Category: Great Depression

Introduction

The New Deal is the title of economic policy, which was created to bring the state out of a deep crisis. This course was one of the most effective in history precisely because it covered all spheres of economy and social relations in the state. Roosevelt’s new program consisted of a large number of reforms, for the implementation of which Congress passed numerous laws and the president issued decrees. During the crisis, the authorities acted in concert for the benefit of the whole nation.

The main principles of the reformation were speed, efficiency, and effectiveness. The Roosevelt administration reformed all areas, from banking to industrial and social. The core of this concept was the thesis that capitalism is no longer a system capable of self-regulation and automatic exit from the crisis. Monopoly and social differentiation with low incomes of the majority of the population were opposed by the active redistribution of income through state tax and social policy mechanisms. Thanks to this, it was possible to stimulate demand and save thousands of companies from ruin. Also, the successful course of the United States had an impact on the European economy after World War II. Moreover, it operates an extremely vital role in optimizing resources during World War II. The government’s immediate and unprecedented action brought the state out of the crisis and preserved the system of capitalism.

The Beginning of Reforms

A significant point in the new deal was that President Roosevelt informed the citizens about the state’s current situation and further actions of the government. He performed speeches to explain to Americans that the economy and trade were in frightful crises. Numerous banks and businesses went bankrupt, and citizens lost money. The administration’s priority was to pass a law separating investment and commercial banks. Also, commercial banks were prohibited from guaranteeing investment loans, placement, and other securities transactions. It was the rescue of the banking system that was to become a platform for economic revival and an impetus for further reforms.¹Thus, the only way to save the country was to adopt expeditious and new decisions for the population. Therefore, the president used the radio to report on possible difficulties and achievements that have already helped the American people consolidate.

In order to restore the security of Americans in the new deal, Congress and the President began to enact new rules. First, a law was introduced that provided employment for most men. Thus, it was not necessary to involve the military to protect natural resources, and the civilian corps did this.² The great advantage of such public works was the development of infrastructure on a voluntary basis. Improving the state of agriculture and supporting farmers was extremely valuable for the new course. President Roosevelt signed the Tennessee Valley Authority, creating an agency that dealt with pressing issues. The innovative agency tackled the valley’s problems, such as floods, powering homes and businesses, and planting forests. Other responsibilities set out in the act included improving travel on the Tennessee River and promoting business and farming in the region. The establishment of the agency was the first attempt to meet the general development needs of a large region.

At the same time, the most positive changes in the region were due to the expansion of the electricity network. Electric lights and modern technology have helped farmers be more efficient and produce added goods. Also, the decision on full electrification let the region’s industry create extra jobs, which helped reduce overall unemployment³. In fact, such a decision required an infusion of funds and was extremely dangerous for the president. Nevertheless, it met expectations and led to an improvement in the economic situation in the region. Thus, this method was later offered in other parts of the state.

Moreover, even during the crisis, the government cared about those who lost all their savings during the banking change. Therefore, half a billion dollars in aid was allocated. In order to continue to create businesses and receive taxes, to stimulate development, it was necessary to find an additional source of income. Permission to sell beer helped to receive taxes and create more extra employment⁴.The significant achievement of the new course was the Wagner Act, which regulated the activities of trade unions. State and federal governments provided unreliable protection for organized workers, and employers often exploited them, as can be seen in the General Motors case⁵. Therefore, the law supported the formation of trade associations and required regard for workers’ rights. Thus, the chosen strategic plan allowed to gradually bring the state out of a protracted crisis.

Encouraging Reform during World War II

At the beginning of World War II, the United States economy was viable and dynamic. Therefore, to preserve capitalism and prevent the seizure of territory, the government developed a plan of protection. The main factor was already expanded industry, so the order to participate in defense was issued to all, regardless of race or religion. ⁶ It was aimed at the cohesion of the nation because only collective work in enterprises could provide an army. President Roosevelt founded an organization whose mission was to transform industries from peacetime to war. In order to allocate scarce materials and set priorities in resource allocation⁷. Such an organization allowed resources to be accumulated and used to provide an army.

Hence, despite the fact that much of the state’s income was spent on financing hostilities, the state grew economically. It is through the unification of all employees and ensuring the elimination of discrimination. At the end of the war, a law was passed that provides broad guarantees for veterans, which included free education and housing loans.⁸ Also, the high level of economic development due to Roosevelt’s policy allowed to creation of a Marshall Plan for the rehabilitation of Europe⁹. Thus, capitalism continued to exist in the United States and became a prospect for Europe.

Capitalism after the World War II

Keynesian aimed to introduce dynamic changes in order not only to maintain a balance between the consumption of goods and their production. It also aimed to develop certain industries and attract investment. Accordingly, for successful development, it was necessary to identify the most profitable sectors of the economy.¹⁰ To achieve this, it is essential to analyze the demand of society and the most-funded industries in the market. The evolution of cooperatives also took place in accordance with consumer requirements. Thus, they began to compete with supermarkets.¹¹ Mass production and stores of natural products competed for buyers. Also, despite the new methods of economics, the principles of capitalism have been preserved. Thus, the question of a possible form for economic profit and effective protection of workers’ rights arose again.

Until the 1960s, residents of some regions still received food stamps. At the same time, however, the government has funded many social programs related to education and medicine for the poor.¹² The members of the cooperatives also tried to establish the rights of workers for the united cooperatives as producers of ecological products¹³. Although more prosperous buyers could afford to buy products in cooperatives, the middle and poorer classes chose cheaper goods. This choice enabled buyers to obtain better products, and sellers had the opportunity to compete. Rising inflation in the late 1960s and declining profits led to the decline of Keynesian management.

Conclusion

The Great Depression became an essential milestone in the economic history of the United States, which led to a change in the government’s course towards the use of the mixed economy model. Recognize to fast and effective means; it was possible to stabilize the situation in a short time. Reforming the social and industrial fields has also helped restore workers’ rights and provide funding for the region’s development. Changes in the banking system allowed banks to be divided into deposit and investment, i.e., investment banks were not permitted to engage in risky investments. Thus, the banking system was strengthened. Which in turn let the state prepare for World War II and its aftermath. At the same time, cooperative production existed on a par with supermarkets. Accordingly, there was an extensive choice for consumers and opportunities for improvement for producers. Thus, even though the new deal suffered, it helped to overcome the Great Depression and stabilize the economy by the end of the 1960s. Therefore, it was the chosen course that allowed not only to preserve capitalism but also to improve the economic situation of the country.

References

Davis, C. Joshua. 2017. From Headshops to Whole Foods. New York: Columbia University Press.

Hoover, Roosevelt and the Beginning of the Great Depression.

Hyman, Louis, and Baptist Edward. 2014. American Capitalism: A Reader. New York: Simon & Schuster.

The Rise of American Labor and the New Deal.

The Rise of Keynesian Economic Management.

World War II and the End of the New Deal.

Footnotes

1. Hyman, Louis, and Baptist Edward, American Capitalism: A Reader. (New York: Simon & Schuster, 2014), 354.
2. Hoover, Roosevelt and the Beginning of the Great Depression, 12.
3. Hoover, Roosevelt and the Beginning of the Great Depression, 11.
4. Hyman, Louis, and Baptist Edward, American Capitalism: A Reader. (New York: Simon & Schuster, 2014), 357.
5. The Rise of American Labor and the New Deal, 11.
6. World War II and the End of the New Deal, 5.
7. Hyman, Louis, and Baptist Edward, American Capitalism: A Reader. (New York: Simon & Schuster, 2014), 373.
8. World War II and the End of the New Deal, 7.
9. Hyman, Louis, and Baptist Edward, American Capitalism: A Reader. (New York: Simon & Schuster, 2014), 378.
10. Hyman, Louis, and Baptist Edward, American Capitalism: A Reader. (New York: Simon & Schuster, 2014), 384.
11. Davis, C. Joshua., From Headshops to Whole Foods. (New York: Columbia University Press, 2017), 254.
12. The Rise of Keynesian Economic Management, 5-7.
13. Davis, C. Joshua., From Headshops to Whole Foods. (New York: Columbia University Press, 2017), 257.

The Great World Crisis of 1929 became a significant world economic crisis. The Great Depression, as it was called, became the largest crisis of the twentieth century. It originated from a stock market fall in the US on “Black Thursday” and expanded to the states of Latin America and Western Europe, as well as to Asian and African countries. It has become so powerful that it has embraced all the industrialized countries of the world.

Prerequisites of the Great Depression

After the First World War, Western European countries became debtors to the United States. The victorious states hoped to repay a significant part of the debts with the help of reparations received from Germany, but it was unable to pay them. The United States refused to forgive or reduce its debts, and instead, American banks provided European countries with new loans that were to be used to repay previous debts. This US financial strategy did not work mainly due to the deepening crisis trends in industry and agriculture in Western Europe: the capacity to repay their loans to the US did not improve, if anything, it deteriorated. The American economy has largely become hostage to the European one.

Essence of the Great Depression

The Great Depression is a global crisis that has dramatically changed world development trends, both economic and political, changed the entire system of international settlements and the gold and foreign exchange system, and squeezed world trade. As a result of the crisis and the rise of protectionism, according to the League of Nations, world trade fell threefold from 1929 to 1933. The world as a whole was rejected in the crisis of 1929 until about 1908-1909.

Consequences of the Great Depression

Prior to the crisis, the United States, which was at the epicenter of the Great Depression, produced almost the half of the world’s industrial output (excluding the Soviet Union), which was more than Britain, France, Germany, Italy, and Japan combined. The US ranked first in the world in terms of exports during the First World War. In 1929, for the first time in 300 years, Britain lost to another country in the total foreign trade turnover. Very significant changes have taken place in the social life and social legislation of a number of countries, which has resulted in a reduction in the length of the working day and an increase in social guarantees and social insurance. As a result of this crisis, the Securities and Exchange Commission was established in the US to establish rules of the game and punish violators.

It should be noted that in Western Europe, there were up to 30 million unemployed. Moreover, the situation of farmers, small entrepreneurs, and the middle class has deteriorated; many people found themselves below the poverty line. The popularity of both left-radical (communist) and right-radical (fascist and radical-nationalist) parties has increased significantly. The economic crisis undermined the material and social foundations of a number of American political regimes and led to violent political upheavals and revolutions. The National Socialists, led by Adolf Hitler, rose to power in Germany as a consequence of the Depression, forestalling the advent of fascism in Italy. In conclusion, it might be assumed that the Great Depression, which began in the United States, led to World War II.

Mathy, G. P. (2020). How much did uncertainty shock matter in the Great Depression? Cliometrica, 14(2), 283-323.

This is a secondary source, written in 2020, and its main idea is that shocks of uncertainty had the main effect on the changes during the Great Depression, which contributed to the fall in production. The writer was not present at the time presented, and they seem neutral since they perceive this topic from a purely economic, scholarly perspective. The authors emphasize the fact that during the Great Depression, important factors of living like investments, GDP, industrial production, employment, number of working hours, wages, and price level increased uncertainty. This source is credible because it is peer-reviewed and published by a trustworthy scholarly journal.

Benmelech, E., Frydman, C., & Papanikolaou, D. (2019). Financial frictions and employment during the great depression. Journal of Financial Economics, 133(3), 541-563.

This is a secondary source published in 2019 and written to discuss the problems with employment. It presents the idea that credit offers played a crucial role during the Great Depression. The writers were not present at the time described, and they do not seem neutral, as they condemn the Great Depression. Some of the key facts presented include the assertion that the decline in employment during the Great Depression was associated with the bankruptcy of local banks, which prevented firms from replacing public debt with private debt. This source is credible as it is peer-reviewed and was published in a trustworthy scholarly journal.

Harriman, H. I. (1932). The stabilization of business and employment. The American Economic Review, 22(1), 63-74.

This is a primary source – a report on a session about the stabilization of business, written in 1932. The session was held to discuss the problems of unemployment. The main takeaway is that the US society of that time perceived employment and just conditions of employment as a solution for the economic recession. The writer is a participant in the event written about, and they seem very engaged in finding a way to stabilize the US economy. One important fact presented is the agitation for fair wages and reasonable hours of work. The source is credible as it was published in a trustworthy academic journal.

Currie, L. (1934). The failure of monetary policy to prevent the Depression of 1929-32. Journal of Political Economy, 42(2), 145-177.

This is a primary source – a journal article written in 1934 to discuss the need to change the mechanism of the monetary operation that was established before the Great Depression began. The main idea of the article is that the reserve administration made great mistakes that led to the collapse of the economic system. The writer was present at the time of the events in focus, and they seemed concerned about the unsuccessful steps of the reserve administration. Some of the key facts presented are that a correct understanding of the monetary mechanism entails the focus on two monetary cycles of 1928-1929 and 1930-1931. The source is credible as it was published in a trustworthy academic journal.