This paper will briefly describe the characteristic features of the Great Depression, compare the approaches of Hoover and Roosevelt to the economic and social turmoil, and explain Roosevelt's New Deal responses to the crisis.
As a preliminary matter, the Great Depression was characterized by unprecedented levels of consumer debt, a decrease in international trade in the wake of the first World War, price deflation which compelled both individual and business debtors to cut spending while attempting to service higher than anticipated debt payments, a liquidity crisis which saw the money supply contract rather than expand, and a stock market crash as equity failed to yield anticipated returns (Bernstein, 1989: 33-35). In effect, stating the matter rather simply, money was disappearing on the income or loan side at the same time that debts and expenses were increasing. The consequences were disastrous. Unemployment increased, bankruptcies became commonplace, and huge migrations occurred as people sought new opportunities. There were too few resources for too many people; and where there were adequate resources; they were not allocated equally.
President Hoover failed to grasp the pervasive nature of the economic failings; on the contrary, rather than approaching the crisis from a structural point of view, he chose to deal only with the more superficial symptoms of the crisis. More specifically, espousing a philosophical role of government which remained detached and aloof, Hoover refused to involve the government more directly into the market economy or social welfare. He was, in this way, a regulatory minimalist and he trusted that the business cycle and the American work ethic would sort out the crisis without substantial governmental intervention (Kennedy, 199: 56). These views became manifest as a policy of "avowed cooperation"; more particularly, Hoover encouraged certain reforms, such as bank deposit insurance, without supporting any more specific or comprehensive reforms. He was, in the final analysis, extraordinarily passive and ineffective in dealing with the scale of the disaster.
President Roosevelt, on the other hand, was much more active and advocated a direct and deep intervention by the federal government. To this end, Roosevelt pursued structural reform, a broader notion of social welfare, and a governmental role in the economy which would increase demand and create jobs by entering into infrastructure contracts and becoming an active economic actor alongside individuals and businesses (Bremer, 1975: 642). Roosevelt distrusted both the free market and businesses in the forms espoused by theoretical purists; as a result, he approached the crisis from the point of view of the federal government helping to manage the business cycle and keeping the excesses of greed and capitalism at bay. Roosevelt was thus a reaction to the passivity and detachment of Hoover; his programs, incorporated as a part of the New Deal and the Second New Deal, remain important parts of our governmental structure and philosophy even today.
The New Deal dealt first and foremost with restoring the integrity and the health of America's financial system; Roosevelt was thus forced to reform the powerful banks on Wall Street and elsewhere. This