THE GREAT DEPRESSION AND THE NEW DEAL

This research paper summarizes the policies employed by the New Deal administrations of President Franklin D. Roosevelt to cope with the Great Depression and examines their effectiveness. The aims of those policies were fourfold, the restoration of confidence, relief, recovery and reform. The New Deal's efforts to restore confidence and to alleviate suffering accomplished their purposes. The application of Keynesian economics to stimulate the recovery only partially succeeded because halfmeasures were taken. Some reforms contributed to the long term stability of the economy but others were not completed for political reasons.

When he accepted the Democratic Party's nomination for the presidency in 1932, Franklin Roosevelt pledged "a new deal for the American people" (Atack, 1994, p. 625). When he assumed office, the American system of democratic capitalism faced a crisis of monumental proportions. Economic distress and social unrest were widespread. Since the crash of '29, the value of common stocks had declined from $89 billion to $15 billion. Between 1929 and 1932 GNP dropped in constant 1928 dollars from billions $197.1 to $143. Real output fell 29 percent. Total gross investment fell from 15 percent of GNP to one percent. Consumption dropped by more than one third. Unemployment increased from 3.2 percent in 1929 to 2125 percent in 1933. About 13 million Americans were officially out of work. Far

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nd 1939, several million Americans were put to work at low wages on mostly useful tasks such as repairing and building roads, highways, bridges, schools, hospitals, national parks and on conservation tasks. Recovery The conventional wisdom is that the federal government by "pumppriming" or deficit spending stimulated the economic recovery. Actually, the recovery was sluggish. Watkins (1993) says that "from the spring of 1933 to the fall of 1937 the economy had enjoyed a steady, if undramatic, recovery, particularly after 1934" (p. 309). The economy then went into a sharp recession in 19371938 during which the unemployment rate rose from 14.3 percent to 20 percent. Not until 1937 did real GNP reach its 1929 level and "it was a decade before some economic indicators had returned to the levels they had attained in 1929" (Atack, 1994, pp. 583 and 630). The federal government did ease monetary policy. It made available to business more credit on favorable terms through the RFC lending and used government guarantees to aid home buyer and farm borrowers. Fiscal policy, however, during the New Deal was fairly conservative by modern standards. There were substantial expenditures for public works, such as the construction o
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Approximate Word count = 1545
Approximate Pages = 6 (250 words per page)

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