The Great Depression was the worst economic downturn in American history. Countless books and historical explorations have focused on the era, but, somehow, myths about the Great Depression abound. While most recessions are over in a few years, the Great Depression lasted for over a decade and saw massive unemployment and the destruction of wealth. It shaped a generation who grew up with fewer material possessions and an understanding of poverty and what it means to struggle. It's one of the reasons Franklin Delano Roosevelt is considered one of the greatest US Presidents of all time. However, it also spawned a multitude of popular legends about the causes of and solutions for this dark period in American history.
There are many misconceptions about the Great Depression that endure today. A variety of interested parties have made it a point to craft the narrative of the Depression to support their political agendas in the time since it took place. Fortunately, there still are serious historians who have looked at the Depression from many angles and seek to uncover the truth of the matter.
Domestic Production Was Low
At first, yes, domestic production did slump. Between 1930 and 1933, production at factories, mines, and utilities fell by more than half. After the initial drop, however, production steadily began increasing, reaching pre-1929 levels in 1937.
While the massive crop failures of the Dust Bowl did cause substantial hardships to many Americans, they only came after a massive crash in the price of agricultural goods. Thanks largely to the Smoot-Hawley Tariff and ensuing trade war, export markets were essentially closed to US agricultural goods, creating a domestic surplus. The price of a bushel of wheat fell from $1 in 1929 to 30 cents in 1932.
Actually, there was so much farming that the US Federal government was actively destroying crops. Under the Agriculture Adjustment Act, the US government was buying up entire fields of viable crops to plow under and slaughtering millions of completely healthy livestock. This was an attempt to curb the supply to better match it with the artificially lowered demand and, in turn, increase prices. The legacy of this program still exists today in the form of the Conservation Reserve Program; in certain places, people are still being paid by the government to not grow crops.
FDR Ran On The Platform Of The New Deal
When Franklin Delano Roosevelt beat Herbert Hoover with 472 electoral votes to just 59 in 1932, it wasn't because he was promising to deliver New Deal Programs. The Democratic platform actually called for a 25% reduction in Federal spending, a balanced Federal budget, and the removal of the government from areas it was ill suited for.
What FDR actually did as president is a whole other story. In short order, he abandoned his platform and worked to erect a massive Federal bureaucracy that, in many, cases simply expanded programs created by Hoover. As a result, Director of the Bureau of the Budget, Lewis W. Douglas, resigned after just one year on the job. Government expenditures rose by more than 83% between 1933 and 1936, while Federal debt rose by 73%.
Most Americans Were Steadfastly Behind The New Deal
While most Americans did back FDR generally speaking, their appetite for his New Deal policies has been overstated. In particular, many were unhappy with FDR's lambasting of the business community. A 1939 poll by the American Institute of Public Opinion asked, "Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?" People responded 2 to 1 in the affirmative.
Some people, including famed Journalist H.L. Mencken of The Baltimore Sun, were openly critical of FDR's policies. In 1933 Mencken wrote, "[the] republic proceeds towards hell at a rapidly accelerating tempo. With the debt burden already crushing everyone, Roosevelt now proposes to relieve us by spending five or six billions more. I am advocating making him king in order that we may behead him." The obituary he wrote for FDR was equally scathing.
Banks Closed Because They Didn't Have Access To Credit
On the contrary, the Federal Reserve was created in 1913 for the explicit purpose of being the lender of last resort when transactions between banks dried up. So why did so many banks close between 1929 and 1932?
At the time, many states in the US had unit banking laws. Basically, these made it illegal for large banks to open branch locations in certain places. Unit banks, on the other hand, are small banks that operate independently, serving a single specific location. While branch banks are backed (and ultimately controlled) by large financial institutions, unit banks are not.
The McFadden Act of 1927 explicitly banned interstate branch banking. Without access to a widely diversified financial backer, unit banks are much more sensitive to financial downturns. The widespread reliance on unit banking (by law) in the US was a major reason so many banks closed. Analysis has found that states that allowed branch banking saw fewer bank failures during the Depression. Further, Canada, which had no laws against branch banking, didn't see a single bank closure.