Quick viewing(Text Mode)

The Great Depression Was a Global Economic Crisis That Started in 1929

The Great Depression Was a Global Economic Crisis That Started in 1929

The was a global economic crisis that started in 1929. The crisis devastated the economies of many nations and led to a period of financial hardship for millions of people. In the history of the , no other depression had had such a devastating impact on U.S. society. During the 12 years of the depression, one-quarter of the work force was unemployed, 5,500 closed, and 32,000 businesses went bankrupt.

Although the crash of the New York on October 29, 1929 was a symptom rather than a cause of the depression, it has been blamed as the catalyst. The depression in fact resulted from an overextension of and spending in the 1920s. Nonetheless, the dramatically shook public confidence in the U.S. economy. The crash also brought an end to the loans that the United States had extended to European countries, which were still recovering from . Europe slipped further into decline and lost any economic gains made in the 10 years since the end of the war.

The economies of many Latin American and Asian countries, organized around the export of primary products to the industrial markets of the North Atlantic world, quickly collapsed in response to the loss of their markets. The global crisis was exacerbated by the tendency of most nations to erect tariff barriers in an attempt to protect domestic economies. As international ground to a halt, there was no way to alleviate the situation. The Great Depression produced political crises in many of the nations that were hardest hit. In Latin America, for example, several governments fell between 1929 and 1931; democracies were replaced by authoritarian regimes, and dictatorships were overthrown by democratic forces. In Europe, the hardships of the depression inspired a variety of extremist political groups. The desperate economic situation of the German Weimar Republic was an important condition for the rise of fascism in the later 1930s.

In the United States, threats to the stability of the U.S. government and economy were dispelled by the " " programs devised by the administration of President Franklin D. Roosevelt . The New Deal represents the response of President Franklin D. Roosevelt's administration to the Great Depression that gripped the nation from 1929 to 1941. In accepting the Democratic nomination for president in 1932, Roosevelt proposed a "new deal for the American people," a promissory phrase that described a wide array of bold policies and programs. Roosevelt himself maintained that the New Deal would be an experiment that might indeed meet with failure, but that it was better for the country if the government tried to bring some relief and failed, than for it never to try at all. The New Deal bolstered the banking system, stabilized the stock market , put many unemployed people to work, assisted those unable to find work or incapable of working, fought poverty, and instituted an old-age system. It brought tremendous controversy as well, particularly regarding the expansiveness of the federal government's role in American society. While the avowed goal of ending the depression was not achieved (economic mobilization for World War II accomplished that end), the New Deal decisively determined the domestic economic and political contours of American society for the remainder of the 20th century.

In the throes of the country's worst economic depression, Roosevelt used the legislative leverage gained by the 1932 electoral victories of Democrats, who captured both the White House and substantial majorities in Congress , to launch an astonishing number of bills during a specially convened session of Congress termed the First Hundred Days from March 9 to June 16, 1933. The legislation passed during the Hundred Days revolved around three major issues that Roosevelt deemed crucial to stabilizing the country: shoring up the failing banking system; assisting ailing farmers across the country to produce more food and ensure it reached consumer markets; and getting as many Americans back to work as possible. Toward this end, Congress passed a series of innovative laws that extended federal influence into unprecedented areas of American life. To restore confidence in American banks and financial institutions, Congress passed the Emergency Banking Relief Act (March 9), the Economy Act (March 20), the Federal Securities Act (May 27), the Repeal Joint Resolution (June 5), and the Banking Act (June 16), the latter of which created the Federal Deposit Insurance Corporation (FDIC) to insure depositors' accounts, thereby lowering the risk of runs on individual banks and general panics. To aid farmers, Congress enacted the Agricultural Adjustment Act (May 12), the Farm Credit Act (June 16), and the Emergency Railroad Transportation Act (June 16). The most important of these acts was the Agricultural Adjustment Act, which subsidized farmers who curtailed production toward increasing prices and decreasing the volatility of the market. Congress also undertook the massive Tennessee Valley Authority project (May 18), which not only promised to create a huge power source for much of the Southeast, but also offered flood control for thousands of farmers in the Mississippi River Valley. In an effort to reduce the overwhelming rate in the country, Congress passed the Civilian Conservation Corps Reforestation Relief Act (March 31), the Federal Emergency Relief Act (May 12), the National System Act (June 6), and most important, the National Industrial Recovery Act (NIRA) (June 16). The latter of these bills marked a monumental change in the federal government's role in the economy. Its many provisions established both the National Recovery Administration (for setting standards for production, prices, and , as well as provisions protecting labor that included specifications regarding maximum hours, minimum wages, safe working conditions, and the right of collective bargaining ) and the Public Works Administration , the first national peacetime effort at creation, employing workers to reconstruct the nation's infrastructure of highways, dams, airports, low-cost housing, and so forth.

While incomplete, this list reveals the breadth and depth of New Deal programs, many of which were from blueprints of the so-called that advised the president. This diverse group of academics often assumed leading roles in the agencies of their design. In tandem with Roosevelt's pragmatic political temperament, these public intellectuals made certain the apparent hodgepodge of New Deal programs would not take on any one ideological hue. While any one group of constituents may have taken offense at a part of a program or policy, there was plenty in the New Deal that was sufficiently redolent of vision and purpose to mobilize the vast majority of Americans behind successive Roosevelt administrations.

Although the most dramatic congressional action came during the First Hundred Days, New Deal policies continued to be enacted on a fairly continuous basis over the next several years. For example, the Securities Exchange Act of 1934 supplemented legislation from the previous year, establishing the Securities Exchange Commission to further counter deception, manipulation, and fraud in the buying and selling of stocks, bonds, and other securities. While such measures significantly fortified the fragile financial system, progress on the broader front for the relief of suffering and improved economic welfare was far more uneven and sporadic. To be sure, Roosevelt did succeed in improving the general mood and modest expectations of the citizenry— no small achievement given the tenacity of the economic depression. However, the overall financial picture of both the country as a whole and individual citizens remained bleak.

Nevertheless, despite some conservative criticism of the New Deal and its expanded vision of government involvement in American life, most of the public enthusiastically supported Roosevelt's programs, particularly as his reassuring , a series of radio broadcasts to the public beginning on March 12, 1933, reinforced public support for his policies. However, the New Deal suffered a series of setbacks from within the federal government that threatened to dismantle much of Roosevelt's program.

The U.S. Supreme Court was deeply involved in determining the structure, limits, and fate of the New Deal agenda. At first, it appeared the Court would accept New Deal acts and policies, along with state regulatory actions in concert with the spirit of those initiatives, as seen in its ruling in Home Building and Loan Association v. Blaisdell (1934) and Nebbia v. New York (1934) when it supported some New Deal legislation. However, the Court's judicial philosophy had been shaped in a cultural milieu of laissez-faire economic doctrine as taught in the classical school of , which championed free-market ideology and employers' rights over those of organized labor . On May 27, 1935, a day that Roosevelt and his supporters later labeled Black Monday, the Supreme Court declared NIRA unconstitutional in Schechter Poultry Corp. v. United States (1935) . Furthermore, in Humphrey's Executor v. United States (1935) , the Court denied the president the power to replace members of independent regulatory agencies, a crucial executive function to ensuring the success of New Deal programs as Roosevelt decreed. The following year, in United States v. Butler (1936) , the Court voided the Agricultural Adjustment Act, and in Carter v. Carter Coal Co. (1936) , the Court made clear its constricted view of the interstate commerce clause of the Constitution , rejecting Roosevelt's contention that the clause justified such high levels of federal involvement, the constitutional thesis on which the entire New Deal program was based.

The Court's ruling on such essential components of the New Deal forced Roosevelt and his supporters to revise much of the legislation passed during the First Hundred Days during another flurry of congressional activity known as the Second New Deal, a period lasting approximately from the spring of 1935 to the middle of 1936. Once again, Congress passed an extraordinary number of laws in a fairly short period of time. Among the most important of the new legislation was the National Labor Relations Act (July 5, 1935), also known as the Wagner Act. Replacing the NIRA, this act established the National Labor Relations Board (NLRB), which was empowered to oversee elections for prospective union representation and exercise oversight functions with respect to possible unfair labor practices, both of which did much to elevate the status of organized labor in the country. The same year saw the passage of the (August 14), perhaps the most important achievement of the New Deal, as it established funding for old-age pensions (through taxes on employers and employees), unemployment compensation, and welfare benefits for dependent children and the handicapped. The most lasting achievement of the New Deal era, the Social Security Act not only provided relief to millions of people during the depression, but it also served as the basis of the modern American welfare system . Finally, 1935 witnessed the birth of the Works Progress Administration (WPA), which created for millions of unemployed Americans, largely on infrastructural public projects similar to those of the earlier PWA. Unprecedented in scale, the WPA also directed a small portion of its funds to support public works projects in the arts, marking the first time in American history that the federal government granted such subsidies.

After his landslide reelection in 1936, Roosevelt was determined not to let the Supreme Court obstruct his efforts to impose government control on America's unregulated market economy . He thus proposed a judicial reorganization bill in early 1937 in an attempt to increase the number of justices on the Supreme Court, planning to appoint justices more sympathetic to his views who could then out-vote the justices on the existing Court. Soon known by friend and foe alike as the Court-packing plan , this attempt by the executive branch to expand the federal judiciary failed for a number of reasons, particularly as both Congress and the public looked askance at Roosevelt's attempt to force a separate branch of the federal government to conform to his will. Yet while Roosevelt lost this battle, one that many understood as a threat to the independence and integrity of the Court, he may have inadvertently prodded the standing Court in a new direction, as at least two justices switched their stances in future decisions to give the Court a more pro-Roosevelt leaning. Several major pieces of New Deal legislation were soon upheld by the nation's highest tribunal, including the Social Security Act and the Wagner Act. Just as Roosevelt was rejoicing in the Court's compliance with his policies, another crisis emerged to heighten tensions and threaten financial disaster once again, prompting the final phase, or the Third New Deal. Beginning in 1937, Roosevelt attempted to balance the federal budget , as he became increasingly concerned that the massive public expenditures were placing the federal government hopelessly in debt, thereby threatening the country's financial stability. He hoped that the economy had recovered sufficiently so that private industry would reassume some of the responsibilities that the federal government had previously upheld. Therefore, he advocated a reduction of public expenditures and federal funding to various programs. The result was a major that lasted throughout 1938, although other factors contributed to the recession as well. In response, Roosevelt renounced any intention to balance the budget and launched a massive new public campaign against the power of monopolies in the American economy, which many people blamed for the recession, by beefing up the antitrust division of the Justice Department . Congress passed several new pieces of legislation during this period, although far fewer than either of the previous two New Deal phases. Among the most important was the Agricultural Adjustment Act (1938) (February 16), the Fair Labor Standards Act (June 25), and the Revenue Act (May 27).

After 1938, public enthusiasm for New Deal programs waned, as Americans saw little improvement in their financial situations, despite the flurry of government activity in their behalf. Also, Roosevelt became increasing involved in foreign affairs when the outbreak of World War II in Europe on September 1, 1939 plunged much of the world into a brutal war. As Roosevelt negotiated with the belligerent powers to keep the United States neutral, the war achieved what the New Deal did not: . Industries and businesses throughout the United States began expanding production to meet the demands of war-ravaged Europe, initiating a wave of prosperity for America that lasted until the end of the century with few interruptions.

Historians, politicians, and the public continue to debate the effect and impact of the New Deal, with all agreeing that it was a remarkable time in American history. Few can argue that organized labor made substantial gains during the New Deal, benefiting from the political and economic climate that recognized the rights of workers to bargain collectively for their labor. If unionization represented an attempt to loosen the concentration of economic power from below, so to speak, the antitrust division of the Justice Department represented a corresponding attempt from above, as a revival of antimonopoly sentiment was wedded to an aggressive enforcement of antitrust law.

Roosevelt's massive spending programs also put to the test an economic theory that came to play a major role in government behavior later in the century known as . British economist argued that government intervention in the economy could moderate boom-to-bust cycles that had become a permanent feature of the capitalist marketplace. Roosevelt's uninhibited willingness to use the federal government to stimulate and thereby raise output and employment could be seen as an empirical and historical confirmation of a key Keynesian proposition—namely, with the tools of a government can influence aggregate demand in order to cut unemployment. Although few understood Keynesian economics during the New Deal, the theory had a tremendous influence on the policies of U.S. politicians in decades to come.

Perhaps most significantly, the New Deal instituted a division in American welfare practice between public assistance and social insurance, the latter an entitlement program wherein eligibility is determined by fixed criteria (e.g., age, as is the case with Social Security ). Because social insurance programs cut through class lines, they did not carry the historical stigma attached to public assistance to the poor. Furthermore, the New Deal sanctioned a grants-in-aid model in which states receiving federal monies were responsible, within federal guidelines, for setting precise benefit levels, a practice that historically has resulted in an irrational disparity between states in their allocation of federal funds. A third feature of the contemporary bespeaks a troublesome development: the government's increasing penchant for purchasing the delivery of welfare services from corporations or agencies in the private sector. This so-called franchising has muddled distinctions between "profit motive" and "social ," rendering the task of public oversight and accountability less reliable and more onerous. Nevertheless, the very idea of providing basic social services to all Americans in need originated with the New Deal and found full expression in President Lyndon B. Johnson's Great Society vision during the 1960s.

The New Deal culminated in a uniquely American patchwork version of the welfare state, and it greatly expanded the role of the federal government in American life, according it responsibilities that previously were the arbitrary prerogative of individual states and the private sector. The and wisdom of this American welfare state remains one of the primary sources of political controversy in the United States to this day. While liberals highlight the great disparities in American society between the "haves" and the "have nots," conservatives blame the American welfare system for fostering complacency and sapping the drive and ambition of the American public.

Top View