Among American Economic Historians? The Results of a Survey on Forty Propositions," Journal of Economic History, Vol. 55, No. 1 (Mar., 1995), pp. 139-154 in JSTOR see also the summary at "EH.R: FORUM: The Great Depression". Retrieved on 2008-10-11. 
  13. ^ Kennedy, Freedom from Fear (1999)
  14. ^ Kenneth D. Roose, The Economics of Recession and Revival: An Interpretation of 1937-38, (1969)
  15. ^ Gene M. Gressley, "Thurman Arnold, Antitrust, and the New Deal," Business History Review, Vol. 38, No. 2, pp. 214-231 in JSTOR
  16. ^ Kenneth D. Roose, "The Recession of 1937-38" Journal of Political Economy, Vol. 56, No. 3 (Jun., 1948) , pp. 239-248 [ in JSTOR]
  17. ^ Gary Dean Best, Pride, Prejudice, and Politics: Roosevelt Versus Recovery, 1933-1938 (1990) pp 175-216
  18. ^ Robert Higgs, "Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s," Journal of Economic History, Vol. 52, No. 1 (Mar., 1992), pp. 41-60
  19. ^ Theodore Rosenof, Economics in the Long Run: New Deal Theorists and Their Legacies, 1933-1993 (1997)
  20. ^ Great Depression and World War II. The Library of Congress.
  21. ^ Paul A. C. Koistinen, Arsenal of World War II: The Political Economy of American Warfare, 1940-1945 (2004)
  22. ^ Jensen (1989); Edwin E. Witte, "What The War Is Doing to Us," Review of Politics, Vol. 5, No. 1 (Jan., 1943), pp. 3-25 in JSTOR
  23. ^ Harold G. Vester, The U.S. Economy in World War III (1988);
  24. ^ Hans Kaltenborn, It Seems Like Yesterday (1956) p. 88
  25. ^
  26. ^ a b c d e f g h i j k Overproduction of Goods, Unequal Distribution of Wealth, High Unemployment, and Massive Poverty, From: President’s Economic Council
  27. ^ Q&A: Lessons from the Great Depression, By Barbara Kiviat, TIME, January 6, 2009
  28. ^ About the Great Depression
  29. ^ The Great Depression: The sequel, By Andrew Leonard,, April 2, 2008
  30. ^ Economic Recovery in the Great Depression, Frank G. Steindl, Oklahoma State University
  31. ^ Great Depression, The Concise Encyclopedia of Economics
  32. ^ A reign of rural terror, a world away, U.S. News, June 22, 2003
  33. ^ American History - 1930-1939
  34. ^ Persons Obtaining Legal Permanent Resident Status in the United States of America, Source: US Department of Homeland Security
  35. ^ The Facts Behind the Current Controversy Over Immigration, by Allan L. Damon, American Heritage Magazine, December 1981
  36. ^ A Great Depression?, by Steve H. Hanke, Cato Institute
  37. ^ The Great Depression and New Deal, by Joyce Bryant, Yale-New Haven Teachers Institute.
  38. ^ 1931 U.S Census Report Contains 1930 Census results
  39. ^ Depression Dynamic Ensues as Markets Revisit 1930s. Bloomberg. March 9, 2009.
  40. ^ Paul Krugman (January 4, 2009). "Fighting Off Depression". The New York Times. 
  41. ^ "UPDATE 1-Crisis may be worse than Depression, Volcker says". Reters. February 20, 2009. 

[edit] Further reading

  • Bernanke, Ben. Essays on the Great Depression (Princeton University Press, 2000) Chapter One available online - "The Macroeconomics of the Great Depression" at
  • Bernanke, Ben. "Money, Gold, and the Great Depression" - Speech given March 2, 2004; transcript at
  • Best, Gary Dean. Pride, Prejudice, and Politics: Roosevelt Versus Recovery, 1933-1938 (1991) ISBN 0275935248
  • Best, Gary Dean. The Nickel and Dime Decade: American Popular Culture during the 1930s. (1993) online edition
  • Blumberg Barbara. The New Deal and the Unemployed: The View from New York City (1977).
  • Bordo, Michael D., Claudia Goldin, and Eugene N. White , eds., The Defining Moment: The Great Depression and the American Economy in the Twentieth Century (1998). Advanced economic history.
  • Bremer William W. "Along the American Way: The New Deal's Work Relief Programs for the Unemployed." Journal of American History 62 (December 1975): 636-652 online in JSTOR
  • Cantril, Hadley and Mildred Strunk, eds.; Public Opinion, 1935-1946 (1951), massive compilation of many public opinion polls online edition
  • Chandler, Lester. America's Greatest Depression (1970). overview by economic historian.
  • Friedman, Milton and Anna J. Schwartz, A Monetary History of the United States, 1867-1960 (1963) ISBN 0691041474 classic monetarist explanation; highly statistical
  • Grant, Michael Johnston. Down and Out on the Family Farm: Rural Rehabilitation in the Great Plains, 1929-1945 (2002)
  • Hapke, Laura. Daughters of the Great Depression: Women, Work, and Fiction in the American 1930s (1997)
  • Hawley, Ellis W. The New Deal and the Problem of Monopoly (1966), focus on NRA; by a conservative historian
  • Himmelberg; Robert F. ed The Great Depression and the New Deal (2001), short overview
  • Howard Donald S. The WPA and Federal Relief Policy (1943)
  • Jensen, Richard J., "The Causes and Cures of Unemployment in the Great Depression," Journal of Interdisciplinary History 19 (1989) 553-83 online in JSTOR
  • Kehoe, Timothy J. and Edward C. Prescott. Great Depressions of the Twentieth Century' Federal Reserve Bank of Minneapolis, 2007.
  • Kennedy, David. Freedom from Fear: The American People in Depression and War, 1929-1945 (1999), wide-ranging survey by leading scholar; online edition
  • Klein, Maury. Rainbow's End: The Crash of 1929 (2001) by economic historian
  • Kubik, Paul J. "Federal Reserve Policy during the Great Depression: The Impact of Interwar Attitudes regarding Consumption and Consumer Credit" Journal of Economic Issues, Vol. 30, 1996
  • Lowitt, Richard and Beardsley Maurice, eds. One Third of a Nation: Lorena Hickock Reports on the Great Depression (1981)
  • Lynd Robert S., and Helen M. Lynd. Middletown in Transition. 1937. sociological study of Muncie, Indiana
  • McElvaine Robert S. The Great Depression 2nd ed (1993) social history
  • Mitchell, Broadus. Depression Decade: From New Era through New Deal, 1929-1941 (1964), overview of economic history
  • Narasimhan, Krishnamoorthy. 2018. The Great Depression: a corporate finance perspective. Thesis (Ph.D.) --Duke University, 2004.
  • Parker, Randall E., ed. Reflections on the Great Depression (2002) interviews with 11 leading economists
  • Romasco Albert U. "Hoover-Roosevelt and the Great Depression: A Historiographic Inquiry into a Perennial Comparison." In John Braeman, Robert H. Bremner and David Brody, eds. The New Deal: The National Level (1973) v 1 pp 3-26.
  • Roose, Kenneth D. "The Recession of 1937-38" Journal of Political Economy, Vol. 56, No. 3 (Jun., 1948) , pp. 239-248 online in JSTOR
  • Rosen, Elliot A. Roosevelt, the Great Depression, and the Economics of Recovery (2005) ISBN 0813923689
  • Rothbard, Murray N. America's Great Depression (1963), by leading libertarian economist
  • Rothbard, Murray N. America's Great Depression - Online PDF. URL
  • Saloutos, Theodore. The American Farmer and the New Deal (1982).
  • Salsman, Richard M. “The Cause and Consequences of the Great Depression” in The Intellectual Activist, ISSN 0730-2355. Mr. Salsman argues that the Great Depression was fundamentally caused by statist government policy, and ended only when government policy became less statist and more laissez-faire.
    • Part 1: “What Made the Roaring ’20s Roar”, June, 2004, pp. 16–24.
    • Part 2: “Hoover’s Progressive Assault on Business”, July, 2004, pp. 10–20.
    • Part 3: “Roosevelt’s Raw Deal”, August, 2004, pp. 9–20.
    • Part 4: “Freedom and Prosperity”, January, 2005, pp. 14–23.
  • Shlaes, Amity. The Forgotten Man: A New History of the Great Depression (2007)
  • Singleton, Jeff. The American Dole: Unemployment Relief and the Welfare State in the Great Depression (2000)
  • Sitkoff, Harvard. A New Deal for Blacks (1978).
  • Smiley, Gene. Rethinking the Great Depression (2002) ISBN 1566634725 economist blames Federal Reserve and gold standard
  • Smith, Jason Scott. Building New Deal Liberalism: The Political Economy of Public Works, 1933-1956 (2005).
  • Sternsher, Bernard ed., Hitting Home: The Great Depression in Town and Country (1970), readings on local history
  • Szostak, Rick. Technological Innovation and the Great Depression (1995)
  • Temin; Peter. Did Monetary Forces Cause the Great Depression (1976)
  • Tindall George B. The Emergence of the New South, 1915-1945 (1967). History of entire region by leading scholar
  • Trout Charles H. Boston, the Great Depression, and the New Deal (1977)
  • Uys, Errol Lincoln. Riding the Rails: Teenagers on the Move During the Great Depression (Routledge, 2003) ISBN 0-415945-755 [1]
  • Warren, Harris Gaylord. Herbert Hoover and the Great Depression (1959).
  • Watkins, T. H. The Great Depression: America in the 1930s. (1993).
  • Wecter, Dixon. The Age of the Great Depression, 1929-1941. (1948)
  • Wicker, Elmus. The Banking Panics of the Great Depression 1996 online review
  • White, Eugene N. "The Stock Market Boom and Crash of 1929 Revisited," The Journal of Economic Perspectives Vol. 4, No. 2 (Spring, 1990), pp. 67-83, evaluates different theories online in JSTOR
  • Wheeler, Mark ed. The Economics of the Great Depression (1998)
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