The United States in 1930s

The triggering event that led to the Wall Street stock market crash in October 1929 was the result of a steady decline in production, prices and income over the period of three months. Anxiety gave rise to panic thus resulting to the crash.  The stock market crash affected various countries and the effects were intense.  The depression affected greatly the United States because of the absence of welfare benefits for the laid off workers.  Between 1929 and 1933, money income fell by 53 percent and as a consequence, demand fell significantly, which in turn led to lower production and more lay-offs up to 25 percent rate of unemployment in 1933.

And yet despite the severity of the stock market crash, the Federal Reserve did not pursue a monetary expansion policy which would have stimulated the economy through lower interest rates and increased the stock of money in circulation. As part of the efforts of the United States to cope with the Depression, the Hawley Smoot Tariff of 1930 was enacted which made US more protectionist than ever thereby sending import duties to record highs.  As a result, other countries retaliated as the new tariff act hastened the downfall of American trade volume. Since President Hoover has been protective of the tariff act, he failed to see the results of the move.

Immediately thereafter, the Depression spread through out the world especially in Europe. Particularly affected was Germany whose economy was unable to cope with the slow disappearance of American capital. It is also worth discussing that Germany was still paying reparations for World War I which made its position even more delicate. Germany was then forced to borrow from Great Britain and France.  The country had to pursue deficienary policies in order to gain the confidence of investors and attract foreign funds.

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The problem of devaluation further posed a major problem. Although the United Kingdom was not hit in the same way as Germany, it however experienced a notable decline in its export which was even greater than the decrease in its imports.  Latin America was also greatly affected as it depended heavily in selling raw materials in the US. It could not be surmised that the Wall Street crash was the immediate cause of the decline in world trade.  The decline in world trade was largely due to the protectionist legislation passed by major trading nations.

When Hoover was replaced by President Roosevelt in 1932 and brought with him the New Deal which was intended to provide direct relief, recovery and financial reform to the country suffering from the Great Depression. One of Roosevelt’s primary programs was to deal with the country’s banking catastrophe. Since one-fifth of all of the banks in the US were forced to close and many people were already starting to lose their life savings, Roosevelt asked Congress to legislate a law which will protect the saver’s investment in times of the same crisis. This eventually restored the people’s trust in the banking system. Perhaps one of the most important legislation and mark left by the New Deal is the Social Security Act which set up a national system of old-age pension and also coordinated relief for the unemployed.  Both agriculture and industry were also supported by policies to restrict output and increase input.

Perhaps the most durable  policy left by the New Deal was  the great public works project such as the Hoover Dam and the introduction by the Tennessee Valley Authority of flood control, electric power, fertilizer and education to a depressed agricultural region in the south. However, the New Deal was certainly not a perfect example of economic management as it did not lead to rapid economic recovery.  Income per capita was no higher in 1939 than in 1929, although the government’s welfare and public works policies did benefit many of the most needy people. The big growth in the US economy was, in fact, due to rearmament. (Modern American Poetry)

Despite the promises of the New Deal, it nevertheless reaped various criticisms as the programs were questioned.  For example, the National Industrial Recovery Act of 1933 which was originally intended to make possible “ a great cooperative movement throughout all the industry in order to obtain wider reemployment, to shorten the working week, to pay a decent wage for the shorter week and to prevent unfair competition and disastrous overproduction.” However, the NIRA was attacked because it gave stimulus to the industries that needed it least and ignored the industries that needed it the most. It also gave Roosevelt unprecedented powers over the economy and other businesses.

The increase of criticisms against Roosevelt and the New Deal, Roosevelt was forced to look for support elsewhere.  During the presidential campaign in 1936, he built the “Roosevelt Coalition” a political bloc that made modern politics.  While the Republicans were still relying on their traditional base of political support such as big businesses, farmers and conservatives, Roosevelt and the Democrats turned to small farmers in the Midwest, urban political bosses, even ethnic blue collar workers, the ethnic minorities, Jews and intellectuals.  As evidence by the support of African-Americans, Roosevelt was certainly changing American politics. Thus, it was no surprise that the Democrats won the race in 1936.

On the other hand, labor and labor unions played a great role during the 1930s.  In fact, many Americans became alarmed by the labor union’s power which they felt might be irresponsibly used under certain circumstances.  For the labor force, they are responsible in continuing industrialization although many of the workers are divided from each other ethnically, regionally and religiously.  Nevertheless, with mass unemployment and real distress among the workingmen, public opinion, which had long looked upon unions as "radical" outfits, came to sympathize with their purposes for the first time. Reflecting that public opinion, the new deal Congresses passed laws which favored organization and recognition of labor unions. Meanwhile, the courts, which had taken a restrictive view of the rights of labor when they seemed to conflict with those of private property, rendered more favorable decisions and upheld the new laws.

Reference

1. Monique Ebell. (2006). Welfare Capitalism, Union Power and the Great Crash of 1929: Toward a Neoclassical Explanation of the Great Depression.”  XIV International Economic History Congress, Helinski 2006 Session 20.
2. F. William Engdahl. “Some Conventional Reflections on the Great Depression and the New Deal.” GeoPolitics-GeoEconomics.  Online http://www.engdahl.oilgeopolitics.net/History/New_Deal/new_deal.html accessed October 1, 2006.
3. Stanley Schultz. “Dr. New Deal Becomes Dr. Win-the-War.” American History 102: Civil War to the Present. Online http://us.history.wisc.edu/hist102/lectures/lecture20.html
4. Labor and Labor_Management. Online https://www.netsafa.navy.mil/ipg/labor_and_labormanagement.htm  accessed October 1, 2006.
5. “Legacy of the New Deal in Comparison with Other Deals” : http://www.bergen.org/AAST/Projects/depression/legacy.html

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