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POLITICAL ECONOMY OF THE CRISIS IN THE US

The Great Depression introduced a great shock to a relatively young economy lacking in expertise in reviving credit, production, and consumption. While crises had occurred in the past, extensive government intervention to stimulate the macroeconomy was not de rigueur in the US.

Furthermore, the Federal Reserve was relatively new and inexperienced. The decision to raise interest rates in 1928, 1929, and 1931 negatively impacted the rest of the world through the gold standard and choked off economic growth. Although Eugene Meyer, Governor of the Federal Reserve Board in 1930-1933, advocated for intervention, the Fed failed to act as a lender of last resort during banking panics that lasted from 1930 through 1933 due to differences of opinion.

Wall Street men and working people alike attributed the prosperity of the 1920s to President Calvin Coolidge, viewed as a man of strong character who promoted a small government. Coolidge stated, “I want the people of America to be able to work less for the government and more for themselves. I want them to have the rewards of their own industry. This is the chief meaning of freedom” (Coolidge 1924). Few scholars have attributed the Great Depression to Coolidge’s pro-business policies in tenure.

President Herbert Hoover, who took office in March 1929, has by contrast received much of the blame for insufficient government action during the Great Depression, despite maintaining a political economic ideology similar to that of Coolidge. Since times were wretched during the presidency of Herbert Hoover, the American populace viewed him as a weak, incompetent leader. President Hoover did not diverge from received wisdom in his understanding of recessions as a normal part of economic business cycles, nor in his view of a balanced budget as a fiscal responsibility. Hoover thought that the recession would die away in time, particularly if consumers and producers maintained confidence in economic growth.

Hoover was in favor of starting limited public works to improve national infrastructure and of building up agricultural co-operatives to decrease excessive competition among farmers (Hoover 1952). He initiated prison, law enforcement, and child welfare reforms, among many others. He was therefore in favor of government action on several important fronts. However, President Hoover did not believe in government bailouts to ailing sectors, and was steadfast about ensuring a healthy budget that was balanced through the least increase in taxes. Hoover eventually bailed out banks and railroads - firms that were deemed too big to fail - while refusing to bail out farmers in order to preserve the forces of community self-help.

Hoover’s efforts to ease the pain of the Great Depression remained insufficient. In defense of his actions, Hoover stated in his memoirs:

Whatever our apprehensions may have been, it can be said at once that neither the American people nor the Congress would have approved such unprecedented measures before these ill winds began to strike our shores. It is not given to mortals clearly to foresee the violence or the emergence of hidden forces of destruction. (Hoover 1952)

Hoover remained unpopular, making way for Democratic candidate Franklin Delano Roosevelt to win the 1932 election. Roosevelt drew a negative picture of Hoover in his election campaign and, in an ironic twist of fate, accused him of overspending and running up the government debt. Roosevelt won by a landslide. Although the nation was at a historic low point, Roosevelt’s Inaugural Address was greeted with hearty approval, and Roosevelt embarked on improving economic conditions mere hours after his inauguration.

In President Roosevelt’s first 100 days, 15 major bills were passed through Congress (Cohen 2009). Banks were closed to prevent further bank failures, and were to be reopened once healthy under the Emergency Banking Act. Farmers were given relief in the form of payment not to plant their crops, as crop prices were extremely low. A large-scale social welfare program was enacted to provide a safety net for families falling into dire poverty, indicated by homelessness and starvation. The first 100 days of Roosevelt’s presidency changed the role of the government in America.

President Roosevelt created an atmosphere of infectious optimism, which helped turn around the desperation of the Great Depression. The worst of the Depression was over due to strong leadership under Roosevelt and a surge in demand stemming from the government.

 
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