to $ 19 Billion U.S, dollars. Moreover, the crash was one of the principal reasons for the
decline in the American economy. The profit from financial businesses and speculations
destroyed every motivation for private citizens to save money, which led to the lack of
finances for investments. Furthermore it caused a decline of earnings of the big financial
institutions and terminated the market for luxury goods.
The extremely low-income level in agriculture was crucial and hindered the
economic upswing . From 1929 until 1932 the farmer’s earnings fell by 70 %. 3
The agriculture was at the most heavily affected branch of industry. The always progressing
over-production led directly to the crisis. The stocked reserves had to be put without any
concern about the price on the market.2
1.3. Social and economic consequences of the Great Depression
The Depression changed societies structure of the USA completely. In 1931 the
number of unemployed persons reached eight million. Beggars and thousands of people
standing in lines to get a warm meal, and filthy camps at the suburbs with booths made out
of old cars and wood from boxes were landmarks of the Depression.
Many of the fully employed earned only the minimum to survive. Farmers
belonged to this group. Other workers shared their work, to have a minimum support, but
these lowered the demand for more expensive goods, and less money was invested.
Poverty for millions was caused by the duration of the Depression. In 1932,
city-administrations were bankrupt. By this time many of those unemployed were
unable to work because of psychological reasons. Women seemed to be stronger than men
referring to the suicidal rate; it rose 20 % for men and remained the same for women.2
Another problem was the unemployment of youngsters, mostly those who had not worked
before.4 Almost two million of unemployed people traveled around in the country to find
work, a place to live or food.
Consequences of the Depression were very different though. Among the hardest was
agriculture, the producers of long-life consumption goods, and the heavy industry.1
The automobile-industry felt at first the diminution of salaries and the sells fell by 65 %.3
First the investment goods industry lowered its production. Here there was no
demand because the country owned more railroads, streets and bridges than it really
needed. 3 The profit for the essential consumption goods (food, clothes) stayed on the same
level because most of the households gave up saving money.3 The big industrial enterprises
recovered easier. Hardly hit were the little enterprises, and the little business people.
For investment goods as, artificial fertilizers, tractors, barbwire, etc the market had
faded, and many farms started to slowly rot. Production fell slowly and so the terms of
trade evolved with industrial products.3
1.4. Economical situation before and during the Great Depression
The value of shares, which represented ten times their value normally, was 16 times
their value at the beginning of 1929. For 15 months, the general level of the
courses was maintained by a combination of unique factors1. Most of the capital, used for
speculative purposes came from the huge profits of the big industries. In the late 20´s the
profit-situation was very favorable. Technical innovations increased production, through
subsidies concurrence was lowered, syndicates were weak and the tax system favored
bigger enterprises.2
As the market circumstances became more difficult at the end of 1920´s the high
production was used to hold the profits on the same level. All this based on increase of the
salaries and lowering of prices.
None of the private institutions was able to change the credit circumstances, because
of the wrong, misleading speculations. 1928 the American Federal Reserve Board hesitated
to pull breaks on the credits because the building industry and the mining were falling, as
well as cotton and the weakened agronomy.4
In 1929, nothing seemed to show that the depression could have such consequences.
The results were far worse than expected. The factors, which caused the falling of 1929,
over-investment, difficulties in the agriculture, and a standstill in the construction industry,
were not enough to explain the depression until 1933. This process was caused by
exceptional circumstances, which started to take effect after depression had started.3
1.5. Economic factors leading to the Great Depression
Brokers and buyers sometimes did not know about the quality
of their shares. Through investment-funds and firm unions new shares were created. Only
the investment funds spread shares with a value of 8 million dollars. The zeal was only
to sell so there would be more money to finance more speculations.4
An easily recognizable reason for the economical difficulties was the lowering of
the building activity. In the housing this process began 1928, for industrial building 1928.
Through the abnormal building activity of the passed years the market was saturated. The
elevation of hypo-bar-pays interest had no effect on the housing construction, but 1928 and
at the beginning of 1929 the boom at the stock- exchange moved the States and
communities to radical restrictions in their inversions for the infra structure, specially the
road construction.2 In the 1920´s these inversions led to the economical growth. Getting
stuck it led to shrinkages4 at other industries. The industries, which generally had not taken
part of the growth like textile or coal, got as well very early in to trouble. The agronomy got
worse suddenly, and the international market collapsed. Big stocks of goods increased.
The inequality of the income distribution grew, and that meant the market for the
bigger consumer items shrunk. Earnings grew, thus the demand for luxury-
articles grew as well but market was saturated quickly. The rest of the earnings went to the
stock market. This situation was veiled, through the fact that business was made on credit.1
These were also reasons for the destabilization. After the depression had begun, many
products like cars went back to their sellers, because loans were not paid. This resulted in
an overflow of cars in the market.4
In the late 1920´s huge uncommonly innovations were done in the sectors of the
heavy industry. Soon it was recognized, that new production-installations were made which
products could hardly be sold.3 They throttled so the inversions, what led to negative
consequences. No rise of consumption was thinkable which could justify such high
investments. The situation became more and more difficult by the fact that the production
of investment-goods set back in 1929. The profit of share transactions as well as the
number of occupied persons, and the salaries rose in the second half of 1929, as the whole
industry started to show weakness.
Until 1932 the American gross national product fell about 27 %. The
industrial production fell the half. The inversions were not enough to keep the production
installations in shape as they were rotting. Under this pressure the bank system also broke
down. The unemployment grew from 1,5 million to 13, a quarter of all employees.
The turning point came in the winter of 1932 to 33. The economy recovered slowly and
unevenly. In 1940 the industrial production reached the status of 1929 again. Second World
War was at full pace.
2. Governmental Measures against the Great Depression
2.1. First New Deal
President Roosevelt, after his inaugural address on 1933 on March 1933,
proclaimed four days of break for banks and called congress for a special period of
sittings.2 In “the hundred days” the congress approved an immense amount of laws.
They referred to the support of the unemployed, and prices of agriculture, a voluntary
working service for people under 25, a program to occupy the unemployed, the
reorganization of the private industry, financing of hypothecs for housing, and farms,
the assurance of bank inlays, and a code for the stock market.3 Likely institutions were
made as AAA Agricultural Adjustment Administration, Ministry for Growth limitations
for farmers paying them primes for not growing anything, or FERA Federal Emergency
Relief Agency, ministry for the payments of counties and states, CCC Civilian
Conservation Corps, the above named working program, PWA Public Works
Administration for the construction of streets and other public buildings, NRA National
Recovery Administration, ministry for the regulation of prices in industry and
marketing, salaries, and circumstances for the market. This first New Deal laws came
from to different sources.1 A part was prepared during the voting campaigns by a group
of intellectuals Roosevelt had gathered around him called his brain thrust. These
assistants moved Roosevelt to take radical measures, from which many components
became parts of the New Deal.4
A principal problem for Roosevelt and Americans was the breakdown of the bank
system. After the Bank vacation he assured that bringing money to the banks again would
be safe was so done. The reopening of the banks was the interlude for a reform of the entire
financial system, which suffered under the crucial flaw of credit limitations, the quitting of
hypothecs, and the huge indebting since 1929.2 The reform was finished until 1935.
Hoovers Reconstruction Finance Corporation was enlarged, and the leading banks used
their capital for loans. The Federal Deposit Insurance guaranteed the bank inlays. The
Federal Farm Mortgage Corporation refinanced every fifth agricultural hypothecs, and
the Home Owners Loan Corporation had similar results at the financing of hypothecs
on houses. Though critical enduring economic problems there were not any bank
breakdowns since the New Deal, but banks, which had confirmed their concourse, were
not reopened 1933. The terms of business for the stock exchange were revised, and the
newly founded Securities Exchange Commission according to the consequences of the
catastrophe made the financing for the buying of shares more difficult, on the basis of
the expected spans of earnings.4
Furthermore, another urgent problem was the help for the unemployed. The
first law on this case, was the founding of the Civilian
Conservation Corps . The government built working camps in national
parks, and on the countryside, in which unemployed men at the age of 18 to 25 years of
age worked at environmental protection programs. In the 30’s 250,000 to 500,000, men and
women people were occupied in these camps.1 Many new parks were made, and the kind of
work found huge interest.1
The most important attempt to help the unemployed was the Federal Emergency
Relief Law of Mai 1933. The federal Government was not responsible for the financial
aid of the unemployed. It belonged to the counties, similar to the law of the
impoverished of the Elizabethan Age, on which the support was based.3 Some states
although paid less than the officials in Washington found to be enough.1 From November
1933 a new ministry, the Civil Works Administration CWA organized four million new
artificial jobs on federal, state, and district basis. Harry Hopkins, a New Yorker social
worker who now was the president’s expert for short direct help programs, led this
institution. In the beginning of 1932 eight million households received help from one of the
help programs.
The New Deal never evolved a really useful program against unemployment
through public occupation. The Public Works Administration worked to slow, and there
were no planed projects. Projects were supposed to support their selves and so it was
very hard to find such. The leader of the PWA Harold Ickes was a dedicated
but too slow and too pedant man.3 The PWA gladly offered their money for any projects
even though they were little. By these financial helped electrify the Pennsylvanian Rail
was and the Triborough-Bridge and the Lincoln Tunnel in New York.2 Many plane carriers
were built. But the federal spending for public work could not compensate the huge
short comings, which the states and counties had done for the construction of streets, and
public buildings. So less money was spent for public work. The FERA, CWA, and the
Work Progress Administration WPA with which the other institutions were united, were no
real work emerging programs.3 The jobs offered by the FERA like mowing lawn were total
nonsense considering economy.3 CWA and WPA offered more rational jobs, like in the
road or public buildings construction but none of these projects was commercial because its
financing was only in the government hands.
The National Recovery Administration NRA was made to push up conjuncture, as a
mediator it should terminate concurrence fights, and so rise the prices, and finally
motivate for inversions. Every branch was asked to present a code for fair prices, salaries,
laws, which, after acceptance of the president became lawful.4
In the winter of 1934 and 35 many people saw their disappointment in the New Deal
were they had put in so much belief and the entrepreneurs were so upset they left all
coalitions.1 The Supreme Court declared it as illegal to regulate the market in with
the states and the president lost so this authority, being too big. This interpretation
of the constitution threatened all released laws by the New Deal, so Roosevelt
answered with a move to the political left.
2.2. Second New Deal and the period until the Second World War
Roosevelt stayed president after elections. He took the side of the poor now and not
of the entrepreneurs. The Second New Deal was the ongoing reformation and the measures
taken against the results of the first.2
The Government left the politic of the NRA, and went on aggressively against the
Trusts. But after many mistakes of the government, and controversies about the active role
of the United States in the new war, America entered the war against Japan and Germany
after an economic breakdown. The American society and economy put
themselves fully against Germany, Italy, and Japan what led the country out of the
depression.4
3. Conclusion
The Great Depression could have been impeded if they were not any corrupt, and
criminal people involved in the stock market. World War II was a mile-stone for this crisis
giving world economy a new impulse lading as well the world out of it.
4. Sources
1. T. Peter, Did Monetary Forces Cause the Great Depression, New York, Norton 1976
2. Ronald Edsforth, The New Deal America’s Response to the Great Depression, Dartmouth College, Blackwell Publishers
- Rita Barnard, The Great Depression and the culture of abundance, Cambridge University Press, 1995
- Lyonel Robbins, The Great Depression, London, Maximillian 1934
