Between the year 1929 and 1930 an era of Great Depression took place. This era is marked with deepest and longest period of economic downturn in the history of industrialized world which is western countries. Great Depression in the United States started immediately after the crash of stock market in October 1929. This crash, made all the Wall Street o panic as well as wiping millions of investors out. Great depression was caused by factors like, the World War One, the fall in the stock prices, the bank failures, and the reduction in purchasing across boards, the drought condition and the economic policy. The great depression left the workers with no means of subsistence; help from family, friends or community institutions were not adequate, and the government didn’t have any structure on place to provide proper assistant. All these factors led into a creation of a tax payroll system to provide government assistant through diverse welfare program (Trowbridge, 2016).
Great Depression is not an event which was experienced out of blues. It was because of some factors which came so strong for them to be contained. One of the factors is world War I. this war contributed so greatly to great Depression. The United States started the war in the late 1917. Because it was well-up economically, it became the major financier of the post-war restoration. Many countries such as Germany, France, and Britain need restoration. The United States banks therefore offered them money in form of loan. Because most of the European countries had not recovered from the war a lot of financial pressure was experienced and they could not recover their loans. This affected both European countries as well as US hence resulting to Great Depression. The second one is fall in the sock prices. In 1920s, the US stock market experienced a rapid expansion so as to reach it peak. It is during this time that production declined and employment had continued to raise leaving stock to be excess of the actual value. The result was proliferation of debt, low wages, and struggle in agricultural sector and huge bank loans. There was a drastic drop in the stock prices and this made the market to dive downwards. This resulted to loss of billions of dollars with several investors being wiped out hence contributing to the depression (Trowbridge, 2016).
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The third one is the bank failure to explain the cause of depression. It is after the drastic fall in the stock prices when millions of American started to withdraw their money. They did this because they were caught up with fear that the bank was on the verge of failing. The banks collapsed and others were left unstable and this also contributed to Great Depression that was experienced by the whole countries and beyond. The fourth one is reduction in purchasing across the border. As the stock market continued to crush, the Americans form all social class stopped buying items especially appliances hence leading to reduction in the number of item produced. This further resulted to reduction in labor force. Many people lost their jobs and so they were unable to pay for the goods purchased through credit. The fifth one is the drought that begun around 1930. This worsened the already shaken economy. Agriculture was mostly affected with the drought affecting farmers in a very great way especially those who were in Great Plains. Being left with no alternative, they had to seek government for assistance. The bigger population was forced to leave their land because they could not be able to manage (Trowbridge, 2016).
When the Great Depression era begun, the United States was the only industrialized country worldwide that had no form of unemployment insurance or social security. It is in the year 1935, where congress passed the Soci9al Security Act. This Act for the first timer provided Americans with unemployment, pension for old age and disability security. The U.S. Congress enacted the Social Security Act, originally called the “Economic Security Bill,” in August of 1935. The Act was aimed at giving older Americans a pension that would provide them with a reasonable standard of living as they aged. The Social Security Act was politically moderate. The agency created to administer these benefits was to be funded by both employees and their employers, as opposed to using funds collected from general tax money (Landon, 1936). This act was to provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws (Rose, 1989). It was to establish a Social Security Board, to raise revenue, and for other purposes. (Social Security Act, 1935).
When Franklin Roosevelt signed the Social Security Act, most of the Americans were left unconvinced that this program was really a good policy. The accusations especially from Republicans and conservative Democrats were that the program was Socialist. They complained that the old age pensions and underemployment insurance were based in socialism (Landon, 1936). People like Alf Landon lamented that there was a high requirement of payroll tax to finance the program. He also noted that the act of dividing the tax between the employer and employee will be a form of fraud hence terming it unfair. Other people challenged the act by terming it unconstitutional. One of these people is like George Davis who was a stockholder of Edison Electric Illuminating Company of Boston. He wanted his company to be kept from paying the Social Security tax because it was unconstitutional (Helvering v. Davis,1936). Others believed that the bureaucracy will undermine the economy further. They were really worried particularly on the fact that government provided insurance programs which will outcompete private companies and lead to their collapse (Quadagno, 1984).
All in all, though it faced some challenges, Social Security Act uniquely created a solution to the problem of old-age pensions. Unlike other European countries, the social security insurance was supported by contributions in form of taxes on the individuals’ wages and employers’ payrolls instead of doing it from the government funds (Quadagno, 1984).
Helvering v. Davis (1936)
Landon, A. (1936). “I will not promise the moon.” Vital Speeches of the Day. 3(1), 26–27. Retrieved from http://historymatters.gmu.edu/d/8128
Quadagno, J. S. (1984). Welfare capitalism and the Social Security Act of 1935. American Sociological Review, 632-647.
Rose, N. E. (1989). Work relief in the 1930s and the origins of the Social Security Act. The Social Service Review, 63-91.
Social Security Act of 1935, 42 § 301, (1935). Retrieved from http://www.ourdocuments.gov/doc.php?doc=68
Trowbridge, D. J. (2016). A history of the United States: 1865 to present. Asheville, NC: Soomo Learning. Available from http://www.webtexts.com