State Finance in the Great Depression

March 5, 2009

By Ronald Snell

The Great Depression of the early 1930s was the most severe shock the American economy has suffered in the past century.  After a period of unprecedented prosperity in the late 1920s, the stock market crash of 1929-1930 signaled the beginning of a disastrous depression.  U.S. gross domestic product fell by 46 percent from 1929 to its low point in 1933.  Prices fell sharply to about 72 percent of their 1929 level.  Unemployment soared from under 4 percent of the workforce in 1929 to 25 percent in 1933, and remained in double-digits until 1941, when it fell to 9.9 percent. 

These events brought an unprecedented response from government.  For the first time in American history, the federal government exerted itself to stimulate the economy, beginning in the Hoover administration (1929-1933) and continuing in the first two Roosevelt administrations (1933-1941) until substantially increased defense spending from 1941 on replaced stimulative efforts.  The Roosevelt years are notable for banking and financial reforms and the monetary inflation that led to the beginnings of recovery in 1934.  Probably for most Americans of the time, the Roosevelt efforts to assist agriculture, create employment, and address the miseries of the unemployed were more evident.

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NOTES

U.S. Bureau of Economic Analysis, Gross Domestic Product.  http://www.bea.gov/national/index.htm#gdp

Robert VanGiezen and Albert E. Schwenk, "Compensation from Before World War I Through the Great Depression."  http://www.bls.gov/opub/cwc/cm20030124ar03p1.htm