The New Deal and the 1929 Stock Market Crash: Causes and Effects
The New Deal: A Response to Crisis
The New Deal was a policy that resonated deeply with the crisis of the Great Depression. Implemented by President Franklin D. Roosevelt in the U.S., it fundamentally altered aspects of classical capitalism. Roosevelt’s overwhelming victory over Hoover in the presidential election signaled a radical shift in U.S. policy. A progressive thinker, Roosevelt was one of the most popular presidents in U.S. history, being re-elected four times.
His greatest achievement was restoring public confidence through innovative measures. These economic and social initiatives aimed to revitalize production, with the government taking a proactive role, breaking from the traditional state inhibition of classical economic liberalism. Reforms included banking improvements, enhanced customer protection, and the hiring of unemployed workers at acceptable salaries. Private investment was supplemented by public investment in major projects. Monetary policies sought to control inflation and stimulate consumption. Measures were implemented to monitor the stock market, and production quotas were imposed on businesses.
The New Deal introduced legislation to address unfair situations, creating the first federal system of unemployment insurance and establishing minimum wages and maximum working hours. Unions became partners in business. While production improved compared to 1932, it did not surpass pre-1929 levels. The New Deal improved the economic situation and helped overcome the social crises of the Great Depression. The end of the crisis in the U.S. coincided with the onset of World War II, as the demand generated by the conflict spurred economic recovery.
The Crash of the New York Stock Exchange
From 1925, stock prices rose steadily, accumulating profits. Banks, businesses, and individuals increasingly invested, drawn by seemingly enormous and guaranteed benefits. Easy access to loans for stock purchases further fueled speculation. The growing disparity between high stock prices and actual business activity became increasingly apparent.
Signs of underlying problems were evident before 1929. Commodity values were falling, the UK faced economic difficulties that impacted the international monetary system, and German industrial production stagnated from 1927. International trade also reached an impasse. In early 1929, the NYSE index stalled. Government officials raised interest rates to regulate credit invested in the stock market, but these measures came too late.
On Thursday, October 24, a large volume of shares was put up for sale, causing prices to plummet. This day, dubbed “Black Thursday,” marked the end of rising stock values. The immediate trigger of the 1929 crisis was the crash of the New York Stock Exchange. Panic gripped investors, leading to mass selling of securities, despite attempts by some banks to halt the price decline. A slow recovery began in 1933.