Study Guide

The Great Depression Analysis

  • Economy

    The Great Depression: Economic Collapse

    In the 1930s, American capitalism practically stopped working.

    For more than a decade, from 1929 to 1940, America's free-market economy failed to operate at a level that allowed most Americans to attain economic success. Those of us lucky enough to have not lived through the ordeal of the Great Depression may have a difficult time imagining the unprecedented depths of economic collapse and social disarray that mired America in the 1930s.

    Miserable Statistics

    The story of the Great Depression can be told with a litany of bleak statistics.

    By 1933, the country's GNP had fallen to barely half its 1929 levelblank">A Monetary History of the United States. Free-market economists philosophically opposed to the heavy government interventionism unleashed by Keynesianism, Friedman and Schwartz made a compelling argument that the Great Depression had been caused less by a failure of aggregate demand than by a sharp constriction in the nation's money supply. Foolish decisions by the Federal Reserve, they argued, combined with hoarding of cash by individuals fearful of bank failures, caused the stock of money circulating in the economy to fall by one-third between 1929 and 1933. 

    This "Great Contraction," as Friedman called it, had a choking effect on employment, incomes, and prices, unnecessarily prolonging the Great Depression by years. The New Deal's Keynesian intrusion into the free market had done little to address the underlying money problem—a savvier monetary policy from the Federal Reserve, Friedman suggested, would have provided better medicine for America's economic sickness during the Great Depression. 

    At first, Friedman's monetarist ideas gained little traction in either the academic or political establishment, but since the 1970s, the free-market philosophy of Friedmanism has largely displaced Keynesianism to become the dominant economic orthodoxy of our time.

    Over the years, historians and economists have explored many variants to the basic Keynesian (aggregate demand) and Friedmanist (monetarism) explanations for the Great Depression. They've blamed the misery of the 1930s on the rigidity of the gold standard, or on the unsustainably unequal distribution of wealth built up through the Roaring '20s, or on the instability in the American banking system, or on the high tariffs imposed after 1930 that choked off international trade. 

    While each explanation has its supporters and critics, the truth may be that the best explanation for the Great Depression is...all of the above. 

    After 1929, the American economy did suffer a broad collapse in aggregate demand and a sharp constriction in money supply. The effects of the downturn were amplified by the gold standard and maldistribution of wealth and bank failures and protectionism in trade. The search for one true underlying cause for the Great Depression may, in the end, be something of a chicken and egg problem. What is clear is that by 1932, just about everything in the American economy was broken.

    Micro vs. Macro: Vicious Spirals

    In different ways, both Keynesian and Friedmanist explanations for the Great Depression suggest that American capitalism broke down in the 1930s because of a tragic disconnect between the needs of the economy as a whole and the rational economic actions of the individuals struggling to survive within it.

    When one farmer struggling to make his mortgage payment encountered falling prices for wheat, his rational response was to produce more wheat to make up the difference. But when millions of farmers did this, the resulting overproduction flooded the market, driving prices so low that no farmers could sell their crops at a price that justified the harvest.

    When one factory owner encountered falling demand for his products, his rational response was to cut production and cut costs by laying off workers. But when thousands of factory owners did this, the resulting mass unemployment and poverty drove demand for all their products even lower.

    When one worker encountered the high likelihood of losing his job, his rational response was to hoard his money, saving as much and spending as little as he could. But when millions of workers did this, the resulting lack of spending in the consumer economy destroyed markets for goods and caused employers to lay off more workers.

    When one depositor learned that his bank might fail, potentially wiping out his savings, his rational response was to withdraw all his cash and put it in a shoebox. But when millions of depositors did this, the resulting runs on banks caused rampant bank failures and the constriction of the national money supply.

    Deeply entrenched American ideologies held that individual successes or failures were determined by the hard work, prudence, and industriousness of the individual. During the Great Depression, almost the opposite became true—the hard work, industriousness, and prudence of each individual American tended to make the overall problems of the national economy worse. America's economy during the Great Depression became a seemingly intractable vicious spiral, in which the perfectly rational microeconomic decisions of millions of individuals combined to exacerbate the macroeconomic problems of the system as a whole. 

    And the failure of the system made misery for the individual almost inevitable.

  • Society

    Collapse Without Revolution

    For more than a decade, the American people endured a pitiless, hardscrabble life, victimized by the structural collapse of the American economic system. Millions of American workers wanted jobs but couldn't find them. Millions of American businessmen needed customers but didn't have them. The broken economic system failed them all.

    In other countries, similar economic crises had caused revolutions. (Lenin's Russian Revolution in 1917 and Hitler's rise to power in Germany in 1933 both came amidst economic disarray.) But in America, despite the seeming failure of the long-established capitalist system during the Great Depression, there was no revolution.

    Why not?

    Apathetic Revolutionaries

    By the end of Herbert Hoover's presidency, the American people had endured more than three years of ever-deepening economic crisis, and neither the free market nor the federal government had proven able to solve the problem of the Great Depression.

    By the time of the bleak winter of 1932 to 1933—which in retrospect proved to be the Depression's darkest hour—Americans were beginning to openly ask whether they might have a revolution. Yet, as the widely read journalist Elmer Davis noticed, they asked the question "apathetically, as if nothing they might do could either help it or hinder it."

    But deeply held cultural attitudes die hard. 

    Even if most Americans could accept the rationality of Hopkins' argument, they still felt like Hickok's Texas schoolteacher. And needless to say, "I'm just no good, I guess" wasn't an attitude that lent itself to revolutionary action.

  • Ideology

    Radicalism From The Right: The Radio Priest and American Nazis

    Father Charles E. Coughlin, a Catholic priest at the Shrine of the Little Flower Church in suburban Detroit, became one of America's best-known political figures in the 1930s by harnessing the new technology of radio. Coughlin's resonant voice and impassioned populist message drew millions of listeners. 

    For a time, according to the U.S. Post Office, Coughlin received more mail than anyone else in America—including the president.

    Coughlin began as a supporter of Franklin D. Roosevelt, famously declaring that the New Deal was, in fact, "Christ's Deal." However, like Huey Long and Upton Sinclair, Coughlin soon became frustrated with the New Deal's lack of success and broke with FDR. Unlike Long and Sinclair, however, Coughlin moved not further to the left but to the right—ultimately, far to the right. 

    Coughlin increasingly preached bigoted sermons of anti-Semitic class resentment, blaming the Depression on an improbable consortium of Jewish communists and Jewish bankers. Coughlin began to express sympathy with the policies of Mussolini and Hitler, even going so far as to plagiarize sections of sermons from translations of speeches from Nazi propaganda minister Joseph Goebbels. 

    Still, even as late as 1938, a public opinion poll found that one in four Americans supported "all or most of Coughlin's ideas."blank">gone to war with Hitler and the monstrous evils of the Holocaust hadn't yet been committed. 

    Americans were more likely to fear communism than fascism, and Hitler and Mussolini had been very successful in routing communists in their countries. Some Americans admired the fascists' self-proclaimed defense of traditional culture and Christian morality. Most importantly, fascism seemed to be working as an economic model at a time when the American economy remained mired in crisis. Father Coughlin wasn't alone in admiring the führer's accomplishments.

    Groups like Father Coughlin's Christian Front and the German-American Bund attempted to promote the fascist agenda within the United States. While the ranks of organized fascist sympathizers within the United States always remained small—the Bund had about 25,000 members at its peak, even fewer than the communists—they were able, on occasion, to organize impressive rallies. 

    In 1938, the Bund drew more than 20,000 to a rally at New York's Madison Square Garden to promote its fascistic version of "true Americanism." At the rally, Bund leader Fritz Kuhn's ugly anti-Semitic rhetoric—he hatefully and nonsensically called Franklin Roosevelt, "Frank Rosenfeld," and the New Deal, "The Jew Deal"—likely alienated more Americans than it attracted. 

    Still, the specter of fascism loomed on the right flank of American politics through the long, lean years of the Depression.

  • Politics

    Radical Alternatives to a Collapsing System

    In retrospect, we know that during the Great Depression the American people never rose up en masse to demand the overhaul—much less overthrow—of their long-established system of democratic capitalism, even though that system largely failed to relieve the miseries of the Depression for more than a decade.

    In retrospect, we know that most meaningful long-lasting reform that emerged from the crisis of the Great Depression came from Franklin D. Roosevelt's New Deal, which permanently enlarged the role of the federal government in American society and tempered, for half a century, the volatility of the free market.

    At the time, however, it wasn't at all clear that the New Deal marked the outer limit of possible sociopolitical change. The structural breakdown of the American system led many Americans to embrace much more radical alternatives to the status quo. And while none of those radical alternatives were ever fully realized (and many of them seem downright quixotic in hindsight), they did profoundly alter the boundaries of political possibility while influencing the direction of the New Deal.

    American Communists: From Sectarianism to Popular Front

    For communists, the Great Crash of 1929 and its bleak aftermath seemed definitive proof of Karl Marx's assertion that capitalism contained within itself the seeds of its own destruction. While communists hoped—and most everyone else feared—that the Great Depression would lead to a proletarian uprising, the revolution never materialized.

    Always a tiny minority in American society, the communists weakened their position further through their own rigid adherence to counterproductive doctrine. Until 1935, the Communist Party U.S.A. (CPUSA), following the direction of the Communist International in Moscow, insisted that the greatest threat to worldwide workers' revolution came from the false promise of other liberal and left-wing groups. So, throughout the early years of the Depression, American communists devoted an inordinate amount of their time and resources to attacking New Dealers, socialists, Wobblies, American Federation of Labor trade unionists, Lovestonites, Musteites, and other obscure groups of non-communist left-wingers as "social fascists." 

    The average American worker—who surely couldn't distinguish a Musteite from a Muscovite if his life depended on it—found nothing appealing in the communists' extreme sectarianism. By 1934, despite the seemingly favorable circumstances for recruitment created by the Depression, the CPUSA still had fewer than 30,000 members nationwide.blank">1950s.

  • Environment

    From Sodbusters to Black Blizzards

    On the Great Plains, the miseries of life under a struggling economic system were compounded by environmental catastrophe, transforming America's agricultural heartland into a barren wasteland known as the Dust Bowl.

    The early American pioneers who settled on the Great Plains called themselves "sodbusters," taking pride in the work they did to plow through the native grasses that had long dominated the landscape. By ripping apart the grass, the settlers uncovered rich soils that would soon sustain great farms of wheat and corn. 

    But they also ripped apart a native ecosystem that naturally protected the earth from erosion. Without the roots of wild grasses to protect it, dry topsoil could turn to dust and simply blow away.

    In 1933, in the depths of the Great Depression, the worst drought in American history struck the Great Plains. In some places, the rains didn't return for eight long years. Crops withered and dirt turned to dust. Furious winds whipped the dust into "black blizzards"—huge clouds of dirt, sometimes more than a mile high, that blotted out the sun while blowing across the Plains like some kind of Biblical plague. 

    People overcome by the dust storms felt as though they'd been sandblasted, their skin whipped by windblown granules of earth. Visibility, they said, dropped to zero. Small animals—and in one case, a seven-year-old boy—suffocated from breathing in airborne dirt. Barns and tractors were buried in great drifts of dirt, dropped by the dust clouds like snow from a winter storm.

    Okies: Keep Out

    The Southern Plains—Oklahoma, Kansas, the Texas panhandle, and eastern Colorado—became known as the Dust Bowl, and life for the rural folk who lived there became almost impossible. 

    Thousands of beleaguered Dust Bowl inhabitants loaded their life's possessions into their cars, their wagons, or even their wheelbarrows, and headed west in hopes of finding a better life on the coast. But the Pacific Coast states had their own economic problems, and had no desire for an influx of destitute "Okies" (as they disparagingly called the Dust Bowl migrants) seeking jobs that didn't exist. 

    Californians even paid to put up a billboard alongside the highway heading west out of Tulsa. "NO JOBS in California," it said. "If YOU are looking for work—KEEP OUT."blank">Dust Bowl Ballads