US Fiscal Policy During the Great Depression

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Before the Great Depression, the idea that government should use its fiscal policy to moderate the business cycle was far from the focus of political and economic debate. In the past, the government borrowed during wartime as wars were very expensive. Borrowings were large relative to the size of the economy and a balanced budget was hardly discussed. Upon entering the Great Depression in 1929, president Herbert Hoover was an important representative of belief in the application of social thought into social programs. Similarly, President Franklin Delano Roosevelt preceded Hoover and shared many of Hoovers beliefs in the application of thought into social programs. Both Hoover and Roosevelts fiscal policies in the Depression era were the catalyst of the various fiscal policies practiced today. This paper outlines the numerous fiscal policies pursued by Herbert Hoover and FDR during the Great Depression and examines the positive and negative effects of these policies.

Hoover confronted the Depression with an abundance of attitudes, which even today sound modern. Hoover accepted the need for social action and confluence to prevent and correct the current state of unemployment. The acceptance of this social conglomerate did not mean the central government would be elevated to the role of managing the economy entirely. Rather, it was an acceptance to a more cooperative system in which the elements of society- businesses, individuals, state and local governments-worked together to achieve the goals of society. The cooperative system required a leader that would point society in a direction that was in their best interests but would not give the central government responsibilities that were otherwise separate from those of the other elements of society. Hoovers inaugural address on March 4th, 1929, included voluntary cooperation as one of the main themes in achieving a solution to the national problem and called on numerous branches of government to collaborate in assisting businesses and individuals

There is an equally important field of cooperation by the Federal Government with the multitude of agencies, State, municipal, and private, in the systematic development of those processes which directly affect public health, recreation, education, and the home. We have need further to perfect the means by which Government can be adapted to human service.

Hoover was the leader in the movement to organize businesses in trade associations to cooperate with each other and the government in order to prevent and alleviate the growing unemployment. Hoover warned against excessive reliance upon the federal government and believed that the cooperative system would reduce unemployment.

Shortly after the stock market crash in October 1929, Hoover extended the reach of the Federal Farm Board (FFB) to make government funded loans to farm cooperatives to keep prices up, with a stabilization fund of $500 million. The FFB had two major responsibilities: strengthening farm cooperatives and direct prize stabilization within the $500 million fund made available. Unfortunately, the subsidies given to farmers encouraged them to increase production until the deflation could not be countered and the appropriated funds were eventually exhausted.

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