How Did America Cope with the Great Depression?

How did America cope with the Depression? Why was the depression in the United States so long-lasting and what effect did it have on Europe? What's your opinion?

After World War I, European states and the United States sought a more liberal market, free from state intervention. However, the war had strengthened cartels and labor unions, therefore some governments felt these organizations were necessary. With the downturn in domestic economies and the fall of the stock market, an international crisis had begun. Most of Europe’s prosperity was built upon the bank loans to Germany, so when investors started to pull their money out of Germany after the crash of the stock market, the banks of Germany and other
European states were left weakened. In all actuality, the global economy was severely in disarray, so much so, that Americans found it difficult to cope with unemployment, the depression lasting longer that it should have, resulting in a huge impact on the European nations.

Roosevelt ‘s advisers sought a policy of government intervention known as the New Deal, which included new agencies to aid in relief, reform, and recovery. The FDIC started to ensure bank deposits up to $5000 and funds were administered to help the destitute and homeless. The Second New Deal included a stepped up program of public works, such as the WPA, established in 1835. The issue was, however, that none of these reforms and agencies were able to solve the problem of unemployment. The American people were questioning all the maxims on which they had based their lives - democracy, capitalism, and individualism. After the Dust Bowl, farmers packed up their families and moved out West and to agricultural fields. Survival was the keyword.

Why Did the Depression Last So long?

A major cause of the pro-longed Great Depression was unemployment, which was largely due to the government and the market. The government’s resolution was a deflationary policy of balance budgets, which included lower wages and raising tariffs to exclude other countries goods from home markets. However, this served only to worsen the economic crisis and create mass discontent within the European market.

To put it simply, the United States decentralized and the laissez-faire labor market did poorly in dealing with long-term unemployment. Furthermore, the United States remained on the gold standard beyond 1930-31—which added fuel to the fast burning fire. Their unemployment rose to and remained at levels that seemed too high to contend with the normal mechanisms of standard business cycles.

Long-term unemployment was strongly present in European nations like Britain, Germany, Italy, and the gold block nations of France and Belgium. Of these, only Germany achieved a strong recovery from the Depression in the 1930's. Unemployment was still on the rise, even before the Great Depression, however a Labour government tried to resolve the problem and failed. In 1931, a national government used balanced budgets and protective tariffs to pull Britain out of the worst stages of the depression. In France, six different cabinets were formed as they faced political chaos.

The Great Depression made certain doctrines like Marxism and Fascism attractive, especially since Karl Marx had previously predicted that capitalism would destroy itself through over production. These doctrines, however, were unsuccessful, as in the case of Italy shows, unless accompanied by rapid rearmament as in Germany. Right wing groups marched in demonstrations through the French streets, and fears of extremists intending to seize power led leftist parties to merge. The political system was failing, as their Nazi neighbors powers were growing. On the other hand, Scandinavian states coped quite well in lieu of the Great Depression, even encouraging the development of industrial cooperative enterprise.

According to Friedman and Schwartz (1963) “the most notable feature of the revival after 1933 was not its rapidity but its incompleteness.” They claim that monetary policy and the Federal Reserve were passive after 1933. The monetary authorities did nothing to stop the fall from 1929 to 1933 and did little to promote the recovery. Iit was the Treasury that was generating increases in the monetary base at the time by issuing gold certificates equal to the amount of gold reserve inflow and depositing them at the Federal Reserve. When the government spent the money, the Treasury swapped the gold certificates for Federal Reserve notes and this expanded the monetary base . The problem is that monetary policy was powerless to promote recovery, and as we can see, this directly influenced the length of the post war unemployment.

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