Depression of the 1930s

Depression of the 1930s

The economic depression that beset the United States and other countries in the 1930s was unique in its magnitude and its consequences. At the depth of the depression, in 1933, one American worker in every four was out of a job. In other countries unemployment ranged between 15 percent and 25 percent of the labor force. The great industrial slump continued throughout the 1930s, shaking the foundations of Western capitalism and the society based upon it. Economic Aspects President Calvin COOLIDGE had said during the long prosperity of the 1920s that The business of America is business.

Despite the seeming business prosperity of the 1920s, however, there were serious economic weak spots, a chief one being a depression in the agricultural sector. Also depressed were such industries as coal mining, railroads, and textiles. Throughout the 1920s, U. S. banks had failed–an average of 600 per year–as had thousands of other business firms. By 1928 the construction boom was over. The spectacular rise in prices on the STOCK MARKET from 1924 to 1929 bore little relation to actual economic conditions.

In fact, the boom in the stock market and in real estate, along with the expansion in credit (created, in part, by low-paid workers buying on credit) and high profits for a few industries, concealed basic problems. Thus the U. S. stock market crash that occurred in October 1929, with huge losses, was not the fundamental cause of the Great Depression, although the crash sparked, and certainly marked the beginning of, the most traumatic economic period of modern times. By 1930, the slump was apparent, but few people expected it to continue; previous financial PANICS and depressions had reversed in a year or two.

The usual forces of economic expansion had vanished, however. Technology had eliminated more industrial jobs than it had created; the supply of goods continued to exceed demand; the world market system was basically unsound. The high tariffs of the Smoot-Hawley Act (1930) exacerbated the downturn. As business failures increased and unemployment soared–and as people with dwindling incomes nonetheless had to pay their creditors–it was apparent that the United States was in the grip of economic breakdown.

Most European countries were hit even harder, because they had not yet fully recovered from the ravages of World War I. ) The deepening depression essentially coincided with the term in office (1929-33) of President Herbert HOOVER. The stark statistics scarcely convey the distress of the millions of people who lost jobs, savings, and homes. From 1930 to 1933 industrial stocks lost 80% of their value. In the four years from 1929 to 1932 approximately 11,000 U. S. banks failed (44% of the 1929 total), and about $2 billion in deposits evaporated.

The gross national product (GNP), which for years had grown at an average annual rate of 3. 5%, declined at a rate of over 10% annually, on average, from 1929 to 1932. Agricultural distress was intense: farm prices fell by 53% from 1929 to 1932. President Hoover opposed government intervention to ease the mounting economic distress. His one major action, creation (1932) of the Reconstruction Finance Corporation to lend money to ailing corporations, was seen as inadequate. Hoover lost the 1932 election to Franklin D. ROOSEVELT.

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