The Great Depression and the New Deal
Introduction
The term “Great Depression” is the name given to the intensive global economic crisis that lasted from 1929 to 1939. Although every country in the world was affected by a crisis that also had serious consequences for social and political life. In Britain, it was called “The Slump” and in Germany “Die Krise” (The Crisis). In time, however, the American term “The Great Depression”, which in Britain was reserved for the period 1873 to 1896, has come to dominate.
No part of the world was left untouched by the Great Depression, although there were national variations. Industry and agriculture were swallowed up by a rising tide of bankruptcy. In the human level, the most evident measure that the world economy had failed was the tremendous and unprecedented surge in unemployment.
The Great Depression of the early 1930s has left a deep and lasting mark on the United States. For many in the general public the Great Depression still conjures up the image of mass unemployment caused by the failure of unregulated capitalism. For many in the economics profession, the Great Depression has permanently shown the need for activist government to prevent such events from happening again or at least the need to alleviate their duration and intensity through various monetary and fiscal policy tools.
The Immediate Causes of the Depression
Even though the collapse of the American stock market on Wall Street in 1929 marked the commencement of the depression, the world economy had already begun to turn downward in 1928 and beginning to decline. Nevertheless, it was not all the Wall Street itself, but the policy response to it, which pushed the world economy into the greatest depression ever known. It was speculated that it was initially due to the easy access to cheap credit and thus a response in the case was to increase interest rates. This had a remarkable effect on countries around the world. Other countries had to copy the American move and raise interest rates too as it is the provision of the “rules” governing the operation of the gold standard. It had just back-fired to the businesses and even to the governments as their levels of revenue fell.
Members of the gold standard were also weak to combat the depression because the rules of the system determine the economic policy of the member countries. It then came to the point when governments around the world were in bitter dispute over whether to cut government spending just to meet the rules of the gold standard. The worst case was the events in Austria and Germany with crisis going on, their respective governments were forced to become directly involved in managing the financial system.
The Economic, Social, and Political Impact
There was a massive unemployment with factory and mill closings, and mortgage foreclosures. An astounding figures peaking at several millions of jobless in Germany, United States, and in Britain. Social tension increased noticeably with a rising intolerance towards groups or individuals who were perceived to be “economic rivals” and even to those who appeared to be different from themselves, like the Gypsies and Jews. The depression also heightened the division of experience between men and women in the workplace.
The Road to Recovery
The government economic policy of the rules of the gold standard was proved to be causing worse rather than better. Britain then made the initial move of departing from the gold standard trying to find a way through the crisis. Its government was freed from the scrupulous demands of the gold standard. Interest rates were then slashed, making it easier for businesses and government to borrow money. Although they had been adopting an informal currency group (Sterling Bloc), Britain’s recovery strategy developed.
In the United States, it was the administration of Franklin D. Roosevelt that abandoned the gold standard and drew up new spending plans to give a “New Deal” to the American people. Through the large American economy, its recovery then brought immediate benefits to the rest of the world.
In Germany and other countries in Central and Eastern Europe, the economic recovery was boosted with the utilization of trade and restrictions measures to control domestic economy and Germany’s relation to the world. This point of control enabled Germany to ignore the rules of the gold standard. This was in contrast to the commitment of Belgium, the Netherlands, and France to the internationalism of the gold standard since these countries experienced their deepest economic and political crisis in the mid-1930s.
While there had been recoveries to many countries by the end of the decade, it was neither complete nor maintained with levels of international trade and investment remained very depressed.
Consequences for International Relations
Relations between countries were greatly interrupted by the Depression. Levels of trade protection began to rise remarkably as agriculture and industry demanded the government for the protection of the domestic market from the threat of cheap imports. It was again Britain who made the first step of retreating into protectionism from the Free Trade and divided the world into competing trade blocs, with wide-ranging implication for international peace. There was an intense economic competition between Britain, France, and the United States which makes it very difficult for cooperation in facing such threat. Meanwhile, economic nationalism was the common initial step taken by Germany, Italy, and Japan in building new empires.
The lasting inheritance of the Great Depression has been a total misunderstanding of this period with government’s mismanagement and intervention that created this economic crisis. And furthermore, what the government did during the decade of the 1930s left us with the institutional burden of the regulated economy and the welfare state. What failed in the 1930s were governments, in their impatience to direct movement to realize political ends. It took us a long time to realize and understand the costly lessons learned in a decade of economic crisis of the 1930s.
Credit:ivythesis.typepad.com
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