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Thread: The Great Depression and the Effects of World War II on America’s Economic Recovery

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    Default The Great Depression and the Effects of World War II on America’s Economic Recovery

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    Last edited by Dogar The Brave; 12-08-2010 at 11:05 AM.

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    princeso Kirby's Avatar
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    I think the worst thing about them is that nowadays the economic policy of "debt debt and more debt" worked once during thee war. Any other war it will not work and if there isn't a war then it totally doesn't work at all.

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    it was good. grammar was better than i expected! your professor probably wont notice any of the errors anyway. in any event, war is always the answer.

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    come on that wasnt no 40.5

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    The Great Depression and the Effects of World War II on America’s Economic Recovery

    The Great Depression of the 1930’s is arguably the worst economic situation the United States of America has ever experienced in the country’s history. Millions of Americans were jobless, and millions more were struggling to make ends meet. The industrial, financial and agricultural industries went amuck and were unstable during this period in the United States. Thousands of banks closed down and thousands of businesses went bankrupt due to the hard times in the 1930’s. Many economists, historians and politicians to this day still debate as to how this economic down turn occurred, and many more speculate as to how America recovered from The Great Depression. Some surmise that economic recovery began shortly after Franklin Delano Roosevelt was sworn into the office of the Presidency on March 4, 1933. In 1933, Roosevelt enacted the New Deal; the Second New Deal was adopted in 1935-36. However, although some economic burdens were lifted as a result of these two legislative accomplishments, Americans continued to experience hard economic times. It was not until the United States started to build up its armaments for World War II and the subsequent entering of the War that the United States commenced on a path of economic recovery.

    The origins of The Great Depression have been debated for over eighty years; still, there has not been a complete consensus on what key factor contributed to the economic downturn in the 1930’s. That is not to say that there is no agreement by scholars on what caused The Great Depression. Rather, many (though not all), of the explanations economists and historians say were the causes, overlap. Some scholars agree that certain aspects in decision-making and economic factors that happened played a part in the Depression; how significantly each factor contributed though, fluctuates.

    One argument to explain the devastating economic collapse of the 1930’s tries to assign blame, or highly emphasis the importance, of one factor over another. Another argument asserts that no one main factor caused the Depression; rather many factors played a part in causing The Great Depression. Dividing these modes of thought are those who believe that the Depression was mainly caused by specific actions or inactions of the United States. Still others believe that the economic turmoil was the result of European factors. Another division on the interpretation of the Depression can be seen in terms of certain economic philosophies such as the supply-siders and demand-siders. A fourth possible explanation claims that The Depression was inevitable; it was just part of a business cycle that is inherent in capitalism.[1]

    To understand the effects of World War II and the resulting recovery of America’s economy, one must understand the history of The Great Depression as well as how and when The Great Depression started. To do so, one must look back to World War I. During the war, 1914-18 European agricultural production decreased because the warring states were fighting on Europe’s soil. Thus, to have foodstuffs ready and available for their people and troops, Europe needed to import much of the resources that they themselves were unable to produce. The United States was at the helm, ready to be the breadbasket of Europe during their time of need, which led to an influx of exports and the subsequent profit of doing so for the farmers for the duration of the war. Robert McElvaine deduced, “When wartime Food Administrator Herbert Hoover allowed the price of wheat to be set at $2.20 a bushel, farmers increased wheat acreage by nearly 40 percent and output by almost 50 percent.”[2] But after the war was over, and the demand for exported agricultural goods from America decreased, the farmers in America not only had a surplus of goods but also a heavy amount of debt because farmers purchased more land during the war so they could produce more products that were needed to aid Europe. McElvaine concludes: “This in turn meant chronic ‘overproduction’ in the 1920’s, a massive agricultural depression during America’s ‘prosperity decade,’ and a further dislocation in the world economic structure.” Even after the 1920’s, this problem of overproduction of food was still prevalent. America had 106,000,000 acres of wheat, 50,000,000 acres of corn and 40,000,000 acres of cotton being produced by 1932.[3] This high number of crops flooded the market and lowered the prices of a farmer’s goods. This is but one analysis, showing that the economy during the 1920’s was not all that great for farmers and that this was but the first step to the collapse of the economy in 1929.[4]

    World War I played another role in furthering the advent of The Great Depression; America became the new world power and regulator of the global economy, a position that many Americans did not embrace. Before, the British were the lead financial superpower of the world, managing the many intricacies that this entailed, but after World War I, America was on top. This shifted America from a debtor nation to a creditor nation. Rather than acting responsibly with this newly ordained role, they were, McElvaine emphasizes, “Trying nothing less in the 1920’s than to be the world’s banker, food producer, and manufacturer, but to buy as little as possible from the world in return.” This unfair balance of trade led many countries to put high tariffs on American goods and thus decreased the financial profit from exported sales for American businesses. Although export sales amounted to 10 percent of America’s GDP, America only lost $1.5 billion from 1929-33.[5] This is not to say that the imbalance of foreign trading did not contribute to The Great Depression, but rather it shows that domestic economic problems in America were far greater in effecting the financial collapse of the 1930’s.

    Even though many see post-World War I as the era of great wealth and prosperity in America, there were many economic problems, albeit manageable at the time, which some see as the beginning of The Great Depression. These problems included a faulty credit system in the stock market and consumer realm, a lack of personal savings and a misdistribution of wealth. Indeed, money was being made during the 1920’s, but only a small percentage of the populations were making large profits. These select few families were those who owned the 200 or so companies in the United States that controlled nearly half of all American industry. These select few represented 22 percent of all wealth in the United States.[6] McElvaine confirms that according to the infamous Brookings Institution study, America’s Capacity to Consume, “The top 0.1 percent of American families in 1929 had an aggregate income equal to that of the bottom 42 percent…24,000 families had a combined income as large as that shared by more than 11.5 million poor and lower-middle-class families.”[7] This misdistribution of wealth inevitably wreaked havoc on an ever-growing economy based on consumption. If the upper class had all the buying power, only a small number of products, such as radios and automobiles, would be purchased. The lower classes could not afford to buy what was being supplied to the market and thus the wealth would not move, causing the economy to go down in flames. The elite came up with a brilliant idea to offset this problem that would inevitably destroy the economy, and that was the credit system.

    The credit system was the last nail in the coffin for the American economy and was precipitated by the misdistribution of wealth. The only reason for its implementation was to give buying power to a large group of individuals that had little to no savings and lived pay check to pay check. Once the credit system was in place and people could pay in installments, the number of products being supplied escalated; credit allowed a demand-driven group to make purchases beyond their financial means. Thus, during the 1920’s, the economy was artificially inflated by a credit system; people were incurring more debt than ever. Credit purchases helped the supply end of production make money, i.e. the upper class, while making the larger consumer end of the economy, i.e. the lower class, become more dependent on the upper class and the industries job market.

    Credit went further than just being able to buy finished products; credit allowed the consumer to obtain stock market shares. People could buy large numbers of stocks for a small down-payment. Then, once they sold the stocks for more money than the purchase price, they had to pay interest to stock brokers, repay the original cost of the stocks, and keep the rest as profit. This system could also lead to great financial losses, which it did when the bubble burst during the Stock Market Crash in the fall of 1929, and most severely on October 29, 1929. The Stock Market Crash was an underlying cause of the Great Depression. While only 4 million people in the United States out of 120 million actually owned stock; only 1.5 million stockholders had large investments in the stock market. It can be said that during that autumn day in 1929 when the Stock Market Crashed, it led to the toppling of all the other weak industries on top of the other horrendous problems going on in America aforementioned.[8] McElvaine asks, “Did the Crash cause the Depression? There are two correct answers. If it is meant as a ‘why’ question, the answer is: ‘Of course not!’ If it is a ‘how’ question, the response must be: ‘Yes, in part.’”[9]

    After the Stock Market Crash of 1929, the economy took a turn for the worse. The GDP was significantly slashed, falling by $12 billion in 1930, when the United States government enacted higher tariffs during Hoover’s administration.[10] The Stock Market crash caused the farming industry to suffer even greater losses than it did during the 1920’s. The lower-middle classes were no longer able to buy new things with credit let alone pay off debt already on their credit, which forced them to withdraw whatever savings they had in the banks. In turn, the banks did not have enough paper money to give to their customers; thus, banks closed down and went out of business. This resulted in millions of people moneyless, unable to pay off loans or buy new things. This crisis was the worst-case scenario in the American factory owners’ mindset. If there was no demand for products because people had no money, then they had no reason to make as many products. Factory workers would be laid off. This cylindrical conundrum led to The Great Depression and began the hard times America endured during the 1930’s. The two main leaders during this catastrophe were President Herbert Hoover and Franklin Roosevelt. These men had two very different ways of looking at how to best address and solve the nation's problem.

    President Hoover thought that The Great Depression was just part of an economic cycle that would eventually fix itself. He based his contention on the many other recessions that had occurred in American history: 1819, 1837, 1857, 1873 and 1893 to be exact.[11] Hoover espoused the notion that if the American people just had a little more self-reliance, they could pull through and everything would turn out fine. In his famous “Rugged Individualism” speech, Hoover declared that, “When the Republican Party came into full power it went at once resolutely back to our fundamental conception of the state and the rights and responsibility of the individual…Our government to succeed in business would need to become in effect a despotism.”[12] Hoover firmly believed that if the government initiated programs to alleviate the burden of hard times on the people by tampering with Wall Street and the business world, it would undermine the American self-governing system and thus set the stage for America to become a dictatorship. Many American’s suffered because of Hoover's inaction. In 1932, Mayor Joseph L. Heffernan of Youngstown, Ohio wrote, “I have seen thousands of these defeated, discouraged, hopeless men and women, cringing and fawning as they come ask for public aid. That is the fundamental tragedy of America.”[13]

    Hoover did not understand that the economic downturn in America was far more serious than a recession and something drastic needed to be done to stop the bleeding, so to speak. However, Hoover essentially did nothing to stop the economy from going further down; indeed, the economic condition deteriorated during Hoover's last term as President. The American people needed help; they were sick of Hoover telling them things would just get better. So, in the election of 1932, Franklin Delano Roosevelt was elected President. He promised change and hope; he promised that the government would finally send help to the American people. Thus began the first 100 Days, also known as Roosevelt’s New Deal.

    Almost inarguably, Roosevelt effected more changes in his first 100 Days in office than many other Presidents effected during their entire time in office. Roosevelt made a promise to the American people that if he were elected, he would pass bills and start government programs that would jumpstart the economy. In his inaugural address, Roosevelt declares war on The Depression, “Our greatest primary task is to put people to work…by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects…”[14] Roosevelt was true to his word and quickly started allocating billions of dollars for government programs that he believed would solve America’s money woes. Roosevelt implemented a multitude of government programs, and many bills were passed during his first 100 Days in office. The most important programs, aimed at solving the economic crisis, included the Agricultural Adjustment Act, the Federal Emergency Relief Administration, Public Works Administration, Civil Works Administration, Civilian Conservation Corps, and the National Recovery Act.[15]

    The programs and commissions were strikingly similar in that none of them were ever able to free America from the strong grip of the dire economy. The reason for this is quite simple: The programs did not create enough jobs to affect the majority of people in America. Even for those individuals and families who were fortunate enough to benefit from some of the programs, the money they received was not enough to give them buying power and thus rejuvenate a demand economy. Money received from these work programs was spent on basic needs. Some of the programs, like the AAA and NRA, mostly benefited big businesses and did little to help the majority of individuals in the manufacturing, small business and agricultural fields. Simply put, most of President Roosevelt’s programs, designed to get America out of the Great Depression, did little to bring jobs to Americans. For example, FERA did nothing to recover the economy; unemployed recipients relied on government checks.

    Roosevelt did implement safety nets such as government-backed deposits for bank accounts, Social Security, and refinancing for home loans.[16] In Roosevelt’s famous 1935 speech to Congress concerning Social Security and his Second New Deal, he stated, “This law, too, represents a cornerstone in a structure which is being built but is by no means complete. It is a structure intended to lessen the force of possible future depressions.”[17] Although he further implemented bills that supported older programs he made earlier in his first term, all of them did little to actually get America out of financial despair.[18] By 1939, America’s GDP was at $92.2 billion dollars, nearly $30 billion dollars more than 1933. Unfortunately, the unemployment rate was 17.2% in 1939. Granted the percentage of unemployed American's had decreased since 1933’s 24.9%, but millions of Americans were still out of work.[19] America needed a full-scale effort to start generating more industrial jobs. Industrial jobs would put money in American pockets and enable them to not only pay bills, but to buy. An all-out effort in the form of making more industrial jobs was the only way to end The Great Depression; it came in the form of World War II.

    When looking at the true impact of World War II and how it saved America from The Great Depression, one must look at the hard data. By 1942, the unemployment rate was at 4.2% and by the end of 1945 it was down to 1.9%. The GDP at 1942 $139.06 billion dollars and by the end of 1945 it was at $173.52 billion dollars. There is no question that once America started militarizing itself and focusing all its efforts on the war, the economy rebounded more rapidly than it did throughout two terms of Roosevelt’s administration. The government was spending over $136 billion dollars by 1945; the defense budget accounted for $64 billion.[20] Funds were no longer going towards handout programs like FERA that had done relatively little to help the American people while leaving them feeling like "nothings" for not having a job. World War II necessitated the production of defense items. Factories were built or reopened, and millions of jobs were created. In a sense, World War II did what such programs like the PWA, CWA and CCC tried to do; now, instead of toiling with trees and sidewalks, American workers were making necessary, tangible items, workers were not just doing busy work. The data supports this point.

    After 1945, the economy had fully recovered. Factories switched to domestic products again and were making lots of them. Most importantly, there was a demand for such products. The average "disposable" income was over 25%.[21] During the war, no one could buy a new car or other commodities of the same sort. Almost everything had been rationed and in limited supply and rations led to an influx of savings. Investments in war bonds also contributed to the amount of surplus income in the typical American household and allowed consumers more buying power when the war ended. Distribution of wealth also occurred after World War II. In 1929, the top 5% of the wealthiest Americans owned 30% of America’s wealth. By 1946, that number dropped to 21.3 percent.[22] This change in wealth distribution meant economic prosperity in America; buying power was back in the hands of the middle-class. And, money moved in the economy. The very problems that started The Great Depression were entirely revised because of World War II. The war launched America into one of its most prosperous periods in American history, the 1950’s.

    The Great Depression was one of the most trying tests America has ever had to endure in its history. The causes of The Great Depression are many, and scholars to this day still debate on what was the main cause of such a profound economic collapse. What can be agreed upon is that millions of American’s were affected and that the government, with all its programs, could not alleviate the all-encompassing financial pain the devastating economy caused to the American people. With Franklin Roosevelt’s New Deals, only so-much financial relief was achieved. Not until World War II did America’s economic recovery begin. Once the war was over, the fighting men and women and their families and the majority of the American people reaped the monetary fruits the war had ripened. The Great Depression, that started only fifteen years early, was over. After World War II, the economy changed for the better. One of the most prosperous times in American history emerged.


    [1]Robert McElvaine, The Great Depression: America, 1929-1941 (New York: Three Rivers Press, 2009), 27.
    [2] McElvaine, 11.
    [3] Kenneth S. Davis, FDR: The New Deal Years, 1933-1937 (New York: Random House, 1986), 270.
    [4] McElvaine, 11.
    [5] McElvaine, 11.
    [6] McElvaine, 37.
    [7] McElvaine, 38.
    [8] McElvaine, 43-48.
    [9] McElvaine, 48.
    [10] "The American Economy during World War II." Economic History Association. Accessed December 1. http://eh.net/encyclopedia/article/tassava.WWII.
    [11] McElvaine, 3.
    [12] Quoted in Richard Hofstadter, ed., Great Issues in American History: A Documentary Record. vol. 2: 1864-1957 (New York: Vintage Books, 1960), 179.
    [13] Joseph L. Heffernan, “The Hungry City: A Mayor’s Experience with Unemployment,” Atlantic Monthly, May 1932.
    [14] Quoted in Wilbur J Cohen, The New Deal Fifty Years After: A Historical Assessment (Austin, TX: Lyndon Baines Johnson Library, 1984), 46-47.
    [15] McElvaine, 148-162.
    [16] McElvaine, 148-162.
    [17] Quoted in Daniel Aaron and Robert Bendiner, eds., The Strenuous Decade: A Social and Intellectual Record of the 1930’s (Garden City, NY: Doubleday, 1970), 159-61.
    [18] McElvaine, 254-261.
    [19] "The Economy During the Great Depression." Shmoop Beta. Accessed December 1. http://www.shmoop.com/great-depression/statistics.html.
    [20] "The American Economy during World War II." Economic History Association. Accessed December 1. http://eh.net/encyclopedia/article/tassava.WWII.
    [21] Futrell, Ann. 2010. “Personal Responsibility Primer." Peter G. Peterson Foundation. Accessed December 1. http://www.pgpf.org/Special-Topics/P...ty-primer.aspx.
    [22] McElvaine, 331.

    Your an absolutely wonderful man, any girl that is yours is lucky and I know that from personal experience. ~KMT

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    In reverie, I felt you holding me. Dogar The Brave's Avatar
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    Bumped for Hicky.

    Your an absolutely wonderful man, any girl that is yours is lucky and I know that from personal experience. ~KMT

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    "the new deal created the modern first world. without the new deal we have a faster recovery back into a third world shit hole like all the pre-welfare state industrial nations. with the new deal we have a delayed recovery into the modern first world."

    its also worth noting that people saying disdainfully new deal GOVERNMENT SPENDING didnt work and it took the war to get america out of the depression are committing a logical atrocity. the new deal was built on keynesian economics and using a war to lift an economy out of a depression is as keynesian as it gets, so basically you're saying the new deal didnt work because it wasnt new-dealy enough.

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    In reverie, I felt you holding me. Dogar The Brave's Avatar
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    TECHNICALLY I'm saying hiring people to do services and spending money on those programs won't work, but rather, making jobs that involve making material items, i.e. a war machine, actually is were the spending should be concentrated in.

    Your an absolutely wonderful man, any girl that is yours is lucky and I know that from personal experience. ~KMT

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