In 1929, the great depressions lead to failure and collapse of the Wall Street. The decline in the value of stocks in the stock market coupled with the failure of the financial institutions brought the American economy to its knees. The economy faced the worst level of unemployment where industries laid off massive number of workers to cut down on the total costs. The depression begun in the late 1920’s during Hebert Hoover’s reign as the United State’s president. This saw the election of Franklin D. Roosevelt as the president to succeed him and guide the country in recovering from the effects. Roosevelt introduced the new deal package to aid in recovery and offering relief measures to the public. Many Historians remain divided over the success of this program in diminishing the depression. This paper will examine the different opposing opinions on whether the programs succeeded in prolonging or reducing the economic depression in the period.
Burton F. Folsom agrees to the view that Roosevelt’s new deal package indeed prolonged the depression. He argues that the increase in controlled government spending financed by high taxes created a hostile business environment that discouraged free enterprise and investment. Investors did not invest due to the strained relationship between the government administration and businesspersons (Madaras 248). In turn, the economy did not realize the much needed employment opportunities and wealth creation fast enough thus contributing to the prolonging of the economic condition. Henry Morgenthau, Jr. attested to the fact that the controlled deficit spending did not have any positive significant impact on the alleviation of the unemployment situation. According to him, instead of the government curbing the situation, it was creating a huge national debt without any tangible results.
In his argument, Burton notes that in the period between 1930 to the early 1940’s, the united state’s economic welfare deteriorated further than the previous periods. The national debt figures skyrocketed from the previous high of 16billion to a new high of 40 billion. This was the largest national debt in the U.S history, a burden that lay squarely on the unemployed U.S citizen’s shoulders (Madaras 242). Naturally, one would expect that such a huge national debt and spending would spark economic growth and increase employment opportunities. Contrary to the expectations, unemployment continued to rise to new highs coupled with huge declines in industrial productions.
Another proof why the new deal prolonged the depression is the decline in the level and balance of trade over the depression decade. Increase in government spending raised the prices of export commodities such as wheat and steel. The high prices of the export commodities made it difficult to participate in foreign trade. The overall impact being unfavorable balance of trade where the United States imported more than what they exported. Generally, the high price levels triggered by the government spending stifled trade both domestically and internationally. Other problems experienced during the period include social problems such as demographic changes where the birth rate declined while deaths rates increased. Moral fiber of the nation such as honesty and integrity broke down due to the struggle to make ends meet.
On the other hand, as much as Roger Biles agrees that the deficit spending by new deal may have had a hand in prolonging the depression, he also contends that the deal was able to set up structures and strategies that prevented the occurrence of another depression. Roger Miles accepts that the constrained relationship between businesspersons and the Roosevelt administration, controlled deficit spending and high taxes slowed down the pace of recovery. Considering the fact that huge spending in the world war ended the depression, one would argue that Roosevelt had to engage in more spending than he was willing to (Madaras 251). This explains why the United States fared poorly compared to other nations in mitigating the depression due to controlled spending. According to Roger Biles, the positive benefit of the new deal is that it introduced the federal’s ability to effect change. The government was able to come to direct aid of the U.S citizens through government spending and centralized economic planning efforts realized through the National recovery Administration. Government monitoring of the stock market through the Securities and Exchange Commission brought control in the market. The new deal saw the separation between commercial and investment banks and the ability of the Federal Reserve board to determine the level of credit and interest rates. This brought about a controlled financial system with easy flexibility and predictability (Madaras 252). Federal Deposit Insurance Corporation was able to supervise banks in the industry and succeeded in bailing out those that failed due to economic difficulty.
The experience of the 1929 depression and the performance of the programs put in place to mitigate the state of affairs offers valuable lesson to the people of the United States currently. It enables citizens question the soundness of the American financial and economic systems. Notably, the “it cannot happen here” attitude caused the previous depression. This therefore calls for careful examination of the anchors upon which economic pillar lie. It also calls for election of apt leaders with the ability and necessary policies that can withstand economic shocks and steer the country forward.
Madaras, Larry and James SoRelle. "Did the New Deal Prolong the Great Depression?" Issue 11, pp. 238 - 257. "Taking Sides: Clashing Views in United States History, Volume 2: Reconstruction to the Present. New York: Mc Graw-Hill, 24 September 2010.