[Global Finance History] The 'New Deal' That Overcame the Great Depression: The Beginning of Another Capitalism

Roosevelt Standing in the Midst of the Great Depression
Started His Term by Closing All Banks Until Congress Passed Reform Bills
Directly Addressed the People Through Fireside Chats
Controlled Extreme Laissez-Faire Policies of the Time
Government Decided on Welfare, Housing, and Prices

In the 1920s, the American economy seemed to have entered a new era of unstoppable prosperity. Such hopeful thoughts sometimes became the cause of catastrophe rather than boom. At first, it was simply regarded as a happening in the New York Stock Exchange. However, the stock market crash did not subside.

At the moment when the U.S. stock market was walking on the edge of a cliff, Winston Churchill of the United Kingdom appeared. He visited the United States for a lecture and even invested $2 from his lecture and manuscript fees in stocks. On Thursday, October 24, 1929, Churchill, who was walking on Wall Street, visited the New York Stock Exchange. He witnessed the massive crash of the New York stock market, later called Black Thursday.

Within 30 minutes of the opening, the index plummeted by 10%, and there were no buy orders for many stocks. Churchill recalled that day as "people in the stock exchange were in a panic as if an anthill had been disturbed. They tried to sell an enormous amount of stocks at low prices, but there were no buyers for that huge volume."

The Herbert Hoover administration took measures to block the aftermath of the stock market panic. President Hoover ordered businessmen not to cut wages to maintain demand and announced construction plans such as building new buildings. Small tax cuts were also announced consecutively. The Federal Reserve Board lowered the discount rate. The New York Federal Reserve Bank also took measures to manage the outflow of funds from the call market. Fortunately, the operations of banks and companies seemed to return to normal.

As the Dow Jones index rebounded, optimism began to reappear. At that time, skyscrapers over 100 stories were being built competitively in New York. In March 1930, President Hoover said that things would return to normal after two months.

However, the Dow Jones index eventually fell. Meanwhile, the U.S. Gross Domestic Product (GDP) shrank by 60% from the 1929 level. The number of unemployed rose to 12.5 million. One-third of the population, excluding the agricultural population, lost their jobs. The American economy was falling into deflation.

In 1932, Ivar Kreuger, a Swedish financial swindler who monopolized the European match market and was called the "Match King," took his own life in a hotel in France.

In the midst of the Great Depression, Franklin Roosevelt was elected president. When he took office, the United States was in a desperate state with 13 million unemployed due to the Great Depression.

In his first inaugural address broadcast on the radio, President Roosevelt boldly declared, "This great nation will endure as it has endured, will revive and prosper. The only thing we have to fear is fear itself." He began his presidency by closing all banks for several days until Congress passed reform bills.

The first "Fireside Chat" about the banking crisis was broadcast to about 60 million radio listeners. He spoke frankly about the panic among investors worried about the possibility of bank failures and the massive withdrawal of bank deposits. He explained the decision to close domestic banks to prevent such a situation. President Roosevelt said the banks would reopen the next day. He expressed gratitude for the patience shown by the general public during the "bank holiday." This earned him the trust of the public.

After the passage of the Emergency Banking Act, three out of four banks were able to reopen within a week. Thereafter, President Roosevelt regularly spoke directly to the American people nationwide via radio. In a way, Roosevelt's true job was not so much policy formulation itself as explaining policies and seeking understanding. At that time, the United States was at the lowest point of the Great Depression, with 25 to 33% of the workforce unemployed.

The nation was precarious, but Roosevelt's speeches were a comfort. He not only shared the fear but also presented how to solve the problems. The public gradually began to trust him. From March 1933 to June 1944, President Roosevelt gave 30 more such broadcasts. To listen to these broadcasts, 90 percent of the population came to own radios.

President Roosevelt's radio speeches were called "Fireside Chats." They evoked the image of the president sitting by the fire in the living room, seriously talking to the American people about his hopes and dreams for the nation. Roosevelt paid close attention to ensure that ordinary Americans, regardless of education level, could access and understand. He used simple vocabulary and relied on down-to-earth anecdotes or analogies to explain the complex problems facing the nation. His Fireside Chats comforted the American people. They were the invisible force that endured the Great Depression and led to victory in World War II.

After the economy began to show signs of recovery in 1935, President Roosevelt requested Congress to pass new reform bills known as the "Second New Deal." It included the Social Security Act, which for the first time provided unemployment, disability, and old-age pensions to Americans.

The Democratic-led Congress raised taxes on large corporations and wealthy individuals. This was sometimes mocked as the "soak the rich tax." Roosevelt's New Deal policies controlled the extreme laissez-faire of the 1920s. Instead of the market, the government now decided welfare, housing, labor, prices, and minimum wages. It was the beginning of another form of capitalism.

Baek Youngran, Representative of History Journal