“Did the New Deal Prolong the Great Depression?”
Throughout the 1920’s, the United States of America was booming, allowing the country to become the most prosperous economic and cultural nation in the world. The future for the American economy looked bright at the time, until the next decade a major economic setback occurred. The Great Depression hit when the stock market crashed on October 24, 1929, which brought the economic prosperity of the 1920’s to a symbolic end. This tragic event sent violent economic shockwaves through the United States and the entire world. By 1930, 4 million were unemployed and it increased to 9 million by 1932. Farmers were struggling, millions of Americans became homeless, and America was in need of refuge- seeking for a new life. During the decade of disaster, Franklin D. Roosevelt was elected president in 1932, expressing to the world potential ideas he promised would help the social and economic problems that were facing the citizens of the state. Roosevelt proposed the “New Deal” which, “attempted to jump-start the economy with dozens of recovery and relief measures.” (Text pg. 388) The First New Deal provided a number of relief agencies that were slowly turning the economy back around. By the summer of 1937, Roosevelt’s second term, the economy had almost recovered until Roosevelt decided to cut spending in order to cut the deficit. This decision made, “followed with 1.6 million WPA workers losing their jobs as well as 4 million others; industrial production dropped by more than 34 percent.” (Text pg. 389) By the late 1930’s the New Deal was practically over. Despite a negative public opinion, The New Deal’s achievement was to stabilize the economy, hoping to avoid another depression. Others believed that The New Deal prolonged the Great Depression. Burton W. Folsom, Jr., author of New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America, argued that “…the (then) New Deal bureaucracy prevented the country from ending the depression more quickly.” (Text pg. 389) Folsom supported his reasoning that the Smoot-Hawley Tariff Act in 1930, crippled American businesses and production, which increased prices, which prevented European nations from paying off their debts. Lastly, he states the poor performance done by the Federal Reserve, which was originally designed to stop precisely what happened, a banking collapse. The Fed raised interest rates sharply during the late 1920’s, which made it harder for businesses to borrow money. Folsom explains, “…both the Hoover and Roosevelt administrations abandoned free-market economics by passing the Smoot-Hawley Tariff Act in 1930…” (Text pg. 389) Although the original intention behind this act was to, “…increase the protection afforded domestic farmers against foreign agricultural imports…” (US Department of Senate) led to declining farm prices during the second half of the decade. The tariff raised the cost of living by compelling the consumer to subsidize waste and inefficiency in [domestic] industry. Finally, Americans with investments abroad suffered since the tariff “prevented European nations from paying off their debts.” (Text pg. 389) The author expressed that the Smoot-Hawley Tariff Act did not necessarily cause the Great Depression, but it certainly did not help it at all. Lastly, Folsom argues that the Federal Reserve continuously raised interest rates, which made it difficult for businesses to borrow money. The Federal Reserve controlled the loaning of money to banks by raising or lowering interest rates. Roosevelt called for the Federal Reserve to raise interest rates so the banks would not borrow as much. If the banks borrowed less, they would have less money to loan to investment brokers, and those brokers would have less to lend to individual investors who wanted to buy stock on margin. As banks competed for customers for new loans, short-term interest rates fell, causing consumers to take out more loans...
Please join StudyMode to read the full document