Accounting and Investment History: Stock Market Crash of 1929

From 1929 through 1939, the worst economic downturn in history occurred. The time period is known as The Great Depression, and it stemmed from a stock market crash in October of 1929. The crash sent Wall Street into a panic, leading to a reduction in consumer spending and investment that then caused declines in industrial output and employment. At the lowest point of the Great Depression, in 1933, almost half of the banks in the United States had failed and stock values were less than a fifth of what they had been prior to the crash. In 1932, a quarter of the American workforce was unemployed.

Roosevelt and the New Deal

Because of President Herbert Hoover’s mishandling of the Great Depression, Franklin Delano Roosevelt defeated him resoundingly in the presidential election of 1932. Roosevelt was confident and optimistic about the United States moving beyond the Depression. His plan was called the New Deal. The New Deal was a collection of financial reforms, federal programs, and public works projects modeled on European programs that had worked for years. Gone were the days of laissez-faire capitalism: Reform legislation on the state and national level was introduced.

Unemployment

“Brother, can you spare a dime?” was the refrain of a popular song, and it was also an effective way to describe life during the Great Depression. One out of every four Americans was unemployed in 1933, and people were short of money, food, and shelter.

An early effort to assist the unemployed was the formation of the Civilian Conservation Corps (CCC). This was a program that enrolled jobless young men and paid them about $30 per month to take part in conservation projects such as tree-planting. Further relief came with the formation of the Civil Works Administration, which offered jobs digging ditches, teaching, or making highway repairs. It was a short-lived program but was indicative of the Roosevelt administration’s preference for work-based programs as opposed to welfare.

Agriculture

During the Great Depression, farm income fell by 50% and Roosevelt believed that greater regulation would solve many problems of the time, including agricultural ones. The Agricultural Adjustment Act (AAA) was passed by Congress during the Great Depression in an effort to raise crop prices. This was done by providing a subsidy to farmers as compensation for cutting back on crop production. The Commodity Credit Corporation also assisted the agriculture industry, providing loans to strapped farmers.

In addition to the Great Depression, farmers in the Great Plains had to deal with violent wind and dust storms during the 1930s, creating conditions that led this region to be dubbed the Dust Bowl. Destruction of property and loss of life were left in the wake of these storms, and many were forced to leave their homes and farms and head west to California.

Industry and Labor

During the New Deal, organized labor made great gains. Collective bargaining was guaranteed, strengthening workers’ position as they sought better conditions. The National Labor Relations Act was passed by Congress in 1935, and this law defined unfair labor practices and provided workers with collective bargaining rights through unions. The 1930s were a time of great progress for labor organizations, and labor unions gained power in politics, often aligning with the Democratic Party.

The Second New Deal

The Second New Deal was a second round of initiatives introduced by Roosevelt to continue to spark the economy at the end of the Great Depression. Included in the collection of programs were the Social Security Act and the formation of the Works Progress Administration. The Social Security Act of 1935 was the cornerstone of the Second New Deal. It created an insurance system for older Americans as well as the disabled and unemployed.

The Works Progress Administration was a relief agency aimed at providing work instead of welfare. Many schools, roads, and airports were created under the WPA. Federal projects under the auspices of the WPA employed actors, painters, writers, and musicians. Part-time employment and training programs were provided to students. Over its lifespan, the WPA assisted 9 million people. The merits of these programs have been debated by laymen and those with a master’s in accounting, but all can agree that they revolutionized the ideas of fiscal responsibility and the role of government.

A New Coalition

In the presidential election of 1932, there was a new Democratic coalition comprised of Roosevelt, labor groups, farmers, European ethnic groups, other immigrants, African-Americans and southerners. This coalition endured for several decades. At its core was the idea that the government should take some responsibility for the nation’s welfare.

Miscellaneous Resources