Great Depression Angela Thomas the Great Depression

Great Depression

Angela Thomas

The Great Depression was a pivotal time in the history of the United States and as a result, American business, banking, agriculture and society were drastically altered. It is commonly believed that the crash of the New York stock market at the end of October 1929 caused the Great Depression, but in reality this turbulent period of American history was brought on by a number of factors. And as the causes of the Great Depression are still being debated, so to are the effectiveness of President Franklin Delano Roosevelt's "New Deal" solutions. What is agreed upon is that the Great Depression and Roosevelt's New Deal changed America forever.

While there is still much debate as to the exact causes of the Great Depression, there is no doubt that it began with a decline in industrial production in early 1929. However, this decline did not necessarily mean that a depression was inevitable, for example, similar downturns had been experienced in 1907 and 1921 without the devastating effects of a depression. This industrial downturn in 1929, however, was caused by the Federal Reserve's "contractionary monetary policy in 1928 and 1929," (Temin) which attempted to stop what the Fed viewed as a speculative upswing in stock prices. In other words, the Federal Reserve restricted the flow of capital in order to reduce what they saw as an over-inflated stock price bubble. While the boom in the stock market may or may not have been a speculative bubble, the Fed's tightening of credit is commonly blamed for the decrease in industrial production in early 1929.

This initial downturn in the economy which became apparent by mid-1929, was not necessarily destined to turn into a full blown depression. The economy was indeed fragile, but it was four other events which, in addition to the Fed's actions, pushed the American economy over the edge into the Great Depression. The first event was the crash of the stock market on October 29th 1929, next came the Smoot-Hawley tariff of 1930, then came the "first banking crisis," and ultimately "the worldwide collapse of commodity prices." (Temin) While the stock market crash was devastating, it alone was not enough to cause the Great Depression, as other equally devastating stock market downturns had been survived.

Alas the Smoot-Hawley tariff, while causing harm to the American economy, was also not significant enough to single-handedly cause a depression. But these two factors, combined with three separate banking crisis', the first of which occurred in December 1930, began a series of bank failures which rocked the American economy, and by early 1931, America was in depression. Still, this depression could have been shorter than what was experienced if there had not been a complete collapse in commodity prices. American industry may have been able to weather the bad economic times but combined with the failure of the banks and the collapse of the price of commodities, mainly agricultural, the United States headed into a depression which would be more devastating and longer than any economic depression ever suffered in America.

October 29th 1929, saw the beginning of what became known as the Great Depression, and for more than two years American suffered through the worst economic disaster in America history. But in 1932, Franklin Roosevelt was elected President of the United States and in his first one hundred days passed a series of legislation, called the New Deal, which was aimed at easing the economic crisis and getting America back on the road to recovery. These included the Emergency Banking Relief Act, the Banking Act, the Agriculture Adjustment Act (AAA), the Federal Emergency Relief Act (FERA), the National Industrial Recovery Act (NIRA), as well as initiating the Civilian Conservation Corp (CCC). Then just two years after the start of these programs, the Roosevelt administration embarked on a second round of legislation called the Second New Deal. Out of this came the Social Security Act, the National Labor Relations Act, the Wealth Tax Act, and the Works Progress Administration (WPA).

In order to stabilize the banking industry, one of the very first pieces of legislation signed into law by Roosevelt was the Emergency Banking Relief Act. This legislation gave the President the authority to set credit policies, control currencies and gold movements and exchanges, and decide which banks were allowed to remain in business and which were to be closed. (Hillstrom 2009) Following this came the Banking Act of 1933, legislation which created the Federal Deposit Insurance Corporation, (FDIC) as well as giving the government power to regulate the investment practices of financial institutions. (Hillstrom 2009)

Roosevelt next attempted to deal with the agricultural disaster by introducing the Agriculture Adjustment Act, which created the Agriculture Adjustment Administration (AAA). The President had come to the conclusion that the American agricultural system was over producing and instituted a program of limiting production in an attempt to raise prices. (Coleman 2010) Roosevelt was a follower of the theory that an overly competitive, market driven economy, leading to overproduction and imbalances in the system, had been the cause of the depression. His solution was maintaining a balance of prices and wages through government control of production. (Himmelberg 2001)

In addition to the programs mentioned, Roosevelt's New Deal also saw the creation of the Tennessee Valley Authority (TVA) and the National Recovery Administration (NRA). The TVA was responsible for the industrial development of the Tennessee Valley and it embarked upon a vast hydro-electric project of dams to bring electricity to isolated, and undeveloped areas. The NRA was one of Roosevelt's most widespread and controversial programs. It set voluntary standards for wages and working conditions while rewarding those business who complied with exemptions from certain federal laws and allowing them to "display a Blue Eagle symbol on storefronts and products, which would show American consumers that the companies were patriotic participants in the NRA program." (Hillstrom 2009)