The Great Depression
The Great Depression was one of the biggest and longest financial crises in the US history. It began in 1929 on the so-called “Black Thursday”. During one trading session, brokers sold 16.4 million shares. The market capitalization fell to $16 billion (“Timelines of the Great Depression”, n.d.). The loss constituted approximately one-eighth of the country’s GDP during the day. The credit system experienced a serious downfall as well. Moreover, all the financial markets collapsed, and prices on some goods fell almost to zero. During the period of the Great Depression, the USA suffered mass dismissals, the destruction of farms, the reduction of wages, and the closure of the banks. In order to stop the deterioration of the US economics, facilitate its recovery, and improve the nation’s financial system, the government passed many laws. This paper will discuss the laws enacted during that period and their positive or negative influences on the nation’s recovery.
The Laws Adopted During the Great Depression
Herbert Hoover was the president of the USA when the Great Depression started. In 1930, the president’s government adopted the Smoot-Hawley Tariff. The law established a protectionist tariff regime. Besides, it defined the highest customs duties on certain goods. The aim of the Smoot-Hawley Act was to reduce imports and stimulate the growth of the home economy.
In 1931, the president established the National Credit Corporation. Its purpose was to render assistance to the crisis of bank liquidity and other financial organizations. The major banks had to invest in the corporation. The contribution had to constitute 2 percent of the deposit.
In 1932, the government established the Reconstruction Finance Corporation (RFC). It was meant to provide financial support to various companies and businesses, including local governments and defense companies. The corporation had the right to release bills, obligations, and debentures on condition that their integrated costs would not exceed $1.5 billion. In addition, the RFC could place bonds in public.
In 1932, Franklin Roosevelt became the president of the United States. He announced the beginning of the so-called New Deal. During 1933, the Congress enacted a few laws to deal with the crisis. The Agricultural Adjustment Act was one the most important instruments at that time. The US Congress passed it in early 1933, right before farmers announced a general strike. The law annulled the debt of farmers, which constituted $12 billion, reduced the percent on the mortgage debt, and increased the term for the payment of all debts. Agricultural banks disbursed the loans on favorable terms to 500,000 landowners for the total amount of $2.2 billion. In order to overcome the agrarian crisis, the law provided the increase of the prices on agricultural products and the reduction of acreage and livestock.
The United States Securities and Exchange Commission was founded in 1934. It was an independent regulatory body established by the Congress, the aim of which was to restore the confidence in financial markets and the protection of investors. Its principal task was to ensure the prevention of crimes such as fraud and insider trading, since those crimes could create unfair trading conditions.
The American Liberty League, in its turn, brought together representatives of major financial and industrial companies and corporations. The league was against the principles of the government regulation of social and economic life in the country. It demanded deregulation, tax cuts for big business, and the transition to the tough policy in relations with employees.
The same year, Franklin Roosevelt enacted the Gold Reserve Act. It banned the export of gold abroad and prohibited the exchange of banknotes for gold. The United States abandoned the gold standard, which helped to increase the financial resources of the country. The government withdrew all gold from circulation and devaluated the dollar.
In 1935, the administration of the president passed the National Labor Relations Act. The law provided the collective agreements with entrepreneurs to protect the collective interests of workers by trade unions. The administration could not apply the repression to the membership in trade unions. It could not interfere in the internal affairs of workers’ organizations.
The Assessment of the Laws
The enactment of the Smoot-Hawley Act hampered the recovery of the US economy. The biggest part of exports from Europe to the US was blocked. It resulted from high customs duties and the range of goods that the act covered. Consequently, the total import of goods into the United States decreased drastically. In 1929, it reached $ 4.4 billion, and in 1931, it constituted approximately $2 billion. European governments imposed trade barriers on American goods as well. Moreover, foreigners could not do business in the USA because they did not receive the usual dollar revenue. Small profits did not allow them to buy new products in the United States. In addition, the law led to the reduction of the amount of goods sold. The US exports dramatically reduced from $5.3 billion in 1929 to $2.3 billion in 1931. The usual process of trade and payments between Europe and the United States was undermined, which produced a devastating effect on the banking system of the USA and the whole world.
The US exporters of agricultural products most strongly experienced the impact of farmers’ strikes on the economy. The absolute amount of the farm income decreased by 34 percent per year. The reduction of the ranches led to the massive downfall of the farmers who had loans in the US banks. Herbert Hoover delayed the bankruptcy of the banks, but the delay was only temporary. In 1933, the banking sector collapsed, and the US financial system crashed.
The Agricultural Adjustment Act facilitated the nation’s recovery. It improved the situation in the agricultural sector and stabilized the prices. The revenue of farmers increased by 50 percent in 1936. Consequently, many farmers coped with the crisis. The measures provided for by the law primarily affected small farms. Big agricultural corporations received substantial profits from the price increase. As a result, the concentration of land ownership increased.
The National Credit Corporation turned out to be inefficient. It was unable to provide the required financial support to banks. The corporation offered assistance only to the railway companies owned by its members, which inhibited the recovery of the US economy. At the end of 1931, Herbert Hoover admitted the necessity to establish a new organization.
The RFC, in its turn, was quite effective for some time. The corporation bought many government securities. It invested a huge amount of money in the financial system. The result was the elimination of the deficit of gold. The number of unstable banks lowered from 342 in January 1932 to 119 in February and to 45 in March (“Timelines of the Great Depression”, n.d.). However, the success did not last for a long time because bankers increased prices for government securities, which undermined the effectiveness of the RFC.
The National Labor Relations Act facilitated the union of employees in different branches of the US economy. It made the government consider the interests of workers and farmers. Later, it provided the opportunity to adopt the laws on the social security, fair working conditions, and other aspects of business and social life.
In conclusion, the Great Depression was a big test for the US nation. Its consequences were quite tangible for the USA and the whole world. The Great Depression resulted in the development of totally different approaches to the economy. Large corporations strengthened their position in all sectors of the economy, such as the banking system, the agricultural sector, and heavy industry.