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The Great Depression in 30th of the 20th Century in the Usa

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The Great Depression in 30th of the 20th Century in the Usa
The Great Depression in 30th of the 20th century in the USA

Content
Introduction 3
Chapter I. A spiral of the Great Depression 4 1.1 Main causes of the Great Depression 4 1.2 Development of events. Undoing spiral. 9 1.3 Differences between then and now 13
Chapter II. The New Deal 15 2.1 The first 100 days 15 2.2 Reform 18 2.3 Recession of 1937 and recovery 21
Conclusion 23
Bibliography 25

Introduction

The Great Depression of the thirties remains the most important economic event in American history. It caused enormous hardship for tens of millions of people and the failure of a large fraction of the nation 's banks, businesses, and farms. It transformed national politics by vastly expanding government, which was increasingly expected to stabilize the economy and to prevent suffering. Democrats became the majority party. In 1929 the Republicans controlled the White House and Congress. By 1933, the Democrats had the presidency and, with huge margins, Congress (310-117 in the House, and 60-35 in the Senate). President Franklin Roosevelt 's New Deal gave birth to the American version of the welfare state. Social Security, unemployment insurance, and federal family assistance all began in the thirties.
Actuality: Today the world currency changes, many banks ruin themselves. A world economic crisis comes. I think, we must study the experience of the Great Depression to behave us right in the modern world.
The Purpose of my work is detaching of the main characters of the Great Depression and comparing them to the modern economic situation.
Tasks correspond with content.

Chapter I. A spiral of the Great Depression

1.1 Main causes of the Great Depression

The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually all of the industrialized world. The depression began in late 1929 and lasted for about a decade. Many factors played a role in bringing about the depression; however, the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920 's, and the extensive stock market speculation that took place during the latter part that same decade. The maldistribution of wealth in the 1920 's existed on many levels. Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the U.S. and Europe. This imbalance of wealth created an unstable economy. The excessive speculation in the late 1920 's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize.
The "roaring twenties" was an era when the country prospered tremendously. The nation 's total realized income rose from $74.3 billion in 1923 to $89 billion in 1929. However, the rewards of the "Coolidge Prosperity" of the 1920 's were not shared evenly among all Americans. According to a study done by the Brookings Institute, in 1929 the top 0.1% of Americans had a combined income equal to the bottom 42%2. That same top 0.1% of Americans in 1929 controlled 34% of all savings, while 80% of Americans had no savings at all. Automotive industry mogul Henry Ford provides a striking example of the unequal distribution of wealth between the rich and the middle-class. Henry Ford reported a personal income of $14 million in the same year that the average personal income was $7505. By present day standards, where the average yearly income in the U.S. is around $18,5006, Mr. Ford would be earning over $345 million a year! This maldistribution of income between the rich and the middle class grew throughout the 1920 's. While the disposable income per capita rose 9% from 1920 to 1929, those with income within the top 1% enjoyed a stupendous 75% increase in per capita disposable income[1].
A major reason for this large and growing gap between the rich and the working-class people was the increased manufacturing output throughout this period. From 1923-1929 the average output per worker increased 32% in manufacturing. During that same period of time average wages for manufacturing jobs increased only 8%9. Thus wages increased at a rate one fourth as fast as productivity increased. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into corporate profits. In fact, from 1923-1929 corporate profits rose 62% and dividends rose 65%10.
The federal government also contributed to the growing gap between the rich and middle-class. Calvin Coolidge 's administration (and the conservative-controlled government) favored business, and as a result the wealthy who invested in these businesses. An example of legislation to this purpose is the Revenue Act of 1926, signed by President Coolidge on February 26, 1926, which reduced federal income and inheritance taxes dramatically1. Andrew Mellon, Coolidge 's Secretary of the Treasury, was the main force behind these and other tax cuts throughout the 1920 's. In effect, he was able to lower federal taxes such that a man with a million-dollar annual income had his federal taxes reduced from $600,000 to $200,00012. Even the Supreme Court played a role in expanding the gap between the socioeconomic classes. In the 1923 case Adkins v. Children 's Hospital, the Supreme Court ruled minimum-wage legislation unconstitutional13.
The large and growing disparity of wealth between the well-to-do and the middle-income citizens made the U.S. economy unstable. For an economy to function properly, total demand must equal total supply. In an economy with such disparate distribution of income it is not assured that demand will always equal supply. Essentially what happened in the 1920 's was that there was an oversupply of goods. It was not that the surplus products of industrialized society were not wanted, but rather that those whose needs were not satiated could not afford more, whereas the wealthy were satiated by spending only a small portion of their income.
Three quarters of the U.S. population would spend essentially all of their yearly incomes to purchase consumer goods such as food, clothes, radios, and cars. These were the poor and middle class: families with incomes around, or usually less than, $2,500 a year. The bottom three quarters of the population had an aggregate income of less than 45% of the combined national income; the top 25% of the population took in more than 55% of the national income.
Through such a period of imbalance, the U.S. came to rely upon two things in order for the economy to remain on an even keel: credit sales, and luxury spending and investment from the rich.
One obvious solution to the problem of the vast majority of the population not having enough money to satisfy all their needs was to let those who wanted goods buy products on credit. The concept of buying now and paying later caught on quickly. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled from $1.38 billion to around $3 billion. This strategy created artificial demand for products which people could not ordinarily afford. It put off the day of reckoning, but it made the downfall worse when it came. People could not longer use their regular wages to purchase whatever items they didn 't have yet, because so much of the wages went to paying back past purchases.
The U.S. economy was also reliant upon luxury spending and investment from the rich to stay afloat during the 1920 's. The significant problem with this reliance was that luxury spending and investment were based on the wealth’s confidence in the U.S. economy. If conditions were to take a downturn (as they did with the market crashed in fall and winter 1929), this spending and investment would slow to a halt. While savings and investment are important for an economy to stay balanced, at excessive levels they are not good. Greater investment usually means greater productivity. However, since the rewards of the increased productivity were not being distributed equally, the problems of income distribution (and of overproduction) were only made worse. Lastly, the search for ever greater returns on investment lead to wide-spread market speculation.
Maldistribution of wealth within the nation was not limited to only socioeconomic classes, but to entire industries. In 1929 a mere 200 corporations controlled approximately half of all corporate wealth. While the automotive industry was thriving in the 1920 's, some industries, agriculture in particular, were declining steadily. In 1921, the same year that Ford Motor Company reported record assets of more than $345 million, farm prices plummeted, and the price of food fell nearly 72% due to a huge surplus. The prosperity of the 1920 's was simply not shared among industries evenly. In fact, most of the industries that were prospering in the 1920 's were in some way linked to the automotive industry or to the radio industry[2].
The automotive industry was the driving force behind many other booming industries in the 1920 's. The automobile had been central to the urbanization of the country in the 1920 's because so many other industries relied upon it.
Also prospering during the 1920 's were businesses dependent upon the radio business. Radio stations, electronic stores, and electricity companies all needed the radio to survive, and relied upon the constant growth of the radio market to expand and grow themselves.
The fundamental problem with the automobile and radio industries was that they could not expand ad infinitum for the simple reason that people could and would buy only so many cars and radios. When the automotive and radio industries went down all their dependents, essentially all of American industry, fell. Because it had been ignored, agriculture, which was still a fairly large segment of the economy, was already in ruin when American industry fell.
A last major instability of the American economy had to do with large-scale international wealth distribution problems. While America was prospering in the 1920 's, European nations were struggling to rebuild themselves after the damage of war. During World War I the U.S. government lent its European allies $7 billion, and then another $3.3 billion by 1920. By the Dawes Plan of 1924 the U.S. started lending to Axis Germany. American foreign lending continued in the 1920 's climbing to $900 million in 1924, and $1.25 billion in 1927 and 192831. Of these funds, more than 90% were used by the European allies to purchase U.S. goods. The nations the U.S. had lent money to (Britain, Italy, France, Belgium, Russia, Yugoslavia, Estonia, Poland, and others) were in no position to pay off the debts. Their gold had flowed into the U.S. during and immediately after the war in great quantity; they couldn 't send more gold without completely ruining their currencies.
There were several causes to this awkward distribution of wealth between U.S. and its European counterparts. Most obvious is that fact that World War I had devastated European business. Factories, homes, and farms had been destroyed in the war. It would take time and money to recuperate. Equally important to causing the disparate distribution of wealth was tariff policy of the United States. The United States had traditionally placed tariffs on imports from foreign countries in order to protect American business. However these tariffs reached an all-time high in the 1920 's and early 1930 's. Starting with the Fordney-McCumber Act of 1922 and ending with the Hawley-Smoot Tariff of 1930, the United States increased many tariffs by 100% or more. The effect of these tariffs was that Europeans were unable to sell their own goods in the United States in reasonable quantities.
The weakness of the international economy certainly contributed to the Great Depression. Europe was reliant upon U.S. loans to buy U.S. goods, and the U.S. needed Europe to buy these goods to prosper. When the foreign countries became no longer able to buy U.S. goods, U.S. exports fell 30% immediately. That $1.5 billion of foreign sales lost between 1929 to 1933 was fully one eighth of all lost American sales in the early years of the depression.

1.2 Development of events. Undoing spiral.

The start of the depression is usually dated to the spectacular stock market crash of 1929. The Dow Jones industrial average hit its peak of 381 on September 3, up from 300 at the start of the year. After sporadic declines, the roof fell in on October 24 (Black Thursday). Stock prices dropped 15 to 20 percent before being supported by buying from a pool of bankers. Although the market closed with only a small loss (down 6 to 299), trading was nearly 12.9 million shares, about triple the normal volume. The selling panic resumed the next week. On Monday the Dow fell 38 points to 260, then the biggest one-day drop ever. The next day (Black Tuesday), it slid another 30 points. By November 13, the Dow was at 198.
There had been warnings. Many commentators complained before the crash that the market was driven by speculation. A lot of stock was bought on credit. Between the end of 1927 and October 1929, loans to brokers rose 92 percent. At the start of October, loans equaled nearly a fifth of the value of all stocks. But by itself the stock market crash did not cause the depression. By year 's end the Dow Jones industrial average had actually rebounded to 248 (down 17 percent from the beginning of 1929). It continued rising in early 1930.
The depression is often blamed on the passivity of President Hoover and the Federal Reserve. This view is simplistic. True, Hoover 's commitment to a balanced budget—the orthodoxy of the day—precluded big new spending programs. And his decision in 1932 to combat a budget deficit by raising taxes sharply is widely viewed as a major blunder. But it is not true that Hoover and the Federal Reserve stood idly by and did nothing as the depression worsened. After the crash Hoover instituted a tax cut equal to 4 percent of federal revenues. He urged state and local governments to raise their spending on public works projects. Hoover also created the Reconstruction Finance Corporation, which provided loans to shaky banks, utilities, and railroads. In 1931 he suspended collection of foreign-debt payments to the United States, which he thought were impeding recovery of the international economy.
Nor was the Federal Reserve entirely passive. During the crash the Fed lent liberally to banks so they could sustain securities lending. Interest rates were allowed to drop rapidly. The discount rate (the rate at which the Federal Reserve lends to commercial banks) fell from 6 percent in October 1929 to 2.5 percent in June 1930. The money supply (cash in circulation plus checking and time deposits at banks) declined only slightly in the next year[3]. Tighter Federal Reserve policy in 1928 and early 1929—intended to check stock market speculation—may have helped trigger the economic downturn. But the Federal Reserve was not stingy in early 1930 and was not driving the economy into depression at that time. It was not until 1931 and later that the Federal Reserve failed to act as the "lender of last resort" and allowed so many banks to fail.
The truth is that, until the summer or early fall of 1930, almost everyone expected the economy to recover, just as it had in 1921. Unfortunately, almost everyone underestimated the forces pulling the economy down. One was the drop in trade that resulted from collapsing commodity prices. Kindleberger has argued that the price collapse was worsened by the stock market crash. The connection lay in a drying up of credit. Many loans used to buy stock had come from foreigners and big corporations, and they demanded repayment when stock prices plummeted. New York banks assumed some of the loans, but they cut loans to the importers of raw materials. Demand for these products (rubber, cocoa, coffee) dropped, and prices fell. Strapped for funds, countries that exported commodities reduced their imports of manufactured goods from industrial nations. The drop in trade was deepened by Smoot-Hawley, which provoked massive retaliation by other nations.
What made matters worse was a big drop in U.S. consumer spending—far more than can be explained by the stock market crash. The drop may have been a backlash to the rise of installment lending (for cars, furniture, and appliances) in the twenties. The prevailing practice allowed lenders to repossess an item if the borrower missed just one payment. People may have stopped making new purchases to reduce the risk of losing things they already had bought on credit. Whatever happened, the slump soon fed on itself. Weak spending depressed prices, which meant that many farmers, businesses, and nations couldn 't repay their debts. Rising bad debts prompted banks to restrict new loans and sell financial assets, usually bonds. Scarce credit led to less borrowing, less spending, lower prices, and more bankruptcies. Trade and investment spiraled downward. Confidence crumbled, and as it did, bank runs—people clamoring to convert deposits into cash—ensued.
Why could no one stop this spiral? In the United States there were waves of bank failures in 1931 and 1932. Friedman and Schwartz maintain that the Federal Reserve could have prevented them by lending directly to weak banks and by aggressive "open market" operations (that is, by buying U.S. Treasury securities and thereby injecting new funds into banks and the economy). This action would have halted the depression, they argue. They blame the Federal Reserve 's timidity on the 1928 death of Benjamin Strong, the president of the Federal Reserve Bank of New York. Strong had dominated the Federal Reserve System, which consists of twelve regional banks and a board of governors in Washington. He firmly believed that the Federal Reserve had to prevent banking panics and sustain economic growth. When he died, power in the Federal Reserve passed to officials in Washington, whose ideas were murkier. Had Strong lived, Friedman and Schwartz contend, he would have averted the banking collapse.
Maybe—and maybe not. In fact, the Federal Reserve faced conflicting demands to end the depression and to protect the gold standard. The first required easier credit, the second tighter credit. The gold standard handcuffed governments around the world. The mere hint that a country might abandon gold prompted speculators and international depositors to change local money into gold or a convertible currency. Deposit withdrawals spread panic and squeezed lending. It was a global process that ultimately forced all governments off gold. In May 1931 there was a run against Creditanstalt, a large Austrian bank. The panic then shifted to Germany and, in late summer, to Britain, which left gold in September.
The United States was trapped by the same forces. After Britain went off gold, for instance, the Federal Reserve raised interest rates sharply to stem gold outflows. The discount rate went from 1.5 to 3.5 percent, which, considering the condition of the economy, was a huge increase. The best evidence that the gold standard fostered the depression is that once countries abandoned it, their economies usually began growing again. This happened in Germany, Britain, and, after Roosevelt left gold in March and April 1933, the United States.
Although self-defeating, the defense of gold was a product of law as well as custom. The Federal Reserve had to ensure that every dollar of paper money was backed by at least forty cents of gold. Once Congress ended the obligation to exchange gold for currency, the Fed was largely liberated from worrying about gold. This may have been the most important part of the New Deal 's economic program. The economy did improve. Between 1933 and 1937, the unemployment rate dropped from 25 to 14 percent before a new recession pushed it back up to 19 percent in 1938. The 1937-38 recession is widely blamed on the Federal Reserve 's mistaken decision to raise bank reserve requirements in August 1936 and early 1937. (Reserves are funds that banks keep as vault cash or as deposits at the Federal Reserve.)

1.3 Differences between then and now

The depression can be understood only in the context of the times. Consider four huge differences between then and now: 1. The gold standard. Most money was paper, as it is now, but governments were obligated, if requested, to redeem that paper for gold. This "convertibility" put an upper limit on the amount of paper currency governments could print, and thus prevented inflation. There was no tradition (as there is today) of continuous, modest inflation. Most countries went off the gold standard during World War I, and restoring it was a major postwar aim. Britain, for instance, returned to gold in 1925. Other countries backed their paper money not with gold, but with other currencies—mainly U.S. dollars and British pounds—that were convertible into gold. As a result flexibility of governments was limited. A loss of gold (or convertible currencies) often forced governments to raise interest rates. The higher interest rates discouraged conversion of interest-bearing deposits into gold and bolstered confidence that inflation would not break the commitment to gold. 2. Economic policy. Apart from the gold standard, economic policy barely existed. There was little belief that governments could, or should, prevent business slumps. These were seen as natural, therapeutic, and self-correcting. The lower wages and interest rates caused by slumps would spur recovery. The 1920-21 downturn (when industrial production fell 25 percent) had preceded the prosperous twenties. "People will work harder, live a more moral life," Andrew Mellon, Treasury secretary under President Herbert Hoover, said after the depression started. "Enterprising people will pick up the wrecks from less competent people," he claimed[4]. One exception to the hands-off attitude was the Federal Reserve, created in 1913. It was charged with the responsibility for providing emergency funds to banks so that surprise withdrawals would not trigger bank runs and a financial panic. 3. Production patterns. Farming and raw materials were much more important parts of the economy than they are today. This meant that lower commodity prices could cripple domestic prosperity and world trade, because price declines destroyed the purchasing power of farmers and other primary producers (including entire nations). In 1929 farming accounted for 23 percent of U.S. employment (versus 2.5 percent today). Two-fifths of world trade was in farm products, another fifth in other raw materials. Poor countries (including countries in Latin America, Asia, and Central Europe) exported food and raw materials and imported manufactured goods from industrial nations. 4. The impact of World War I. Wartime inflation, when the gold standard had been suspended, raised prices and inspired fears that gold stocks were inadequate to provide backing for enlarged money supplies at the new, higher price level. This was one reason that convertible currencies, such as the dollar and pound, were used as gold substitutes. The war weakened Britain, left Germany with massive reparations payments, and split the Austro-Hungarian Empire into many countries. These countries, plus Germany, depended on foreign loans (in convertible currencies) to pay for their imports. The arrangement was unstable because any withdrawal of short-term loans would force the borrowing countries to retrench, which could cripple world trade.

Chapter II. The New Deal

2.1 The first 100 days

Having won a decisive victory in the United States presidential election of 1932, and with his party having decisively swept Congressional elections across the nation, Roosevelt entered office with unprecedented political capital. There were numerous Hoover plans that he could not get passed but were ready to go, such as the emergency banking laws. Americans of all political persuasions were demanding immediate action, and Roosevelt responded with a remarkable series of new programs in the “first hundred days” of the administration, in which he met with congress for 100 days. During those 100 days of lawmaking congress granted every "request" Roosevelt asked.
By March 4, nearly all banks in the country were closed by their governors, and Roosevelt kept them all closed until he could pass new legislation. On March 9, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by Hoover 's Administration; the act was passed and signed into law the same day. It provided for a system of reopening sound banks under Treasury supervision, with federal loans available if needed. Three-quarters of the banks in the Federal Reserve System reopened within the next three days. Billions of dollars in "hoarded" currency and gold flowed back into them within a month, thus stabilizing the banking system. All was normal by April. During all of 1933, 4,004 small local banks were permanently closed and were merged into larger banks. To avoid future "cures" the Congress created the Federal Deposit Insurance Corporation (FDIC) in June, which insured deposits for up to $5,000. The establishment of the FDIC virtually ended the era of "runs" on banks. Roosevelt issued Executive Order 6102 requiring that by next January all private gold be turned in for paper money at face value. (Legally he was following the March 9 law.) After January 1934, he then devalued the international value of the dollar by 40% in terms of gold and refused to honor gold obligations on any paper dollars or bonds redeemed.
Economic indicators show the economy reached nadir in the first days of March, then began a steady, sharp upward recovery. Thus the Federal Reserve Index of Industrial Production hit its lowest point of 52.8 in July 1932 (with 1935-39 = 100) and was practically unchanged at 54.3 in March 1933; however by July 1933, it reached 85.5, a dramatic rebound of 57% in four months. Recovery was steady and strong until 1937. Except for unemployment, the economy by 1937 surpassed the levels of the late 1920s. The Recession of 1937 was a temporary downturn. Private sector employment, especially in manufacturing, recovered to the level of the 1920s but failed to advance further until the war[5].
The Economy Act, drafted by Budget Director Lewis Douglas was passed on March 14, 1933. The act proposed to balance the "regular" (non-emergency) federal budget by cutting the salaries of government employees and cutting pensions to veterans by forty percent. It saved $500 million per year and reassured deficit hawks such as Douglas that the new President was fiscally conservative. Roosevelt argued there were two budgets: the "regular" federal budget, which he balanced, and the "emergency budget," which was needed to defeat the depression. It was imbalanced on a temporary basis.
Roosevelt was initially in favor of balancing the budget, but he soon found himself running spending deficits in order to fund the numerous programs he created. Douglas, however, rejecting the distinction between a regular and emergency budget, resigned in 1934 and became an outspoken critic of the New Deal. Roosevelt strenuously opposed the Bonus Bill that would give World War I veterans a cash bonus. Finally, Congress passed it over his veto in 1936, and the Treasury distributed $1.5 billion in cash as bonus welfare benefits to 4 million veterans just before the 1936 election.
The first hundred days produced a federal program to protect commercial farmers from the uncertainties of the depression through subsidies and production controls. This program began with the Agricultural Adjustment Act, creating the Agricultural Adjustment Administration (AAA), which Congress passed in May 1933. The act reflected the demands of leaders of major farm organizations, especially the Farm Bureau, and reflected debates among Roosevelt 's farm advisers such as Henry A. Wallace, Rexford Tugwell, and George Peek.
The AAA implemented a provision for crop reductions known as the "domestic allotment" system of the act. Under this system, producers of corn, cotton, dairy products, hogs, rice, tobacco, and wheat would decide on production limits for their crops. The AAA would then pay land owners subsidies for leaving some of their land idle with funds provided by a new tax on food processing. Farm prices were to be subsidized up to the point of parity. Some crops were ordered to be destroyed and some livestock slaughtered to maintain prices. The idea was that the less produced, the higher the price, and the farmer would benefit. Farm incomes increased significantly in the first three years of the New Deal. Food prices hardly rose at all, the rise in farm incomes was the result of the subsidies.
In a measure that garnered substantial popular support, Roosevelt, in his first days of office, moved to put to rest one of the most divisive cultural issues of the 1920s. He supported and signed the bill to legalize the manufacture and sale of beer, an interim measure pending the repeal of Prohibition, for which a constitutional amendment (the Twenty-first) was already in process. The amendment was ratified later in 1933. Prohibition had been a rather unpopular amendment and led to bootlegging, the illegal manufacture (or importation) and sale of liquor within the United States.

2.2 Reform

Besides all the programs for immediate "relief", the New Deal embarked quickly on an agenda of long-term "reform" aimed at avoiding another depression. The New Dealers responded to demands to inflate the currency by a variety of means. Another group of reformers sought to build consumer and farmer co-ops as a counterweight to big business. The consumer co-ops did not take off, but the Rural Electrification Administration used co-ops to bring electricity to rural areas. (As of 2007, many still operate.)
Roosevelt realized that these initial actions were short term solutions and that more comprehensive government programs would be necessary. In the roughly three years between Black Tuesday and Roosevelt 's First Hundred Days, the industrial economy had been suffering from a vicious cycle of deflation. Since 1931, the U.S. Chamber of Commerce, the voice of the nation 's organized business, had been urging the Hoover Administration to adopt an anti-deflationary scheme that would permit trade associations to cooperate in stabilizing prices within their industries. While existing antitrust laws clearly forbade such practices, organized business found a receptive ear in the Roosevelt Administration.
The Roosevelt Administration, packed with reformers aspiring to forge all elements of society into a cooperative unit (a reaction to the worldwide specter of business-labor "class struggle"), was fairly amenable to the idea of cooperation among producers.
The Administration insisted that business would have to ensure that the incomes of workers would rise along with their prices. The product of all these impulses and pressures was the National Industrial Recovery Act (NIRA) which was passed by Congress in June 1933. The NIRA established the National Planning Board, also called the National Resources Planning Board (NRPB), to assist in planning the economy by providing recommendations and information. Fredric A. Delano was appointed head of the NRPB.
The NIRA guaranteed to workers the right of collective bargaining and helped spur some union organizing activity, but much faster growth of union membership came before the 1935 Wagner Act. The NIRA established the National Recovery Administration (NRA), which attempted to stabilize prices and wages through cooperative "code authorities" involving government, business, and labor. The NRA included a multitude of regulations imposing the pricing and production standards for all sorts of goods and services. Most economists were dubious because it was based on fixing prices to reduce competition. Historian Jim Power, in FDR 's Folly, says that the above-market wage rates dictated by the NRA made it more expensive for employers to hire people, and therefore unnecessarily maintained high unemployment and prolonged the Depression.
To prime the pump and cut unemployment, the NIRA created the Public Works Administration (PWA), a major program of public works. From 1933 to 1935 PWA spent $3.3 billion with private companies to build 34,599 projects, many of them quite large[6].
At the center of the NIRA was the National Recovery Administration (NRA), headed by former General Hugh Samuel Johnson. Johnson called on every business establishment in the nation to accept a stopgap "blanket code": a minimum wage of between 20 and 45 cents per hour, a maximum workweek of 35 to 45 hours, and the abolition of child labor. Johnson and Roosevelt contended that the "blanket code" would raise consumer purchasing power and increase employment.
To mobilize political support for the NRA, Johnson launched the "NRA Blue Eagle" publicity campaign to boost his bargaining strength to negotiate the codes with business and labor. The NRA negotiated specific sets of codes with leaders of the nation 's major industries; the most important provisions were anti-deflationary floors below which no company would lower prices or wages, and agreements on maintaining employment and production. In a remarkably short time, the NRA won agreements from almost every major industry in the nation. Six months after the NRA went into effect industrial production dropped twenty-five percent. According to some economists, the NRA increased the cost of doing business by forty percent.
By the time it ended in May 1935, industrial production was 22% higher than in May 1933. On May 27, 1935, the NRA was found to be unconstitutional by a unanimous decision of the U.S. Supreme Court in the case of Schechter v. United States. On that same day, the Court unanimously struck down the Frazier-Lemke Act portion of the New Deal as unconstitutional. Some libertarians such as Richard Ebeling see these and other rulings striking down portions of the New Deal as preventing the U.S. economic system from becoming a planned economy corporate state.
In the spring of 1935, responding to the setbacks in the Court, a new skepticism in Congress, and the growing popular clamor for more dramatic action, the Administration proposed or endorsed several important new initiatives. Historians refer to them as the "Second New Deal" and note that it was more radical, more pro-labor and anti-business than the "First New Deal" of 1933-34. The National Labor Relations Act, also known as the Wagner Act, revived and strengthened the protections of collective bargaining contained in the original NIRA. The result was a tremendous growth of membership in the labor unions comprising the American Federation of Labor. Labor thus became a major component of the New Deal political coalition. Roosevelt nationalized unemployment relief through the Works Progress Administration (WPA), headed by close friend Harry Hopkins. It created hundreds of thousands of low-skilled blue collar jobs for unemployed men (and some for unemployed women and white collar workers). The National Youth Administration was the semi-autonomous WPA program for youth. Its Texas director, Lyndon Baines Johnson, later used the NYA as a model for some of his Great Society programs in the 1960s.
The most important program of 1935, and perhaps the New Deal as a whole, was the Social Security Act, which established a system of universal retirement pensions, unemployment insurance, and welfare benefits for poor families and the handicapped. It established the framework for the U.S. welfare system. Roosevelt insisted that it should be funded by payroll taxes rather than from the general fund; he said, "We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program." One of the last New Deal agencies was the United States Housing Authority, created in 1937 with some Republican support to abolish slums.

2.3 Recession of 1937 and recovery

The Roosevelt Administration was under assault during FDR 's second term, which presided over a new dip in the Great Depression in the fall of 1937 that continued through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938[7]. Keynesian economists speculated that this was a result of a premature effort to curb government spending and balance the budget, while conservatives said it was caused by attacks on business and by the huge strikes caused by the organizing activities of the CIO and the American Federation of Labor (AFL).
Roosevelt rejected the advice of Morgenthau to cut spending and decided big business was trying to ruin the New Deal by causing another depression that voters would react against by voting Republican. It was a "capital strike" said Roosevelt, and he ordered the FBI to look for a criminal conspiracy (they found none). Roosevelt moved left and unleashed a rhetorical campaign against monopoly power, which was cast as the cause of the new crisis. Ickes attacked automaker Henry Ford, steelmaker Tom Girdler, and the superrich "Sixty Families" who supposedly comprised "the living center of the modern industrial oligarchy which dominates the United States." Left unchecked, Ickes warned, they would create "big-business Fascist America—an enslaved America." The President appointed Robert Jackson as the aggressive new director of the antitrust division of the Justice Department, but this effort lost its effectiveness once World War II began and big business was urgently needed to produce war supplies.
But the Administration 's other response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the vitriolic pleas of the Treasury Department and responding to the urgings of the converts to Keynesian economics and others in his Administration, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, an effort to increase mass purchasing power. The New Deal had in fact engaged in deficit spending since 1933, but it was apologetic about it, because a rise in the national debt was opposite of what the Democratic party had always preached. Now they had a theory to justify what they were doing. Roosevelt explained his program in a fireside chat in which he finally acknowledged that it was therefore up to the government to "create an economic upturn" by making "additions to the purchasing power of the nation."
Business-oriented observers explained the recession and recovery in very different terms from the Keynesians. They argued that the New Deal had been very hostile to business expansion in 1935-37, had encouraged massive strikes which had a negative impact on major industries such as automobiles, and had threatened massive anti-trust legal attacks on big corporations. All those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth.

Conclusion

The Depression, however, continued until the U.S. entered the Second World War. Under the special circumstances of war mobilization, massive war spending doubled the Gross National Product. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output as an expression of patriotism. Patriotism drove most people to voluntarily work overtime and give up leisure activities to make money after so many hard years. Patriotism meant that people accepted rationing and price controls for the first time. Cost-plus pricing in munitions contracts guaranteed that businesses would make a profit regardless of how many mediocre workers they employed and how inefficient the techniques they used. The demand was for a vast quantity of war supplies as soon as possible, regardless of cost. Business hired every person in sight, even driving sound trucks up and down city streets begging people to apply for jobs. New workers were needed to replace the 12 million working-age men serving in the military. These events magnified the role of the federal government in the national economy. In 1929, federal expenditures accounted for only 3% of GNP. Between 1933 and 1939, federal expenditure tripled, and Roosevelt 's critics charged that he was turning America into a socialist state. However, spending on the New Deal was far smaller than on the war effort. Economist Robert Higgs argues that the war did not end the Great Depression. Rather, a return to normality after the war, as the government relaxed wage controls, price controls, capital controls, reduced tariffs and other trade barriers, and eliminated the rationing of goods and the relaxing of Federal control over American industries, ended it. It is commonly said that another depression will never occur. This is probably true, as long as "another depression" means a crude repetition of the thirties. However, crises can come in unfamiliar forms. The basic lesson from the Great Depression is that governments cannot permit massive collapses of banks or spending. The deeper lesson is that there are times when the world changes so much and events move so rapidly that even the well-informed do not know how to respond. This is the story of the depression. Now it seems preventable. Then, it was baffling. World War I made restoration of the prewar economic system difficult, maybe impossible. But that is what world leaders attempted because it was all they knew and it had worked. Only its collapse convinced them to try something different. Old ideas were overtaken and overwhelmed. It has happened before—and could again.

Bibliography

1) Автономов В.С. Человек в зеркале экономической теории. – М.: Наука, 1993 2) Блауг М. Экономическая мысль в ретроспективе. – М.: Книга, 1994 3) Большой энциклопедический словарь – М.: «Большая российская энциклопедия», 1998 4) Жид Ш., Рист Ш. История экономических учений. М.: Экономика, 1995 5) История экономических учений: Учебное пособие. / Под ред. А. Автомонова, О. Ананьина, Н. Макашевой. – М.: ИНФРА-М, 2004 6) Майбурд Е.М. Введение в историю экономической мысли. От пророков до профессоров – М.: Вита-Пресс, 1996 7) Ракитов А. И. Цивилизация, культура, технология и рынок // Вопросы философии, 1992, №5. 8) Brinkley Alan American History: A Survey, 10th Ed., McGraw-Hill College, 1999 9) Cushman Barry Rethinking the New Deal Court. Oxford University Press, 1998 10) Gallaway, Lowell E. and Vedder, Richard K. Out of Work: Unemployment and Government in Twentieth-Century America - New York: University Press, 1997 11) Gusmorino P.A. Main Causes of the Great Depression // Annual Review of Sociology, 1996, May №3 12) Manza, Jeff Political Sociological Models of the U.S. New Deal // Annual Review of Sociology: 2000, №26 13) Sitkoff, Harvard. ed. Fifty Years Later: The New Deal Evaluated. - New York: McGraw Hill, 1984 14) Smiley Gene, Recent Unemployment Rate Estimates for the 1920s and 1930s // Journal of Economic History, June 1983, №43 15) William Outhwaite The Blackwell Dictionary of Modern Social Thought - Blackwell Publishing, 2003

-----------------------
[1] Gusmorino P.A. Main Causes of the Great Depression // Annual Review of Sociology, 1996, May №3
[2] Brinkley Alan American History: A Survey, 10th Ed., McGraw-Hill College, 1999
[3] Smiley Gene, Recent Unemployment Rate Estimates for the 1920s and 1930s // Journal of Economic History, June 1983, №43
[4] William Outhwaite The Blackwell Dictionary of Modern Social Th짓즾즾즾벾즾즾즾뢾뢰뢰뢰뢰ꂦꂦ颜ꂦ趦ꂦ颜편ᘕ ၊ought - Blackwell Publishing, 2003
[5] Cushman Barry Rethinking the New Deal Court. Oxford University Press, 1998
[6] Sitkoff, Harvard. ed. Fifty Years Later: The New Deal Evaluated. - New York: McGraw Hill, 1984
[7] Gallaway, Lowell E. and Vedder, Richard K. Out of Work: Unemployment and Government in Twentieth-Century America - New York: University Press, 1997

Bibliography: 1) Автономов В.С. Человек в зеркале экономической теории. – М.: Наука, 1993 2) Блауг М 3) Большой энциклопедический словарь – М.: «Большая российская энциклопедия», 1998 4) Жид Ш., Рист Ш 5) История экономических учений: Учебное пособие. / Под ред. А. Автомонова, О. Ананьина, Н. Макашевой. – М.: ИНФРА-М, 2004 6) Майбурд Е.М 7) Ракитов А. И. Цивилизация, культура, технология и рынок // Вопросы философии, 1992, №5. 8) Brinkley Alan American History: A Survey, 10th Ed., McGraw-Hill College, 1999 9) Cushman Barry Rethinking the New Deal Court 10) Gallaway, Lowell E. and Vedder, Richard K. Out of Work: Unemployment and Government in Twentieth-Century America - New York: University Press, 1997 11) Gusmorino P.A 14) Smiley Gene, Recent Unemployment Rate Estimates for the 1920s and 1930s // Journal of Economic History, June 1983, №43 15) William Outhwaite The Blackwell Dictionary of Modern Social Thought - Blackwell Publishing, 2003 [2] Brinkley Alan American History: A Survey, 10th Ed., McGraw-Hill College, 1999 [3] Smiley Gene, Recent Unemployment Rate Estimates for the 1920s and 1930s // Journal of Economic History, June 1983, №43 [4] William Outhwaite The Blackwell Dictionary of Modern Social Th짓즾즾즾벾즾즾즾뢾뢰뢰뢰뢰ꂦꂦ颜ꂦ趦ꂦ颜편ᘕ ၊ought - Blackwell Publishing, 2003 [5] Cushman Barry Rethinking the New Deal Court [6] Sitkoff, Harvard. ed. Fifty Years Later: The New Deal Evaluated. - New York: McGraw Hill, 1984 [7] Gallaway, Lowell E

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