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America's History in the Making

By the People, For the People

Unit Overview

A Visit from the Old Mistress. 1876. dup of 2181

A combination of economic forces, practices, and policies brought about the most severe worldwide economic collapse in history, which tested American democracy and capitalism until the onset of World War II. During the last week of October 1929, stock-market investors traded 16 million shares—and 30 billion dollars vanished. The stock market crash was only one factor that contributed to the Great Depression, however. Even before the crash, some regions of the nation were already in a depression. Rural America faced an economic crisis caused, in part, by overproduction, which the artificial markets during World War I had stimulated, when European production was low and demand high. Economic depressions had taken place since the beginning of the 1800s, but the economy had changed by the 1920s because the majority of Americans lived and worked in the cities rather than on farms. When economic downturns took place, families who lived on farms were able to feed themselves and had a place to live; when city dwellers lost their jobs, however, they also lost the ability to pay for food and housing.

The fundamental shift in the economy that occurred in the early twentieth century was a move to mass production, which depended on mass consumption to keep the economy going. By the end of the 1920s, the distribution of wealth was out of balance, contributing to the inability of Americans to consume what they produced.

Hoover and Roosevelt responded to the Great Depression through different policies. Hoover encouraged voluntary action of city and state leaders to create public works projects, supported a tax cut, and tried to persuade the American people that the economy was sound. Hoover believed that it was the role of the federal government to give loans rather than direct subsidies, and it was the role of state and local governments to give direct relief to the unemployed and needy.

When elected president in 1932, Franklin Delano Roosevelt launched a "New Deal" in an attempt to stimulate the economy. The New Deal was a set of government-sponsored work and benefit programs founded on the idea that government was responsible for the well-being of its citizens. This new safety net marked a change in the relationship between people and the federal government. Prior to the advent of the New Deal, most Americans had little experience with the federal government unless they had served in the military. On the local level, Roosevelt pushed a federal response to the economic crisis—a response based on a sense of national responsibility that was outside the experience of many Americans. To foster community acceptance of federal programs, the Roosevelt Administration handed over various facets of control and distribution to local authorities, but local control sometimes translated into abuse and inequalities.

Though Roosevelt faced opposition on some of his policies and programs, he benefited from the emergence of a new, more inclusive, national culture. Hollywood movies reflected this renewed sensibility, depicting Americans embracing values of community and interdependence.

Despite the success of New Deal programs and renewed optimism under Franklin Roosevelt's leadership, the economy never fully emerged from the Depression until the country's entry into World War II and massive spending fueled the labor and industry sectors.

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