How did the federal government respond to the challenges of the Great Depression? Essay

Before the great depression, the American economy was flourishing. During 1929 the value of New York Stock Exchange had almost tripled as compared to its value during 1925. The positive state of the American economy can be identified by the following statement of President Herbert Hover: “In America today, we are nearer a final triumph over poverty than is any other land” (p. 114). During this time period, various economists stated that the stock market was overpriced and the rates of company stocks were more than their actual value. Investors ignored warning until the stock market started crashing and investors started selling off their stock exchange holdings. The stock market crash was not only the reason that led to the Great Depression, but it was one of the main reasons.

The first attempt to save the American economy during 1929 was made by President Herbert Hoover. The measures taken by the president includes: tax cuts during 1929, ordering of increase in the rate of construction by federal departments and signing of the Smooth Hawley Tariff. Smooth Hawley Tariff was a legislation created to protect local American companies from competition of foreign companies. Hoover’s attempts to save the American economy showed that he believed that American economy can perform well if private businesses and government worked together. He named this activity as voluntary cooperation. These efforts helped in the economy and the American government thought that they have solved the problem and once again America was going to move towards prosperity. But all these efforts became a total waste as the economy started deteriorating again. The American banks started closing as they faced liquidity issues and they were taken over by larger banks. The debt taken by foreign countries was not being paid back to the American banks due to Smooth Hawley Tariff and the plan of voluntary cooperation became a complete failure. Hoover started taking new steps to solve the issues faced by American economy. He believed that instead of giving money and food to the public, aid should be provided to corporations as it will help corporations stabilize and this will create employment and the final benefit will be gain by the public. To promote his belief he created The Reconstruction Finance Corporation. Through this corporation, more than $2 million were lent to railroads, banks, institutions and farm mortgage associations.

The problems faced by American economy did not seem to get solved until elections for new president took place. These elections were contested by Herbert Hoover and Franklin D. Roosevelt. The elections were won by Franklin D. Roosevelt and he was chaired as the new president of America. He came up with a plan to counter economic depression; this plan was recognized as the New Deal. He started by creating various federal agencies recognized as NRA (National Recovery Administration), AAA (Agriculture Adjustment Administration). The first issue countered by the president was to stop the downtrend of the banking system. To solve this problem, Roosevelt announced a bank holiday and all the banks were closed for a period of 4 days. During this holiday, decisions were made regarding the shutting down of banks that were not fit to do business and providing a federal certificate of soundness to those banks which were fit to do business. 5% of the total banks were recognized as unstable to do business, the rest of the banks reopened after the holiday period. The president announced that banks were now stable and there was no threat to keeping money in banks. He stated “I can assure you that it is safer to keep your money in a reopened bank than under the mattress” (p. 119). When the banks re-opened, huge number of people re-deposited their money in their bank account and the New York Stock Exchange experienced an increase of 15% in its value in one particular day. The president believed that providing funds to needy people was not the solution so he decided to finance projects as this action would result in employment and will have a long term benefit. This program was recognized as work relief, CWA (Civil Works Administration) was created under the program of work relief. This administration hired people for building and repairs of schools and parks and these workers were paid $15/week. The purpose of creation of AAA was to discourage productivity in order to increase prices of agricultural goods. The purpose of NRA was to decrease productivity of industrial goods and create an artificial increase in the price of industrial goods. The president even came up with the Social Security Act; the purpose of this act was to provide benefits to employees after retirement. The funds for this purpose were obtained from employees monthly and yearly earnings. Roosevelt’s regime created WPA (Works Progress Administration), the purpose of this administration was to provide employment to the people of areas that were adversely affected by economic downtrend. The president was not satisfied with the judiciary of that era as they were standing against various programs established by the president. The president then came up with the Judiciary Reorganization Bill; the purpose of this bill was to add an extra justice for all those judges who aged over 70. The president stated “nine old men on the court were over worked” (p. 122). This program was recognized as Court Packing by the criticizers of those who were against the president’s reforms. In 1937 the efforts made by the president to recover the economy started losing ground and the stock prices fell by more than fifty percent, unemployment increased by more than twenty percentage, profits of private sector decreased and even productivity decreased. This time period was recognized as Roosevelt Recession. This encouraged the president to implement the economic theory presented by John Maynard Keynes. The theorist stated that when a country faces economic downtrend, the country should borrow money from outside and inject the borrowed money in its economy to encourage economic growth. These were all the various efforts made by President Herbert Hover and Franklin D. Roosevelt to help the American economy during the period of Great Depression.

Works Cited:

McElvaine, Robert S. The Great Depression: America, 1929-1941. New York, N.Y.: Times Books, 1984. Print.