The Great Depression: Causes, Effects, and the New Deal

Historiography of the Great Depression

In the summer of 1929, the Great Depression began in the United States and spread throughout the industrialized world. It caused drastic declines in output and prices and extreme human suffering.

The calamity also brought changes in the role of government. Many Americans blamed their President, Herbert Hoover, for the downturn.

The Causes

The Great Depression lasted from 1929 to 1939, and there were many causes. Overextended stock prices out of sync with consumer demand caused a market crash that shook investor confidence. Panicked depositors rushed to withdraw their money, further precipitating the downward spiral. The rigidity of the gold standard—linking nearly all countries in a network of fixed currency exchange rates—limited domestic and international economic output. The richest one percent owned a third of America’s wealth, limiting the ability of middle class Americans to spend and invest.

The Depression was a time of disillusionment for many Americans. They lost faith in politicians who promised to keep their hands off economic affairs, and they saw a growing materialism in society. Families broke up and migrated across the country in search of work. “Hoovervilles,” shanty towns built of packing crates, abandoned cars and other cast-off scraps, popped up everywhere. Gangs of youths, called “Okies,” abandoned the farms in the Great Plains and headed to California in search of the land of milk and honey.

The Effects

The Great Depression was one of the most severe economic calamities in modern history. It was a global disaster that drastically reduced GDP, wiped out stock market values, and devastated agricultural production and home life. It blighted the country for more than a decade, killing millions of people and destroying families.

It also transformed American institutions. It sparked massive changes in the economy and fundamentally changed the nature of the government’s role. Its long contraction dramatically increased the importance of unions, and it helped spawn programs like Social Security and the Wagner Act that changed labor negotiations between employers and employees. In the wake of the Depression, women entered the workforce in greater numbers than ever before, and marriage rates fell by 22 percent. The calamity revealed profound vulnerabilities in our society that we still confront today with the COVID-19 pandemic and the broader implications of living in a hyper-globalized world.

The New Deal

While the New Deal may have been a boon for tens of millions of Americans, it didn’t bring about economic recovery in the 1930s. In fact, full recovery came only with the gargantuan federal expenditures of World War II.

Nonetheless, the New Deal revolutionized American government in ways that continue to impact our lives today. The New Deal left behind a legacy of programs in areas such as education, agriculture, urban affairs, the arts, social welfare, black Americans and mobilization for World War II.

Many of these programs, such as the Federal Deposit Insurance Corporation, the Agricultural Adjustment Act and the Tennessee Valley Authority still operate under their original names. Others, such as the Fair Employment Practices Commission and racial integration in the workplace remain important parts of our nation’s fabric. The New Deal also reconfigured the political landscape, as African Americans and urban-based minorities joined with unions to support the Democratic Party. These developments led to the emergence of the “Great Society” under President Lyndon B. Johnson in the 1960s.

The Aftermath

In its time, the Great Depression was considered one of the most catastrophic events in modern world history. By any measure – mass unemployment, lowered GDP, decimated stock values – it transformed the lives of people everywhere. It was also the moment when rugged individualism ran into its match in a calamity whose victims demanded radical change in economic institutions and policy.

Stanford historian David Kennedy argues that the calamity revealed many vulnerabilities in American institutions and shattered illusions of wealth and security. At its nadir, families broke apart; “Okies” from the Dust Bowl packed their belongings into Model Ts and rode the railroads to California in hopes of finding work.

At the same time, government leaders increasingly realized the need for greater involvement in managing a global crisis. The United States became more active in the world stage, launching and winning World War II, which helped to pull the country out of its decade-long slump.

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