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Great Depression in the United States - U.
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Great Depression in the United States - U.S. History.
I

INTRODUCTION

Great Depression in the United States, worst and longest economic collapse in the history of the modern industrial world, lasting from the end of 1929 until the early
1940s. Beginning in the United States, the depression spread to most of the world's industrial countries, which in the 20th century had become economically dependent
on one another. The Great Depression saw rapid declines in the production and sale of goods and a sudden, severe rise in unemployment. Businesses and banks closed
their doors, people lost their jobs, homes, and savings, and many depended on charity to survive. In 1933, at the worst point in the depression, more than 15 million
Americans--one-quarter of the nation's workforce--were unemployed.
The depression was caused by a number of serious weaknesses in the economy. Although the 1920s appeared on the surface to be a prosperous time, income was
unevenly distributed. The wealthy made large profits, but more and more Americans spent more than they earned, and farmers faced low prices and heavy debt. The
lingering effects of World War I (1914-1918) caused economic problems in many countries, as Europe struggled to pay war debts and reparations. These problems
contributed to the crisis that began the Great Depression: the disastrous U.S. stock market crash of 1929, which ruined thousands of investors and destroyed
confidence in the economy. Continuing throughout the 1930s, the depression ended in the United States only when massive spending for World War II began.
The depression produced lasting effects on the United States that are still apparent more than half a century after it ended. It led to the election of President Franklin
Delano Roosevelt, who created the programs known as the New Deal to overcome the effects of the Great Depression. These programs expanded government
intervention into new areas of social and economic concerns and created social-assistance measures on the national level. The Great Depression fundamentally changed
the relationship between the government and the people, who came to expect and accept a larger federal role in their lives and the economy.
The programs of the New Deal also brought together a new, liberal political alliance in the United States. Roosevelt's policies won the support of labor unions, blacks,
people who received government relief, ethnic and religious minorities, intellectuals, and some farmers, forming a coalition that would be the backbone of the
Democratic Party for decades to come.
On a personal level, the hardships suffered during the depression affected many Americans' attitudes toward life, work, and their community. Many people who
survived the depression wanted to protect themselves from ever again going hungry or lacking necessities. Some developed habits of frugality and careful saving for
the rest of their lives, and many focused on accumulating material possessions to create a comfortable life, one far different from that which they experienced in the
depression years.
The depression also played a major role in world events. In Germany, the economic collapse opened the way for dictator Adolf Hitler to come to power, which in turn led
to World War II.

II

CAUSES OF THE DEPRESSION

It is a common misconception that the stock market crash of October 1929 was the cause of the Great Depression. The two events were closely related, but both were
the results of deep problems in the modern economy that were building up through the "prosperity decade" of the 1920s.
As is typical of post-war periods, Americans in the Roaring Twenties turned inward, away from international issues and social concerns and toward greater individualism.
The emphasis was on getting rich and enjoying new fads, new inventions, and new ideas. The traditional values of rural America were being challenged by the cityoriented Jazz Age, symbolized by what many considered the shocking behavior of young women who wore short skirts and makeup, smoked, and drank.
The self-centered attitudes of the 1920s seemed to fit nicely with the needs of the economy. Modern industry had the capacity to produce vast quantities of consumer
goods, but this created a fundamental problem: Prosperity could continue only if demand was made to grow as rapidly as supply. Accordingly, people had to be
persuaded to abandon such traditional values as saving, postponing pleasures and purchases, and buying only what they needed. "The key to economic prosperity," a
General Motors executive declared in 1929, "is the organized creation of dissatisfaction." Advertising methods that had been developed to build support for World War I
were used to persuade people to buy such relatively new products as automobiles and such completely new ones as radios and household appliances. The resulting
mass consumption kept the economy going through most of the 1920s.
But there was an underlying economic problem. Income was distributed very unevenly, and the portion going to the wealthiest Americans grew larger as the decade
proceeded. This was due largely to two factors: While businesses showed remarkable gains in productivity during the 1920s, workers got a relatively small share of the
wealth this produced. At the same time, huge cuts were made in the top income-tax rates. Between 1923 and 1929, manufacturing output per person-hour increased
by 32 percent, but workers' wages grew by only 8 percent. Corporate profits shot up by 65 percent in the same period, and the government let the wealthy keep more
of those profits. The Revenue Act of 1926 cut the taxes of those making $1 million or more by more than two-thirds.
As a result of these trends, in 1929 the top 0.1 percent of American families had a total income equal to that of the bottom 42 percent. This meant that many people
who were willing to listen to the advertisers and purchase new products did not have enough money to do so. To get around this difficulty, the 1920s produced another
innovation--"credit," an attractive name for consumer debt. People were allowed to "buy now, pay later." But this only put off the day when consumers accumulated so
much debt that they could not keep buying up all the products coming off assembly lines. That day came in 1929.
American farmers--who represented one-quarter of the economy--were already in an economic depression during the 1920s, which made it difficult for them to take
part in the consumer buying spree. Farmers had expanded their output during World War I, when demand for farm goods was high and production in Europe was cut
sharply. But after the war, farmers found themselves competing in an over-supplied international market. Prices fell, and farmers were often unable to sell their
products for a profit.
International problems also weakened the economy. After World War I the United States became the world's chief creditor as European countries struggled to pay war
debts and reparations. Many American bankers were not ready for this new role. They lent heavily and unwisely to borrowers in Europe, especially Germany, who would
have difficulty repaying the loans, particularly if there was a serious economic downturn. These huge debts made the international banking structure extremely unstable
by the late 1920s.
In addition, the United States maintained high tariffs on goods imported from other countries, at the same time that it was making foreign loans and trying to export
products. This combination could not be sustained: If other nations could not sell their goods in the United States, they could not make enough money to buy American
products or repay American loans. All major industrial countries pursued similar policies of trying to advance their own interests without regard to the international
economic consequences.
The rising incomes of the wealthiest Americans fueled rapid growth in the stock market (see Stock Exchange), especially between 1927 and 1929. Soon the prices of
stocks were rising far beyond the worth of the shares of the companies they represented. People were willing to pay inflated prices because they believed the stock

prices would continue to rise and they could soon sell their stocks at a profit.
The widespread belief that anyone could get rich led many less affluent Americans into the market as well. Investors bought millions of shares of stock "on margin," a
risky practice similar to buying products on credit. They paid only a small part of the price and borrowed the rest, gambling that they could sell the stock at a high
enough price to repay the loan and make a profit.
For a time this was true: In 1928 the price of stock in the Radio Corporation of America (RCA) multiplied by nearly five times. The Dow Jones industrial average
industrial average--an index that tracks the stock prices of key industrial companies--doubled in value in less than two years. But the stock boom could not last. The
great bull market of the late 1920s was a classic example of a speculative "bubble" scheme, so called because it expands until it bursts. In the fall of 1929 confidence
that prices would keep rising faltered, then failed. Starting in late October the market plummet...


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