The Great Depression in America: Causes, Effects, and the Impact of Presidents Hoover and FDR

The Great Depression, a periods of severe economic downturn, began in America in 1929, following the end of World War I. This event had profound and far-reaching consequences that shaped American economic and social policy for generations. This article explores the causes, effects, and the contrasting approaches of presidents Herbert Hoover and Franklin D. Roosevelt during this challenging time.

When Did the Great Depression Begin in America after World War I?

The Great Depression officially started on October 29, 1929, known as "Black Tuesday," when the stock market crashed, leading to an economic downturn. Despite the war ending in 1918, the American economy had become increasingly interconnected with global markets, setting the stage for the eventual economic crisis.

Causes of the Great Depression

According to Chris Haran's historical study, the fundamental cause of the Great Depression was the global decline in the rate of profit. This decline led to reduced investments and spending, contributing to the economic downturn. The US economy, in particular, saw significant changes in the 1920s:

1. The U.S. held 80% of the world's gold by 1918. The US economy's reliance on speculation and the shift towards casino capitalism in the investment banking sector were major factors. Before the war, the four largest economies (UK, US, France, and Germany) held gold in roughly equal proportions. However, by 1918, the US held over 80% of the world's gold, making the global economy vulnerable.

2. Speculation and Bank Failures. Before the Great Depression, banks often invested a third of their capital in Wall Street stocks. After the 1929 crash, these investments became impossible to sustain, leading to widespread bank failures. At the peak of the crisis, President Hoover allowed thousands of banks to fail without intervention, further exacerbating the economic downturn.

Effects of the Great Depression

The Great Depression had devastating effects on the American economy, including:

1. Unemployment and Poverty. The unemployment rate in 1933 reached an unprecedented 25%, leading to widespread poverty and social unrest.

2. Economic Shrinkage. The economy contracted sharply between 1929 and 1933, with a significant decline in production and national income. For example, the economy shrank by 8.61% in 1930, 6.48% in 1931, and 13.06% in 1932.

3. New Deal Initiatives. President Franklin D. Roosevelt (FDR) implemented a series of New Deal programs aimed at restoring the economy and providing relief to affected individuals. These programs included:

FHA and Fannie Mae: The Federal Housing Administration (FHA) and the Federal National Mortgage Association (Fannie Mae) played crucial roles in stabilizing the housing market and promoting homeownership. Rural Electrification: FDR's New Deal programs, spearheaded by Leland Olds, focused on rural electrification, increasing accessibility to electricity in rural areas. Liberal Economic Policies: Overseeing the separation of commercial and investment banking, thus preventing the speculative behavior that led to the financial collapse of 1929.

The overall effect of the New Deal was a comprehensive and sustained economic recovery, with the US economy growing by 10.88% in 1934, 8.88% in 1935, and 13.05% in 1936.

Key Figures and Their Policies

Herbert Hoover: As president during the early stages of the Great Depression, Hoover's response was characterized by minimal intervention. He believed in the natural resilience of the free market and opposed large-scale government intervention. Unfortunately, his approach proved insufficient, leading to the continued and deepening economic crisis.

Franklin D. Roosevelt: FDR took office in March 1933 and immediately implemented numerous reforms and relief programs. His policies included:

Banking Reforms: The emergency closure of banks (bank holiday) to reestablish public trust was one of the first and most effective measures.FDR's clear explanations to the public about why the banks were closed and how they would be safe upon reopening helped restore confidence. New Deal Programs: The creation of public works projects, such as the TVA (Tennessee Valley Authority), provided jobs and stimulated the economy. These projects also improved infrastructure and residential areas. Addressing the Housing Crisis: The establishment of the Federal Housing Administration (FHA) and the Federal National Mortgage Association (Fannie Mae) helped stabilize the housing market and promote homeownership.

FDR's measures provided immediate relief and laid the foundation for sustained economic recovery, demonstrating the importance of proactive and comprehensive policy interventions in times of crisis.

Legacy and Lessons Learned

The Great Depression and the contrasting approaches of presidents Hoover and FDR were formative events for American economic policy. The experience highlighted the need for government intervention to address economic crises and protect the public good. The lessons from this period continue to influence economic policy and debates about the role of government in the economy.