Home / papers / The Great Depression and the New Deal Research Paper

The Great Depression and the New Deal Research Paper

The great depression (1929-39) was the world’s most devastating moment in the history of politics and economics (Foster and Fred 61). Economists and political analysts have graded the great depression as the severest and longest downturn in the economic conditions of the world, especially I the history of the western industrialized worlds. The US depression began immediately when the NY market sunk to its lowest in around October 1929. The Wall Street immediately went into a great panic, and many investors were wiped out of business as the markets continued to plunge even lower. All through the next ten years, there were insignificant spending among the inhabitants, levels of investment deepened and industrial production declined to the lowest margins. There was a huge rate of unemployment worldwide and worse in the United States. Thousands of companies laid off millions of workers due to low returns, limited new investments and inability to maintain their employees’ salaries. It was the most devastating moment in the history of the world.

As Rauchway (55) observes, four years following the onset of the depression, as the depression continued soaring to its nadir, already about 15 million Americans were unemployed with other millions underemployed. The numbers facing possible layoffs were equally staggering at this time as close to half of the banks in the region failed to make their businesses sustainable. Presidents Frank Roosevelt tried to bring the economy back on track by laying down strategies to help it rise again during the 1930s but yielded only insignificant fruits. The depression would persist up to around 1939 when the world was set for the third world war, and the global economic production was stirred up to produce more and spend in the war.
When President Roosevelt accepted the Democrats’ nomination and pledged a new deal to revive the American economy. It was the time when the unemployment rate was at its peak in the US, standing at 25%. The new deal addressed the need to increase the number of public works available to enhance the employment sector, which was downing to its knees at the moment. Other economic stimulus programs scheduled during this time included laying adequate support for the agricultural prices and production mechanisms, creating new mortgage markets, shortening the working days and working weeks regulating the financial securities, restoration of international trade reforestation of the countryside and repealing the prohibitions (Cole and Lee 788). Over time, the new deal had expanded to espouse other issues such as the expansion of insurance covers for old age, curbing the soaring unemployment rates, disability caring, management of the country’s watersheds, supporting unionization of workers, etc. (). Although a few improvements were realized as a result of the new deal being in place, a lot of issues remained unresolved the pangs of the depression continued to be felt far and wide. This research traces the events which culminated during the great depression, its possible courses, impacts and the role of the New Deal in alleviating the already disproportional situation witnessed.

Events leading to the great depression

Until this date, economists are still divided concerning the events which led to the onset and development of the global depression in 1929-39. Different reasons have been given following economic researches and publications with varying opinions being presented in every research. However, economists and historians are in agreement with the fact that following the failure of up to nine thousand banks before the onset of the depression; it was obvious that the huge effects on the financial markets signaled a looming economic slowdown in the world (Baldwin 71). The ripples of the great depression, therefore, was sent to the world. Consequently, when the New York market plunged on October 209th 1929, the onset of the great depression was set to begin, and the world and Americans stared broadly at a looming economic showdown. The following are some of the possible causes of the depression.

Failure of agriculture 

The failure of the agricultural sector in the 1920s following the end of the First World War played a key role in crippling the economy of the US. Agriculture sector played a key role in the US economy at this time, not only as a production epicenter but also as one of the largest employers during this time. Coupled with the drought which occurred in Mississippi before the depression, it was hard for many even to pay their debts and taxes. Millions of people who depended directly on agriculture also lost their jobs. Many sold off their farms to merchants for no profits.

The crashing of the stock market in 1929 was an additional ripple effect to the great depression which contributed immensely to the fall of the economies of the world. Analysts such as () maintain that the stock market crash was intentional and erroneous rather than intangible. It was during this time that many banks speculated the stocks and when they failed to achieve the targets due to the global market turns, close to 900 banks fell as a result. This fall sent serious shock waves through the global markets on the October 29th, 1929, a day many refer to as the Black Tuesday. This was one of the major contributors to the great depression. Two months following the crash of the global markets, the investors in the stock markets had lost close to $40 billion in investments, a fact which would soon bring the economies to their knees. The period 1930s saw many banks lose their credits and collapse below the expectations. A lot of the banks’ deposits were uninsured at this time. When the banks failed, therefore, people just lost their savings and sunk into a crunch. The remaining banks were greatly unsure of the future and the coming economic times and took extra cautions to lend. Many were concerned about their survival and continued operations amid the depression. The willingness of the banks to give loans, therefore, declines and many could not access their loans. Expenditure grew less and less as time went by and the people could not meet many of their needs.

Owing to these hard economic times, less lending and reduced productivity, there was a general decline in the production sector. The manufacturing industry, for instance, on which the US and the world economies depended on entirely registered its lowest during this time. The fall of the agricultural sector, also, also led to the crash of the industries which relied directly on agricultural products. As a result, the manufacturing sector was also threatened with collapse as production levels shrunk to its lowest during the period. Many lost their jobs in the agricultural and manufacturing sectors. As more people lost their jobs in various sectors of production, and banks’ lending fell below the targets and could not issue enough lending or businesses and other production activities, it was difficult for the US GDP to realize any positive growth characteristics. For the few who remained in employment, their incomes were slashed by the employers to cushion the escalating events. As a result, the purchasing power of the people reduced considerably, and many were forced to by on credit further affecting the economies of the retail and production sectors. The shrinking economic growth meant diminishing jobs, laying out of people from their jobs, increasing federal debts and inability to meet its immediate and future financial needs.

The new deal and the great recession

The new deal put forward by President Roosevelt was a sigh of relief to the majority of the Americans who felt that the new reversal strategies would alleviate the current conditions and reverse the depression. Although the new deal yielded some fruits and alleviated the conditions to some extent, the effect wasn’t great, and the heat of the depression persisted to 1939 when the Second World War broke out. As Fishback, Michael and Shawn (9) records, the new deal came into effects on 4th March 1933 when the depression was at its peak following the inauguration of President Franklin Roosevelt. Roosevelt delivered the plans of the new deal in his speech, made in the attendance of more than 100,000 people and the world. It was at the time when the employment levels had dropped far below manageable levels. For instance, by the year 1933, the states such as Ohio had registered up to 80 percent unemployment rates, and close to 90 percent unemployment rates in Massachusetts. Roosevelt laid down plans to help alleviate these effects to creating more jobs by boosting the production industry to provide jobs to the millions who were rendered jobless at the time.

The first strategies were directed to alleviating the effects on the banks. The president issued a four-day holiday to stop the majority of the people who were withdrawing their monies from the banks to stop doing so. This would help to cushion the financial situations of the already shaken banks. On the 9th March 1933, the US Congress deliberated upon and passed the Roosevelt’s Emergency Banking Act. The act reorganized the banks and led to the closure of those which were considered insolvent at the time. This encouraged more people to save their monies with the banks leading to the reopening of three-quarters of those which had been closed previously. Moreover, the new deal also removed the prohibitions on products such as beer, etc. which were against the laws thus encouraging the purchasing potential of the people hence the growth of the retail and manufacturing sectors. Other change agendas during the time include the enactment of the Agricultural Adjustment Act, the National Industrial Recovery Act, the Banking bills, and Home Owners Loans Act among others sent a sigh of relief (Fishback, William and Shawn 220). By the end of the “new deal,” implementation a few positive effects had been achieved, but much remained undone, and the effects of the depression would extend to 1939.

To conclude, the great depression of the world which lasted close to 10 years was the world’s worst economic times and which has gone down sour in the history of the world. Several factors have been associated with the onset of the great depression of the world economies, especially the US economy. The depression led to a crunch of the production sector due to the fall of the global manufacturing and production sectors. The collapse of major production sectors such as the agriculture, financial sector, and the manufacturing sector both contributed to the overall fall in the US economies and the world in general. Although the new deal helped to improve the situations of the American economy, the depression had to persist for the next ten years.

 

Works Cited

Baldwin, Richard E., ed. The great trade collapse: Causes, Consequences, and Prospects. Cepr, 2009.

Cole, Harold L., and Lee E. Ohanian. “New Deal policies and the persistence of the Great Depression: A General Equilibrium Analysis.” Journal of Political Economy 112.4 (2004): 779-816.

Fishback, Price V., William C. Horrace, and Shawn Kantor. “The impact of New Deal expenditures on mobility during the Great Depression.” Explorations in Economic History 43.2 (2006): 179-222.

Fishback, Price V., Michael R. Haines, and Shawn Kantor. “Births, deaths, and New Deal relief during the Great Depression.” The review of economics and statistics 89.1 (2007): 1-14.

Foster, John Bellamy, and Fred Magdoff. The great financial crisis: Causes and consequences. NYU Press, 2009.

Rauchway, Eric. The Great Depression and the New Deal: A Very Short Introduction. Oxford University Press, 2008.

 

 

Top