Great Depression and Realignment

THE GREAT DEPRESSION followed the downturn and crash of the stock market between September and October 1929. Lasting from 1929 until World War II, it created a legacy whose imprint remained on the American political consciousness until the 1980s. The Great Depression represented the worst economic period in American history, and it lasted longer than any previous business collapse. In addition, its effect spread throughout the world, stagnating international economies and trade. The social upheavals that it brought established political climates that furthered the consolidation of fascism in Europe and elevated, in some circles, the attractions of Soviet Communism.

A famous Dorothea Lange photo of a migrant worker family, destitute during the Depression in the 1930s.

The causes of the Great Depression are many and were rooted in the 1920s, which was a time of Republican domination of the presidency and Congress. Initial economic weaknesses following World War I were seen in agriculture, when product prices declined sharply, federal subsidies were curtailed, and farmer debt increased. Some relief came in the Agricultural Credits Act of 1923, but the focus of the national economy during the 1920s was on industrial growth, increased consumer spending, low income tax, and rising tariff protection for American products. National income rose spectacularly from 1923, as did worker output, corporate profits, and dividends. Yet, the unequal distribution of income (one percent of the population owned 40 percent of the wealth) created major gaps between rich and poor, and this created serious issues when increased production brought about an oversupplied and saturated market. The economy was also geared towards heavy industry such as automobiles, and this concentration lacked the diversity to allow a rapid recovery. In addition, consumer installment credit debt had doubled during the decade, and any economic downturn and rising unemployment would break many household budgets.

The Wall Street crash of 1929 brought the internal weaknesses of the economy to the forefront. Stock speculation characterized the era, and when the market fell so precipitously and quickly it shocked the nation and destroyed public and business confidence. This collapse was blamed on excessive margin trading and the growth of unregulated investment trusts. People invested in shares, borrowing to do so, hoping for a steady return based on a rapidly growing market. Yet, the interest on investment loans was often greater than company earnings, and, in some cases, stock values were 50 times company earnings. As stock lost its value, all avenues seemed to shut down, including luxury spending and capital investment, which compounded the economic chaos that was spreading throughout society.

The crisis was best reflected in rising unemployment and the sense of doom and desperation that this brought. Falling production brought increased unemployment. From a 3.2 percent unemployment rate in 1929, unemployment rose to nearly 25 percent in 1933, and almost 27 percent in 1934. At its height, there were over 30 million people who were seriously affected. Approximately 20 percent of the population suffered from hunger. Shares had lost almost 90 percent of their value, and the prospect of recovery grew more remote with each passing year.

...