Origins of the Great Depression and its Conclusion

The Great Depression was not just an American concern, it spread throughout the world rapidly, creating a worldwide economic crisis. One of the main causes of the Great Depression was the fall in total demand. As people lost money in the Stock Market Crash of 1929 and the banks began to collapse the demand for products decreased significantly. This decline could only be restored by an increase in government spending to stabilize the industries. A reason that the United States Stock Market crashed was that too many products were produced too quickly. The production succeeded the demand. One article written in 1931 states the issue that was created “We have instead the paradox that production has increased so rapidly as to bring with it poverty, unemployment, government deficits, and high taxation.”1 This quote sums up the created problem beautifully. 

Some other issues contributed but the main issue was the lack of demand. After the Stock Market Crash consumers began to become uncertain about buying goods that were not needed for survival. The decline in demand created an excess of products, which caused industries to lower production. The chain of events next went to people losing employment and soon became a vicious cycle. The instability of the job market affected the consumer’s mentality toward spending.2 When speaking to people that lived during that era, they tend to squirrel away money and do not spend lavishly. One example of life during this era was the feed sack or flour sack dresses. Women would use the material from these sacks to create clothes to not waste anything. This in turn created an opportunity for wheat farmers. They started putting patterns on their flour sacks to entice women to buy their brand so they could make prettier dresses.3 This was an example of how people began to change their spending habits due to a lack of money. 

The decline into the economic depression happened rapidly and the government had no choice but to step in. Before this, there were little to no government systems set up to deal with a crisis of this nature. Roosevelt’s New Deal and the policies that were created to counteract the Great Depression have given America its stability in times of economic crisis. There were many areas that the government invested in to help increase employment. While the evidence states that there was a decrease in public works there was an increase in government employment.4 This leads to the question of where the government invested to help the economic status of the nation. The government invested in a set of programs that were supposed to evenly distribute wealth. 

The New Deal which was a set of programs put forth by the administration of Franklin Roosevelt. These programs have been debated by economists and historians since their creation. Some failed some succeeded. Many historians argue that the New Deal was only a temporary fix and would not have worked without World War II beginning. They use the unemployment rate of between fourteen and seventeen percent between the New Deals inception in 1933 until World War II in 1941 as an example of the unstableness of the policies. They do include the fact that the New Deal did take the unemployment rate from around twenty-five percent to seventeen in 1933.5  

The investments went to providing economic security. The FDIC was created to ensure the banks. The FHA was created to insures lenders. The most enduring program was the Social Security agency. This was to be a safety net for the unemployed and the elderly. These were all social structures that meant a big change to American society. Change is hard and many see the ideology of socialism within these programs. It has created this debate on what is socialism, communism, and capitalism. With the new programs like the FDIC, which federally insured banks, consumers started to regain their trust in the safety of their money. The Federal Housing Administration helped people maintain homes. This started to bring people out of survival mode and back into being able to consume products. 

World War II was another factor in ending the economic crisis. This allowed the government to spend more without as much backlash. It ramped up production, which created more employment opportunities. This put more money in consumers’ pockets to spend on more items that were considered luxuries to some. The increase in demand for products that the War presented gave the final push for the economy to recover.

In conclusion, the over-production and lack of demand was a major factor in creating the great economic downturn of the Great Depression. Then the government’s investment in securing the nations and consumer's funds with the FDIC and other programs helped stabilize the economy enough that when World War II began the economy was able to recover. The War provided opportunities for employment and production that saved the economy. 

Notes

1. Laby, “The Causes of the Economic Depression,” 50.

2. Romer, “The Great Crash and the Onset of the Great Depression,” 599.

3. “Making Do,” National Museum of American History.

4. Benoit-Smullyan, “Public Works in the Depression.”

5. Kennedy, “What the New Deal Did.” 252.

6. Ibid. 254.

Bibliography

Benoit-Smullyan, Emile. “Public Works in the Depression.” The American Economic Review 38, no. 1 (March 1948): 134–39. 

Kennedy, David M. “What the New Deal Did.” Political Science Quarterly 124, no. 2 (2009): 251–68. https://doi.org/10.1002/j.1538-165x.2009.tb00648.x. 

Laby, T. H. “The Causes of the Economic Depression.” The Australian Quarterly 3, no. 9 (March 1931): 50–59. https://doi.org/10.2307/20628907. 

“Making Do.” National Museum of American History, January 22, 2021. https://americanhistory.si.edu/girlhood/fashion/making-do. 

Romer, Christina D. “The Great Crash and the Onset of the Great Depression.” The Quarterly Journal of Economics 105, no. 3 (1990): 597–624. https://doi.org/10.2307/2937892.