Great Depression was a global economic crisis, which began in 1929 and lasted until 1939. Therefore, the 1930s are generally considered to be the period of the Great Depression. The Great Depression most heavily affected the United States where it started. Canada, Britain, Germany, and France also were greatly affected, but it was also felt in other states. Industrial cities suffered the most. Due to a reduction in demand, prices for agricultural products fell by 50%. This is regarded as one of the main causes for the beginning of WWII.
Start and Effects
A full-scale recession in the US began in August 1929, two months before the collapse of the market. In February 1930, at the beginning of the crisis, the US Federal Reserve reacted. Government bonds were redeemed from the market to maintain liquidity. In the next two years, the Fed did almost nothing. Treasury Secretary Andrew Mellon believed that it was necessary to allow the market to independently make the necessary adjustments to trade and prices.
In June 1930, the so-called Smoot-Hawley Tariff was adopted in the United States, introducing a duty of 40% on imports to protect domestic markets. This measure has been regarded as one of the main causes of the spread of the crisis to Europe.
At the end of 1930, bank depositors began a massive withdrawal of funds, which led to a wave of bank failures. As a result, the absolute contraction of the money supply began. The second banking panic occurred in the spring of 1931. In 1932, the US GDP fell by 13.4%, and in total, since 1929, by 31%. The unemployment rate in 1932 increased to 23.6%. Over the first three years of the crisis, more than 13 million Americans lost their jobs. Industrial stocks had lost 80% of their value since 1930, and agricultural prices had fallen by 53%.
Waves of bankruptcies undermined public confidence in financial institutions. Savings were feverishly withdrawn from deposits and converted into cash. Surviving banks, in response, avoided issuing new loans, preferring to maintain liquidity. The desire of both banks and the population to keep money in cash had undoubtedly sharply increased the intensity of the recession.
Anti-Crisis Measures
In January 1932, the US Congress established the Financial Reconstruction Corporation. This organization provided financial assistance to the railways, financial institutions and corporations. Â A law was passed for the Federal Housing Bank, intended to provide loans to organizations engaged in mortgage lending. It was recognized as necessary to intensify budgetary redistribution of income from the rich to the poor in order to stimulate demand. The maximum income tax rate was increased from 25% to 63%.
Franklin Roosevelt easily defeated Hoover in the presidential elections in the autumn of 1932, and the Democrats managed to gain control over the Congress. To overcome the crisis in 1933, the New Roosevelt Course was launched, enacting various measures aimed at regulating the economy.
Almost immediately after taking office, in March of 1933, Roosevelt had to face a third wave of banking panic, to which the new president reacted by closing banks for a week and preparing a program to guarantee deposits.
The first 100 days of Roosevelt’s presidency were marked by intensive legislative activity. Congress authorized the creation of the Federal Deposit Insurance Corporation and the Federal Emergency Management Administration, which was established by the Law on the Restoration of the National Economy.
Unemployed people became involved in public works. The number of people employed in public works reached four million people. Several bills were also passed by the Congress that regulated the financial sector: the Emergency Banking Law, the Glass Law, the Law on Agricultural Lending, the Securities Commission Act.
The results of the first year of Roosevelt’s presidency were ambiguous: the decline in GDP slowed down significantly and was only 2.1% in 1933, but unemployment rose to 24.9%. After the confiscation of gold from the population, the dollar was devalued by 41%.
Roosevelt’s methods, sharply increasing the role of government, were seen as an attempt against the US Constitution. In 1935, the US Supreme Court ruled that the National Reconstruction Administration and the National Industrial Recovery Act are unconstitutional. The cancellation of these acts allowed the consolidation of trade union monopolies on hiring workers.
The state resolutely began to legislate in the areas of education, healthcare, guaranteed living wage, and committed itself to providing for the elderly, disabled, and the poor. Expenditures of the Federal Government in 1932-1940 more than doubled. However, Roosevelt feared an unbalanced budget in 1937, when, it would seem the economy had gained enough momentum. This again plunged the country into the recession of 1937-1938.
End of Depression
The Index of Industrial Production in 1939 was only 90% of the level of 1932. In 1939, unemployment still remained at the level of 17%. Some believe the Great Depression was the cause of the Second World War, which required massive purchases of weapons by the state. Rapid growth in American industry began only in 1939-1941, on the wave of an active buildup of military purchases.
Measures to expand lending to banks, similar to those that have been adopted since 1932, could have been adopted earlier, in 1930 or 1931. According to calculations by economists and researchers, without the measures taken by the Roosevelt Administration to restrict competition, the level of recovery in 1939 could have been reached five years earlier.