Between 1929 and 1933 the world economy collapsed. In country after country, although not in all, prices fell, output shrank, and unemployment soared. In the United States the rate of unemployment reached 25 percent of the labor force, in the United Kingdom 16 percent, and in Germany a staggering 30 percent. These rates are only roughly comparable across countries and with twenty-first century unemployment rates because of different definitions of unemployment and methods of collection; nevertheless, they show the extremity of the crisis. The recovery, moreover, was slow and in some countries incomplete. In 1938 the rate of unemployment was still at double-digit levels in the United States and the United Kingdom, although thanks to rearmament it was considerably lower in Germany. A number of previous depressions were extremely painful, but none was as deep or lasted as long. There were many recessions that came after, but none could begin to compare in terms of prolonged industrial stagnation and high unemployment. The consequences stemming from the Great Depression for economies and polities throughout the world were profound. The early appearance of depression in the United States and the crucial role of the United States in world trade make it important to consider the U.S. case in some detail.
THE GREAT DEPRESSION IN THE UNITED STATES
There had been severe depression in the United States before the 1930s. The most similar occurred in the 1890s. Indeed, the sequence of events in the 1890s foreshadowed what was to happen in the 1930s in some detail. Prices of stocks began to decline in January 1893, and a crash came in May and June after the failure of several well-regarded firms. The market continued to decline, and at its low point in 1896 had lost 30 percent of its value. The decline in the stock market was associated with a sharp contraction in economic activity. A banking panic intensified the contraction. There seem to have been two sources for the panic. First, fears that the United States would leave the gold standard prompted by the growing strength of the free silver movement led to withdrawals of gold from New York. In addition, a wave of bank failures in the South and West produced by low agricultural prices also undermined confidence in the banking system. Runs on banks spread throughout the country and the crisis ended with a general restriction of the conversion of bank notes and deposits into gold. The money supply fell, the economy slowed, bank and business failures multiplied, and unemployment rose. Although a recovery began in June 1894, the recovery was slow and uneven. By 1897 one-third of the railroad mileage in the United States was in receivership. It took until 1898 for the stock market to match its 1893 peak, and for annual real gross domestic product (GDP) per capita to match its 1892 level.
During the early 1930s events unfolded in a similar fashion. There were few signs in 1929, however, that a Great Depression was on the horizon. There had been a severe contraction in 1920–1921, but the economy had recovered quickly. There were minor contractions in 1923–1924 and 1926–1927, and the agricultural sector had struggled during the 1920s, but overall the economy prospered after the 1920–1921 recession. In 1929 unemployment in the United States was just 3.2 percent of the labor force; in many ways it was a vintage year.
The stock market boomed in the late 1920s and reached a peak in 1929; prices rose nearly 2.5 times between 1927 and its peak in 1929. Economic historians have long debated whether there was a bubble in the market in the late 1920s, meaning that prices of shares had risen more rapidly than “fundamentals.” Research conducted in 1993 by Peter Rappoport and Eugene White and other late-twentieth-century views have strengthened the case for a bubble. They have shown that many well-informed investors doubted the long-run viability of prevailing prices. There were undoubtedly, however, many other investors who believed that the economy had entered a so-called New Age, as was said at the time, in which scientific and technical research would produce rising real incomes, rising profits, and an eventual end to poverty.
The crash of the stock market in the fall of 1929 was partly a reflection of the state of the economy—a recession was already under way—but the crash also intensified the slowdown by undermining confidence in the economic future. The major impact of the crash, as shown by Christina Romer in her 1990 work, was to slow the sale of consumer durables. The crash may also have influenced markets around the world by forcing investors to reassess their optimistic view of the future. In any case, the stock markets in most other industrial countries after having risen in the 1920s also fell to very low levels in the first half of the 1930s. The U.S. market lost two-thirds of its value by 1933, the German market (which had peaked before the American market) lost one half, and the British market, which did somewhat better, lost one-fifth.
The collapse of the American banking system then intensified the contraction. There were repeated waves of bank failures between 1930 and 1933 produced by the economic contraction, by the decline in prices, especially in the agricultural sector, and perhaps by a contagion of fear. As people withdrew their cash from banks to protect their wealth, and as banks increased their reserves to prepare for runs, the stock of money shrank. The collapse of the American banking system reflected a number of unique circumstances. First, laws that prevented banks based in one state from establishing branches in other states, and sometimes from establishing additional branches within a state, had created a system characterized by thousands of small independent banks. In contrast, most other countries had systems dominated by a few large banks with branches. In Canada where the system consisted of a small number of banks with head offices in Toronto or Montreal and branches throughout the country there were no bank failures. In addition, the young and inexperienced Federal Reserve System (it was established in 1913) proved incapable of taking the bold actions needed to end the crisis.
Many explanations have been put forward for the failure of the Federal Reserve to stem the tide of bank runs and closures. Milton Friedman and Anna J. Schwartz in their classic Monetary History of the United States (1963) stressed an internal political conflict between the Federal Reserve Board in Washington and the New York Federal Reserve Bank that paralyzed the system. A 2003 study by Allan Meltzer stresses adherence to economic doctrines that led the Federal Reserve to misinterpret the fall in nominal interest rates during the contraction. The Treasury bill rate fell from about 5 percent in May 1929 to. 10 percent in September 1933. The Federal Reserve viewed low rates as proof that it had made liquidity abundant and that there was little more it could do to combat the depression. The bank failures, which were concentrated among smaller banks in rural areas, or in some cases larger banks that had engaged in questionable activities, the Federal Reserve regarded as a benign process that would result in a stronger banking system. From 1930 to 1933 about 9,000 banks in the United States suspended operation and the money supply fell by one-third.
During the interregnum between the election of President Franklin Roosevelt in November 1932 and his taking office in March 1933 the banking system underwent further turmoil. In state after state governors proclaimed “bank holidays” that prohibited or limited withdrawals from banks and brought the banking and economic system to a standstill. The purpose of the holidays was to protect the banks from panicky withdrawals, but the result was to disrupt commerce and increase fears that the system was collapsing. By the time Roosevelt took office virtually all of the banks in the United States were closed and perhaps one-quarter of the labor force was unemployed. Roosevelt addressed the situation boldly. Part of his response was to rally the spirits of the nation. In his famous first inaugural address he told the people that “the only thing we have to fear is fear itself.” His address also promised work for the unemployed and reforms of the banking system. The administration soon followed through. Public works programs, which focused on conservation in national parks and building infrastructure, were created to hire the unemployed. In the peak year of 1936 approximately 7 percent of the labor force was working in emergency relief programs.
The banking crisis was addressed in several ways. Banks were inspected and only “sound” banks were allowed to reopen. The process of inspection and phased reopening was largely cosmetic, but it appears to have calmed fears about the safety of the system. Deposit insurance was also instituted. In 1963 Milton Friedman and Ann Jacobson Schwartz argued that deposit insurance was important in ending the banking crisis and preventing a new eruption of bank failures by removing the fears that produced bank runs. Once depositors were insured by a federal agency they had no reason to withdraw their funds in cash when there was a rumor that the bank was in trouble. The number of bank failures in the United States dropped drastically after the introduction of deposit insurance.
The recovery that began in 1933, although not without setbacks, was vigorous and prolonged. By the middle of 1937 industrial production was close to the 1929 average. Still, there was considerable concern about the pace of recovery and the level of the economy. After all, with normal economic growth the levels of industrial production and real output would have been above their 1929 levels in 1937. Unemployment, moreover, remained stubbornly high. With a few more years of continued growth the economy might well have recovered fully. However, another recession, the “recession within the depression,” hit the economy in 1937. By the trough in 1938 industrial production had fallen almost 60 percent and unemployment had risen once more. Mistakes in both fiscal and monetary policy contributed to the severity of the contraction, although the amounts contributed are disputed. The new Social Security system financed by a tax on wages was instituted in 1935, and the taxes were now put in place. The Federal Reserve, moreover, chose at this time to double the required reserve ratios of the banks. The main purpose of the increase was to prevent the reserves from being a factor in the future, to tie them down. The banks, however, were now accustomed to having a large margin of reserves above the required level and they appear to have cut their lending in order to rebuild this margin. The economic expansion that began in the summer of 1938, however, would last throughout the war and pull the economy completely out of the depression. Indeed, even before the United States entered the war as an active participant at the end of 1941, fiscal and monetary stimuli had done much to cure the depression.
Most market-oriented countries, especially those that adhered to the gold standard, were affected by the Great Depression. One reason was the downward spiral of world trade. The economic decline in the United States hit hard at firms throughout the world that produced for the American market. As the depression spread from country to country, imports declined further.
The gold standard, to which most industrial countries adhered, provided another channel for the transmission of the Great Depression. The reputation of the gold standard had reached unchallenged heights during the period of expanding world trade before World War I. Most countries, with the exception of the United States, had abandoned the gold standard during the war to be free to print money to finance wartime expenditures. After the war, the gold standard had been reconstructed, but in a way that left it fragile. Most countries decided not to deflate their price levels back to prewar levels. Hence the nominal value of world trade relative to the amount of gold in reserve was much higher after the war than before. Under the gold standard orthodoxy of the day central banks were supposed to place maintenance of the gold standard above other priorities. If a country was losing gold because its exports had fallen faster than its imports, the central bank was supposed to raise interest rates to protect its gold reserve, even if this policy exacerbated the economic contraction. Countries that gained gold might have lowered their rates, but they were reluctant to do so because lower rates would put their gold reserves at risk.
The global transmission of information and opinion provided a third, hard to measure, but potentially important channel. The severe slide on the U.S. stock market and other stock markets focused attention throughout the rest of the world on factors that might produce a decline in local markets. Waves of bank failures in the United States and central Europe forced depositors throughout the rest of the world to raise questions about the safety of their own funds. Panic, in other words, did not respect international borders.
Although these transmission channels assured that the whole world was affected in some degree by the depression, the experience varied markedly from country to country, as even a few examples will illustrate. In Britain output fell from 1929 to 1932, but the fall was less than 6 percent. The recovery, moreover, seems to have started sooner in Britain than in the United States and the growth of output from 1932 to 1937 was extremely rapid. Unemployment, however, soared in 1929 to 1931 and remained stubbornly high for the remainder of the decade. Although Britain was becoming less dependent on exports, exports were still about 15 percent of national product. The fall in exports produced by the economic decline in the United States and other countries, therefore, probably explains a good deal of the decline in economic activity in Britain. In September 1931 Britain devalued the pound and left the gold standard. The recovery in Britain began soon after. Export growth produced by a cheaper pound does not seem to have played a prominent part in the recovery, but a more expansionary monetary policy permitted by leaving gold does seem to have played a role. On the whole it may be said that the British economy displayed surprising resiliency in the face of the loss of its export markets.
Germany, on the other hand, suffered one of the most catastrophic declines. A severe banking crisis hit Germany in July 1931, punctuated by the failure of the Darmstädter-und Nationalbank on July 13. The German crisis may have been provoked by the failure of the Credit Anstalt bank in Austria in May 1931 and the subsequent run on the Austrian shilling, although economists have debated these factors. Germany soon closed its banks in an effort to stem the runs, and abandoned the gold standard. Germany, however, did not use the monetary freedom won by abandoning the commitment to gold to introduce expansionary policies. Between June 1930 and June 1933 the stock of money in Germany fell by nearly 40 percent. Prices and industrial production fell, and unemployment soared. Under the Nazis government spending, much of it for rearmament, and monetary expansion produced an extended economic boom that restored industrial production and full employment.
The experience of Japan where the depression was unusually mild has stimulated considerable interest. Unemployment rose mildly by Western standards between 1929 and 1933 and fell to 3.8 percent by 1938. Other indicators, such as the stock market, also rose between 1933 and 1938. Many observers have attributed this performance to the actions of Finance Minister Korekiyo Takahashi. In 1931 Takahashi introduced a stimulus package that included a major devaluation of the yen, interest rate cuts, and increases in government spending. The latter element of his package has led some observers to refer to Takahashi as a “Keynesian before Keynes.” Late twentieth-century research has challenged the notion that Takahashi was able to break completely free of the economic orthodoxies of the day, but the strong performance of the Japanese economy remains an important signpost for scholars attempting to understand the factors that determined the course of events in the 1930s.
The factors previously stressed, the collapse of the banking system in the early 1930s, and the policy mistakes by the Federal Reserve and other central banks are of most relevance to what has come to be called the monetarist interpretation of the Great Depression. Some economists writing in the 1930s, such as Jacob Viner and Laughlin Currie, developed this view, concluding that much of the trouble could have been avoided if the Federal Reserve and other central banks had acted wisely.
In the aftermath of the publication of John Maynard Keynes’ General Theory (1936), however, an alternative interpretation held sway. The Keynesians argued that the breakdown of the banking system, although disturbing, was mainly a consequence of the collapse of aggregate demand. The behavior of the Federal Reserve was at most a secondary problem. The Keynesians blamed the fall in aggregate demand on the failure of one or more categories of autonomous spending. At first, attention focused on investment; later attention shifted to consumption. The answer to the Great Depression was public works financed, if necessary, by borrowing. The New Deal in the United States had spent a great deal of money and run up highly controversial deficits; 1956 calculations by E. Cary Brown, however, showed that a number of factors, including cuts in spending at the state and local level, had offset the effects of New Deal spending. Fiscal policy had failed to return the economy to full employment, according to Brown, “not because it did not work, but because it was not tried” (1956, pp. 863–866).
Friedman and Schwartz’s Monetary History, which provided an extraordinarily detailed account of the effects of monetary policies during the 1930s and put the Great Depression into the broader context of American monetary history, returned the collapse of the banking system to center stage. Their interpretation was challenged in turn by Peter Temin in Did Monetary Forces Cause the Great Depression (1976) who defended the Keynesian interpretation. Subsequent work, however, continued to emphasize the banking crisis. The 1983 research of Ben Bernanke, who later became chair of the U.S. Federal Reserve, was particularly influential. Bernanke argued that the banking and financial crises had disrupted the ability of the banking system to act as an efficient financial intermediary. Even sound businesses found it hard to borrow when their customary lender had closed its doors and the assets they could offer as collateral to another lender had lost value. The Bernanke thesis not only explained why the contraction was severe, but also why it took so long for the economy to recover: It took time for financial markets to rebuild the relationships that had been sundered in the early 1930s.
Research that took a more global view of the Great Depression, such as Peter Temin’s 1989 work, reinforced the case for viewing monetary forces as decisive. Barry Eichengreen’s Golden Fetters (1992), one of the most influential statements of this view, stressed the role of the gold standard in transmitting the Depression and inhibiting recovery. Countries faced with balance of trade deficits because of declining exports should have maintained their stocks of money and aimed for internal price stability. Instead they often adopted contractionary policies aimed at stemming the outflow of gold. Those countries that abandoned the gold standard and undertook expansionary monetary policies recovered more rapidly than those who clung to gold. The examples provided by countries, such as Japan, which avoided trouble because they had never been on gold or quickly abandoned it were particularly telling.
In the twenty-first century economists have turned to formal models, such as dynamic computable general equilibrium models, to address macroeconomic questions, and have used these models to formulate and test ideas about the Great Depression. The 2002 and 2005 work of Harold Cole and Lee Ohanian has received considerable attention in both academic and mainstream circles. It is too early to say, however, whether this work will serve to reinforce traditional interpretations of the Great Depression reached by other methods or produce entirely new interpretations. It is not too soon to predict, however, that the Great Depression will continue to attract the interest of scholars attempting to understand basic macroeconomic processes.
One cannot say for certain that another Great Depression is impossible, but important lessons have been learned and important changes made in the financial system that make a repetition highly unlikely. For example, it seems improbable that any modern central bank would allow a massive collapse of the banking system and deflation to proceed unabated as happened in a number of countries in the early 1930s.
SEE ALSO Aggregate Demand; Banking; Bull and Bear Markets; Business Cycles, Real; Central Banks; Depression, Economic; Economic Crises; Economics, Keynesian; Federal Reserve System, U.S.; Finance; Financial Markets; Fisher, Irving; Friedman, Milton; Gold Standard; Interest Rates; Investment; Keynes, John Maynard; Kindleberger, Charles Poor; Long Waves; Monetarism; Policy, Fiscal; Policy, Monetary; Recession; Stagnation; Unemployment
Bernanke, Ben S. 1983. Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression. American Economic Review 73 (3): 257–276.
Bernanke, Ben S. 1995. The Macroeconomics of the Great Depression: A Comparative Approach. Journal of Money, Credit and Banking 27 (1): 1–28.
Brown, E. Cary. 1956. Fiscal Policy in the Thirties: A Reappraisal. American Economic Review 46 (5): 857–879.
Cole, Harold L., and Lee E. Ohanian. 2002. The U.S. and U.K. Great Depressions through the Lens of Neoclassical Growth Theory. American Economic Review 92 (2): 28–32.
Cole, Harold L., Lee E. Ohanian, and Ron Leung. 2005. Deflation and the International Great Depression: A Productivity Puzzle. Minneapolis, MN: Federal Reserve Bank of Minneapolis.
Friedman, Milton, and Anna Jacobson Schwartz. 1963. A Monetary History of the United States, 1867–1960. Princeton, NJ: Princeton University Press.
James, Harold. 1984. The Causes of the German Banking Crisis of 1931. Economic History Review 37 (1): 68–87.
Kindleberger, Charles Poor. 1973. The World in Depression, 1929–1939. Berkeley: University of California Press.
Meltzer, Allan H. 2003. A History of the Federal Reserve. Chicago: University of Chicago Press.
Rappoport, Peter, and Eugene N. White. 1993. Was There a Bubble in the 1929 Stock Market? Journal of Economic History 53 (3): 549–574.
Romer, Christina D. 1990. The Great Crash and the Onset of the Great Depression. Quarterly Journal of Economics 105 (3): 597–624.
Romer, Christina D. 1993. The Nation in Depression. Journal of Economic Perspectives 7 (2): 19–39.
Sicsic, Pierre. 1992. Was the Franc Poincaré Deliberately Undervalued? Explorations in Economic History 29: 69–92.
Temin, Peter. 1976. Did Monetary Forces Cause the Great Depression? New York: Norton.
Temin, Peter. 1989. Lessons from the Great Depression. Cambridge, MA: MIT Press.
Temin, Peter. 1993. Transmission of the Great Depression. Journal of Economic Perspectives 7 (2): 87–102.
Great DepressionTHE DEPRESSION AND INDUSTRY FINANCES
THE MOVIES OF "PRE-CODE HOLLYWOOD"
THE BATTLE OVER CONTROL AND "POST-PCA" DEPRESSION MOVIES
The Great Depression refers to that period of American history between the stock market crash of October 1929 and the US entry into World War II following the Japanese bombing of Pearl Harbor on 7 December 1941. Although the United States had experienced other significant depressions before—the periods between 1839 and 1843, 1873 and 1879, and 1893 and 1896 offer three examples—the Great Depression was particularly sustained and persistent. The only major depression to take place after the movies were firmly established as an industry and popular art form in the United States, it generated considerable economic strain on the industry—especially in the early 1930s—eroding the audience and encouraging the industry to win back its audience in a variety of ways, some of which led to tensions between the industry and certain segments of American society. The film industry responded to its critics, and as the decade wore on, a resurgent national confidence in the system coincided with some shifts in the films produced by the industry.
The economic downturn of the Depression was precipitated by a rapid decline in values of stock at the New York Stock Exchange in the fall of 1929. Black Thursday (24 October) and Black Tuesday (29 October) were key moments in the collapse. Overall, the Dow Jones Industrial Average dropped from a high of 381 on 3 September to a low of 198 before the end of the year. The economy continued to decline through 1932, when the Dow Jones industrial average bottomed out at 41. Between 1929 and 1933, when Franklin Delano Roosevelt (1882–1945) assumed the presidency, consumption had plummeted 18 percent, construction by 78 percent, and investment by 98 percent. National income had been cut in half, five thousand banks had collapsed, and over nine million savings accounts evaporated. Nonfarm unemployment reached 25 percent in the United States, and most farmers were struggling to survive because of severely depressed prices for the crops they grew and livestock they raised.
Inevitably, such an economic climate hit Hollywood hard. The industry had enjoyed a period of prosperity in the 1920s, building luxurious movie palaces and, from 1927 on, cashing in on the novelty of the newly developed technology of talking films. Between 1930 and 1933, however, movie attendance dropped from around ninety million admissions per week to sixty million admissions, and average ticket prices dropped from 30 cents to around 20 cents over the same span. Industry revenues dropped from $720 million in 1929 to $480 million in 1933, while total company profits of $54.5 million in 1929 gave way to total company losses of $55.7 million in 1932.
At the time of the stock market crash the film industry was organized by a studio system, and most of the important films produced in Hollywood in the 1930s were made by five studios that owned theater chains and three smaller studios that did not. The "Big Five" that owned theaters faced particularly pronounced strains following the crash because of the investments they had made in building theaters in the 1920s. Of that group, RKO, Fox, and Paramount all went into bankruptcy or receivership in the early 1930s, Warner Bros. managed to stay afloat only by selling off nearly one-quarter of its assets, and only MGM—which had much smaller theater holdings than Paramount—continued to make a profit, although its profits dropped from $15 million in 1930 to $4.3 million in 1931. (Fox returned to stability by merging with the independent production company Twentieth-Century in 1935.)
The "Little Three" managed a bit better. Both Columbia and Universal, production companies that owned no theaters, survived in part by making low-budget "B movies"that were often shown as double features. Columbia did better from 1934, when Frank Capra's (1896–1991) It Happened One Night became a hit. Universal was in constant financial difficulty, recording small losses each year between 1932 and 1938, although the popularity of their horror films early in the decade and Deanna Durbin (b. 1921) musicals later on kept the losses from growing even higher. United Artists, essentially a distribution company for its owners, such as Charlie Chaplin (1889–1977), and talented independent producers such as Samuel Goldwyn (1882–1974) and Walter Wanger (1894–1968), lost money only in 1932, although its profits in the later 1930s were very modest.
Movie exhibition was also affected by the economic downturn. One major effect was the decline of construction of new theaters following the boom of movie-palace building in the 1920s. As movie attendance began to decline significantly in the early 1930s some theater owners also began to offer giveaway programs (like "dish night") or games of chance (SCREENO, a variety of bingo, was the most popular), particularly on the traditionally slow nights of Monday and Tuesday, to get more people back into the theaters. Theater owners also sought to reduce costs by cutting staff—hiring fewer ushers, for example—or, in the bigger urban theaters, by eliminating live shows that supplemented the movie program. Some theaters turned to double features, thus boosting the demand for B movies by companies such as Monogram and Republic. The only major new expense made by many theater owners in the Depression, especially in the South and West, was the installation of air conditioning, which because of technological advances became more affordable than it had been in the 1920s. By the end of the decade attendance inched back to 1929 levels. In this improved financial environment, the giveaway programs and the games of chance began to disappear.
Indeed, the industry began to rebound after the dark years of 1932 and 1933, in part because of New Deal legislation. President Roosevelt's National Industrial Recovery Act (NIRA) went into effect in June 1933, and its strategy for recovery was in part to permit certain monopolistic practices by major industries, including the film industry. Even though the Supreme Court eventually struck it down in 1935, the NIRA also authorized the organization of labor unions and collective bargaining, a tendency strengthened with the passage of the Wagner Act in 1935. From 1933 on various groups of Hollywood workers sought and eventually succeeded in establishing unions recognized by the studios, including the Screen Actors Guild (recognized in 1937), the Screen Directors Guild (1939), and the Screen Writers Guild (1941). By the time the United States entered World War II, the industry was largely unionized.
The evolution of the industry through the Depression can be grasped in part through numbers. Box-office receipts bottomed out in 1933 at $480 million, gradually growing to $810 million in 1941, which slightly exceeded the $720 million receipts of 1929. Total company losses of $55.7 million in 1932 were reduced to losses of $4.9 million in 1933, after which the bottom line improved to profits of $9 million in 1934, up to $34 million in 1941. Only in 1943, however, with profits of $60.6 million, did Hollywood exceed the $54.5 million of profits in 1929. In the most general terms, after spiraling downward from 1929/1930 to 1932/1933, the economic condition of the industry reversed itself and gradually improved for the rest of the decade, even though attendance and profits did not return to 1929 levels until after World War II was well underway. The economic conditions of the Depression surely tested the movie industry.
The period from the 1929 stock market crash until the establishment of the Production Code Administration in June 1934 has been called "pre-code Hollywood." Although film historians have argued about how different pre-code films were from films made later in the decade, a solid argument can be made that there was a distinctive difference. Andrew Bergman suggests in We're in the Money that the popular cycles of pre-code Hollywood—such as gangster films, fallen-women films, backstage musicals, social-problem films, and "anarchic" comedies—were distinctly connected to the economic distress of the early 1930s and the social-psychological anxieties it produced. Robert Sklar extends this argument in Movie-Made America, labeling the early 1930s the "golden age of turbulence" and the post-code Depression films the "golden age of order." Although Richard Malt by has usefully suggested that the majority of films in pre-code Hollywood were tamer and more conventional than the films Bergman and Sklar highlight, it does seem that during the early 1930s, more so than just before and just after that period, filmmakers were more likely to make, and audiences were more likely to respond to, films that called into question dominant attitudes toward sexuality, upper-class respectability, and the institutions of law and order.
b. Leonard MacTaggart Lorentz, Clarksburg, West Virginia, 11 December 1905,
d. 4 March 1992
Pare Lorentz was the most influential maker of and advocate for government-sponsored documentary films in the United States during the Great Depression. After studying journalism at West Virginia Wesleyan College and the University of West Virginia, Lorentz left for New York in 1925 and adopted his father's first name, Pare. From 1927 to 1932 he reviewed films for the magazine Judge. After that, he continued to write movie reviews and essays for a variety of publications for the rest of the decade. Some of this work was collected in Lorentz on Film (1975).
In 1934 Lorentz published The Roosevelt Year: 1933, a book of photographs with accompanying text that sought to dramatize the Depression and the emergence of the New Deal. Lorentz originally had hoped to make a film, but had been unable to arrange financing. However, in June 1935 Rexford Tugwell, head of the US Resettlement Administration, hired him to make films about the plight of farmers in the Depression. The first film project focused on the Dust Bowl. Made for less than $20,000, The Plow That Broke the Plains (1936) demonstrated how the drought, dust storms, and market collapse forced Great Plains farmers to leave the land, then concluded with the government's plan of resettlement and soil conservation. Although the film garnered generally positive reviews, Hollywood caused difficulties for Lorentz, making it hard for him to obtain stock footage and discouraging theaters from showing a government-sponsored film that would compete with its newsreels. Lorentz's next film, The River (1938), featured footage of the devastating floods in early 1937 to depict the problems of flooding, soil erosion, and poverty in the Tennessee and Mississippi Valleys and to suggest how the establishment of the Tennessee Valley Authority confronted those problems through flood control, electrification, and conservation measures. More positively reviewed and widely distributed than Plow, The River received the best documentary award at the Venice Film Festival in 1938, winning over Leni Riefenstahl's Olympia.
That year President Roosevelt named Lorentz director of the US Film Service. In that capacity he oversaw the making of Joris Iven's The Power and the Land (1940) and Robert Flaherty's The Land (1940) and made one film himself, The Fight for Life (1940), an account of infant mortality, malnutrition, and child poverty in the United States that won the National Board of Review's best documentary award. Its controversial topic and critical subject matter angered many congressmen, however, and the US Film Service was eliminated when Congress refused to fund it in the spring of 1940. Lorentz's next project, a documentary on unemployment called Ecco Homo, was never made.
The Plow That Broke the Plains (1936), The River (1938), The Fight for Life (1940)
Lorentz, Pare. FDR's Moviemaker: Memoirs and Scripts. Reno: University of Nevada Press, 1992.
——. Lorentz on Film: Movies 1927–1941. New York: Hopkinson and Blake, 1975.
Snyder, Robert L. Pare Lorentz and the Documentary Film. 2nd ed. Reno: University of Nevada Press, 1993. The original edition was published in 1968.
Charles J. Maland
The classic gangster films, whose plots were drawn to a greater or lesser extent from headlines about real gangsters such as Chicago's Al Capone, offer a good example. In them an ethnic American, usually of Italian descent, such as Rico in Little Caesar (1931) or Tony Camonte in Scarface (1932), or Irish extraction, such as Tommy Powers in Public Enemy (1931), rises from rags to riches by consolidating power in the prohibited liquor trade, only to be killed in the film's climax, a victim of his ambition, ruthlessness, and notoriety. James Cagney (1899–1986) and Edward G. Robinson (1893–1973) became closely associated with this genre. In the fallen-women films a woman is driven by economic circumstances to become a prostitute or kept woman. Greta Garbo (1905–1990) (Susan Lenox, Her Fall and Rise, 1931), Joan Crawford (1904–1977) (Possessed, 1931, and Rain, 1932), Marlene Dietrich (Blonde Venus, 1932), Jean Harlow (1911–1937) (Red Dust and Red-Headed Woman, both 1932), and Barbara Stanwyck (1907–1990) (Baby Face, 1932) were among the best-known actresses who appeared in films of this cycle. The backstage musicals, most notably The Gold Diggers of 1933 and 42nd Street (both 1933), achieved popularity by combining Busby Berkeley's production numbers with a plot about a producer and cast working together to put on a show despite the depression economy. The story type from pre-code Hollywood that embraced the era most directly was the social-problem film, a type common in the 1910s but much less so in the 1920s. I Am a Fugitive from a Chain Gang (1932) was one of the most acclaimed at the time, but also noteworthy were Wild Boys of the Road (1933) and the independently financed Our Daily Bread (1934). Finally, the irreverence of the anarchic comedies such as the Marx Brothers's Duck Soup (1933) satirized political authority and respectability, while Mae West's (1893–1980) comedies such as She Done Him Wrong (1933) and I'm No Angel (1934)—which she both wrote and starred in—featured a self-confident, voluptuous woman who openly uses her charm and physical allure to wrap men around her finger, refusing to accept the culture's prescribed role for female respectability.
The popularity and pervasiveness of the gangster films, the fallen-women films, and West's brazen comedies played a significant role in the protests by a variety of pressure groups against the movie industry between 1932 and early 1934. Among the most prominent of the protesters was the Legion of Decency, a Catholic organization that sought to pressure the movie industry to follow the guidelines of the Hollywood Production Code of 1930. The Studio Relations Committee, an industry self-regulation body, was ostensibly charged with seeing that the studios followed that code, but it did not possess adequate power to compel the studios to adhere to it. Desperately seeking to find ways to reverse the decline in attendance, the studios regularly ignored the code in many of their productions. When the Legion of Decency began to threaten a widespread national boycott of the movies early in 1934, however, the studios decided that it would be in their best interests to set up a body that would enforce the code more strictly. They did so in June 1934 by establishing the Production Code Administration (PCA) and appointing as its director Joseph Breen. From that point on, the PCA more strictly enforced the code by reviewing and making suggestions on all studio scripts before they went into production, then doing the same with all completed films before issuing a PCA certificate. Member studios agreed not to release any film before the PCA granted it a certificate.
Regular monitoring of studio films by the PCA, as well as a gradual restoration of national confidence engendered by Roosevelt's New Deal programs between 1933 and 1935, contributed to some shifts in movie cycles after 1934. For example, Warner Bros. revised the gangster formula by making the protagonist not a gangster but a law-enforcement official in G-Men (1935), starring James Cagney. It was one of the top ten highest-grossing films of 1935 and paved the way for similar films, such as Bullets or Ballots (1936), starring Edward G. Robinson as a police detective, and Marked Woman (1937), starring Humphrey Bogart (1899–1957) as a crusading district attorney. The fallen-woman and Mae West films, which were either forbidden or seriously constrained by the PCA, made way for one of the most popular and accomplished genres in the late 1930s, the screwball comedy. The surprise success of Capra's It Happened One Night (1934), which was made before the PCA was established, helped establish the cycle. An unlikely comic romance about a spoiled heiress (Claudette Colbert) and a gruff and pragmatic newspaper reporter (Clark Gable), the film became the first movie to win the five major Oscars®—for film, director, actress, actor, and screenplay (Robert Riskin)—and set the stage for a variety of successful screwball comedies. Noting the code's prohibitions against overt portrayals of sexuality, Andrew Sarris has called the genre the "sex comedy without sex," suggesting that instead of turning the female protagonists into sex objects, the screwball comedy endowed them with spontaneity, wit, vitality, and often professional achievements in the working world (p. 8). Capra's Mr. Deeds Goes to Town (1936), Gregory La Cava's (1892–1952) My Man Godfrey (1936), Leo McCarey's (1898–1969) The Awful Truth (1937), George Cukor's Holiday (1938), and two films by Howard Hawks (1896–1977), Bringing Up Baby (1938) and His Girl Friday (1940), are among the many accomplished films of the genre. In their focus on a rocky but ultimately successful romance, these screwball comedies resembled the Fred Astaire–Ginger Rogers musicals of the middle and late 1930s—including Top Hat (1935), Swing Time (1936), and Shall We Dance (1937)—which replaced the backstage musicals popular in the early 1930s. Each of these emerging cycles—law-official crime films, screwball comedies, and romantic musicals—exhibited more confidence in the prevailing order than had many of the popular cycles of the early 1930s.
Another shift following the establishment of the PCA (and the gradual improvement of economic conditions) was the move toward more expensive, "prestige films." These films were expensive to make, but they also were most likely to appear on Variety's list of the top ten highest-grossing films in the last half of the decade. The prestige films encompass a variety of different story types, but they included adaptations of literary classics and best-selling novels, swashbuckling adventure stories, and "biopics"—biographical films about famous people. The first group included cinematic versions of Shakespeare's plays, such as A Midsummer Night's Dream (1935) and Romeo and Juliet (1936), adaptations of nineteenth-century novels, such as David Copperfield, A Tale of Two Cities, and Anna Karenina (all 1935), and adaptations of twentieth-century novels such as The Informer and Mutiny on the Bounty (both 1935), Anthony Adverse (1936), Lost Horizon and The Good Earth (both 1937), the monumentally successful Gone With the Wind (1939), and the critically acclaimed Grapes of Wrath (1940). Successful costume/adventure films appeared with Captain Blood (1935) and Anthony Adverse (1936), and crested with The Adventures of Robin Hood (1938). The biopics portrayed the lives of people as different as Jesse James, Alexander Graham Bell, and Thomas Edison, but one particularly effective set were three films starring Paul Muni (1895–1967): The Story of Louis Pasteur (1936), The Life of Emile Zola (1937), and Juarez (1939).
The popularity of two child stars in the middle and latter part of the decade suggests that American movies were playing a role in the reconsolidation of American culture—in restoring confidence in the system—as the country began to pull out of the Depression. From 1935 to 1938 Shirley Temple (b. 1928), thanks to the success of such films as Curly Top (1935) and The Littlest Rebel (1936), topped the Quigley Publications poll of top box-office stars in the United States. From 1939 to 1941, Mickey Rooney (b. 1920)—MGM star of the Andy Hardy series, Boys Town (1938), and "let's put on a show" musicals such as Babes in Arms (1939)—topped the list. In both cases the child actors showed vitality, resilience, and good cheer in overcoming whatever obstacles they confronted.
As the United States moved into the latter part of the decade, Hollywood, like American culture as a whole, began to exhibit a reawakened interest in defining national traditions and values. This trend emerged in part as a response to the growing international threat of fascism in Germany and Italy. The Los Angeles area, which became home to many prominent refugees from Germany, became a center of antifascist activity in the United States, led by groups such as the Hollywood Anti-Nazi League. The movies participated in this exploration of national traditions and critique of fascism both domestic and, eventually, foreign. Fury (1937), directed by refugee Fritz Lang (1890–1976), explored the psychology of a mob action that led to lynching. Capra's Mr. Smith Goes to Washington (1939) and Meet John Doe (1941) confronted a prototypically American hero with a sinister antagonist whose wealth, power, and ambition threatened to disrupt the democratic system. The historical settings of films such as Young Mr. Lincoln, Drums Along the Mohawk, and Gone With the Wind (all 1939) were central to their narrative concerns. The reappearance of the "A" western in late-1930s movies such as Dodge City, Union Pacific, and Stagecoach (all 1939) also contributed to the interest in American national traditions. Other important films from the end of this period include The Grapes of Wrath (1940), which shows how the Joad family are victimized by the dust bowl and a harsh economic system, and Orson Welles's (1915–1985) audacious, probing critique of an American tycoon, Citizen Kane (1941). Although the PCA discouraged filmmakers from making films that criticized other nations—in part because it hurt foreign rentals—overtly anti-Nazi films gradually began to appear even before the United States declared war in December 1941, most notably in Confessions of a Nazi Spy (1939) and Chaplin's satiric attack on fascism, The Great Dictator (1940).
If one surveys American movies during the Depression in an extreme long shot, two impulses come into clear focus. One impulse, an aesthetic of movies as entertainment, which had established itself firmly during the 1920s, held that movies should enable viewers to escape from their problems for two hours. However, a counter impulse, which emerged from the distressing social and economic conditions following the stock market crash, pressured filmmakers to acknowledge and grapple with the social realities of the day. Although the latter impulse never became dominant, in part because of the industry's constant attention to the box-office potential of projects, it did lead to some of the most disturbing and powerful films of pre-code Hollywood and to the most critically acclaimed and widely discussed films later in the decade. With the American entry to World War II in December 1941, the industry officially moved out of the Depression and into a new era.
Balio, Tino. Grand Design: Hollywood as a Modern Business Enterprise, 1930–1939. History of the American Cinema. New York: Scribner, 1993.
Bergman, Andrew. We're in the Money: Depression America and Its Films. New York: Harper and Row, 1971.
Doherty, Thomas Patrick. Pre-Code Hollywood: Sex, Immorality, and Insurrection in American Cinema, 1930–1934. New York: Columbia University Press, 1999.
Giovacchini, Saverio. Hollywood Modernism: Film and Politics in the Age of the New Deal. Philadelphia: Temple University Press, 2001.
Gomery, Douglas. Shared Pleasures: A History of Movie Presentation in the United States. Madison: University of Wisconsin Press, 1992.
Jacobs, Lea. The Wages of Sin: Censorship and the Fallen Woman Film, 1928–1942. Wisconsin Studies in Film. Madison: University of Wisconsin Press, 1991.
Maltby, Richard. "The Production Code and the Hays Office." In The Grand Design: Hollywood as a Modern Business Enterprise, 1930–1939, edited by Tino Balio, 37–72. Berkeley: University of California Press, 1993.
Sarris, Andrew. "The Sex Comedy Without Sex." American Film 3 (March 1978): 8–15.
Schatz, Thomas. The Genius of the System: Hollywood Filmmaking in the Studio Era. New York: Pantheon, 1988.
Sklar, Robert. Movie-Made America: A Social History of American Movies. New York: Random House, 1975.
Charles J. Maland
GREAT DEPRESSION, the longest, deepest, and most pervasive depression in American history, lasted from 1929 to 1939. Its effects were felt in virtually all corners of the world, and it is one of the great economic calamities in history.
In previous depressions, such as those of the 1870s and 1890s, real per capita gross domestic product (GDP)—the sum of all goods and services produced, weighted by market prices and adjusted for inflation—had returned to its original level within five years. In the Great Depression, real per capita GDP was still below its 1929 level a decade later.
Economic activity began to decline in the summer of 1929, and by 1933 real GDP fell more than 25 percent, erasing all of the economic growth of the previous quarter century. Industrial production was especially hard hit, falling some 50 percent. By comparison, industrial production had fallen 7 percent in the 1870s and 13 percent in the 1890s.
From the depths of depression in 1933, the economy recovered until 1937. This expansion was followed by a brief but severe recession, and then another period of economic growth. It was not until the 1940s that previous levels of output were surpassed. This led some to wonder how long the depression would have continued without the advent of World War II.
In the absence of government statistics, scholars have had to estimate unemployment rates for the 1930s. The sharp drop in GDP and the anecdotal evidence of millions of people standing in soup lines or wandering the land as hoboes suggest that these rates were unusually high. It is widely accepted that the unemployment rate peaked above 25 percent in 1933 and remained above 14 percent into the 1940s. Yet these figures may underestimate the true hardship of the times: those who became too discouraged to seek work would not have been counted as unemployed. Likewise, those who moved from the cities to the countryside in order to feed their families would not have been counted. Even those who had jobs tended to see their hours of work fall: the average work week, 47 to 49 hours in the 1920s, fell to 41.7 hours in 1934 and stayed between 42 and 45 until 1942.
The banking system witnessed a number of "panics" during which depositors rushed to take their money out of banks rumored to be in trouble. Many banks failed under this pressure, while others were forced to merge: the number of banks in the United States fell 35 percent between 1929 and 1933.
While the Great Depression affected some sectors of the economy more than others, and thus some regions of the country more than others, all sectors and regions experienced a serious decline in output and a sharp rise in unemployment. The hardship of unemployment, though concentrated in the working class, affected millions in the middle class as well. Farmers suffered too, as the average price of their output fell by half (whereas the aggregate price level fell by only a third).
The Great Depression followed almost a decade of spectacular economic growth. Between 1921 and 1929, output per worker grew about 5.9 percent per year, roughly double the average in the twentieth century. Unemployment and inflation were both very low throughout this period as well. One troublesome characteristic of the 1920s, however, was that income distribution became significantly less equal. Also, a boom in housing construction, associated in part with an automobile-induced rush to the suburbs, collapsed in the late 1920s. And automakers themselves worried throughout the late 1920s that they had saturated their market fighting for market share; auto sales began to slide in the spring of 1929.
Technological advances in production processes (notably electrification, the assembly line, and continuous processing of homogenous goods such as chemicals) were largely responsible for the advances in productivity in the 1920s. These advances induced the vast bulk of firms to invest in new plants and equipment In the early 1920s, there were also innovative new products, such as radio, but the decade after 1925 was the worst in the twentieth century for new product innovation.
Causes of the Great Depression
In 1929 the standard economic theory suggested that a calamity such as the Great Depression could not happen: the economy possessed equilibrating mechanisms that would quickly move it toward full employment. For example, high levels of unemployment should put downward pressure on wages, thereby encouraging firms to increase employment. Before the Great Depression, most economists urged governments to concentrate on maintaining a balanced budget. Since tax receipts inevitably fell during a downturn, governments often increased tax rates and reduced spending. By taking money out of the economy, such policies tended to accelerate the downturn, though the effect was likely small.
As the depression continued, many economists advised the federal government to increase spending, in order to provide employment. Economists also searched for theoretical justifications for such policies. Some thought
the depression was caused by overproduction: consumers did not wish to consume all that was produced. These analysts often attributed overproduction to the increased disparity in income that developed in the 1920s, for the poor spend a greater percentage of their income than do the rich. Others worried about a drop in the number of profitable investment opportunities. Often, these arguments were couched in apocalyptic terms: the Great Depression was thought to be the final crisis of capitalism, a crisis that required major institutional restructuring. Others, notably Joseph Schumpeter, pointed the finger at technology and suggested that the Great Depression reflected the failure of entrepreneurs to bring forth new products. He felt the depression was only temporary and a recovery would eventually occur.
The stock market crash of 1929 and the bank panics of the early 1930s were dramatic events. Many commentators emphasized the effect these had in decreasing the spending power of those who lost money. Some went further and blamed the Federal Reserve System for allowing the money supply, and thus average prices, to decline.
John Maynard Keynes in 1936 put forward a theory arguing that the amount individuals desired to save might exceed the amount they wanted to invest. In such an event, they would necessarily consume less than was produced (since, if we ignore foreign trade, total income must be either consumed or saved, while total output is the sum of consumption goods and investment goods). Keynes was skeptical of the strength of equilibrating mechanisms and shocked many economists who clung to a faith in the ability of the market system to govern itself. Yet within a decade the profession had largely embraced his approach, in large part because it allowed them to analyze deficient consumption and investment demand without reference to a crisis of capitalism. Moreover, Keynes argued that, because a portion of income was used for taxes and output included government services, governments might be able to correct a situation of deficient demand by spending more than they tax.
In the early postwar period, Keynesian theory dominated economic thinking. Economists advised governments to spend more than they taxed during recessions and tax more than spend during expansions. Although governments were not always diligent in following this prescription, the limited severity of early postwar business cycles was seen as a vindication of Keynesian theory. Yet little attention was paid to the question of how well it could explain the Great Depression.
In 1963, Milton Friedman and Anna Schwartz proposed a different view of the depression. They argued that, contrary to Keynesian theory, the deflationary actions of the Federal Reserve were primarily at fault. In the ensuing decades, Keynesians and "monetarists" argued for the supremacy of their favored theory. The result was a recognition that both explanations had limitations. Keynesians struggled to comprehend why either consumption or investment demand would have fallen so precipitously as to trigger the depression (though saturation in the housing and automobile markets, among others, may have been important). Monetarists struggled to explain how smallish decreases in the money supply could trigger such a massive downturn, especially since the price level fell as fast as the supply of money, and thus real (inflation-adjusted) aggregate demand need not have fallen.
In the 1980s and 1990s, some economists argued that the actions of the Federal Reserve had caused banks to decrease their willingness to loan money, leading to a severe decrease in consumption and, especially, investment. Others argued that the Federal Reserve and central banks in other countries were constrained by the gold standard, under which the value of a particular currency is fixed to the price of gold.
Some economists today speak of a consensus that holds the Federal Reserve, the gold standard, or both, largely responsible for the Great Depression. Others suggest that a combination of several theoretical approaches is needed to understand this calamity.
Most economists have analyzed the depression from a macroeconomic perspective. This perspective, spawned by the depression and by Keynes's theories, focuses on the interaction of aggregate economic variables, including consumption, investment, and the money supply. Only fairly recently have some macroeconomists begun to consider how other factors, such as technological innovation, would influence the level of economic activity.
Beginning initially in the 1930s, however, some students of the Great Depression have examined the unusually high level of process innovation in the 1920s and the lack of product innovation in the decade after 1925. The introduction of new production processes requires investment but may well cause firms to let some of their workforce go; by reducing prices, new processes may also reduce the amount consumers spend. The introduction of new products almost always requires investment and more employees; they also often increase the propensity of individuals to consume. The time path of technological innovation may thus explain much of the observed movements in consumption, investment, and employment during the interwar period. There may also be important interactions with the monetary variables discussed above: in particular, firms are especially dependent on bank finance in the early stages of developing a new product.
Effects of the Great Depression
The psychological, cultural, and political repercussions of the Great Depression were felt around the world, but it had a significantly different impact in different countries. In particular, it is widely agreed that the rise of the Nazi Party in Germany was associated with the economic turmoil of the 1930s. No similar threat emerged in the United States. While President Franklin Roosevelt did introduce a variety of new programs, he was initially elected on a traditional platform that pledged to balance the budget. Why did the depression cause less political change in the United States than elsewhere? A much longer experience with democracy may have been important. In addition, a faith in the "American dream," whereby anyone who worked hard could succeed, was apparently retained and limited the agitation for political change.
Effects on individuals. Much of the unemployment experience of the depression can be accounted for by workers who moved in and out of periods of employment and unemployment that lasted for weeks or months. These individuals suffered financially, to be sure, but they were generally able to save, borrow, or beg enough to avoid the severest hardships. Their intermittent periods of employment helped to stave off a psychological sense of failure. Yet there were also numerous workers who were unemployed for years at a time. Among this group were those with the least skills or the poorest attitudes. Others found that having been unemployed for a long period of time made them less attractive to employers. Long-term unemployment appears to have been concentrated among people in their late teens and early twenties and those older than fifty-five. For many that came of age during the depression, World War II would provide their first experience of full-time employment.
With unemployment rates exceeding 25 percent, it was obvious that most of the unemployed were not responsible for their plight. Yet the ideal that success came to those who worked hard remained in place, and thus those who were unemployed generally felt a severe sense of failure. The incidence of mental health problems rose, as did problems of family violence. For both psychological and economic reasons, decisions to marry and to have children were delayed. Although the United States provided more relief to the unemployed than many other countries (including Canada), coverage was still spotty. In particular, recent immigrants to the United States were often denied relief. Severe malnutrition afflicted many, and the palpable fear of it, many more.
Effects by gender and race. Federal, state, and local governments, as well as many private firms, introduced explicit policies in the 1930s to favor men over women for jobs. Married women were often the first to be laid off. At a time of widespread unemployment, it was felt that jobs should be allocated only to male "breadwinners." Nevertheless, unemployment rates among women were lower than for men during the 1930s, in large part because the labor market was highly segmented by gender, and the service sector jobs in which women predominated were less affected by the depression. The female labor force participation rate—the proportion of women seeking or possessing paid work—had been rising for decades; the 1930s saw only a slight increase; thus, the depression acted to slow this societal change (which would greatly accelerate during World War II, and then again in the postwar period).
Many surveys found unemployment rates among blacks to be 30 to 50 percent higher than among whites. Discrimination was undoubtedly one factor: examples abound of black workers being laid off to make room for white workers. Yet another important factor was the preponderance of black workers in industries (such as automobiles) that experienced the greatest reductions in employment. And the migration of blacks to northern industrial centers during the 1920s may have left them especially prone to seniority-based layoffs.
Cultural effects. One might expect the Great Depression to have induced great skepticism about the economic system and the cultural attitudes favoring hard work and consumption associated with it. As noted, the ideal of hard work was reinforced during the depression, and those who lived through it would place great value in work after the war. Those who experienced the depression were disposed to thrift, but they were also driven to value their consumption opportunities. Recall that through the 1930s it was commonly thought that one cause of the depression was that people did not wish to consume enough: an obvious response was to value consumption more.
but 7.5 percent in 1939. Not only did the government take on new responsibilities, providing temporary relief and temporary public works employment, but it established an ongoing federal presence in social security (both pensions and unemployment insurance), welfare, financial regulation and deposit insurance, and a host of other areas. The size of the federal government would grow even more in the postwar period. Whether the size of government today is larger than it would have been without the depression is an open question. Some scholars argue for a "ratchet effect," whereby government expenditures increase during crises, but do not return to the original level thereafter. Others argue that the increase in government brought on by the depression would have eventually happened anyhow.
In the case of unemployment insurance, at least, the United States might today have a more extensive system if not for the depression. Both Congress and the Supreme Court were more oriented toward states' rights in the 1930s than in the early postwar period. The social security system thus gave substantial influence to states. Some have argued that this has encouraged a "race to the bottom," whereby states try to attract employers with lower unemployment insurance levies. The United States spends only a fraction of what countries such as Canada spend per capita on unemployment insurance.
Some economists have suggested that public works programs exacerbated the unemployment experience of the depression. They argue that many of those on relief would have otherwise worked elsewhere. However, there were more workers seeking employment than there were job openings; thus, even if those on relief did find work elsewhere, they would likely be taking the jobs of other people.
The introduction of securities regulation in the 1930s has arguably done much to improve the efficiency, fairness, and thus stability of American stock markets. Enhanced bank supervision, and especially the introduction of deposit insurance from 1934, ended the scourge of bank panics: most depositors no longer had an incentive to rush to their bank at the first rumor of trouble. But deposit insurance was not an unmixed blessing; in the wake of the failure of hundreds of small savings and loan institutions decades later, many noted that deposit insurance allowed banks to engage in overly risky activities without being penalized by depositors. The Roosevelt administration also attempted to stem the decline in wages and prices by establishing "industry codes," whereby firms and unions in an industry agreed to maintain set prices and wages. Firms seized the opportunity to collude and agreed in many cases to restrict output in order to inflate prices; this particular element of the New Deal likely served to slow the recovery. Similar attempts to enhance agricultural prices were more successful, at least in the goal of raising farm incomes (but thus increased the cost of food to others).
It was long argued that the Great Depression began in the United States and spread to the rest of the world. Many countries, including Canada and Germany, experienced similar levels of economic hardship. In the case of Europe, it was recognized that World War I and the treaties ending it (which required large reparation payments from those countries that started and lost the war) had created weaknesses in the European economy, especially in its financial system. Thus, despite the fact that trade and capital flows were much smaller than today, the American downturn could trigger downturns throughout Europe. As economists have come to emphasize the role the international gold standard played in, at least, exacerbating the depression, the argument that the depression started in the United States has become less central.
With respect to the rest of the world, there can be little doubt that the downturn in economic activity in North America and Europe had a serious impact. Many Third World countries were heavily dependent on exports and suffered economic contractions as these markets dried up. At the same time, they were hit by a decrease in foreign investment flows, especially from the United States, which was a reflection of the monetary contraction in the United States. Many Third World countries, especially in Latin America, responded by introducing high tariffs and striving to become self-sufficient. This may have helped them recover from the depression, but probably served to seriously slow economic growth in the postwar period.
Developed countries also introduced high tariffs during the 1930s. In the United States, the major one was the Smoot-Hawley Tariff of 1930, which arguably encouraged other countries to retaliate with tariffs of their own. Governments hoped that the money previously spent on imports would be spent locally and enhance employment. In return, however, countries lost access to foreign markets, and therefore employment in export-oriented sectors. The likely effect of the increase in tariffs was to decrease incomes around the world by reducing the efficiency of the global economy; the effect the tariffs had on employment is less clear.
Barnard, Rita. The Great Depression and the Culture of Abundance: Kenneth Fearing, Nathanael West, and Mass Culture in the 1930s. New York: Cambridge University Press, 1995. Explores the impact of the depression on cultural attitudes and literature.
Bernanke, Ben S. Essays on the Great Depression. Princeton, N.J.: Princeton University Press, 2000. Emphasizes bank panics and the gold standard.
Bernstein, Michael A. The Great Depression: Delayed Recovery and Economic Change in America, 1929–1939. New York: Cambridge University Press, 1987. Argues for the interaction of technological and monetary forces and explores the experience of several industries.
Bordo, Michael D., Claudia Goldin, and Eugene N. White, eds. The Defining Moment: The Great Depression and the American Economy in the Twentieth Century. Chicago: University of Chicago Press, 1998. Evaluates the impact of a range of New Deal policies and international agreements.
Friedman, Milton, and Anna J. Schwartz. A Monetary History of the United States, 1867–1960. Princeton, N.J.: Princeton University Press, 1963.
Keynes, John M. The General Theory Of Employment, Interest, and Money. New York: St. Martin's Press, 1964. Original edition published in 1936.
Margo, Robert A. "Employment and Unemployment in the 1930s." Journal of Economic Perspectives 7, no. 2 (spring 1993): 41–59.
Rosenbloom, Joshua, and William Sundstrom. "The Sources of Regional Variation in the Severity of the Great Depression: Evidence from U.S. Manufacturing 1919–1937." Journal of Economic History 59 (1999): 714–747.
Rosenof, Theodore. Economics in the Long Run: New Deal Theorists and Their Legacies, 1933–1993. Chapel Hill: University of North Carolina Press, 1997. Looks at how Keynes, Schumpeter, and others influenced later economic analysis.
Rothermund, Dietmar. The Global Impact of the Great Depression, 1929–1939. London: Routledge, 1996. Extensive treatment of the Third World.
Schumpeter, Joseph A. Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process. New York: McGraw-Hill, 1939.
Szostak, Rick. Technological Innovation and the Great Depression. Boulder, Colo.: Westview Press, 1995. Explores the causes and effects of the unusual course that technological innovation took between the wars.
Temin, Peter. Did Monetary Forces Cause the Great Depression? New York: Norton, 1976. Classic early defense of Keynesian explanation.
———. Lessons from the Great Depression. Cambridge, Mass.: MIT Press, 1989. Emphasizes the role of the gold standard.
See also Agricultural Price Supports ; Banking: Bank Failures, Banking Crisis of 1933 ; Business Cycles ; Keynesianism ; New Deal ; and vol. 9: Advice to the Unemployed in the Great Depression, June 11, 1932 .
Personal Effects of the Depression
The study of the human cost of unemployment reveals that a new class of poor and dependents is rapidly rising among the ranks of young sturdy ambitious laborers, artisans, mechanics, and professionals, who until recently maintained a relatively high standard of living and were the stable self-respecting citizens and taxpayers of the state. Unemployment and loss of income have ravaged numerous homes. It has broken the spirit of their members, undermined their health, robbed them of self-respect, and destroyed their efficiency and employability. Many households have been dissolved, little children parcelled out to friends, relatives, or charitable homes; husbands and wives, parents and children separated, temporarily or permanently.…Men young and old have taken to the road. Day after day the country over they stand in the breadlines for food. … The law must step in and brand as criminals those who have neither desire nor inclination to violate accepted standards of society.… Physical privation un dermines body and heart.… Idleness destroys not only purchasing power, lowering the standards of living, but also destroys efficiency and finally breaks the spirit.
SOURCE: From the 1932 Report of the California Unemployment Commission.
Starting in 1929 and ending with America's entry into World War II in 1941, the Great Depression marked a turning point in American history by establishing the enlarged federal bureaucracy associated with the post-WWII state. While first and foremost an economic event, the Great Depression affected every aspect of American political, social, and cultural life. It was during the depression that the radio and film industries, along with developments in documentary photography, reportage, and literature, helped to develop a national culture based in uniquely American practices, environments, experiences, and ideals.
While the stock market crash of October 1929 is often viewed as the start of the Great Depression, it was by no means the cause of the depression. The crash, and its aftermath of unemployment, bank closures, bankruptcies, and homelessness, were caused by fundamental flaws in the prosperity of the 1920s. The availability and widespread use of credit, the increasingly unequal distribution of wealth, the problems of falling farm prices, and the corporate consolidation of American industry all contributed to the overproduction of farm and industrial goods and the overexertion of credit and speculation. In the wake of the crash, American industrial output decreased rapidly, reaching in 1932 the same level of production as in 1913. Employment reached an all-time low, with 13 million people out of work, roughly 25 percent of the population. For farmers, crop prices had fallen drastically; a bushel of wheat that sold for three dollars in 1920 brought only thirty cents in 1932.
The effect of the depression on American culture was felt in both the public and private sectors. The federal government, through its New Deal programs, subsidized writers, composers, musicians, performers, painters, sculptors, and other artists, and it developed and encouraged cultural programs which focused attention on the United States, its history, traditions, and native arts and crafts. The Federal Writers Project employed writers, editors, and researchers to not only produce works of fiction, usually with American themes, but also to create several series of books such as the State Guide Series, consisting of all-purpose guide books for each state of the union. The Federal Arts Project hired painters and sculptors to create public art for post offices and other public buildings, and developed a network of community art centers in cities and towns across the country. The Federal Theater Project sought to bring the dramatic arts to the general public through local programs such as the Living Newspaper, in which local news stories were acted out in community theaters. Additional programs employed musicians, composers, architects, and other artists. Preservation programs such as the Index of American Design and the Library of Congress' Archive of Folk Song sought to preserve the inherently American character of folk arts. In all, the cultural programs of the New Deal focused attention on the unique aspects of American culture, not only in past arts and crafts, but also in the creation of new works of art.
The mass-media industries of broadcasting and motion pictures responded to the economic realities of the depression and the government sponsored trend towards reinforcing traditional American values. In the 1930s, radio dominated Americans' leisure time. Nearly one third of all Americans owned at least one radio, and even those who did not own a radio usually had access to one through family, friends, or neighbors. The potential radio audience for any program was estimated at sixty million people. As a result of these vast audiences and the huge profits to be made, the radio industry became big business with production companies selling "pre-packaged" shows to sponsors and stations, along with syndicates and networks developing and growing. During the 1930s, comedians were the most popular radio personalities. Jack Benny, Fanny Brice, George Burns and Gracie Allen, Bob Hope, Milton Berle, and Jimmy Durante all had popular radio shows. Musical shows were also a favorite of audiences as almost every station presented remote broadcasts from hotel ballrooms featuring dance orchestras and jazz bands such as Paul Whiteman ("The King of Jazz"), Ralph Ginsberg and the Palmer House Ensemble, and Phil Spitalny and his All-Girl Orchestra, featuring Evelyn and her Magic Violin. Daytime programing was dominated by the soap opera, so named because most were sponsored by soap manufacturers. Writer James Thurber described soap operas as "a kind of sandwich, whose recipe is simple enough… Between thick slices of advertising, spread twelve minutes of dialogue, add predicament, villainy, and female suffering in equal measure, throw in a dash of nobility, sprinkle with tears, season with organ music, cover with a rich announcer sauce, and serve five times a week." As opposed to daytime serial dramas, evening dramas contained much better production values and more sophisticated material featuring famous actors. The Texaco Theater, The Philip Morris Playhouse, Grand Central Station, and other hour-long programs presented serious dramatic fare, but the most popular shows were the half-hour long crime-suspense-adventure shows, including Sam Spade, Jack Armstrong: the All-American Boy, The Thin Man, Sargent Preston of the Yukon, The Green Hornet, The Shadow, and The Lone Ranger. Even news reporting took on a more entertaining flavor as radio newsmen became celebrities, such as Lowell Thomas, Edward R. Murrow, and Floyd Gibbons, who introduced himself as "the fastest talking man in radio." Forty percent of all Americans preferred to get their news and information from radio, more than any other single source.
Radio took on a whole new importance in the wake of the Depression, primarily through the use of the medium by President Franklin D. Roosevelt. In his "fireside chats," Roosevelt addressed the country directly from the White House. This mediated communication, due to the intimacy associated with radio broadcasting, developed a more personal relationship between the president and the public than ever before, reinforcing the expansion of federal, especially executive, authority. Radio became much more than a source of local information and entertainment; it became a vital tool of the government to promote and support its programs. Roosevelt's first "fireside chat," explaining the purpose of the bank holiday and subsequent banking legislation, produced enough confidence in Roosevelt and the government that the following day bank deposits outnumbered withdrawals for the first time since the stock market crash almost four years earlier. Radio not only informed people, but also brought them under the influence of a centralized medium which homogenized the information it was disseminating. As Warren Susman argues in his essay "The Culture of the Thirties," radio "helped mold uniform national responses; it helped create or reinforce uniform national values and beliefs in a way that no previous medium had ever been able to do." Illustrating one such uniform national response was the euphoria witnessed in communities, both black and white, over Joe Louis' heavyweight title fights in 1937 and 1938. Informing the public became such a vital part of the radio industry, and so accepted by the public, that a fake "emergency bulletin" as part of Orson Welles' 1937 radio production of H. G. Wells' War of the Worlds created pandemonium in towns and cities across America.
As a result of the depression, Hollywood experienced a decline in movie attendance, and it compensated by using the latest technology to its fullest impact to produce movies which would appeal to adult males, the segment of the movie audience that had declined the most. War films such as All Quite on the Western Front (1930) and The Dawn Patrol (1930); horror films such as Dracula (1931), Frankenstein (1931), and King Kong (1933); gangster movies such as Little Caesar (1930), The Public Enemy (1931) and Scarface (1932) all took advantage of sound technology to enhance the filmgoing experience. Movies such as Marlene Dietrich's Blonde Venus (1932), Jean Harlow's Red Dust (1932), and Irene Dunn's Back Street (1932) all challenged the prevailing notions of respectable women's roles. Even the glamorous Greta Garbo, in her sound film debut, did not play a socialite, but rather a prostitute. The long awaited moment when Garbo first spoke on film was in Anne Christie (1930) as she addressed a waiter in a waterfront dive: "Gimme a viskey. Ginger ale on the side. And don't be stingy, ba-bee." Even a film as superficial as Gold Diggers of 1933 implied that for women there were limited career paths. In the film's most memorable song, "We're in the Money," chorus girls joke that if they had to give up performing they would have to enter into the world's oldest profession: "We're in the money. We're in the money. We've got a lot of what it takes to get along." Even comedies emphasized this tendency towards anarchy and sex. The most popular film comedians, the Marx Brothers and Mae West, relied heavily on sound to convey their primarily verbal humor, yet both also depended on visuals for the strong physical presence necessary in both slapstick comedy and body enhancing sexual innuendo.
This "golden age of turbulence," according to film historian Robert Sklar in Movie-Made America: A Cultural History of American Movies, lasted from 1930 to 1934 when Hollywood, under pressure from civic organizations like the Catholic Church's League of Decency, discovered there was as much, if not more, profit to be made on supporting traditional American values as there was in challenging them. With the 1934 introduction of the Breen Office (officially the Production Code Administration, but popularly named after Joseph Breen, the film industry's self-imposed censor who had absolute power), the movie industry stopped challenging traditional values by becoming one of their most staunch supporters.
The Breen Office brought about the "golden age of order" in which the social order was restored in films that reinforced traditional notions about social roles and American ideals. Screwball comedies set among the upper classes, such as Bringing Up Baby (1938) and The Philadelphia Story (1940) replaced the anarchic vision of the Marx Brothers and the brazen sexuality of Mae West. Gangster movies focused not on the lawless, but on the government agent, the G-man. And Hollywood began producing socially conscious films such as The Grapes of Wrath (1940) and the films of Frank Capra.
Frank Capra best exemplifies the "age of order" with his morality plays set among the common people of America. Capra produced films which encouraged Americans to reaffirm their beliefs in democracy, community, and humanity. In his "American trilogy," of Mr. Deeds Goes to Town (1936), Mr. Smith Goes to Washington (1939), and Meet John Doe (1941), Capra presented American democracy at its best with each protagonist (Deeds, Smith, and Doe) overcoming the challenges to honesty and decency through perseverance. In Mr. Deeds, Gary Cooper stars as Longfellow Deeds, who plans to use his inherited millions on establishing farmers on their own small plots of land in an attempt to recreate the Jeffersonian vision of the democratic yeoman farmer. In Mr. Smith, James Stewart stars as Jefferson Smith, a junior senator who envisions a boys' camp in the western wilderness to teach boys the virtues of independence, self-sufficiency, and frontier democracy. And in John Doe, Gary Cooper once again stars, this time as Long John Willoughby, a down-and-out baseball player recruited by a big city newspaper to play the role of John Doe, a "common" man who has threatened to end his life as a protest against modern society. John Doe not only becomes a circulation booster, but his simple ideas about neighborly consideration and the "little guys" watching out for each other is readily picked up by an eager public searching for solutions to the depression. The John Doe Movement, with the establishment of John Doe clubs, is manipulated by the tyrannical newspaper owner D. B. Norton, who aspires to political office. Norton and Willoughby come into conflict when Norton's machinations are revealed and Willoughby seeks to stop him. Norton exposes the "fake" John Doe and the movement crumbles. In the end, Willoughby seeks to follow through on "John Doe's" original promise to jump off the city hall tower on Christmas Eve. Like all Capra movies, the honest and decent hero survives the attacks against him through the faith of a loving woman and the eventual realization of "the people." Capra reaffirms traditional ideas about self-help and the private function of charity in the face of adversity, as opposed to more modern ideas in which the federal government assumes responsibility for the health and welfare of individual citizens. Despite the revolutionary medium of motion pictures, late 1930s movies overwhelmingly reinforced traditional values.
In general, the reaction to the Great Depression, by the federal government and the mass media industries, served to maintain traditional American values in the face of economic, political, and social change.
—Charles J. Shindo
Hilmes, Michelle. Radio Voices: American Broadcasting, 1922-1952. Minneapolis, University of Minnesota Press, 1997.
McElvaine, Robert S. The Great Depression: America, 1929-1941. New York, Times Books, 1984.
Sklar, Robert. Movie-Made America: A Cultural History of American Movies. New York, Vintage Books, 1975.
Shindo, Charles J. Dust Bowl Migrants in the American Imagination. Lawrence, University Press of Kansas, 1997.
Susman, Warren I. Culture As History: The Transformation of American Society in the Twentieth Century. New York, Pantheon Books, 1985.
The stock market crash on October 29, 1929, sent the United States careening into the longest and darkest economic depression in American history. Between 1929 and 1933, all major economic indexes told the same story. The gross national product (GNP), the total of all goods and services produced each year, fell from $104.4 billion in 1929 to $74.2 billion in 1933, setting back the GNP per capita rate by twenty years. Industrial production declined 51 percent before reviving slightly in 1932. Unemployment statistics revealed the impact of the Depression on Americans. In 1929, the U.S. Labor Department reported that there were nearly 1.5 million persons without jobs in the country. After the crash, the figure soared. At its peak in 1933, unemployment stood at more than 12.6 million without jobs, although some estimates placed unemployment as high as 16 million. By 1933, the annual national combined income had shrunk from $87.8 billion to $40.2 billion. Farmers, perhaps the hardest hit economic group, saw their total combined income drop from $11.9 billion to $5.3 billion.
For the first two years of the Depression, which spread worldwide, President Herbert Hoover (1929–1933) relied on the voluntary cooperation of business and labor to maintain payrolls and production. When the crisis deepened, he took positive steps to stop the spread of economic collapse. Hoover's most important achievement was the creation of the Reconstruction Finance Corporation (RFC), a loan agency designed to aid large business concerns, including banks, railroads, and insurance companies. The RFC later became an essential agency of the New Deal. In addition, Hoover obtained new funds from Congress to cut down the number of farm foreclosures. The Home Loan Bank Act helped prevent the foreclosure of home mortgages. On the relief issue, the President and Congress fought an ongoing battle that lasted for months. The Democrats wanted the federal government to assume responsibility for direct relief and to spend heavily on public works. Hoover, however, insisted that unemployment relief was a problem for local, not federal, governments. At first, he did little more than appoint two committees to mobilize public and private agencies against distress. Yet after a partisan fight, Hoover signed a relief bill unmatched in American history. The Emergency Relief and Construction Act provided $300 million for local relief loans and $1.5 billion for self-liquidating public works. Tragically, the Depression only worsened. By the time Hoover's term in office expired, the nation's banking system had virtually collapsed and the economic machinery of the nation was grinding to a halt. Hoover left office with the reputation of a do-nothing President. The judgment was rather unfair. He had done much, including establishing many precedents for the New Deal; but it was not enough.
What happened to the economy after the stock market crash of 1929 left most people baffled. The physical structure of business and industry was still intact, undamaged by war or natural disaster, but businesses closed. Men wanted to go to work, but plants stood dark and idle. Prolonged unemployment created a new class of people. The jobless sold apples on street corners. They stood in breadlines and outside soup kitchens. Many lived in "Hoovervilles," shantytowns on the outskirts of large cities. Thousands of unemployed men and boys took to the road in search of work, and the gas station became a meeting place for men "on the bum." In 1932, a crowd of 50 men fought for a barrel of garbage outside the back door of a Chicago restaurant. In northern Alabama, poor families exchanged a dozen eggs, which they sorely needed, for a box of matches. Despite such mass suffering, for the most part there was little violence. The angriest Americans were those in rural areas, where cotton was bringing only five cents a pound and wheat only 35 cents a bushel. In August 1932, Iowa farmers began dumping milk bound for Sioux City. To dramatize their plight, Milo Reno, former president of the Iowa Farmers Union, organized a farm strike on the northern plains and cut off all agricultural products from urban markets until prices rose. During the same summer, 25,000 World War I (1914–1918) veterans, led by former sergeant Walter W. Waters, staged the Bonus March on Washington, DC, to demand immediate payment of a bonus due to them in 1945. They stood passively on the Capitol steps while Congress voted it down. After a riot with police, Hoover ordered the U.S. Army to clean the veterans out of their shanty-town, for fear they would breed a revolution.
The Great Depression was a crisis of the American mind. Many people believed that the country had reached all its frontiers and faced a future of limited opportunity. The slowdown of marriage and birth rates expressed this pessimism. The Depression smashed the old beliefs of rugged individualism, the sanctity of business, and a limited government. Utopian movements found an eager following. The Townsend Plan, initiated by retired California physician Francis E. Townsend, demanded a monthly pension to people over age 65. Charles E. Coughlin (1891–1979), a radio priest in Royal Oak, Michigan, advocated the nationalization of banks, utilities, and natural resources. Senator Huey P. Long (1893–1935), Governor of Louisiana, led a movement that recommended a redistribution of the wealth. All the programs tapped a broad sense of resentment among those who felt they had been left out of President Franklin Roosevelt's (1933–1945) New Deal. Americans did gradually regain their sense of optimism. The progress of the New Deal revived the old faith that the nation could meet any challenge and control its own destiny. Even many intellectuals who had "debunked" American life in the 1920s began to revise their opinions for the better.
By early 1937, there were signs of recovery in the American economy. Business indexes were up—some near pre-crash levels. The New Deal had eased much of the acute distress, although unemployment remained around 7.5 million. The economy again went into a sharp recession that was almost as bad as 1929. Although conditions improved by mid-1938, the Depression did not truly end until the government launched massive defense spending in preparation for World War II (1939–1945).
See also: Great Depression (Causes of), Hoovervilles, New Deal, Recession, Reconstruction Finance Corporation, Franklin D. Roosevelt, Stock Market Crash of 1929, Unemployment
Phillips, Cabell. From the Crash to the Blitz, 1929– 1939. New York: The Macmillan Co., 1969.
Schlesinger, Arthur M., Jr. The Age of Roosevelt. Boston: Houghton Mifflin Co., 1957.
Shannon, David A. The Great Depression. Englewood Cliffs, NJ: Prentice-Hall, 1960.
Terkel, Studs. Hard Times: An Oral History of the Great Depression in America. New York: Pantheon Books Inc., 1970.
Wecter, Dixon. The Age of the Great Depression, 1929–1941. New York: The Macmillan Company, 1948.
When Herbert Hoover (1874–1964; served 1929–33) was inaugurated as the thirty-first president of the United States in March 1929, it seemed to most Americans that the economy was thriving. U.S. business was growing, manufactured goods and raw materials flowed from the United States to the rest of the world, and technology was developing at an impressive rate. In reality, there were weaknesses in the system, and the nation soon collapsed into the Great Depression.
Flaws in prosperity
After World War I (1914–18) ended in 1918, many European countries had debts to pay to the United States. At the same time, European economies were faltering, so debts to the United States were going unpaid. Tariffs, or taxes, imposed by the United States on imports from European companies made it more difficult for European nations to recover.
American businesses took advantage of the struggling European economies by making massive investments in Europe. The international financial structure came to be almost entirely dependent on U.S. businesses and banks. It was a system that was strong only as long as the flow of U.S. capital, or monetary investment, continued.
Americans were generally prosperous throughout the 1920s, but the distribution of income across the nation was uneven. Portions of the population were struggling. The agricultural sector never recovered from the recession of 1921–22, so crop prices steadily declined. Industries continued to expand despite indications of overproduction. Wages increased only slowly, and therefore the use of credit, or borrowed money, expanded. A substantial 26 percent of the national income went to only 2 percent of wage earners, indicating a vast, unequal distribution of the prosperity that did exist.
The unstable nature of the U.S. economy was evident in the stock market's behavior during the late 1920s. The stock market is where investors buy and sell shares, called stocks, in large American companies. The market saw rigorous buying and selling from 1927 to 1929. Investors were not necessarily interested in long-term investments. Many pursued a quick profit as stock prices continued to rise. Few investors actually had the full funds to purchase the stocks, so many speculated with
borrowed money. This behavior drove stock prices up, far beyond any real value in the businesses the stocks represented.
By autumn 1929, the system was out of control. On October 24 and again on October 29, the stock market collapsed as the prices of stocks dropped substantially. It signaled the beginning of a major economic crisis that would last for years and extend throughout the world. During this time, which came to be called the Great Depression, many people lost their savings, their jobs, and their homes.
The Great Depression
In the wake of the stock market crash, the U.S. economy crumbled. American industrial production decreased rapidly, and employment reached a staggering low. Up to 25 percent of the working population was unemployed at one point. For farmers, crop prices dropped drastically. People could not afford the basic needs of food and shelter. Makeshift shantytowns, called Hoovervilles , in dishonor of the president, appeared outside cities where the homeless gathered. Breadlines and soup kitchens kept many from starving. Thousands of unemployed people took to the road in search of work where they could find it.
The desperate economic conditions quickly affected the rest of the world. Businesses and investors who lost either their money or their confidence withdrew foreign investments. This led the already rickety European economy to collapse, which placed an even greater strain on U.S. businesses and banks. The entire industrialized world was in a downward economic spiral.
For the first two years of the Great Depression, President Hoover relied on the voluntary cooperation of business and labor to maintain payrolls and production. He encouraged them to foster industrial expansion, avoid strikes, share work when possible, stabilize prices, and provide relief where needed. He stressed that there must not be drastic wage cuts. At first, it seemed that this approach would work.
When the crisis deepened, however, Hoover took positive steps to stop the spread of economic collapse. His best effort was the creation of the Reconstruction Finance Corporation (RFC). The RFC functioned as a loan agency to aid large businesses, such as banks, railroads, and insurance companies. Hoover supported laws, such as the Home Loan Bank Act (1932), to aid people at risk of losing their homes and farms to the banks from which they borrowed to purchase them. The Emergency Relief and Construction Act (1932) provided money for local relief loans and public works.
Hoover had his limits, however, and refused to support direct federal aid to the unemployed. Believing that it would lower wages to a bare minimum and reward laziness, he insisted that helping the unemployed was the responsibility of local, not federal, agencies. Though Hoover is widely regarded as a do-nothing president, he worked hard to fix the nation's woes. His successor, President Franklin D. Roosevelt (1882–1945; served 1933–45), would get the credit for really helping the nation, though he built upon many of Hoover's programs and ideas.
Roosevelt and the New Deal
President Roosevelt took office in 1933. With the economic crisis at its height, Roosevelt immediately dedicated himself to creating a flood of legislation aimed at relief, reform, and recovery. Roosevelt's advisors, known as the “brain trust,” worked to establish the overall domestic policy that would become known as the New Deal .
The flurry of relief measures would include programs designed to assist farmers and unemployed workers who faced impossible financial challenges. Recovery measures were designed to normalize economic activity and to restore faith in the banking system. Measures aimed at reform would work to protect consumers by regulating businesses and to provide assistance to the elderly and unemployed. Many of these programs were introduced during the first few months of Roosevelt's term, referred to as The Hundred Days. As the government accepted a much greater responsibility for the general welfare of its citizens and the regulation of the economy, Roosevelt restored a measure of confidence to the country. Opponents of Roosevelt's New Deal feared that it amounted to communism.
Many of the programs that were introduced during Roosevelt's presidency still exist today. The Social Security Act of 1935 provided retirement payments for workers and benefits for widows, orphans, and the needy. The National Labor Relations Act (1935) established the right to choose and join unions without fear of discrimination. The U.S. Housing Act (1937) provided for federal housing projects, and the Glass-Steagall Act (1933) established a federal program of insurance for bank deposits. Though not all of Roosevelt 's New Deal legislation was effective or long-lasting, the progressive ideas served to restore American optimism.
The final recovery
By early 1937, there were definite signs of recovery. It was obvious that Roosevelt's New Deal legislation had eased much of the nation's distress. The economy, however, experienced another sharp decline, almost as bad as in 1929.
Though conditions improved again by mid-1938, it was the onset of World War II (1939–45) that brought an end to the Great Depression. The needs of war produced new, heightened demands for production and labor that Americans were eager to fill. With many men drafted to serve the war effort abroad, there were plenty of jobs at home. Hence war allowed the United States to enjoy another period of industrial prosperity.
What It Means
The Great Depression, the most significant economic slowdown in U.S. history, lasted from 1929 until about 1939. A depression is an especially severe and long recession, and a recession is an economic downturn that can be defined in two ways. According to the most precise definition a recession is a decline in a country’s gross domestic product (GDP; the total value of all goods and services produced within a country) for two or more successive quarters (in the financial world, each year is commonly broken down into four three-month periods called quarters).
After the Great Depression began in 1929, it quickly spread to Europe and became an international financial crisis. Countries came out of the depression at different times, but for most nations the crisis lasted well into the 1930s. In the United States more than 9,000 banks closed during the 1930s, depositors lost their savings, and unemployment and homelessness sharply increased. Workers in agriculture, mining and logging, and other industries suffered the greatest losses because international trade sharply declined, and overseas markets for American raw materials and finished goods dried up. The United States began to come out of the Great Depression in 1938 and 1939 at the dawn of World War II.
When Did It Begin
While it is difficult to attribute the Great Depression to a single cause, economists generally point to several critical (and catastrophic) economic developments that occurred during the 1920s and early 1930s. The first major crisis came in the aftermath of World War I, when American farmers, hoping to fulfill global demand for food and other crops following the collapse of agriculture in war-ravaged Europe, began to increase production of major commodities (for example, grain, cotton, and corn). In order to accommodate this dramatic rise in production, many farmers took on large debts to finance additional farming machinery, increased shipping volumes, and other expenses. As production increased, however, farmers soon found themselves with an enormous surplus (a condition where a producer has more goods than can be sold). A rapid decline in agricultural prices resulted in a comparable decline in farming revenues, and many farmers defaulted on their loans (in other words, were unable to make loan payments) and were subsequently forced into bankruptcy. By 1929 farmers’ earnings amounted to only one-third of the national average. In the 1930s severe drought in key U.S. farming states (which became known, collectively, as the Dust Bowl) further devastated U.S. agriculture.
More Detailed Information
Arguably the most infamous event leading to the Great Depression came on October 29, 1929 (a day known in U.S. history as Black Tuesday), when the New York Stock Exchange (the largest organized stock market in the United States) crashed. On that day 16.4 million shares of stock were sold (a single-day record high that was not exceeded for nearly 40 years), and the stock market lost $14 billion. Largely forgotten, however, is the fact that there was a similar crash on the previous Thursday (October 24, 1929), when 12.9 million shares were traded. Heading into the weekend, many newspapers called that day Black Thursday. When trading resumed on Monday, October 28, investors continued to sell. Though most historians consider Black Tuesday the beginning of the Great Depression, it should be noted that the stock market began to recover in November and December of 1929, recouping almost a third of its losses before the end of the year. This gradual recovery continued until the autumn of 1930, when the market began a steady, long-lasting decline that lasted through most of the 1930s.
According to many economists, the government’s failure to act decisively following the stock market crash played a role in making the crisis worse. For one, the Federal Reserve (the central bank of the United States) failed to act when the nation’s leading banks began to fail in the early 1930s. Economists such as Milton Friedman (1912-2006) have argued that the Federal Reserve could have averted the disaster by lending money to the failing banks; instead, the collapse of the nation’s major banks resulted in the collapse of numerous smaller banks, notably those in rural areas, thereby worsening the crisis. At the same time, the nation’s money supply (the amount of money in circulation) dropped by over 30 percent between 1930 and 1931; according to Friedman, the Federal Reserve could have stimulated the economy by making more money available for loans, debt relief, and so on. At the same time, the decision of President Herbert Hoover (1874-1964) not to allow the federal government to take on debt further thwarted the economy’s prospects of a swift recovery.
Also thought to be a contributing factor was the Smoot-Hawley Tariff Act, passed by Congress in 1930. A tariff is a tax on foreign goods that is assessed when the goods are imported, or brought, into the country. Tariffs raise the price of imported items and thus encourage local consumers to buy domestically made goods. The Smoot-Hawley act taxed more than 20,000 imported goods at record levels. Some imports received as much as a 60 percent tax. Other countries retaliated, taxing American imports at the same rate. This cycle of events greatly reduced international trade; because the amount of goods imported into and exported from Europe and the United States greatly declined, the depression worsened. Before the tariff came into being, the unemployment rate in the United States was 9 percent. After the tariff was implemented, unemployment jumped to 16 percent within a year. By 1932 unemployment was at 25 percent.
After the Great Depression the United States experienced a number of recessions, but all were shorter and less severe. There were also financial crises. For example, on Monday, October 19, 1987, the stock market fell by nearly 23 percent. Losses on this day were greater than those on Black Tuesday of 1929, but unlike in 1929, the market maintained a gradual recovery afterward. The stock market once again plummeted on September 17, 2001, six days after terrorist attacks in New York City and Washington, D.C. That day the stock market recorded its largest single-day loss in history. Common explanations for why the United States has avoided further depressions include the government’s willingness to spend money to stimulate the economy during economic downturns and better management by the Federal Reserve of the country’s money supply.
Between 1929 and 1941, America suffered the deepest and longest economic slump of the twentieth century. By 1932, industrial output had dropped to the same level as twenty years earlier. Unemployment reached 25 percent. There was widespread homelessness, migration, and even starvation. The causes of the Depression included overproduction, too much private debt, and speculative investments. The glamorous decade of the Roaring Twenties had led to inequalities of many kinds.
Through the need for increased federal aid, the Depression triggered a radical change in the relationship between Americans and their government. After a decade of conservative, isolationist politics, President Franklin D. Roosevelt (1882–1945) introduced New Deal legislation to help get people back to work. It funded building projects, regulated wages, and encouraged cultural programs of a distinctly American flavor. The Depression ended with America's entry into World War II (1939–45). The country rallied to support its troops and soon regained a vigorous economy.
For More Information
Agee, James, and Walker Evans. Let Us Now Praise Famous Men. Boston: Houghton Mifflin, 1941.
McElvaine, Robert S. The Great Depression: America, 1929–1941. New York: Times Books, 1984.