Economics the Great Depression Origins Term Paper

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The downward spiral of deflation, the collapse of countless banks and other financial institutions, and the unprecedented levels of unemployment all demanded that something be done.

The programs that constituted President Franklin Delano Roosevelt's New Deal were not entirely unknown in the pre-Depression world. Various European countries already possessed social welfare schemes to some extent, but in the United States this was largely new thinking. The changes wrought by the New Deal reflected as much the uniqueness of conditions during the Great Depression as they did the undercurrent of new attitudes and ideas that had gradually been taking hold among America's intellectuals.

FDR's planners acted in the context of changing values, an evolving set of institutions, shifting political and economic circumstances, and the ebb and flow of planning opportunities to create a distinctly national, American form of planning.... They were part of a wide-ranging national debate over how to create a new society based on modern institutions that grew out of developments in the business community, the urban environment, the rise of professionalism and its attendant associations in the social sciences, the recognition of the need for a new kind of twentieth-century liberalism, and the building of new interconnections among business, government, social science research, and philanthropic management.... The proper use of economic policy to respond to changes in the business cycle, and the utility of social scientific expertise in dealing with major questions of public policy.

Just as laissez faire had once been seen as the "natural" state of economic development, so now government planning came to be seen as the ultimate in the application of science and intellect to the economic sphere.

Franklin Delano Roosevelt's New deal brought about sweeping changes in the way Americans did business and in how business and the individual related to each other. Under these programs, the federal Government would contribute massively to the economy as both an employer and a guarantor of Americans' standards of living. In addition, the Government played a pivotal role in the overall institutional structure of American business and finance, and by extension - given the size of the American economy - in that of the entire world. Charles E. Merriam, led an academic crusade to develop the social sciences in the United States. Appointed first by Herbert Hoover, Merriam attempted to revolutionize liberalism by giving to its principles a scientific foundation; one that would suit the needs and aspirations of the Twentieth Century. Merriam Brought to national planning the values of the upper class, the corporate experience of a railroad manager, the city and regional planner's concern for rationality, expertise, and efficiency, as well as real talent for voluntary associational work that crossed private- and public-sector lines.... Merriam emerged as its [the New Deal's] organizer and theorist.

Armed with these new ideas, there would grow up a government that considered the personal well-being of its citizens to be its legitimate preserve.

In simple terms, the New Deal represented an enormous infusion of government money and talent into the private sector - or into those areas that had once been considered to lie within the sphere of private responsibility. To help the millions of unemployed, the Federal Government sponsored great public works projects such as the Tennessee Valley Authority and Hoover Damn, both of which not only employing vast numbers of people, but were also intended to furnish many subsidiary benefits. The Works Progress Administration, or WPA, was in effect, a gigantic government employment consortium. It provided jobs to millions of out of work Americans, but at a tremendous financial cost to the nation:

The chief weakness of the 1935 reform program was that the New Deal failed to secure adequate funding for federal public employment (the WPA). Given the size of the relief caseload in 1935, a large -- and politically unpopular -- public welfare program was inevitable in the absence of a full employment policy. Responding to this reality, federal officials and state-level reformers aggressively promoted the modernization of state welfare programs, essentially transforming the emergency relief organizations into permanent public welfare departments. This process institutionalized state-administered relief.

The result was an almost overnight abandonment of the laissez-faire tradition. Far from staying out of Americans' personal lives, the Federal Government would now become possibly the biggest single actor in those lives. Even where it was not the Federal Government per se that provided the "interference," it was frequently the author of the policies that were being funded and implemented at the state and local levels. Many of the same arguments that were raised against the New Deal at the time of its inception are still being raised against its modern-day descendent - the American welfare state. According to many Conservatives:

Federal social welfare programs threaten the economy's long-term health by withdrawing productive resources from the private sector through taxation and borrowing.... When they come, our children will not even be able to enjoy the seemingly beneficial effects of the social programs we have set in place; they will no longer be able to afford them. In the meantime, the lot of the poor will grow worse as the welfare state saps them of initiative and self-respect. Their only real hope of escaping poverty, a willingness to work hard in their own interest, is being sold for a mess of federal pottage. And worse, we all stand to lose our freedom as, piece by piece, we turn over responsibility for our individual and collective fate to the bureaucrats of big government.

In framing the debate over social welfare programs as a battle between personal freedoms, on the one hand, and an overly-intrusive government, on the other hand, intellectuals, now and then, are engaging in one of the characteristic core arguments of modern times. Yet in spite of all these arguments regarding a "state-controlled society":

American social insurance is, by virtue of its taxation and benefit schedules, mildly redistributive across groups of workers. But it is not, nor was it ever intended to be, income equalizing in its effects or targeted specifically on the poor. There is no means test for the receipt of payments, and both taxes and benefits are related to, although not directly proportional to, a recipient's prior wages. Social insurance is designed to help families maintain the security they have achieved through productive work.

The social welfare programs that first appeared in the form of President Roosevelt's New Deal were not meant to control the details of every American's life, but rather to provide, what is now popularly termed, "a safety net."

Perhaps central to all contemporary discussions of the Great Depression is the question as to whether any individual in the Post-Modern, post-industrial world truly does have sufficient resources at his or her disposal to guard against future economic cataclysms. The world economy has grown so large, and so intermingled, that the individual worker, or professional, has very little control over his own fate. Even in the Industrial world of the 1920s, it was the overriding institutional framework, and the policies made on the highest levels that led to the collapse. At no point in the past century and more, and at no location in the developed world, are we talking about sizeable populations of largely self-sufficient men and women whose only potential economic calamities are those that lie beyond the control of any institution or government i.e. As in Acts of God that destroy a peasant's crops. Considering how tightly interwoven all of our actions are with the very human actions taken by other individuals at numberless different points around the globe, the "ordinary" American, European, Japanese, or what have you, cannot possibly be held accountable for every single thing that affects his or her own life. The lessons of the Great Depression should be these: that governments bear a responsibility to see to it that institutions affecting the public are properly run and managed, and that individual human beings are protected against the accidents of human error by some sort of government-sponsored safety net. As the old saying goes, "Man is not an island," and never has this been more true.

Works Cited

Bernanke, Ben S. "The Macroeconomics of the Great Depression: A Comparative Approach." Journal of Money, Credit & Banking 27.1 (1995): 1+.

Burkett, Paul. "Forgetting the Lessons of the Great Depression." Review of Social Economy 52.1 (1994): 60+.

Hallwood, Paul, Ronald Macdonald, and Ian W. Marsh. "An Assessment of the Causes of the Abandonment of the Gold Standard by the U.S. In 1933." Southern Economic Journal 67.2 (2000): 448.

Kubik, Paul J. "Federal Reserve Policy during the Great Depression: The Impact of Interwar Attitudes regarding Consumption and Consumer Credit." Journal of Economic Issues 30.3 (1996): 829+.

Marmor, Theodore R., Jerry L. Mashaw, and Philip L. Harvey. America's Misunderstood Welfare State: Persistent Myths, Enduring Realities. New York: Basic Books, 1990.

Reagan, Patrick D. The Origins of New Deal Planning, 1890-1943 the Origins of New Deal…[continue]

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