In the history of the industrialized world the worst economic downturn which lasted from 1929 to 1939 was called the Great Depression. In October 1929 it began as the stock market crashed sending the Wall Street into a panic and wiped out millions of investors.
Consumer spending and investment dropped over the next several years which caused steep declines in industrial output and employment as failing companies laid off workers.
By 1933, some 15 million Americans were unemployed as the Great Depression reached to its lowest point while nearly half the country’s banks had failed.
What Caused the Great Depression?
The U.S. economy expanded rapidly throughout the 1920s, and between 1920 and 1929 the nation’s total wealth became more than double. It was a period dubbed as “the Roaring Twenties.”
The stock market was the scene of reckless speculation. It was centered at the New York Stock Exchange on Wall Street in New York City. Here literally everyone starts from millionaire tycoons to cooks and janitors who poured their savings into stocks.
The stock market underwent rapid expansion as a result and in August 1929 it reached to its peak. By then, unemployment had already risen and production declined massively which left stock prices much higher than their actual value.
Additionally, the agricultural sectors of the economy and falling food prices was struggling due to drought and as wages at that time were low, consumer debt was proliferating, and banks had an excess of large loans that could not be liquidated.
During the summer of 1929, as consumer spending slowed and unsold goods began to pile up the American economy entered a mild recession, which in turn slowed factory production.
Stock prices continued to rise nonetheless and reached stratospheric levels that could not be justified by expected future earnings by the fall of that year.
Stock Market Crash of 1929:
On October 24, 1929, the stock market crash that some had feared happened at last as nervous investors began selling overpriced shares en masse. It is known as “Black Thursday”, as on that day a record 12.9 million shares were traded that day.
Five days later some 16 million shares were traded after another wave of panic swept Wall Street, as October 29 came to be known as “Black Tuesday.” Investors who had bought stocks “on margin” (with borrowed money) were wiped out completely as millions of shares ended up worthless.
The downturn in spending and investment led factories and other businesses to slow down production and begin firing their workers as consumer confidence vanished in the wake of the stock market crash. Wages fell and buying power decreased for those who were lucky enough to remain employed.
The number of foreclosures and repossessions climbed steadily as many Americans forced to buy on credit fell into debt. The global adherence helped spread economic woes from the United States throughout the world, especially Europe; they joined countries around the world in a fixed currency exchange.
Bank Runs and the Hoover Administration:
Economic matters continued to get worse over the next three years despite assurances from President Herbert Hoover and other leaders that the crisis would run its course. 4 million Americans were looking for work and could not find it by 1930 which rose to 6 million in 1931.
Industrial production of the country had dropped by half during this time. For America’s towns and cities rising numbers of homeless people became more and more common as well as bread lines and soup kitchens.
Farmers were forced to leave their corps rotting in the fields as they can’t afford to harvest them while people elsewhere starved. In 1930, high winds and dust were brought from Texas to Nebraska with the help of severe droughts in the Southern Plains, killing people, livestock and crops.
A mass migration of people happened from farmland to cities in search of work due to the “Dust Bowl.”
The first of four waves of banking panics began in the fall of 1930, banks were forced to liquidate loans in order to supplement their insufficient cash reserves on hand as large numbers of investors lost confidence in the solvency of their banks and demanded deposits in cash.
During the spring and fall of 1931 and the fall of 1932 saw bank runs swept the United States again, and by early 1933 thousands of banks had closed their doors.
Hoover’s administration tried supporting failing banks and other institutions with government loans in the face of this dire situation; in turn the bank needed to loan to businesses, which would be able to hire back their employees which was the main idea behind it.
Roosevelt Elected:
Hoover, believed that government should not directly intervene in the economy as he was a Republican who had formerly served as U.S. secretary of commerce, and that it did not have the responsibility to create jobs or provide economic relief for its citizens.
With the country mired in the depths of the Great Depression and some 15 million people (more than 20 percent of the U.S. population at the time) unemployed in 1932, Democrat Franklin D. Roosevelt won an overwhelming victory in the presidential election.
Every U.S. state had ordered all remaining banks to close at the end of the fourth wave of banking panics by Inauguration Day (March 4, 1933), and the U.S. Treasury didn’t have enough cash to pay all government workers.
Nonetheless, FDR (as he was known) famously declaring "the only thing we have to fear is fear itself” projected a calm energy and optimism.
Immediate actions were taken by Roosevelt to address the country’s economic woes, first as Congress could pass reform legislation and reopen those banks determined to be sound he announced a four-day “bank holiday” during which all banks were closed.
The public got directly addressed by him over the radio in a series of talks, and towards restoring public confidence these so-called “fireside chats” went a long way.
Roosevelt’s administration passed legislation that aimed to stabilize industrial and agricultural production, create jobs and stimulate recovery during his first 100 days in the office.
Roosevelt sought to reform the financial system in addition, and created the Federal Deposit Insurance Corporation (FDIC) to protect depositors’ accounts and the Securities and Exchange Commission (SEC) to regulate the stock market and prevent abuses of the kind that led to the 1929 crash.
The New Deal: A Road to Recovery
The Tennessee Valley Authority (TVA) was one among the programs and institutions of the New Deal that aided in recovery from the Great Depression.
It built dams and hydroelectric projects to control flooding and provide electric power to the impoverished Tennessee Valley region, and a permanent jobs program that employed 8.5 million people from 1935 to 1943 which was named as the Works Progress Administration (WPA).
The United States was the only industrialized country in the world when the Great Depression began without some form of unemployment insurance or social security. In 1935, Americans were provided with unemployment, disability and pensions for old age when Congress passed the Social Security Act.
The economy continued to improve throughout the next three years after showing early signs of recovery beginning in the spring of 1933, during which real GDP (adjusted for inflation) grew at an average rate of 9 percent per year.
The Federal Reserve’s decision to increase its requirements for money in reserve caused a sharp recession in 1937.
This second severe contraction reversed many of the gains in production and employment even though the economy began improving again in 1938, which prolonged the effects of the Great Depression through the end of the decade.
The rise of extremist political movements in various European countries was fueled by the hardships of this depression-era, most notably that of Adolf Hitler’s Nazi regime in Germany.
The war broke out in Europe in 1939 with the German aggression, and even as the country maintained its neutrality the WPA turned its attention to strengthening the military infrastructure of the United States.
African Americans in the Great Depression:
During the Great Depression one-fifth of all Americans receiving federal relief were black, most in the rural South. But farm and domestic work were not included in the 1935 Social Security Act which was the two major sectors in which blacks were employed, meaning there was no safety net in times of uncertainty.
Private employers could simply pay them less without legal repercussions rather than fire domestic help. And since all relief programs were administered locally those relief programs for which blacks were eligible on paper were rife with discrimination in practice.
Roosevelt’s “Black Cabinet,” led by Mary McLeod Bethune despite all these obstacles, ensured nearly every New Deal agency had a black advisor. During this time the number of African-Americans working in government tripled.
Women in the Great Depression:
The only group of Americans who actually gained jobs during the Great Depression were Women. The number of employed women in the United States rose 24 percent from 1930 to 1940 in numbers it became 10.5 million to 13 million.
The financial pressures of the Great Depression drove women to seek employment in ever greater numbers as male breadwinners lost their jobs even though they’d been steadily entering the workforce for decades.
Between 1929 and 1939 the 22 percent decline in marriage rates also created an increase in single women in search of employment.
First Lady Eleanor Roosevelt stood there as a strong advocate for the women during the Great Depression, she lobbied her husband for more women in office—like Secretary of Labor Frances Perkins who became the first woman to ever hold a cabinet position.
Jobs available for women were more stable during the banking crisis which included nursing, teaching and domestic work though they were paid less. During FDR’s rapidly-expanding government they got increased opportunity in secretarial roles.
But there was a catch: jobs created under the WPA confined women to fields like sewing and nursing that paid less than roles reserved for men as well as over 25 percent of the National Recovery Administration’s wage codes set lower wages for women.
An additional hurdle was faced by married women: Working wives were perceived as taking away jobs from able-bodied men as by 1940s 26 states had placed restrictions known as marriage bars on their employment, even if, in practice, they were occupying jobs men would not want and doing them for far less pay.
Great Depression Ends and World War II Begins:
Defense manufacturing geared up, producing more and more private sector jobs with Roosevelt’s decision to support Britain and France in the struggle against Germany and the other Axis Powers.
America’s entry into World War II was marked by the attack on Japan’s on Pearl Harbor in December 1941, and the nation’s factories went back in full production mode.
This widespread conscription as well as expansion of industrial production began in 1942which helped reducing the unemployment rate to below its pre-Depression level. The United States turned its attention to the global conflict of World War II as at last the Great Depression has ended.
Written by: Gourav Chowdhury
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