Why was there a need for a New Deal in America in 1932? Essay

In 1932 a New Deal was needed in America as, after three years of Great Depression, the USA was at rock bottom. Herbert Hoover, a Republican, had been the president throughout the depression, voted in in 1928, however in the 1932 elections he was beaten by Franklyn Delano Roosevelt, a Democrat, in a landslide victory. Roosevelt won 42 out of the 48 states and gained seven million more votes than Hoover. This clearly shows that the electorate were fed up with Hoover as he had done “Too little, too late”, most likely because of the republican beliefs he held, such as no government interference in people’s lives. However Roosevelt promised the people “Action and action now”. By 1932, three years into the Great Depression and its effects, there were many economic and social effects being felt all over America such as 12million unemployed and a huge increase in suicide rate. This depression was a stark contrast to the economic boom that America had enjoyed in the 1920s.

Causes of the economic boom:

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An economic boom is when an economy grows and increases in value in a fairly short period of time. There were several causes for the American boom in the 1920s however some are more important than others. I think that the most important cause of the boom was World War one. During the war the trade between America and Europe had been very one way. Europe, preoccupied with the war, were unable to generate their own food, raw materials and munitions. Because of this demand from Europe money poured into the USA, causing their economy to become the biggest and strongest in the world. I think this was the most important cause because if the foreign market hadn’t been so large mass production wouldn’t have happened and it was the war that prompted the development of new technologies and industries.

The war had also led to advances in technology which the USA pioneered if the war had never happened other countries may have had the time, and money, to develop these technologies meaning that America would not have had a monopoly on the sale of advanced technology from which their economy did well. Other causes of the boom were: advances in technology; new industries, causing demand for products, this allowed manufacturers of these new goods to profit enormously; the introduction of credit and buying on the margin; the increased interest in the stock market meant that prices of shares rose generating huge profits for businesses and mass marketing, meaning companies were spending more on advertising and people were being encouraged to spend more than they had before.

All theses causes are interlinked. WWI led to the advances in new technology and therefore new industries which the USA pioneered leading to them having a huge foreign market which led to mass production of goods. This helped to boost the economy. However even though the Americans were encouraged to spend, spend, spend there were many underlying problems.

Causes of the Wall Street crash and Great Depression:

During October 1929 the American stock market, on Wall Street, crashed. There were several causes of the crash some of them long term and others short term. I think that the most important cause of the crash was the overproduction of goods. During the 1920s the US industry had become more efficient and cheap and due to the introduction of many new, luxury goods such as fridges sales, and profits, went up. The problem with this was that these goods were the type of things that people needed only one of. The factories kept producing but the market wasn’t there and their profits eventually started to fall, as did share prices. This fall in share prices coupled with people’s fear of debt caused panic selling which cause the stock market to crash.

The uneven distribution of wealth in the USA meant that the market for the new, luxury goods was small, the people who lived in poverty would never be able to buy things such as vacuums and fridges so once all the richer people had bought them the market disappeared. Consequently share prices went down. This sparked off panic selling of shares by people who had bought on the margin and were afraid of getting into debt. Because there was no control over the stock market the selling got out of control and in October 1932 it crashed. This crash led to many people being heavily in debt and being evicted from their homes. Many also lost their jobs as companies started to go bust. This all led to the great depression. A time when poverty was at its highest in America.

Effects of the Wall Street crash and Great Depression:

The effects of the Wall Street crash were felt immediately across the whole of America. For example many businessmen who had lost everything committed suicide causing the suicide rate in America to reach 23,000 in one year. Soon after this the economic effects were felt. By 1932 12million people were unemployed with 25% of the population receiving no income. Because of the decline in money the demand for cars ceased so car production was cut by 80%. This had a knock-on effect on other industries such as road construction which fell by 92%. Many businesses and banks went bust. By 1932 5,000 banks had gone bankrupt as had 20,000 companies.

These economic effects soon led to many social problems. Many people were homeless and living in shanty towns called ‘Hoovervilles’ they got this nickname from the people who thought it was all president Hoover’s fault as he had done “too little, too late.” Another social effect was a decline in the marriage rate it fell from 1.23million in 1929 to 982,000 in 1932. This was because people had enough trouble looking after themselves and didn’t want the added responsibility of having to provide for a spouse and possibly children.

There was also a fall in the birth ate, people wouldn’t have had enough money to provide food for their children. The effects of the great depression were soon felt around the world. This was because many countries were dependant on the USA. The reparations cycle linked Germany and Britain to America. Because the American economy failed America recalled all their loans putting great financial pressure on Britain and especially Germany.

Reparations cycle diagram

The Great depression also badly effected Japan. They provided silk for the world however this was a luxury good and with so little money being around their trade collapsed. Desperate for much needed raw materials they resorted to violence, invading a part of China called Manchuria. The effects were felt particularly badly in Germany. They had been dependant on America for loans to help pay reparation to the allies without these loans they had t pay huge amounts of money to Britain, France and Belgium and also to America who recalled all of their loans. By 1933 6million people in Germany were unemployed and their economy had collapsed.

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