The Great Depression and its Consequences: A Comparative Analysis Essay
The causes of the Great Depression, also known as the Black Tuesday of October 29, 1929, are beyond the scope of this paper; what will be examined more specifically are the approaches of Hoover and Roosevelt to the crisis as well as the particular programs advocated and implemented in an effort to safeguard American citizens against such devastation again in the future. Hoover was fundamentally reactive, narrow-minded and short-sighted in the face of failing economic indicators whereas Roosevelt was proactive, aggressive, and more inclined to pursuing the longer-term benefts of compelling government agencies to implement measures designed to rehabilitate and sustain America’s financial health. This paper will briefly describe the characteristic features of the Great Depression, compare the approaches of Hoover and Roosevelt to the economic and social turmoil, and explain Roosevelt’s New Deal responses to the crisis.
As a preliminary matter, the Great Depression was characterized by unprecedented levels of consumer debt, a decrease in international trade in the wake of the first World War, price deflation which compelled both individual and business debtors to cut spending while attempting to service higher than anticipated debt payments, a liquidity crisis which saw the money supply contract rather than expand, and a stock market crash as equity failed to yield anticipated returns (Bernstein, 1989: 33-35). In effect, stating the matter rather simply, money was disappearing on the income or loan side at the same time that debts and expenses were increasing. The consequences were disastrous. Unemployment increased, bankruptcies became commonplace, and huge migrations occurred as people sought new opportunities. There were too few resources for too many people; and where there were adequate resources; they were not allocated equally.
President Hoover failed to grasp the pervasive nature of the economic failings; on the contrary, rather than approaching the crisis from a structural point of view, he chose to deal only with the more superficial symptoms of the crisis. More specifically, espousing a philosophical role of government which remained detached and aloof, Hoover refused to involve the government more directly into the market economy or social welfare. He was, in this way, a regulatory minimalist and he trusted that the business cycle and the American work ethic would sort out the crisis without substantial governmental intervention (Kennedy, 199: 56). These views became manifest as a policy of “avowed cooperation”; more particularly, Hoover encouraged certain reforms, such as bank deposit insurance, without supporting any more specific or comprehensive reforms. He was, in the final analysis, extraordinarily passive and ineffective in dealing with the scale of the disaster.
President Roosevelt, on the other hand, was much more active and advocated a direct and deep intervention by the federal government. To this end, Roosevelt pursued structural reform, a broader notion of social welfare, and a governmental role in the economy which would increase demand and create jobs by entering into infrastructure contracts and becoming an active economic actor alongside individuals and businesses (Bremer, 1975: 642). Roosevelt distrusted both the free market and businesses in the forms espoused by theoretical purists; as a result, he approached the crisis from the point of view of the federal government helping to manage the business cycle and keeping the excesses of greed and capitalism at bay. Roosevelt was thus a reaction to the passivity and detachment of Hoover; his programs, incorporated as a part of the New Deal and the Second New Deal, remain important parts of our governmental structure and philosophy even today.
The New Deal dealt first and foremost with restoring the integrity and the health of America’s financial system; Roosevelt was thus forced to reform the powerful banks on Wall Street and elsewhere. This involved increased regulation of the stock market, creating a centralized insurance fund for bank deposits, creating worker rights in the form of minimum wages and unions, and intervening directly in industrial sectors to ensure that prices remained connected to economic realities and those profits were reasonable in relation to productivity (Bremer, 1975: 647). Roosevelt was criticized by conservatives who viewed these policies as being akin to communism; he was similarly attacked by left-wing advocates of an even-more centralized federal government in order to prevent a resurgence of the excesses of capitalism they viewed as the underlying causes of the Great Depression. In an effort to appease critics from both sides of the political spectrum, Roosevelt created a Second New Deal program. This second reincarnation was similarly bold and aggressive; it included, among other things, the creation of a social security regime to provide pensions and protection against unemployment, an increased centralization of the Federal Reserve banking system, and a progressive system of taxation which made it less beneficial to make huge profits (Sage: 2005: np). Together, these programs offered more protection for the poor, sought to ensure transparency in the financial system, and expressed the policy that there were limits to the pursuit of wealth to the exclusion of all else.
In conclusion, there were very different reactions to the Great Depression. Hoover represented those who advocated government minimalism while Roosevelt represented those that advocated direct governmental intervention and quasi-management functions. That many of Roosevelt’s programs are a still part of the American system today is a tribute to his foresight and his strength of conviction.
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