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Man sleeping in a Baltimore fish market in July 1938.

Great Depression in the United States began on "Black Tuesday" with the Wall Street crash of November, 1929 and rapidly spread worldwide. The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation 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 traditional explanation is a combination of high consumer debt, ill-regulated markets that permitted malfeasance by banks and investors, cutbacks in foreign trade, and growing wealth inequality, all interacting to create a downward economic spiral of reduced spending and production. The initial government response to the crisis exacerbated the situation; protectionist policies like the 1930 Smoot-Hawley Tariff Act, rather than helping the economy, merely strangled global trade. Industries that suffered the most included agriculture, mining, and logging as well as durable goods like construction and automobiles that people postponed.¹

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. There is debate among scholars as to whether New Deal policies lengthened and deepened the Depression; 27% of professional historians and 49% of professional economists believe it served to lengthen and deepen the Great depression.².

The depression caused major political changes, the most notable among them being the New Deal, which instituted large-scale federal relief programs aimed to aid the agricultural industry and support labor unions. The formation of the New Deal coalition by President Franklin D. Roosevelt was another notable accomplishment. This disaster had a profound effect on the psychology of an entire generation and strongly influenced the development of postwar monetary institutions. The Great Depression remains a benchmark for evaluating severe financial downturns, such as the economic crisis of 2008.³

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

Main article: Causes of the Great Depression

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.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

Hooverville

Main article: Hooverville

A 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.⁸ 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.

New Deal

Main article: New Deal

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 down prices and profits for everyone.⁹

The NRA, which ended in 1936 had these roles:¹⁰

• Setting minimum 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 1942.¹¹

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 GNP 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.¹² For example, when expert scholars were asked, "Taken as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression," 74% of historians disagreed; however, 49% of the economists who responded agreed wholly or with reservations.¹³

Recession of 1937

Main article: 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 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.¹⁷ 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.¹⁸

Afterwards

Manufacturing employment in the United States from 1920 to 1940

The government began heavy military spending in 1940, and started drafting millions of young men that year; 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.¹⁹ 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.²⁰

Structural barriers were lowered during the war, especially informal policies against hiring women, minorities, and workers over 45 or under 18. (See FEPC) Strikes largely ended as unions pushed their members to work harder. Tens of thousands of new factories and shipyards were built, with bus service and nursery care for children's forecast making them more accessible. Wages soared for workers, making it quite expensive to sit at home. The combination of all these factors drove unemployment below 2% in 1943.²¹

See also

• List of recessions in the United States

References

1. ^ Lester Chandler, America's Greatest Depression (1970).
2. ^ "EH.R: FORUM: The Great Depression". Eh.net. Retrieved on 2008-10-11.
3. ^ Kennedy, Freedom from Fear (1999)
4. ^ Lester Chandler, America's Greatest Depression (1970).
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. ^ Hans Kaltenborn, It Seems Like Yesterday (1956) p. 88
9. ^ Bernard Bellush, The Failure of the NRA (1975)
10. ^ Ellis Hawley, The New Deal and the Problem of Monopoly (1966)
11. ^ Broadus Mitchell, Depression Decade: From New Era through New Deal, 1929-1941 (1964)
12. ^ Parker, ed. Reflections on the Great Depression (2002)
13. ^ 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, data from p. 144 in JSTOR.
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 http://www.jstor.org/stable/1825772 in JSTOR]
17. ^ Gary Dean Best, Pride, Prejudice, and Politics: Roosevelt Versus Recovery, 1933-1938 (1990) pp 175-216
18. ^ Theodore Rosenof, Economics in the Long Run: New Deal Theorists and Their Legacies, 1933-1993 (1997)
19. ^ Paul A. C. Koistinen, Arsenal of World War II: The Political Economy of American Warfare, 1940-1945 (2004)
20. ^ 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
21. ^ Harold G. Vatter, The U.S. Economy in World War II (1988);

Further reading

• Bernanke, Ben. Essays on the Great Depression (Princeton University Press, 2000) Chapter One available online - "The Macroeconomics of the Great Depression" at http://press.princeton.edu/chapters/s6817.html
• Bernanke, Ben. "Money, Gold, and the Great Depression" - Speech given March 2, 2004; transcript at http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm
• 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 http://mises.org/rothbard/agd.pdf
• 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)

External links

• The Government and the Great Depression - by Chris Edwards, Director of Tax Policy, Cato Institute.
• The 1929 Crash and the Great Depression - How to avoid a remake of the Keynesian Debacle - A critique on interventionism.

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