The Great Depression is the financial crisis in the United States in the 1930s, which later assumed global proportions. It was a period of deflation, decline in industrial production and mass unemployment.
Economists still argue about when exactly it all began. The starting point is considered to be “Black Tuesday” on October 29, 1929. On that day, a record number of stocks were sold, and their prices collapsed and continued to fall for two more weeks. However, there have been unexpected declines before, but then the markets somehow managed to recover.
Black Tuesday itself was not the cause of the Great Depression, but rather one of its first manifestations. In addition, the event affected mainly investors, while the rest of the citizens were neutral. In particular, the New York Times called the most important event of 1929 the expedition to the South Pole, not the market collapse.
The collapse of the stock exchanges gave rise to many legends and myths. For example, it was said that there was a wave of suicides in New York. In reality, however, only 4 out of 100 cases reported by the New York Times at that time were actually related to the collapse of stock values.
After the prolonged sell-off, the real economy’s indicators went down. By 1932, prices had fallen 23%, 10% of the population was out of work, and by 1933, almost 20% of the population was out of work. More than $1 billion dollars Americans lost on deposits, the average family income dropped by 40%, about 300,000 companies went bankrupt. People who lost their jobs and homes organized settlements of cardboard boxes, which were called “Hoovervilles” after the last name of the current president.
The crisis hit agriculture hardest of all, and the authorities had not been able to solve its problems for a long time. During World War I, production rates were significantly increased and products were actively shipped abroad. Farmers accelerated the introduction of new technologies that simplified work and increased yields: the number of machines during the war increased 5 times, and with the advent of peace increased even more. But gradually, overseas demand fell, and prices fell as overproduction increased.
A new deal for the U.S.
Two American presidents had to look for a cure for the Great Depression: Herbert Hoover and Franklin Roosevelt.
Hoover led the country until March 1933. He had an excellent knowledge of the American banking system, was in favor of supporting this sector, rather than direct assistance to the population, and was an advocate of non-interference of the state in the affairs of the economy. For example, in December 1929, he urged industrialists not to cut workers’ wages amid the crisis, because, in his opinion, the first blow should come on the profits of entrepreneurs, not on the wages of workers. This was to maintain the purchasing power of citizens. In the end, the industrialists agreed.
In October 1931, the U.S. president called on the nation’s largest banks to raise $500 million to support weaker institutions. Hoover again favored resolving the issue through voluntary cooperation.
The anti-crisis measures proposed by Hoover were not popular with the public, who demanded direct support from the government, the introduction of pensions and unemployment benefits. However, the president agreed only to fund public works so as not to further damage the budget.
He claimed three times that the worst was over and that industry and banks were unaffected. And three times he was wrong. All of this on the eve of the coming election made Hoover a man who supported the banks, not the citizens.
After Roosevelt came to power, who promised a “new deal for the American people” called the New Deal, the fight against the crisis became more socially oriented. There appeared a program of employment of the unemployed, a program of social insurance, which Hoover did not want to accept. The Federal Deposit Insurance Corporation and the Securities and Exchange Commission, which are still in operation today, were also created.
Thus the government became directly involved in those areas of the economy that suffered the most during the depression.
Both during Roosevelt’s presidency and many years later, the New Deal had both supporters and opponents. The latter criticized the president for his substantial intervention in the economy, in contrast to Hoover’s laissez-faire approach, and for undermining the foundations of democracy.
American economists Harold Cole and Lee Ohanian conducted a study in 2004 and concluded that the New Deal did not lead to economic recovery at all, but contributed to the persistence of the crisis situation. It was the abandonment of this policy at the end of World War II, according to their study, that led to the economic recovery of the 1940s.