Global Effect of the Great Depression: Peru Versus the United States

In 1929, the world underwent one of the most devastating economic recessions in history, known as the Great Depression. In the United States, the Great Depression occurred after the crash of the stock market, creating pervasive poverty and unemployment, which Franklin D. Roosevelt ultimately helped restore through a series of economic reforms and initiatives.

On the other hand, under the leadership of Cerro and Benavides, Peru's major anxiety concerned paying off debts and stabilizing its economy. Ultimately, the differences between how the two countries dealt with economic issues focused on the extent to which each counties economy collapsed and the influence of foreign investments and markets. Therefore, by comparing the effects of the Great Depression, the leadership, and the economic reforms of each country, an individual can recognize the universal yet global affects the Great Depression.

By reacting dissimilarly to the depression, the United States and Peru demonstrated that the Great Depression affected each county individually. Beginning with the United States, the radical fall of stock prices and the subsequent collapse of the stock market resulted in a deflationary spiral that forced a drastic declination in asset and commodity prices, dramatic fall in desire as well as access of credit, and a severe disruption of trade. The credit driven economy of the early 20th Century could no longer continue as businesses restricted credit availability and tried to eliminate any liabilities (Archibald 1). Thus, consumers could no longer enjoy the benefits of obtaining something right away and paying over time. Furthermore, as employers closed businesses the employees, who had used credit, lost their sources of income and could not pay off their monthly incomes forcing banks and others to repossess goods creating strife and depression amongst those faced with debt. Attempting to spur agricultural growth, President Hoover initiated the Smoot-Hawley Tariff Act, which raised the tariff on imported good to nearly 60% effectively eliminating importation (Archibald 2). More importantly, the increased interference and regulations by the government placed on the economy kept unemployment high and contributed to the markets inability to react to abrupt changes. Additionally, the decrease in purchase of consumer goods further helped weakened the economy, as companies had to either restructure or go out of business. Ultimately, the depression greatly affected the United States. Initially, the depression drove nearly one-third of the population into debt; however, the remaining people appeared mostly unaffected. Unfortunately, once the stock market refused to rebound, the economy sunk and businesses collapsed driving the entire country into poverty minus a select few. Conversely, Peru, compared to either the United States or Latin America, ended up extremely well off and unchanged. Thanks to a relatively diversified range of exports, Peru remained wholly unaffected and rapidly began recovering its export earnings by 1933 (Taylor 2). Therefore, unlike many other countries, Peru did not have to adopt Keynesian and import-substitution industrialization measures to revive their economy. As a result, Peru maintained a consistent economy when those around them remained in a state of panic and frenzy. The Great depression for Peru began after export prices fell and external credit curtailed at the onset of the 1930's (Taylor 5). In essence, though both countries faced a depression, Peru required less drastic measures because the Great Depression brought about significantly inferior issues with which to settle.

Further distinguishing the affects brought about by the Great Depression, the countries followed different styles of leadership. Officially, Hoover remained the President during the beginning of the Great depression. However, only when Franklin D. Roosevelt took office did any positive changes occur. FDR, as scholars universally know him, had six children with his wife Eleanor overcame crippling illness and placed himself at the head of the forces of reform. Beginning his career as a savior to the people, Roosevelt eventually ran for New York State Senate whereupon he and several others attacked and sought to eliminate the corrupt Tammany Hall. Under Wilson, Roosevelt served as the assistant Secretary of the Navy during which he attained great administrative talent, negotiating skills for use against Congress, and how to get things approved, which he used to expand and strengthen the navy. Ultimately, he overtook the Presidency from Hoover in the depths of the depression. His governing style depended greatly on his "brain trust" a group of specialized intellectuals from universities, who would inform him in all things. He immediately set out and sought to stabilize the financial system. In essence, he desired a unified country and sought to rescue the United States from the clutches of depression. Charismatic, handsome and socially active, Roosevelt won the publics favor with promises of restoring the nation and improving lives. Furthermore, Roosevelt believed that the people needed to regain confidence in the economy and sought to inspire them with such awe-inspiring phrases, as "the only thing we have to fear is fear itself."

Through his captivating speeches and progressive beliefs, Roosevelt managed to receive the wholehearted support of his people and helped end the depression. Because Peru had no need for a strong charismatic reform-initiating leader, no such figure emerged. Initially, Peru elected Sanchez Cerro as President (Impact of Depression). Cerro like Roosevelt held the admiration of the people. However, the people supported Cerro because appeared as a hero for having played a major role in overthrowing the dictator Luguia (Impact of Depression). Politically, Cerro sought the advice of expert economist Edwin Kemmerer to develop a plan to establish stability. However, his political career faced many difficulties. Beginning with a rebellion between the official government and the military, Cerro then had to settle a dispute with Columbia over land in the Amazon, which led to his eventual assassination (Impact of Depression). The congress immediately elected Benavides to complete Sánchez Cerro's five-year term, who managed to settle the dispute peacefully. Benavides similar Cerro was a military general who helped overthrow Luguia. To attain his second term, the Congress barred opponent Torre from entering the election angering the APRA, who were reformist, populist, and nationalists, upsetting many people (Diaz-Alejandro 31). Benavides combined harsh economic principles and almost no social reform to attract people away from the APRA and weaken their authority. In essence, the leadership under which the Peruvians lived had less importance than the United States, for Peru's economic depression affected the people significantly less. In conclusion, Roosevelt was a man of the people who sought to re-glorify a broken nation, whereas Cerro and Benavides had only to offer a few initiatives and the economy balanced itself out.

Most importantly, the initiatives and programs each country issued polarized the differences between the two countries. First, under Cerro, Peru's economic reform laid in the hands of American economist Edwin Kemmerer (Impact of Depression). Following his advice, Peru changed their currency backing from silver to gold, which helped to reestablish order amongst export goods and stability. Adoption of the gold standard allowed Peru to maintain a stable stability and as a result, it became the most economically successful Latin-American country for many years (Diaz-Alejandro 21). However, despite improving the situation, Cerro still had to declare moratorium on for an almost 180 million-dollar debt that it owed the United States (Diaz-Alejandro 35). Consequentially, Peru could not participate in the capitalistic market until thirty years later. Ultimately, this did hurt Peru, but the affect it had on Peru's economic recovery was minimal. Where Peru needed only a simple economic jumpstart, the United States needed radical innovations. As a result, Roosevelt initiated a series of reforms in order to reestablish the economy known as the New Deal. The philosophy behind the New Deal came from John Keynes in The General Theory argued that with fiscal policy government increase spending by decreasing taxes, increasing government spending, and increasing individuals' incomes (Archibald 3).

As individuals incomes would increase, they would spend more, at which point the multiplier effect would take over and expand the effect on the initial spending (Archibald 3). Expansionary fiscal policy thus involves decreasing taxes or increasing government spending to counteract cyclical unemployment and slow growth during a recession. Thus, during the beginning days of his office known as the Hundred Days' War he immediately began implementing reform. First, he used his executive power to control banks and prevent them from hoarding money or stealing people's money (Leuchtenburg 42). Eventually, the banks reopened and only about 15% of people lost any money. In addition, Roosevelt initiated several organizations: the Federal Emergency Relief Administration to grant funds to states for unemployment relief; the Civilian Conservation Corps to hire young men to work on rural projects (Leuchtenburg 53); and the Agricultural Adjustment Administration that paid farmers to take land out of crops and by cutting herds to force higher prices for commodities (Bremer 636). These initiatives all helped to severely diminish poverty and the economy began to improve. Furthermore, the new deal saw the passing of several important pieces of legislation. First, to regulate business Roosevelt supported the National Industrial Recovery Act, which gave unprecedented power to the states with which they could regulate wages and dissemble trusts (Leuchtenburg 58). In addition, the passing of the 21^st amendment came about to boost the economy with the sale of alcohol (Leuchtenburg 46). Following the congressional elections of 1934, Roosevelt gained a majority in both houses and passed several more initiative's known as the second new deal. The second new deal began by establishing the WPA, which was a national relief agency set up to employ over two million people. Additionally, the Social Security Act (Bremer 639), which guaranteed economic support for the elderly and sick, and the National Labor Relations Act(Bremer 640), which allowed workers to form unions, practice collective bargaining, and participate in strikes, granted new freedoms and improved individual's sense of security. Both of these measures helped to secure the futures of all citizens by ensuring protection both as an employee and when retired. Amusingly, the Supreme Court deemed both the AAA and the NIRA unconstitutional (Bremer 646). Regardless, the initiatives set forth in the New deal revived the economy and increased people's faith in the economy and the market began to reestablish itself. Therefore, unlike Peru, the United States had to issue a large number of programs and laws in order to recover for the economy. In essence, because the countries faced different degrees of deprivation, the measures with which each leader had to initiate reflected the level of damage the depression caused revealing that Peru faced less damage.

Comparing the differences between the leaders, economic reforms, and extent of damage caused by the depression in both Peru and the United States gives an individual the understanding that the Great Depression affected the world in many ways. In the view of the United States Roosevelt appears as the savior of the United States who saved the people form utter ruination, yet to Peru, Cerro remains just another name in the history books. Thus, because of the extent of reform needed and the harsh conditions under which he began his presidency, Roosevelt's accomplishment appear to overshadow those of Cerro, for he merely helped quicken the recover in Peru that would have occurred regardless of his interference.

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