Great Depression 1

1. The Great Depression began between 1929 and 1933 and affected the whole world until World War II. The depression shattered the optimism of political leaders in the late 1920s, as there was mass unem-ployment and failing farms. This caused insecurity for millions of common people. They in turn looked for strong leaders and embraced radical ideas to deal with the crisis. Though economic activity had been declining in many countries by early 1929, the crash in October was the deathblow. The American economy had prospered in the Roaring Twenties, but there were large inequalities in income and an imbalance between real investment and stock market speculation, causing net investment to fall from $3.5 billion in 1925 to $3.2 billion in 1929. Stocks were very popular at this time, raise the value of shares traded on the exchange to go from $27 billion to $87 billion. The spending was based on bor-rowed money, as many people had bought stocks by paring a fraction of the total purchase price and borrowing the remainder from their stockbroker. This buying on margin was dangerous because if the prices started to fall, the margin buyers had either to put up more money or sell their shares to pay off their brokers. Thousands of people started selling all at once, creating the panic. Without wealth and confidence, citizens started buying fewer goods, causing prices to fall, production to slow down, and unemployment to rise.

2. As the entire American economy was in a downward spiral, American bankers and investors began to recall their loans to other countries, mostly European ones. Gold reserves began to flow out of Euro-pean countries toward the United States, making it very hard for European businesspeople to borrow money and causing the public to withdraw its savings from the banks. Similar effects occurred in other countries. Between 1929 and 1933, world output of goods fell by 38%. In 1931, Britain went off the gold standard and reduced the value of its money in an effort to make its goods cheaper and more salable in the world market; however, other countries did this also. Other countries followed the United States by raising protective tariffs to an all time high in an attempt to seal off national markets only for domestic use. Two factors best explain why the Great Depression started. First, there was not an economic leader in the world to maintain stability when the crisis came, as the traditional leaders couldn’t and wouldn’t and the United States did not lend as much and erected high tariffs. Second, there were poor economic policies in almost all countries, as governments generally cut their budgets and reduced spending when they should have borrowed money to stimulate their economies.

3. Mass unemployment was linking to the Great Depression because large-scale government spending al-lowed for jobs and for those workers to have money to buy goods. The most unemployment occurred in the United States with 33%, which had previously averaged 5% in the 1920s, followed by Britain’s 18%, which had previously averaged 12% in the 1920s. With unemployment also came the social problems. Millions lost their spirit and dignity in the search for work. Young people postponed expensive marriages, birthrates fell greatly, there were more suicide and mental illnesses, and poverty became a reality.

4. The Hoover administration reacted to the crash with optimistic denial and limited action. This allowed for banks to fail, unemployment to soar, industrial production to fall by 50%, and net income from the average American farm to plunge 67%. Franklin Delano Roosevelt became president in 1932 based on the New Deal. He wanted to reform capitalism in order to preserve it. He rejected socialism and gov-ernment ownership of industry in favor of forceful government intervention in the economy. Agricul-tural recovery was a top priority because half of Americans still lived in rural areas and Roosevelt had the greatest support from farmers, who needed higher prices to save their farms. By leaving the gold standard, he reduced the value of the dollar to raise American prices and rescue farmers. The Agricul-tural Adjustment Act of 1933 raised prices and farm income by restricting the acreage farmers could cultivate and then paying them for the set-asides. The National Recovery Administration was estab-lished to reduce competition and fix prices and wages for everyone’s benefit, as well as sponsoring enough public works projects to ensure recovery. It required government, business, and labor to make regulations for each industry. The federal government also employed directly as many people as finan-cially possible in public works projects. One, the Works Progress Administration, employed at its peak 3 million people and constructed thousands of public buildings, bridges, and highways. The federal gov-ernment began to provide for the welfare of all Americans unlike family support and community re-sponsibility. This welfare state idea would continue until the 1970s. Eleanor Roosevelt supported the New Deal by humanizing it for millions of struggling Americans. The United States’ government in 1935 established a national social security system, with old-age pensions and unemployment benefits, to protect against life’s uncertainties. The National Labor Relations Act of 1935 declared collective bargaining to be the policy of the United States and led to the great increase in union membership. However, the New Deal was only partly successful, as the recession of 1938 and 1938 caused as much as 11 million unemployed people and would not get the country out of depression alone. It did not go far enough in nationalization and did not put enough money into the economy.

5. After the Social Democrats became the largest political party in Sweden and Norway after World War I, they passed important social reform legislation for peasants and workers, gained practical administra-tive experience, and developed a kind of socialism that was flexible, non-revolutionary, and built out of a strong tradition of cooperative community action. Labor leaders and capitalists were also inclined to work together. After the Great Depression, Sweden used large-scale deficits to finance public works and maintain production and employment. Scandinavian governments increased social welfare benefits, from old-age pensions and unemployment insurance to subsidized housing and maternity allowances. Large bureaucracy and high taxes were not a problem, as the people were used to private and coopera-tive enterprise. In Britain, MacDonald’s Labour-Conservative government balanced the budget. The economy was able to recover greatly after 1932, with 1937 total production 20% higher than in 1929. The gold standard and protective tariffs helped, but domestic markets like automobiles and electrical appliances were in great demand. Low interest rates encouraged a housing boom. In less industrialized France, the Great Depression came late, with decline steady until 1935 and a failed short-lived recovery. This reflected the government’s instability, as evident in 1933 when five coalition cabinets formed and fell in succession. Fascist-type and Communist organizations grew and looked for outside support. The Communists, the Socialists, and the Radicals formed the Popular Front for the national elections of May 1936, a sign of polarization. The Communists went from 10 to 72, while the Socialists, led by Léon Blum, became the strongest party in France with 146 seats. The Popular Front encouraged the union movement and launched a program of social reform that included paid vacations and a forty-hour workweek. Despite being popular, these measures were plagued by rapid inflation and cries of revolution from fascists and conservatives. Wealthy people sneaked their money out of the country, labor unrest grew, and France entered a severe financial crisis. The Spanish Civil War increased agitation because the Communists demanded that France support the Spanish republicans while many French conservatives wanted to support the fight against Spanish fascists. Blum was forced to resign in June 1937, and the Popular Front collapsed.