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Response to the Great Depression: Governmental Policies in the US, Britain & France

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  • 0:07 Responses to the Great…
  • 0:39 Depression
  • 2:26 US Policy
  • 4:04 British and French Policy
  • 5:34 Lesson Summary
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Lesson Transcript
Instructor: Christopher Sailus

Chris has an M.A. in history and taught university and high school history.

In this lesson, we explore the greatest economic catastrophe of the 20th century, the Great Depression, as well as U.S., British, and French responses to the crisis.

Responses to the Great Depression

A time honored idiom states that out of crisis comes opportunity. Well, you'd be hard pressed to find a much bigger crisis than the Great Depression experienced in the 1930s by the United States and Western Europe. As most of the world fell on hard economic times, some Western economists viewed it as an opportunity to attempt far-reaching fiscal and social programs in an attempt to get the world's economy back on its feet, while others preferred isolating their countries in an attempt to stop the pain.

Depression

The Great Depression struck in 1929 and lasted in varying degrees up until World War II, when large sectors of the economy were put back to work producing goods and products for the war effort. The Depression occurred for several reasons. Market speculation by both individual investors and banks had artificially inflated the prices of many stocks traded on Wall Street and, to make matters worse, banks had used large amounts of customer deposits as capital to trade openly on the market. This made the life savings of the growing middle class susceptible to the volatility of the market.

The increased market prices, in turn, caused a glut of goods to be sold at these higher prices. For example, farmers flooded the market with grain and crops in order to sell their foods at the higher prices of the 1920s. This precarious balancing act of artificially high stock prices and a very real high amount of supply came to a head on Black Monday, October 28, 1929. On that day and the Tuesday following, the stock market lost nearly a quarter of its value.

By mid-November, the Wall Street market had collapsed. Millions of people had their life savings wiped out in a matter of days, and companies and commodities worth millions of dollars were now nearly worthless. Within weeks, the crisis spread from its epicenter in the United States to the rest of the Western world.

In the ensuing years, unemployment skyrocketed, until one in four American men were out of work. Shantytowns, nicknamed Hoovervilles after sitting President Herbert Hoover, sprung up along rivers, occupied by families who could no longer afford to pay their bills. Some took to the road, migrating from town to town looking for work. The Great Depression was truly an economic catastrophe - the likes of which we have not seen again.

U.S. Policy

The burden of deciding how to care for those affected by the swift and immense economic downturn fell largely to the Western governments. In the United States, the government initially implemented a string of isolationist policies, aimed at closing the U.S. off from the international community. This did little to alleviate the problems, and matters only got worse in the first few years of the Depression, likely costing Herbert Hoover his reelection bid.

When Hoover's opponent, Franklin Delano Roosevelt, took office in January 1933, he immediately focused his attention on the U.S. economy - taking the United States off the gold standard (which meant that all U.S. dollars had to be tied to a certain amount of gold) in order to allow more currency into circulation. Though this would likely cause long-term inflation problems, in the short term it would put more money into the ailing U.S. marketplace.

Roosevelt also instituted a host of public works projects, financing the new agencies with government money in order to put Americans back to work and build the country's infrastructure at the same time. There were so many new agencies with such varied acronyms - the WPA, FDIC, the SEC, FHA - that commentators began calling them Roosevelt's 'alphabet-soup' agencies.

In foreign trade, Roosevelt reengaged the U.S. economy with foreign powers. He created the Import-Export Bank to regulate U.S. trade with foreign countries. Furthermore, Roosevelt made it easier for foreign countries to trade with the U.S. by signing reciprocal trade agreements with 19 nations in the 1930s alone, from countries and economies as small as Honduras to countries as large as Great Britain.

British and French Policy

Many of the same initial policies that the United States instituted were undertaken elsewhere in the Western world as well. For instance, Great Britain went off the gold standard even before the U.S., in 1931. British policy immediately after the beginning of the Depression was as isolationist as the United States, as Britain looked to protect its own industries. This had the unintended effect of harming the U.K.'s manufacturing industry, already reeling from the massive fall in British exports corresponding to the international economic downturn.

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