This essay examines the United States government's response to the economic crisis of the 1930s. Beginning with the Hoover administration's reliance on classical monetarist policy and a hands-off approach to the economy, the paper traces how the collapse of the stock market and widespread bank failures shifted public and political sentiment toward greater federal intervention. Drawing on the economic context of the 1920s — including speculative stock market financing and dependence on international markets — the essay contrasts the Progressive Era's more contained economic environment with the global scale of the Great Depression, ultimately explaining Roosevelt's shift toward deficit spending and Keynesian economic policy.
The response of the American government and people to the economic crisis of the 1930s was mixed, at first. There was an initial desire on the part of the Hoover administration to maintain the federal government's hands-off role with respect to the economy, combined with a faith in classical economic monetarist policy that had generated American prosperity in the past. However, there was also a corresponding desire — later embodied in the Democratic administration of FDR — for greater federal involvement in the economy. It was initially uncertain what policies could halt the spiraling collapse of America's economic future.
The 1920s had been an era of unmatched prosperity for the United States. High levels of employment combined with peacetime conditions left Americans unprepared to weather any serious economic calamity, much less one marked by a virtual international collapse of all economic indicators, such as the Great Depression. This unexpected catastrophe stood in sharp contrast to the less destructive economic problems of the Progressive Era — the world chronicled by Lewis Gould in his text America in the Progressive Era. During that earlier period, the American economy was less nationally and internationally interconnected, and demand along with the generation of goods were more closely tied to the nation's existing money supply.
During the 1920s, nearly full employment in housing and in emerging manufacturing industries — such as automobiles, radios, and other durable goods — had been generated in part by American dependence on international markets and the purchasing of American goods by other nations. However, the stock market's financing of financial speculation, rather than genuine consumer demand, had eventually become the primary force driving the late-1920s economy. The market functioned as a mechanism for raising capital rather than as something linked to real consumer demand.
Then the stock market crashed — an event famously captured in the headline, "Wall Street Lays an Egg." This wiped out the paper value of billions of dollars of stock within a matter of hours (Leuchtenburg 242–244). The irreverence of the "Egg" headline quickly shifted from humor to horror, and Americans became desperate. The crash exposed the structural weaknesses underlying the decade's prosperity and made clear that the economic collapse was not a temporary setback but a profound national and international crisis.
"Roosevelt's deficit spending and Keynesian economic policy"
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