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THE GREAT DEPRESSION

Bowie Chan

HIST 1700

11/20/2017

THE GREAT DEPRESSION

1

Introduction

The great depression was an extensive economic crisis in the economy of the world. It

began in the United States in the year 1929 and later extended to other states around the globe1.

The great depression officially ended around 1940, but in the United States (U.S), the economy

started to show signs of recovery only after World War II2. The global economic depression was

comprehensive and synchronized to almost all sectors of the economy. The society named the

economic crisis “depression” as it had influenced the people into serious depressive states. The

society was left in anguish after reduction in supply of essential commodities. Many researchers

today are focused on studying the great depression, its causes, progress, and consequences. Most

of these researchers seek to discover the impact that the depression had on the lives of people in

the United States.

Social scientists, economists, and politicians today are seeking to find the exact causes of

the global economic disaster of 1929-1941. Some of the most renowned scholars believe that the

main horror of the great depression is that both politicians and scholars have not universally

agreed on the exact causes of the crisis. After learning about the great worldwide depression,

economists still hold the belief that an economic slowdown can emerge at any time with no

warnings or without primary reasons. Out of the belief that an economic depression can surface

without warning, many governments today are actively involved in controlling the various

dynamics of their states’ economies. However, scientists and economists take up the role of

criticizing the authorities over policies that could adversely impact the economy. Monetary and

1 Brunner, Karl, Ed. The great depression revisited. Vol. 2. Springer Science & Business Media, 2012.

2 Brunner, The great depression revisited, 2012.

2

incomplete policies of the administrations of the United States majorly contributed to the great

depression, which culminated in the World War II.

Summary of Events that led to the Great Depression

Harding and Coolidge

President Warren G. Harding assumed power in 19203. The election of a new leader

heralded a new age of both economic and political conservatism. For example, the Republican

Congress enacted the Esch-Cummins Transportation Act of 1920 to issue railroads back into

private control4. Under Harding’s leadership still, the Congress passed the Fordney-McCumber

Tariff in 1922 that increased the average protective tariff rate to a high of over 40% 5.

Additionally, the Supreme Court nullified a previous ruling regarding the Adkins v. Children’s

Hospital, which stripped all women workers of special labour protection. The Supreme Court

reversal happened a short period after the ratification of the 19 th amendment of 1920 that gave

women the right to vote. All these moves by the government under President Harding led to the

dwindling of labour movements. Furthermore, during Harding’s leadership, corruption in the

government increased at a rapid pace; for instance, the Teapot Dome scandal6. In some

instances, the head of the state himself was involved in the corruption scandals. After Harding’s

untimely death in 1923, Calvin Coolidge assumed power and further pushed the conservative

3 Ohanian, Lee E. "What–or who–started the great depression?." Journal of Economic Theory 144, no. 6

(2009): 2310-2335.

4 Robbins, Lionel. The great depression. Transaction Publishers, 2011.

5 Ohanian, what–or who–started the depression, 2009.

6 Terkel, Studs. Hard times: An oral history of the Great Depression. The New Press, 2011.

3

agenda. The two presidents were similar in their leadership and their rule was costly to the U.S

due to corruption and hardly feasible enactments.

Isolationism

Both President Harding and Coolidge pushed for the isolation of the U.S as they steered

policies that were meant to reduce United States’ influence in the foreign lands. For instance,

Harding was actively involved in negotiating the Five-Power Naval Treaty of 1922 to minimize

the amount of American, Japanese, and British battleships in the Pacific7. In 1922 still, Britain,

United States, Japan, and France agreed on the Four-Power Treaty that upheld a territorial

ownership of the Pacific region8. The four countries later joined the European and Asian

authorities in creating the Nine-Power pact that established the Open Door Policy in China.

Additionally, Coolidge’s secretary naively agreed to the Kellogg-Briand Treaty to outlaw

provocative warfare9. The vice president during Coolidge’s rule also created the Dawes Plan that

would force an impoverished Germany to pay the World War I reparations to France and the

British. The said actions under President Harding and Coolidge put the U.S in an isolated state

that would become costly in a few years to come.

The Roaring Twenties

The 1920s brought an amazing time for economic prosperity and social changes. The

post-war recession was also rapidly replaced by a period of financial evolution. The stock market

similarly grew to unforeseen heights. The second industrial revolution played a vital role in

7 Robbins, The great depression, 2011.


9 Ohanian, What–or who–started the depression, 2009

4

boosting the stock market development and saw the invention of new technologies and machines

that hugely changed the lives of Americans. For example, the car invention helped develop the

suburban America as the middle-class left the costly cities to seek settlements in the outskirts.

The aeroplane, motion pictures, and radios are also among the most treasured inventions of the

roaring twenties.

The Red Scare and Immigration Restrictions

The Social Revolution of the roaring 1920s also had a darker side. The sudden change in

the conventional social fabric created a very strong reaction in the name of conserving the

American tradition, heritage, and culture. For example, the Red Scare in 1919-1920 entailed the

murder of hundreds of socialists10. The Emergency and the Immigration Acts of 1934 shut all

“undesired” guests from abroad. All over America, there grew notorious anti-immigration

sentiments that led to the Sacco-Vanzetti Trial that saw two Italian-born Americans convicted of

murder and executed in the absence of hard evidence11.

Prohibition and Fundamentalism

During the conservative years, the Volstead Act replaced the 18th amendment. The new

Volstead Act started the 14 years of prohibition where the manufacture and sale of alcohol was

illegal in the United States. Nevertheless, in the year 1933, the 21st Amendment repealed the

alcohol prohibition12. Moreover, Christian fundamentalists came together to oppose Charles

10 Stuckler, David, Christopher Meissner, Price Fishback, Sanjay Basu, and Martin McKee. "Banking crises

and mortality during the Great Depression: evidence from US urban populations, 1929–1937." J Epidemiol

Community Health 66, no. 5 (2012): 410-419.

11 Stuckler, et.al, Banking crises and mortality, 2012


5

Darwin’s natural selection theory that they termed as mere heresy. The fundamentalists lost

credibility in the society due to their stand. The famous Ku Klux Klan also resurfaced as a new

conservative force but preaching against blacks, Immigrants, Jews, and Catholics.

Hoover and the 1929 Crash

Herbert Hoover assumed power in 1928 after he exhibited his administrative heroism

during the World War I. Citizens trusted him for presidency especially due to his promises of

prosperity and more harvest for large businesses. He worked towards his promises fervently even

after the stock market deteriorated severely on Black Tuesday of 192913. He made another

promise that the stock market crash of 1929 was short-lived and prosperity was imminent.

Contrary to his word, Hoover through the Republican Congress enacted the Smoot-Hawley

Tariff of 1930 that was even higher than the Fordney-McCumber Tariff having a rate of 60%.

The Depression Starts

The United States economy at first slipped into a recession and later plummeted into the

worst economic depression the country had ever experienced. The great depression hugely

impacted the U.S. and later every other industrialized state in the world. The globe faced

profound economic stagnation and massive unemployment14. For instance, Millions in the U.S

lost their homes, jobs, lives and property15. Shantytowns developed that residents named

“Hooverville” after the President who they believed was the cause of the depression. Hoover did

not provide any help to the suffering in spite of the situation growing from bad to worse. At one



15 Stuckler, et.al, Banking crises and mortality, 2012

6

time he ordered the army to forcibly chase away a group of World War I veterans who were

demanding economic relief from the streets. As people got frustrated with Hoover’s lack of

concern, they voted him and other Republicans out of office16. The citizens elected a very

optimistic Democrat Franklin Delano Roosevelt.

Roosevelt’s Efforts

The First Deal

Roosevelt joined the panicked Democrats in Congress to enact a collective bundle of

laws known as the New Deal in the quest for improving the situation in the United States17. Some

of these laws included untested theories of a British economist called John Maynard Keynes and

other unconventional policies. Roosevelt’s first major step in salvaging the economy was to

declare a bank holiday where banks were to open after seven days on a more stable economic

foot18. Bank and exchange rate transactions were under the control of Roosevelt through the

Emergency Banking Relief Act. Another law that intended to improve the worsening economic

situation in the U.S was the Glass-Steagall Banking Reform Act, which established the Federal

Deposit Insurance Corporation (FDIC). The FDIC promoted individual deposits with

government revenue19 and rebuilt public confidence in banks because many had lost their monies


17 Goodwin, Doris Kearns. No Ordinary Time: Franklin & Eleanor Roosevelt: The Home Front in World

War II. Simon and Schuster, 2013.

18 Goodwin, No Ordinary Time, 2013.


7

after the stock market failure in 192920. It increased fund security in banks, that citizens may not

lose their savings in case of another collapse.

The Second Deal

The conservatives criticized Roosevelt so much that he decided to push for another wave

of policy reform through the Congress between 1935 and 193621. The collective legal package

also called the Second New Deal was a major turn for many events in the U.S. One of the

policies set by the Second New Deal was the Social Security Act, which allowed government

pensions to the elderly persons. Moreover, the Indian Reorganization Act was meant to give the

Native Americans a right to own land. Lastly, the Soil Conservation and Domestic Allotment Act

helped farmers in agricultural endeavours. Congress also instituted various agencies to aid in the

implementation of the second new deal that included the Second Agricultural Adjustment

Administration, Works Progress Administration, United States Housing Authority, and the

Congress of Industrial Workers.

The Court-Packing Scheme

Roosevelt’s New Deal faced profound opposition causing the great depression to enter its

6th year22. For instance, some elderly Justices in the Supreme Court nullified the National

Industrial Recovery Act in 1935 and the Agricultural Adjustment Administration in 1936. Six

judges were added to the Supreme Court bench curtesy of Roosevelt’s 1937 request to the


21 Hansen, Per H. "Hall of mirrors: the great depression, the great recession, and the uses—and Misuses—

of History." Business History Review 89, no. 3 (2015): 557-569.


8

Congress. The citizens, Republicans, conservatives, and some Democrats repelled the President’s

move profoundly throughout the country.

The end of the New Deal

The Roosevelt Recession of 1937 worsened the great depression outstandingly. Roosevelt

gave in to the pressure from the conservatives and thus cut down deficit spending in the year of

1937. He believed that the worst part of the great depression was over and the country was in its

recovery days. Nevertheless, the U.S economy was far from being able to stand on its own.

Roosevelt’s withdrawal of federal support at such a crucial time promoted progression of the

great depression. The economy dropped to its feet once more and forced people into the streets

again. Roosevelt pointed fingers explicitly not knowing that his policies could have been one of

the reasons for the recession23. Americans voted him out and the new Republicans in office

enacted the Hatch Act in 1939 that weakened the Democrats’ power over poor citizens. During

Roosevelt’s leadership, citizens were highly dependent on the New Deal handouts. The New

Deal was thus crashed despite it having brought some essential support to the failing economy.

The U.S economy would thence face a great depression until December 1941 during the World

War II when it began showing hope of improvement.

Causes of the Great Depression using various Modern Approaches

At the start of the great depression, the stock market crashed in a single day as the shares

dropped by $10 billion24. The drop meant that ten billion dollars had just disappeared

mysteriously from credit money and it caused over 25 million persons in the United States to


24 Terkel, An oral history of the Great Depression, 2011.

9

suffer. Using the Keynesian theory, the great depression resulted from overproduction of

products and lack of finances to sustain them25. Most finances during the great depression era

were tied to the gold business. The amount of Gold was limited and many businesspersons

invested their monies in the mining and refining process26. The result of the economic imbalance

of funds was a shortage of efficient demand for goods and services. The shortage of demand

created a chain reaction that entailed deflation, unemployment, bankruptcy of organizations, an

extreme drop of consumer demand, heavy and protective taxes on imported goods, and a serious

fall in living standards27.

Before the great depression began, the pace of U.S gold reserve growth was below the

rate at which the economy developed. Now that the U.S gold reserve growth rate was

surpassinsg the economy itself, there emerged a hidden inflation since the government was

printing new money secretly to promote the economy28. The situation progressed causing a

decline in labour productivity while the number of pseudo-monies such as receipts and notes

increased massively. The profound imbalance in the economy culminated in the “Black

Tuesday” of 192929.

25 De Vroey, Michel R., and Luca Pensieroso. "Real business cycle theory and the great depression: the

abandonment of the abstentionist viewpoint." Contributions in Macroeconomics6, no. 1 (2006): 1-26.

26 De Vroey, Real business cycle theory, 2006.

27 Ibid.

28 Ibid.

29 Hansen, Hall of mirrors, p. 557, 2015.

10

According to the Marxists approach, the great depression resulted just after the United

States’ economy had grown rapidly. From the year 1917-1927, the national income in the U.S.

had nearly tripled30. Conveyer production was discovered, the stock market shot up, speculative

trade increased, and the real estate prices multiplied. The hike in the production of commodities

needed increased funding but most monies were tied to the gold business. The Marxist

perspective also argues that the great depression resulted from capitalism in the market

economy31. The approach further argues that the economy was only salvaged after the state

intervened against the capitalist influence. Marxists believe that the great depression was majorly

caused by the stock market collapse, which is one of the pillars of capitalism. President Hoover,

who believed in the laissez-faire approach, denied the utilization of state power and thus the

economy crashed rapidly than anyone expected. Roosevelt, nevertheless, began the government

intervention, which promoted the process of recovery. The Marxist conclusion is that capitalism

should never be trusted and the state should always be actively involved in economic controls32.

Other modern interpretations point the finger at the heads of state who served during the

great depression period. President Hoover, in particular, did a lot that resulted in an economic

crisis. One of the most explicit failures of his administration was the Smoot-Hawley Tariff. The

1930 tariff was meant to complement the Fordney-McCumber Tariff of 1922 that had caused a

great crisis in the agricultural sector. The Smoot-Hawley Tariff is arguably the most protectionist

tariff enactment in U.S. history. The tariff sealed the borders from foreign products and


31 Temin, Peter. "The Great Recession & the Great Depression." Daedalus 139, no. 4 (2010): 115-124.

32 Temin, the Great Recession & the Great Depression, 2010.

11

established a bitter trade war. Congresspersons and officials in the government including the

President himself believed that if they shut the borders from imported goods, citizens would buy

domestic products more33. Nonetheless, the move proved to be an economic fatal mistake as it

was one of the major causes of the great depression.

Conclusion

Many factors might have contributed to the development of the world’s greatest

economic crisis. Researchers and social scientists are still digging to discover the real issues that

brought about the sudden economic change. Evidently, the government was the cause of the

great depression. Some of the enactments in Congress during the great depression era played a

major role in creating a worldwide economic depression. Each Congressional enactment both by

the Republican and Democrat administrations had a contributing role in the development of the

great depression. Most presidents like Hoover and Roosevelt intended to control the effects of

the depression, but they ended up worsening the economic situation in the U.S. Therefore, it is

clear that the sitting governments during the great depression period were the main reason for the

development and progression of a global economic crisis.

33 Terkel, An oral history of the Great Depression, 2011.

12

Bibliography

Brunner, Karl, Ed. The great depression revisited. Vol. 2. Springer Science & Business Media,

2012.

De Vroey, Michel R., and Luca Pensieroso. "Real business cycle theory and the great depression:

the abandonment of the abstentionist viewpoint." Contributions in Macroeconomics6, no.

1 (2006): 1-26.

Goodwin, Doris Kearns. No Ordinary Time: Franklin & Eleanor Roosevelt: The Home Front in

World War II. Simon and Schuster, 2013.

Hansen, Per H. "Hall of mirrors: the great depression, the great recession, and the uses—and

Misuses—of History." Business History Review 89, no. 3 (2015): 557-569.

13

Ohanian, Lee E. "What–or who–started the great depression?" Journal of Economic Theory 144,

no. 6 (2009): 2310-2335.

Robbins, Lionel. The great depression. Transaction Publishers, 2011.

Stuckler, David, Christopher Meissner, Price Fishback, Sanjay Basu, and Martin McKee.

"Banking crises and mortality during the Great Depression: evidence from US urban

populations, 1929–1937." J Epidemiol Community Health 66, no. 5 (2012): 410-419.

Temin, Peter. "The Great Recession & the Great Depression." Daedalus 139, no. 4 (2010): 115-

124.

Terkel, Studs. Hard times: An oral history of the Great Depression. The New Press, 2011.

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