The Great Depression started in 1929 and ended in early 1940s. It was an economic tragedy marked by massive imbalances in supply and demand, the crash of the stock market, closure of many businesses among other economic effects. These events caused millions of Americans to lose their jobs and their investments in the stock market. As a response to this tragedy, the US government instituted several measures to ensure a turn in the economic fortunes of the country. One of these was the passing of the New Deal Legislations between 1933 and 1936. This essay provides personal impressions on the importance of some of the factors that led to the Great Depression and also explains how the New Deal Legislations helped the US economy recover from the Great Depression.
Heilbroner attributes the Great Depression three main factors. The first of these was the constrained consumer demand as a result of highly unequal distribution of income (273). In spite of the rising output per worker and increments in production due to advancing technology, employers did not increase the wages of their workers (Dulles & Dubofsky, 242). Many businesses raked up huge profits which they invested in the stock market and when it crushed, it brought about massive losses to those companies. The companies were compelled to downsize their workforce leading to massive job losses. Income was thus taken away from the ordinary families which would have spent it on products from the mass industries. The placement of such income into the hands of a few rich people who only spent it on luxury or who never spent it all, spelt doom for the many mass industries. These events catalyzed the crashing of the stock market and the subsequent economic depression.
Difficulties in the agricultural sector during the 1920s contributed to the Great Depression. In the early 1920s, less than 10% of American farms had electricity (Heilbroner, 275). The many farms excluded from electricity could not use electric appliances or deploy powered technology in their farms. This meant heavy reliance on human labor and high production costs. Farmers therefore generated minimal profits and they were always vulnerable to negative economic influences. Farmers for instance lost the ability to control their farms as they were unable to meet mortgage payments (Heilbroner, 275). The desperation of the farmers caused them to sell cheaply and the drop in farm prices in part contributed to the decline of the stock market which in turn signaled the Great Depression.
The third cause of the Great Depression was that the US financial system had become vulnerable to collapse. The system had become so due to unsound and fragile structures that had emanated from rampant get-rich quick approaches to stock market speculation. According to Heilbroner the get rich-quick schemes had affected not only the public but the business community as well (273). There were widespread financial speculations which involved wild speculative ventures. The existence of pyramids among corporations in which companies held stocks for each other was dangerous because the collapse of one corporation often meant the collapse of almost all the others. The fact that banks led this craze meant that many other businesses were affected during the crash of the stock market on October 29 1929.
The New Deal legislations were instituted to help the US economy recover from the Great Depression. These were legislations introduced by the administration of Franklin Roosevelt, they were meant to boost the self esteem of Americans and set the economy on a path to recovery. The legislations covered social, economic and financial issues and were tackled as “ 3Rs” Relief, Reform and Recovery under the New Deal legislations. In its Relief agenda, Roosevelt’s administration formed the Federal Emergency Relief Administration (FERA) which mandated the federal government to give money to states to support families. Under the Recovery agenda the New Deal comprised the formation of the Public Works Administration, and the Work Progress Administration. These bodies facilitated private investments in public works and encouraged the growth of talent-based industries (actors, writers, musicians, artists etc) respectively. In regard to its Reform agenda, the New Deal established several Acts such as the National Recovery Act (NIRA-1933) and the Glass-Steagall banking Act of 1933 (Dulles & Dubofsky, 242). These, among other acts borne in the New Deal set America’s economy on the path to recovery and they account to the great legacy of President Franklin Roosevelt.
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Dubofsky, Melvyn, and Foster R. Dulles. Labor in America: A History. Wheeling, Ill: Harlan Davidson, 2010. Print.
Heilbroner, Robert L, and Aaron Singer. The Economic Transformation of America: 1600 to the Present. Fort Worth [u. a.: Harcourt Brace College Publishers, 1999. Print.