The 1929 Crash and the New Deal: Economic Recovery
The 1929 Crash and the “New Deal”
4.1. The Stock Market Crash and the Great Depression
Many investors were aware that stock prices were much higher than their actual value. Distrust spread among investors, and on October 24, 1929 (Black Thursday), a large sell-off affected the New York Stock Exchange. Suddenly, everyone wanted to sell their shares, and no one wanted to buy.
The wide range of actions caused the value to fall and crash, triggering the stock market crash of 1929. Many investors were ruined, and panic spread among citizens who rushed to the banks to withdraw their money. Banks were forced to close for lack of funds, since they could not collect loans made to individuals and businesses. The fall in the stock market precipitated the fall of many banks.
In a few years, the stock market crisis spread to a large part of industry, commerce, and agriculture, causing a widespread economic recession (the Great Depression). Faced with the conviction that difficult times were approaching, production decreased. Many factories were closed due to the inability to sell their production. The number of unemployed increased to 13 million in 1932, and many families fell into poverty and had to resort to public charity to live.
In the United States, the crisis spread to the rest of the world as U.S. banks withdrew capital deposited in European banks, and U.S. companies decreased their investments in those countries. In addition, U.S. imports fell sharply, which caused world trade to suffer a major recession, which helped the worldwide spread of the crisis.
4.2. The Fight Against the Crisis: The “New Deal”
In 1932, one of the worst years of the Great Depression, Franklin D. Roosevelt, a Democrat, won the election. He proposed a new program to promote economic recovery and bring the country out of crisis. It was called the New Deal, which advocated state intervention to revive the economy.
The New Deal suggested a series of economic and social reforms to stem the fall in prices and boost activity:
- Assistance to businesses
- Creation of public companies in sectors where there was no private investment
- Destruction of accumulated agricultural stocks
In addition, the state established control over the banks, obligating them to provide loans with low interest rates so that entrepreneurs could expand their businesses or create new ones.
These economic reforms were accompanied by a set of social reforms. To combat unemployment, the state boosted a large plan of public works (roads, reservoirs, bridges…). Also, to increase the purchasing power of workers, a policy was implemented to support agricultural prices and increase wages while reducing the workday to 40 hours per week.
All these measures resulted in a relaunch of the U.S. economy and a decrease in unemployment. In 1934, productivity reached the level of 1929, and the national income started to rise again after four years of steady decline.
Despite these improvements, the crisis was not overcome until the outbreak of World War II, when new needs for rearmament and supplies for the contending countries made the United States the main supplier of the allies in the war.