The Roar and the Crash — Prosperity's Collapse and the New Deal

In the previous episode we watched America step out across the seas, from the Spanish-American War to the First World War. When the great war ended, the country once again tried to keep its distance from the world’s problems. Yet in contrast to a Europe exhausted by war, America—whose homeland had never been scorched by the fighting—saw a vast fortune flow in, having shifted its standing from debtor nation to creditor nation.

The 1920s. That wealth brought the country a brightness and a giddy mood it had never known before. The curtain was about to rise on an age of frenzy, later called the ‘Roaring Twenties.‘

The Roaring Twenties — A Nation Drunk on Mass Consumption

The America of the 1920s was wrapped in a dazzling prosperity.

Its symbol was the automobile. Henry Ford’s assembly-line mass production transformed the car from a luxury for a wealthy few into a tool within reach of the middle class. By reports, some fifteen million of Ford’s popular Model T had been sent into the world in cumulative total by 1927. As cars spread, roads extended, suburbs widened, and the very shape of people’s lives began to change.

It was not only the automobile. Radios were placed in living rooms across the country, and news and music reached the whole nation at once through the air. Movie theaters overflowed with crowds, and stars became the idols of the age. Refrigerators, washing machines, and other electrical appliances went on sale, and a new way of buying—installment payment—spread, so that people could obtain ‘what I want now, paid for later.’ Make in bulk, sell in bulk, consume in bulk—the prototype of the consumer society that connects to our own day was taking shape in this era.

The culture, too, blossomed. Jazz played, and young women cut their hair short, raised their skirts to the knee, and danced. The ratification in 1920 of the Nineteenth Amendment, granting women the right to vote, also gave momentum to the spirit of the new age. At the same time, Prohibition, which began that same year, drove people’s craving for drink underground, breeding bootlegging and smuggling and the shadowy activity of gangsters typified by Al Capone. Where the light is strong, the shadow too is deep. Behind the prosperity, the countryside suffered under stagnant farm prices, and discrimination against Black people and immigrants, along with the lopsided distribution of wealth, continued.

1929, the Euphoria Collapses — The Great Depression

The prosperity had bred a frenzy in the stock market. People betting on rising prices bought shares even on borrowed money, and stock prices ballooned far beyond their real value. Everyone wanted to believe this climb would go on forever.

That illusion shattered in October 1929, on Wall Street in New York. On ‘Black Thursday,’ the 24th of October, prices plunged, and on the following Monday the 28th and Tuesday the 29th, an even more devastating wave of selling swept the market. Shares no one would buy became as good as wastepaper.

The crash soon swallowed the whole economy. People who had lost their assets stopped spending; factories whose goods would not sell cut back production; people who lost their jobs could buy even less—a vicious chain that would not stop. Banks toppled one after another, deposits vanished, and people’s savings melted away without a sound. Stock prices fell by roughly ninety percent from their 1929 high to the bottom in 1932, by the record. Unemployment, which had been only a few percent in 1929, climbed well past twenty percent by 1933—by one reckoning, roughly one in four people had lost their jobs.

Soup lines formed in the streets, and people wandered everywhere in search of work. The shantytowns of those living in tents were called, with bitter irony, by the name of the president of the day. A country that had boasted of its abundance was plunged, in just a few years, into a deep abyss. And this depression did not stop at America alone; it linked into a worldwide chain, the ‘Great Depression’ that drew in economies across the globe. As to why it grew so severe, several factors are said to have overlapped—stock speculation, the failure of monetary policy, the imbalance between production and demand—and scholars’ views remain divided to this day.

The New Deal — The Role of the State Changes

In 1933, at the bottom of despair, a new president appeared: Franklin Roosevelt.

On taking office he acted in rapid succession. First he ordered all the nation’s banks closed for a time, and spoke to the people directly over the radio, trying to win back their trust. This warm, familiar manner of address was called the ‘fireside chats,’ and is said to have reached the hearts of people racked by anxiety. In the first hundred days or so after his inauguration, he rolled out one new policy after another. Together these are called the ‘New Deal.’

Its pillars were the Agricultural Adjustment Act (AAA), meant to restore farm prices; the National Industrial Recovery Act (NIRA), which backed industrial recovery and the rights of workers; and the Tennessee Valley Authority (TVA), which built dams and power plants along the Tennessee River, advancing employment and development at once. Later, a scheme to hire vast numbers of the unemployed through public works was also put in place. The New Deal is often summed up as the ‘three Rs,’ from the initials of Relief, Recovery, and Reform.

The change that took place here carried a meaning greater than any single policy. Until then, the prevailing view in America had been to leave the economy to the market, with the government interfering as little as possible. But the New Deal placed at the center of politics the idea that in times of slump the state should actively engage with the economy and support people’s lives. The very role of the state was greatly transformed here.

That said, whether the New Deal truly ended the Great Depression is a matter of divided judgment. The view that unemployment remained high and the economy never fully recovered runs deep. On the other hand, there is also the assessment that it gave work and hope to people sunk in despair, and that its significance in halting society’s collapse was great. Even at the time, there was no shortage of criticism that the government’s powers had expanded too far. Holding both light and shadow within, America was slowly beginning to recover from the abyss of the Depression.

But what truly decided that recovery may not have been the New Deal itself. A nation just finding its feet is swallowed next by a world war. And that war will turn America into a superpower.