Great Depression

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The Great Depression

1929 - 1939

During “the Roaring Twenties,” the U.S. economy expanded rapidly, with the nation’s total wealth more than doubling between 1920 and 1929. Everyone from rich tycoons to blue collar workers poured their savings into stocks, and as a result the stock market underwent rapid expansion and reached its peak in August 1929. At that time, production had declined and unemployment had risen, so stock prices were higher than their value. In addition, wages were low, there was lots of consumer debt, and the agricultural sector was struggling due to droughts and food prices dropping. Banks had too many large loans that could not be liquidated. The American economy went into a mild recession in the summer of 1929. Unsold goods piled up, which slowed factory production. However, stock prices kept rising and by the fall had reached extremely high levels.

Although President Herbert Hoover assured Americans the crisis would run its course, the situation continued to worsen over the next three years. In 1930, there were 4 million Americans that could not find work, and by 1931, it had risen to 6 million Americans. Industrial production dropped by half. There were more bread lines, soup kitchens, and homeless people in America’s cities. Farmers couldn’t afford to harvest their crops, so they were forced to let them rot in the fields while people starved in the cities. In 1930, severe droughts brought high winds and dust from Texas to Nebraska, killing crops, livestock, and even people. The “Dust Bowl” inspired a mass migration from rural areas to cities in search of work. The first wave of banking panics began in the fall of 1930. Investors lost confidence in their banks and depended deposits in cash, forcing banks to liquidate loans because they had insufficient cash reserves on hand. Bank runs swept the nation three more times - in the spring and fall of 1931, and in the fall of 1932. By 1933, thousands of banks had closed. President Hoover’s administration tried supporting banks with government loans thinking that banks would then be able to loan to businesses, who could then hire back employees.

The stock market crash occurred on October 24th, 1929 when nervous investors began selling their overpriced shares all at once. On that day, known as “Black Thursday,” a record 12.9 million shares were traded. On October 29th, known as “Black Tuesday,” 16 million shares were traded after a wave of panic swept Wall Street. Millions of shares become worthless, and investors who bought stocks with borrowed money were wiped out. In the wake of the stock market crash, people stopped spending and investing, which led factories and businesses to fire workers and slow down production. Those who were not fired saw their wages fall. Americans who had bought assets using credit went into debt and the number of foreclosures and repossessions rose. Unemployed men waiting in line at a soup kitchen:

At the time of the 1932 election, the country was in the depths of the Great Depression with more than 15 million people unemployed. Therefore, it is unsurprising that Democrat Franklin D. Roosevelt won an overwhelming victory over President Hoover, a Republican who believed that government should not intervene in the economy and did not have the responsibility to provide economic relief to its citizens. By Inauguration Day on March 4th, 1933, every state had ordered remaining banks to close. The U.S. Treasury did not have enough money to pay all government workers. Roosevelt took immediate action, declaring a four day long “bank holiday” where banks would close so Congress could pass reform legislation and then reopen some banks. Roosevelt also addressed the nation over the radio, which helped restore public confidence. During his first 100 days, Roosevelt and his administration passed legislation to help stabilize industrial production, stabilize agricultural production, create jobs, and stimulate recovery. Roosevelt also reformed the financial system, creating the Federal Deposit Insurance Corporation (FDIC) to protect depositors’ accounts and the Securities and Exchange Commission (SEC) to regulate the stock market and prevent another crash like the one in 1929.

The New Deal refers to a series of programs, public work projects, and financial reforms enacted by President Roosevelt in response to the Great Depression. One of the most important programs was the Works Progress Administration (WPA), a permanent jobs program which employed 8.5 million people from 1935 to 1943. In 1935, Congress passed the Social Security Act, which provided Americans with unemployment, disability, and pensions for old age for the first time. The economy showed signs of recovery in the spring of 1933, and continued improving throughout the next three years. However, there was a recession in 1937 which reversed some of the improvements and prolonged the effects of the Great Depression. Furthermore, the hardships of the Depression fueled the rise of extremist political movements in Europe, in particular Adolf Hitler’s Nazi regime in Germany. War broke out in Europe in 1939, and the WPA began strengthening the U.S. military, although the country officially remained neutral.

President Roosevelt decided to support Britain and France in the struggle against Germany and the other Axis Powers. This led to defense manufacturing picking up, which produced more jobs. After the Japanese attack on Pearl Harbor on December 7th, 1941, America officially entered World War II, and American factories went into full production mode. Expanding industrial production paired with conscription, or mandatory enlistment in armed forces, reduced the unemployment rate to below the pre-Depression level. The Great Depression was over, and now the United States was focused on World War II.