The New Deal: Combating the Great Depression and the 1929 Crash

Franklin D. Roosevelt's New Deal Policy (1933-1938)

The New Deal is the name given to U.S. President Franklin D. Roosevelt's interventionist policy launched to combat the devastating effects of the Great Depression in America.

This comprehensive program was developed between 1933 and 1938 with the aim of supporting the poorest segments of the population, reforming financial markets, and revitalizing a U.S. economy wounded since the Crash of 1929 by mass unemployment and widespread bankruptcies.

Key New Deal Measures

• Aid to Farmers: Compensation was provided to farmers to reduce their harvests, aiming for a subsequent rise in prices.
• Unemployment Benefits: Granting of unemployment benefits to jobless workers.
• Labor Reforms: Implementation of wage increases for workers and a decrease in working hours.
• Banking Intervention: State intervention in banks, often through the acquisition of shares.
• Public Works Investment: Significant increase in government jobs through major investments in public works projects.

The Roaring Twenties and the Speculative Bubble

The period from 1922 to 1929 is known as the Roaring Twenties (or "Crazy Years"), characterized by a cycle of unprecedented economic expansion and prosperity in the United States.

This prosperity benefited society broadly and caused the economy to grow at a pace never recorded before, ultimately creating a dangerous speculative bubble. This period of growth abruptly ended with the Stock Market Crash of 1929.

Causes of the Great Depression

Overproduction and Agricultural Crisis

Overproduction is unanimously considered the primary cause of the depression that began in 1929. Agriculture must also be taken into account, driven by a series of exceptional harvest years starting in 1925.

Although prices were initially supported by agreements, when the financial crisis suddenly broke, agricultural surpluses flooded the markets, compounding the existing industrial surpluses. The effects of overproduction included:

• Accumulation of massive stocks.
• Loss of purchasing power for farmers due to lower prices.
• Increased unemployment.

The Phenomenon of Speculation

Speculation consisted of a quick and easy means of obtaining money by purchasing stock options. Due to the massive demand for securities on the stock exchange, prices increased dramatically day by day, often far exceeding the real value of the assets.

Many investors sought to multiply their fortunes in the stock market, viewing it as a genuine business opportunity that would multiply their wealth quickly. Enterprises lacking liquidity asked for loans, and banks readily granted credits for securities investment, as speculation in the stock market generated profits higher than standard bank interest rates.