Great Depression

Date October 29, 1929–1939

The years of the Great Depression marked the worst period of poverty and hardship in the twentieth century, both in North America and abroad.

Locale North America

Key Figures

• Herbert Hoover (1874–1964), president of the United States, 1929–1933
• Cordell Hull (1871–1955), U.S. congressman and senator from Tennessee, later U.S. secretary of state
• Hugh S. Johnson (1882–1942), head of the National Recovery Administration
• Frances Perkins (1880–1965), U.S. secretary of labor
• Franklin D. Roosevelt (1882–1945), president of the United States, 1933–1945
• Francis E. Townsend (1867–1960), California physician who led a movement to give a monthly pension to retired elderly persons
• Walter W. Waters (1898–?), World War I veteran and head of the Bonus Army

Summary of Event

Beginning in the summer of 1929, the U.S. economy began a contraction that continued, with minor interruptions, until March of 1933 and from which the nation did not fully recover until 1939. The value of the nation’s output of goods and services, or gross national product (GNP), fell from $104 billion in 1929 to $55 billion in 1933, causing a 30 percent decline in the quantity of output and interrupting for more than a decade the historical trend toward increase in per capita production. Industrial production declined 51 percent before reviving slightly in 1932.

Unemployment statistics poignantly revealed the impact of the Great Depression on Americans. In 1929, the Labor Department reported 1,499,000 jobless persons, or 3.1 percent of all employables. After the stock market crash, the figure soared. At its peak in 1933, unemployment stood at 12,634,000, more than 1 of every 4 people in the labor force. Some estimates placed unemployment as high as 16 million. By 1933, the annual national income had shrunk from $87.8 billion to $40.2 billion. Farmers, perhaps the hardest-hit economic group, saw their income decline from $11.9 billion to $5.3 billion.

The Depression resulted from a severe decline in aggregate demand. One contributing factor was a massive wave of bank failures. As banks failed, the public withdrew large sums of currency, forcing the banks to call in loans and reducing the money supply. Decreased spending drove down prices and wages. Farmers, home buyers, and many business firms found the burden of their debts greatly increased, so bankruptcies and property foreclosures were widespread. The Depression was not limited to North America: It spread across the world, each country buying less from the others. In Germany, for example, the Depression struck sooner and went deeper than it did in the United States.

Political pressures to relieve distress and promote recovery were strong everywhere. For the first two years of the Depression, President Herbert Hoover relied on the voluntary cooperation of business and labor to maintain payrolls and production. In 1929, the government created the Federal Farm Board and gave it authority to make crop loans, which helped keep products off the market and thereby limit price declines. In 1930, Congress adopted the Hawley-Smoot Tariff Act, which drastically increased US import restrictions, dragging other countries further into the deflationary process. As the crisis deepened, Hoover took positive steps to stop the spread of economic collapse. In 1932, the government established the Reconstruction Finance Corporation (RFC), a loan agency designed to aid distressed firms such as banks, insurance companies, and railroads. This approach to economic recovery was based on Hoover’s belief that such government loans would halt deflation, ultimately restoring industry’s ability to create jobs, increase the number of wage earners, and thereby increase consumption.

On the relief issue, the president and Congress fought a running battle for months. The Democrats wanted the federal government to assume responsibility for direct relief and to spend heavily on public works. Hoover was willing to see public works spending increase, but he insisted on a massive tax increase in 1932 to pay for it. He argued that unemployment relief was properly the province of local resources, not an appropriate federal activity:

The proposals of our opponents will endanger or destroy our system. . . . I especially emphasize that promise to promote “employment for all surplus labor at all times.” . . . At first I could not believe that anyone would be so cruel as to hold out a hope so absolutely impossible of realization. . . . And I protest against such frivolous promises being held out to a suffering people. If it were possible to give this employment to 10,000,000 people by the Government, it would cost upwards of $9,000,000,000 a year. . . . It would pull down the employment of those who are still at work by the high taxes and the demoralization of credit upon which their employment is dependent.

After a partisan fight, Hoover did, however, sign the Relief and Construction Act, which expanded the RFC’s power to extend loans to states and for the creation of public works projects. Other bills passed in 1932 include the Glass-Steagall Act, which expanded credit to industry and business, and the Federal Home Loan Bank Act, which was designed to limit foreclosures by establishing a series of banks capitalized at $125 million to provide for home construction and long-term mortgages payable in installments.

Despite these efforts, by the end of Hoover’s term, the nation’s banking system had virtually collapsed, and the economic machinery of the nation was grinding to a halt. Tired and haggard, Hoover left office with a reputation as a do-nothing president, although he had gone far beyond his predecessors in supporting expanded federal responsibilities—even paving the way for the New Deal. His profound belief that promoting government jobs for the unemployed would break the backs of taxpayers, however, had not allowed him to do enough.

What happened to the economy after 1929 left most people baffled and bewildered. The physical structure of business was still intact, undamaged by war or natural disaster. People wanted to go to work, but plants stood dark and idle. Prolonged unemployment created a new class of superfluous people. The jobless sold apples on street corners. They queued up in breadlines and outside soup kitchens. Many lived in “Hoovervilles,” shantytowns on the outskirts of large cities. Thousands of unemployed men and boys took to the road in search of work, and the gas station became a meeting place for men “on the bum.” In 1932, a crowd of fifty men fought over a barrel of garbage outside the back door of a Chicago restaurant. In northern Alabama, poor families exchanged a dozen eggs, which they sorely needed, for a box of matches.

Despite such mass suffering, there was little violence or support for radical political movements. Farmers suffering from drastic price declines tried to reduce the flow of products to market. In August, 1932, for example, Iowa farmers began dumping milk bound for Sioux City. To dramatize their plight, Milo Reno, former president of the Iowa Farmers Union, organized a strike on the northern plains and cut off all agricultural products from urban markets until prices rose. Several farm states passed moratorium laws preventing the foreclosure of farms for debt. Drought aggravated the problems of farm families in the plains states, where the Dust Bowl made life so difficult that whole families packed up and left for the West Coast. Such “Okies” (named for the state where many originated) flooded into California to take jobs as migrant farm workers, as John Steinbeck vividly depicted in his 1939 novel The Grapes of Wrath.

In the summer of 1932, twenty-five thousand World War I veterans, known as the Bonus Army, led by former sergeant Walter W. Waters, staged an organized protest by marching on Washington, D.C., to demand immediate payment of a bonus that was not due until 1945. Congress refused, and Hoover sent troops to disperse the riot that ensued at Anacostia Flats, where the veterans were encamped.

Hoover was resoundingly defeated by Franklin D. Roosevelt in the presidential election of 1932, as the political pendulum swung strongly toward the Democratic Party. Roosevelt’s New Deal drastically increased the economic role of the federal government. Roosevelt instituted several major policy innovations. For example, the dollar was devalued internationally when the price of gold was raised from $20.67 to $35 per ounce. This measure opened the way for a large flow of gold from Europe to the United States, raising bank reserves and increasing the money supply. In addition, a “bank holiday” in March, 1933, closed all banks for a few days, then reopened most of them under conditions that restored public confidence in the banking system. Federal insurance of bank deposits was established.

Roosevelt also instituted a series of relief programs that provided direct transfer payments to the needy. The system evolved from direct handouts under the Federal Emergency Relief Administration to work relief under the Civil Works Administration and the Works Progress Administration (WPA). On the business side, the National Recovery Administration (NRA) was established in 1933 under General Hugh S. Johnson. The NRA attempted to promote industrial recovery by encouraging firms in individual industries and trade groups to get together to formulate “codes of fair competition,” which usually tended to reduce competition. For farmers, the Agricultural Adjustment Administration (AAA), also created in 1933, provided a system of production restrictions and price supports for agricultural products that became a permanent part of national policy. The Reciprocal Trade Agreements Act of 1934 enabled Secretary of State Cordell Hull to begin negotiations with other countries to agree on measures to liberalize international trade, beginning another permanent element of national policy. Finally, several measures promoted the establishment and power of labor unions, notably the National Labor Relations Act of 1935. Federal regulation of wages and hours began in 1938, with the Fair Labor Standards Act. Roosevelt appointed the first woman cabinet member in U.S. history when he chose Frances Perkins to head the Department of Labor.

Federal government intervention in the economy soared with these measures. For a time, this trend was resisted by the US Supreme Court, which on May 27, 1935, rejected the AAA and the NRA as unconstitutional; the date of the ruling became known as Black Monday. However, after Roosevelt’s landslide reelection in 1936, the Court ceased most of its opposition. The New Deal programs brought a rapid increase in government spending. Although tax rates were frequently increased, toleration of federal deficits became a normal financial policy.

In 1935, Francis E. Townsend, a California physician, popularized a proposal to help needy aged persons and stimulate economic recovery by having the government pay a pension of two hundred dollars per month to each person over sixty years of age who agreed to retire. In response, the government developed a comprehensive program of social insurance, adopted in August, 1935, as the Social Security Act. It included a program of unemployment compensation, a separate program of old-age pensions, and a third program of means-tested relief for needy aged, blind, and families with dependent children. With this, the U.S. welfare system of transfer payments came into existence.

Significance

The Great Depression was a crisis of the American mind as much as it was an economic disaster. Many people believed that the country had reached all its frontiers and faced a future of limited opportunity. A slowdown in rates of marriages and births expressed this pessimism. The Depression smashed the old verities of the value of rugged individualism, the sanctity of business, and the American preference for limited government. Utopian movements found eager followings. In addition to Townsend’s call for an old-age pension system, Father Charles Coughlin, a priest and radio personality in Royal Oak, Michigan, advocated the nationalization of banks, utilities, and natural resources. Senator Huey Long of Louisiana led a movement advocating a redistribution of wealth. All these movements tapped a broad vein of discontent among those who felt that they had been left out of the New Deal.

Slowly, however, Americans regained their sense of optimism. The New Deal revived the old faith that the nation could meet any challenge and control its own destiny. Even many intellectuals who had debunked American life in the 1920s began to revise their opinions. By 1936, there were signs of recovery, and by 1937, business indexes were up, some near 1929 levels. The New Deal had eased much of the acute distress, although unemployment remained at around 7.5 million. Although in 1938 the economy again went into a sharp recession, conditions improved by mid-1938. Still, the Depression did not end until the government launched the massive defense spending prompted by World War II.

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