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Overview of the Great Depression
Digital History ID 2921

The Great Depression was steeper and more protracted in the United States than in other industrialized countries. The unemployment rate rose higher and remained higher longer than in any other western country. As it deepened, the Depression had far-reaching political consequences. The Depression vastly expanded the scope and scale of the federal government and created the modern welfare state. It gave rise to a philosophy that the federal government should provide a safety net for the elderly, the jobless, the disabled, and the poor, and that the federal government was responsible for ensuring the health of the nation's economy and the welfare of its citizens.

The stock market crash of October 1929 brought the economic prosperity of the 1920s to a symbolic end. For the next ten years, the United States was mired in a deep economic depression. By 1933, unemployment had soared to 25 percent, up from 3.2 percent in 1929. Industrial production declined by 50 percent, international trade plunged 30 percent, and investment fell 98 percent.

Causes of the Depression

Causes of the Great Depression included: insufficient purchasing power among the middle class and the working class to sustain high levels of production; falling crop and commodity prices prior to the Depression; the stock market's dependence on borrowed money; and wrongheaded government policies, including high tariffs that reduced international trade and contracted the money supply.

Political and Social Consequences

The Great Depression transformed the American political and economic landscape. It produced a major political realignment, creating a coalition of big-city ethnics, African Americans, organized labor, and Southern Democrats committed, to varying degrees, to interventionist government. It strengthened the federal presence in American life, spawning such innovations as national old-age pensions, unemployment compensation, aid to dependent children, public housing, federally-subsidized school lunches, insured bank depositions, the minimum wage, and stock market regulation. It fundamentally altered labor relations, producing a revived labor movement and a national labor policy protective of collective bargaining. It transformed the farm economy by introducing federal price supports. Above all, it led Americans to view the federal government as an agency of action and reform and the ultimate protector of public well-being.

The Great Depression and American Culture

The Great Depression challenged certain basic precepts of American culture, especially the faith in individual self-help, business, the inevitability of progress, and limited government. The Depression encouraged a search for the real America. There was a new interest in “the people,” in regional cultures, and in folk traditions. The movies played a crucial role in sustaining American ideals in a time of social upheaval across Europe. Films projected images of a world in which financial success was possible and of a society in which class barriers could be overcome.

This section examines why the seemingly boundless prosperity of the 1920s ended so suddenly and why the Depression lasted as long as it did. It assesses the Depression's human toll and the policies adopted to combat the crisis. It devotes particular attention to the Depression's impact on African Americans, the elderly, Mexican Americans, labor, and women. In addition to assessing the ideas that informed the New Deal policies, this chapter examines the New Deal’s critics and evaluates the New Deal's impact.