The Great Depression

In the years following World War I, the United States experienced a major boom in industry. This boom was largely due to the fact that America had escaped from the crippling desolation that the war had ravaged upon Europe. Europe was reeling from catastrophic destruction and their recovery was contingent upon American assistance. This demand for goods and capital resulted in a paradigm shift in American industry. The U.S. economy became much more international in nature and the boom in industry allowed for the debut of the United States as a powerhouse on the international stage.

The influx of wealth ushered in the era of the Roaring Twenties and conspicuous consumption. In order to maintain as well as capitalize on this increase in national wealth banks began lending on credit, allowing for everyday Americans to purchase goods and services they would otherwise not be able to afford. This was wonderful for industry and further oiled the gears of this economic boom.

In contrast, countries like Germany struggled to make war payments, which presented the opportunity for the U.S. to invest heavily in European debt. Keeping Europe's economy afloat provided security and stability for our own, increasingly international economy. It was during these years that the U.S. managed to establish itself as the world's richest country. The returning U.S. soldiers increased economic demand for goods and services and provided significantly more able-bodies to the labor force.

This was a time of great confidence in the dollar and the U.S. continued to settle into its new position as the military and economic powerhouse of the world. This euphoria, perhaps, lent itself to less-than sound financial ventures and an over reliance on credit. The focus was on spend-and-consume rather than save-and-plan. The demand for instant gratification resulted in the practice of short-term, high-risk investing.

Short-term investing facilitated the practice of “Buying on Margin,” which is when individuals borrow capital to purchase stock with the intention of quickly selling it off in the hopes of making many small, short-term profits. Playing the market in this fashion led to a frenzy of stock-selling but this only works when stocks are on the rise. Speculation became much more important than brand loyalty and social investment, which negatively affected stock value. As stock values began to fall, the urgency to sell skyrocketed. Rather than look for a profit, investors were hoping to recoup whatever remained of their original investment.

The Federal Reserve urged banks to show restraint in their lending practices, but as banks were not regulated nor insured by the Federal Government, they were free to be left to their own devices. This was the era of “Rugged Individualism” and small government. It was up to the individual to recover, grow, and prosper - and many believed the economy would sort itself out. All of these elements contributed to the Crash; October 29, 1929 - commonly known as Black Tuesday and marked the beginning of the Great Depression. Myriad banks failed and a scramble to remove savings from banks ensued.

The world was connected in a way that it had never been before. The United States experienced international trade on an unprecedented scale and a crash in the world's largest economy reverberated globally. The global economy stagnated and many countries, including the U.S. reverted back to more isolationist practices. As the economy went into meltdown, Hoover maintained his position that the federal government would not and should not intervene in the economic recovery. Thousands of banks folded and millions lost their jobs, their savings, and their homes.

The Great Depression was a time of change and with the election of FDR arrived a new philosophy, politics and a New Deal. FDR believed that the government should play a more active role and that safeguards should be implemented in order to prevent similar situations from happening again. This was a time of recovery but it was also a time for reform. The Economy Act lowered government salaries. The Civilian Conservation Corps and Civil Works Administration provided jobs for millions of unemployed people. The Social Security Act came into fruition in 1935 providing a financial safety net for the working population once they retire. FDR's New Deal brought the United States back from the brink and his policies forever changed the role of government and political landscape.

— Eric M Kuzma
March 31, 2010