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U N I T 8 : T H E G R E AT D E P R E S S I O N
AND NEW DEAL
CHAPTERS 14 AND 15
1 4 . 1 T H E N AT I O N ’ S S I C K
ECONOMY
ECONOMIC TROUBLES ON THE
HORIZON
• Though many Americans enjoyed the 1920’s, there were several indicators during the decade that
historians have looked back on as reasons for the Great Depression.
– Many of the farmers had gone deep into debt and no longer had the buying power to purchase materials.
– Key industries like the railroad and coal mining businesses did not make a profit as new forms of energy
(electricity) and transportation (automobiles) caused these industries to struggle.
• During World War I, farmers had planted more crops than they would eventually need, and while they
were successful during the war, afterwards demand fell significantly leaving them with more crops
than they needed by a wide margin.
– Congress attempts to pass bills offering price supports for agricultural goods in which they would buy goods
at a guaranteed price to sell on the world market, but was vetoed by President Coolidge.
• Consumers also had much less money to spend due to buying goods on credit as well as the uneven
distribution in income between the rich and the poor.
HOOVER TAKES THE NATION
• Herbert Hoover won a landslide election in 1928, but the economy quickly turned sour.
• The economy was based on the stock market, more specifically the Dow Jones Industrial
Average, which represented the mean stock price for 30 large firms.
• The 1920’s was representative of a bull market, meaning stock prices were rising. As a
result, many Americans purchased stock with little to no prior knowledge of economics and
finance.
• As a result of this bull market, many uneducated investors engaged in speculation, which
is a finance term that describes buying a stock for a quick profit without first examining the
risks.
• Naïve investors also began buying on margin, another investment term in which an
investor pays a small portion of the price of the share and borrows the rest on credit.
WHY WAS ALL OF THIS SO
DANGEROUS?
• Speculation and buying on margin represented unrestrained buying and selling of
stocks with money that people did not have.
• The speculation and buying on margin fueled an upward trend on stock prices and the
market itself, but delivered a false hope to Americans and did not reflect the true
equity value of a company (what they are worth).
• The government did very little to warn people about the dangers of bad risks and
investments.
• The sharp decline in the prices of stocks would mean all investors who bought on the
margin would not be able to pay off the massive loan, which was a percentage of the
original stock price.
THE STOCK MARKET CRASHES
• On October 24th, 1929, stock prices began to slide, and a panic ensued as large numbers
investors attempted to sell their stocks and exit the market.
• This heavy volume of trading delayed the ticker tape which measured the real time value
of stocks. This delay meant that investors did not know what a stock was actually selling for
at the moment and were unsure of what to do.
• Many investors who bought on margin began facing margin calls, another investment
term in which the lender puts in a “call” to the borrower of the stock, who must then pay the
loan.
– The influx of margin calls led to a domino effect of selling which increased tensions even further.
• On October 29th, 1929, in what became known as Black Tuesday, the market collapsed
when 16.4 million shares were sold. Within a few weeks over $30 billion was lost by
investors.
FINANCIAL COLLAPSE
• The stock market crash led to the Great Depression, which lasted until 1940.
– It is very important to note that the stock market alone did NOT cause the Depression. Rather it sped up the economic
downfall.
• Following the crash, many attempted to withdraw their money from their bank, but banks had also heavily invested
in the market, causing the banks to close and millions to lose their savings.
• Several businesses and industries suffer, most notably the automobile and railroad businesses.
• The Depression was felt worldwide, as Europe in particular was still struggling heavily from war debts.
– The Hawley-Smoot Tariff Act was meant to protect American business by putting into place the highest protective
tariff in the nation’s history.
•
The tariff backfires significantly as it prevented other countries from buying American goods, and industries that relied on exporting
goods to Europe failed, causing a 40% drop in world trade.
• The market crash in and of itself did not cause the Depression. In all, the following reasons were the causes in
addition to the crash:
1.
High tariffs
2.
The farming crisis
3.
Availability of easy credit
4.
Unequal distribution of income.
14.2 HARDSHIP AND
SUFFERING DURING THE
G R E AT D E P R E S S I O N
P P. 4 7 2 - 4 7 7
THE DEPRESSION DEVASTATES PEOPLE’S LIVES
• Homelessness rose as shantytowns consisted of shacks which eventually became known as
“Hoovervilles.”
• Bread lines and soup kitchens were on the rise.
• African-Americans and Latinos suffered the worst unemployment rates and often suffered from
racial violence by white men competing for the same jobs.
• Rural families and farmers had the advantage of being able to grow crops for their families, though
many ended up losing their land due to falling prices and rising debt. As a result many resorted to
tenant farming.
• A drought and an overproduction of crops in soil led to the Dust Bowl in the Midwest, a
phenomenon consisting of severe dust storms that crippled the region. As a result many migrated
westward, predominantly to California.
EFFECTS ON THE AMERICAN FAMILY
• Families remained grounded in their traditions and morals, though many struggled significantly.
• Men became discouraged after being unable to support their families, 30,000 of which
becoming vagrants and transients known as hoboes which would drift from town to town in
search of employment.
• There was no social welfare program of direct relief to families in the form of food.
• Women became managers of the household budgets as some believed married women had no
reason to work when men were unemployed.
• The suicide rate rose 30% from 1928-1932.
14.3 HOOVER STRUGGLES WITH
THE DEPRESSION
P P. 4 7 8 - 4 8 3
HOOVER TRIES TO REASSURE THE
NATION
• Herbert Hoover believed in letting the economy work its way out of the Depression with a small amount of
government intervention.
• Hoover believed that the government should not necessarily intervene as much as it should act as a mediator
between various groups, voluntary cooperation known as voluntarism.
– Hoover was a strong believer in rugged individualism: the belief that people should assume personal responsibility and
succeed through their own efforts.
– Hoover’s rugged individualism philosophy led to him opposing any sort of government handouts or welfare programs, which he
felt would demoralize people and their self-worth.
– Hoover, therefore, stressed that the government itself not be involved in direct relief programs, but instead help mediate
cooperation between charities, soup kitchens etc.
• Hoover was able to construct what eventually became known as the Hoover Dam to provide electricity, control
flooding, and regulate the water supply of seven states.
• The 1930 midterm elections saw the Democrats gain control of the House of Representatives and gain substantial
ground in the Senate.
HOOVER TAKES ACTION
• Hoover eventually eases on his policy against government assistance and starts a few government programs.
• The National Credit Association was set up to loan money to smaller banks.
• The Federal Farm Board backed cooperation between farms.
• The Federal Home Loan Bank Act lowered mortgage rates for homeowners so that they could avoid
foreclosure, the practice in which the bank takes possession of the home.
– NOTE: a mortgage is a loan given by a bank to a homeowner to help pay for a home. Normally the mortgage is paid
with a monthly payment. A mortgage rate is the interest rate that is applied to the loan.
• The Glass-Steagall Act separated commercial and investment banking to avoid another crash.
– NOTE: commercial banks are banks that hold deposits for individuals and small businesses. Investment banks are
banks that help with the sale of stocks, bonds, and other investments that are tied to the stock market.
• The Reconstruction Finance Corporation was set up to emergency finance several businesses and entities,
hoping that the results would trickle down to the average consumer through job growth, though it was too
late to save the economy.
– NOTE: the concept of trickle-down economics is the belief that providing tax relief to large businesses and the
wealthiest Americans would result in that prosperity “trickling down” to the middle class, providing wealth and job
growth to them.
GASSING THE BONUS ARMY
• Led by Walter Waters, the Bonus Army was a group of World War I veterans who marched in Washington as
a lobbyist group.
– NOTE: a lobbyist group consists of activists that attempt to persuade the government to enact certain policies, a
practice known as lobbying.
• The group was lobbying Congress for the passage of the Patman Bill, which would have granted the payment
of a cash bonus to World War I veterans that was originally meant to be paid in 1945 in the form of an
insurance policy.
• Due to the Depression the veterans demanded the bonus be paid in cash to help aid their struggles.
• Hoover believed the group to be illegitimate and full of communists and anarchists, and the Senate voted
against the Patman Bill.
• Hoover sent in the army to remove the remaining 1,000 veterans, resulting in tear gas being used which killed
an 11-month-old baby and partially blinded an 8-year-old. Two people were shot and several were injured in a
shocking act that ruined Hoover’s reputation for good.
THE NEW DEAL
CHAPTER 15
15.1 A NEW DEAL FIGHTS THE
DEPRESSION
P P. 4 8 8 - 4 9 4
AMERICANS GET A NEW DEAL
•
The Election of 1932 saw Franklin Delano Roosevelt winning a landslide election and the Democrats gaining a super majority in the
House and Senate.
•
Roosevelt’s program to alleviate the Depression was known as the New Deal and focused on three general goals.
•
1.
Relief for the needy.
2.
Economic recovery.
3.
Financial Reform.
Roosevelt assumed office and immediately undertook a rapid series of legislation known as the Hundred Days which focused primarily
on banking and finance.
–
Roosevelt declared a bank holiday on his first day as president which closed all of the banks to prevent further withdrawals.
–
Tied to the bank holiday was the Emergency Banking Relief Act, which reopened banks that were financially responsible and kept closed the ones
that were unable to pay their loans, though these banks were able to receive emergency government loans to eventually reopen.
•
A signature piece of the Roosevelt presidency was his fireside chats which were radio broadcasts that spoke to people in plain language
about the New Deal.
•
The Glass-Steagall Act created the Federal Deposit Insurance Corporation (FDIC) which insured individual bank accounts up to
$5000 as a means to guarantee their money was safe.
•
Roosevelt helped the stock market through the passage of the Federal Securities Act which required complete disclosure of stock
information by companies to the public as well as the establishment of the Securities and Exchange Commission (SEC) to regulate
the stock market itself.
•
The 21st Amendment repeals Prohibition.
HELPING THE AMERICAN PEOPLE
• The Agricultural Adjustment Act (AAA) lowered the food supply in an effort to raise prices for
farmers, putting more money in their pockets.
• The Civilian Conservation Corps (CCC) employed men between the ages of 18-25 at $30 a
month to build roads and plant trees amongst other things. The planting of nearly 200 million trees
was meant to prevent another Dust Bowl.
• The National Industrial Recovery Act (NIRA) established the Public Works Administration
(PWA) and later Civil Works Administration (CWA) to hire people to build schools and other
community centers.
• The NIRA also established several business regulations aimed at creating fair practices in industry.
• The Federal Housing Administration was created to establish mortgages and loans to
homeowners.
KEYNESIAN ECONOMICS
• Central to the policies of the New Deal was the practice of deficit spending, that is, spending
more than what the government takes in.
• Deficit spending was first brought to attention by John Maynard Keynes, a British economist
who argued that deficit spending put money in the hands of the consumers which would
stimulate the economy.
• As a result, Keynesian Economics was the dominant philosophy of the New Deal and has
been used to support recent economic recovery methods as well.
– NOTE: the opposite of Keynesian Economics is Austrian Economics which argues that savings
and production will heal the economy through spending cuts.
THE NEW DEAL COMES UNDER
ATTACK
• Deficit spending was attacked by conservative critics who felt it was detrimental to the economy.
• Conservatives felt that the AAA and NIRA in particular gave the government too much control over the economy and the free market.
• The Supreme Court gives two major rulings to benefit conservatives.
– A.L.A. Schecter Poultry Corp. vs. United States declared the NIRA to be unconstitutional.
– United States vs. Butler declared the AAA to be unconstitutional.
• Roosevelt eventually packs the courts with justices that favor his policies.
• Three major critics of the New Deal arose at this time.
– Charles Coughlin was a Roman Catholic priest that delivered radio sermons calling for a guaranteed annual income and the
nationalization of banks.
– Dr. Francis Townsend called for pensions for the elderly.
– Huey Long was a Louisiana Senator that called for the redistribution of wealth. Long became known as “The Kingfish” due to his
campaign rally of “Every Man a King” and his Share-Our-Wealth program. Long was considered the favorite to run against Roosevelt in
the Democratic Primary in 1936 but was assassinated a month after he announced his run for President.
15.2 THE SECOND NEW DEAL
TAKES HOLD
P P. 4 9 5 - 5 0 1
THE SECOND HUNDRED DAYS
• Roosevelt saw some economic growth from the Hundred Days but not to the levels of
which he had desired.
• He was persuaded by his wife Eleanor Roosevelt to undertake a Second Hundred
Days to give more relief to farmers and laborers, which became more popularly known
as the Second New Deal.
• Roosevelt easily wins reelection in 1936, the election being the first in which AfricanAmericans voted Democratic as opposed to Republican.
HELPING FARMERS
• A second AAA bill is passed in Congress which removed the provisions that rendered it
unconstitutional in the first place.
• The Farm Security Administration (FSA) helped sharecroppers, tenant farmers, and
migrant workers become landowners themselves by loaning them more than $1 billion.
• The FSA hired photographers such as Dorothea Lange to take pictures of rural America.
ROOSEVELT EXTENDS RELIEF
• The Works Progress Administration created more public works jobs for people of all
ages, not just men 18-25.
• The National Youth Administration provided student aid to colleges and graduate schools
in addition to job training and internships.
IMPROVING LABOR AND OTHER
REFORMS
• Congress passed the Wagner Act, sometimes known as the National Labor Relations
Act which reestablished collective bargaining for workers and barring unfair labor
practices and was seen as the successor to the now unconstitutional NIRA
• The National Labor Relations Board was set up to regulate the act.
• The Fair Labor Standards Act was passed in 1938 which established a maximum 40
hour work week and a minimum wage of $0.25 an hour (approximately $4 today).
• The Social Security Act established three major parts.
1.
Guaranteed retirement insurance for people 65+ years of age and their spouse.
2.
The creation of the unemployment benefits system of about $15-$18 a week ($265 to
$315 in 2016 money).
3.
Aid to families and people with disabilities.
NLRB VS. JONES AND LAUGHLIN STEEL CORP.
• Text pp. 502-503.
• Congress has the power to regulate labor relations and the NLRB was constitutional.
15.3 THE NEW
DEAL AFFECTS
MANY GROUPS
P P. 5 0 4 - 5 0 9
THE NEW DEAL BRINGS NEW OPPORTUNITIES
• Frances Perkins becomes the first female cabinet member as secretary of labor.
• Nonetheless women still faced hardships.
– Workplace discrimination from men.
– Lower minimum wages.
– CCC only hired men.
• The percentage of married women in the workplace grew from 11.7% in 1930 to 15.6% in
1940.
AFRICAN-AMERICAN ACTIVISM
• Mary McLeod Bethune becomes the head of the National Youth Assocation and helps bring
jobs to minority youth.
• Nonetheless, FDR refused to fully endorse civil rights, refusing to sign anti-lynching laws and a
bill that would have ended the poll tax since he did not want to upset Southern Democrats.
• New Deal programs like the CCC paid lower wage to African-Americans and openly
discriminated against them.
LATINOS AND NATIVE AMERICANS
• Migrant workers and illegals immigrants were excluded and disqualified from the CCC and
WPA, though legal Mexican immigrants tended to support the New Deal.
• John Collier was appointed commissioner of Indian affairs and helped to create the Indian
Reorganization Act of 1934 which gave the Native Americans greater freedom and less of a
move towards assimilation with changes in the following areas:
– Economic: native lands would belong to the entire tribe and not the US government.
– Cultural: children were allowed to attend school on reservations.
– Political: permission was granted for the election of tribal councils to govern the tribal areas.
THE NEW DEAL COALITION
• The combination of groups that supported the New Deal became known as the New Deal
coalition.
• Union membership explodes in numbers as the Wagner Act gives better wages and collective
bargaining power.
• A split in philosophy between craft unionism and industrial unionism led to the creation of the
Congress of Industrial Organizations (CIO).
– The American Federation of Labor (AFL) supported craft unions only, while the CIO supported
industrial unions.
– The major bargaining tactic used during this time was the sit-down strike in which workers would stay
at the workplace but not work as a means of prohibiting management from hiring temporary union-free
work.
15.5 THE
IMPACT OF THE
NEW DEAL
P P. 5 1 5 - 5 1 9
NEW DEAL REFORMS ENDURE
• Roosevelt was convinced by the public and by Congress that the Depression was ending by 1937, and
responded by scaling back some programs which in turn raised unemployment and dropped industrial
production, causing a recession.
– Note: a recession.
• The New Deal had critics on both sides of the political aisle.
– Conservatives from the far right felt that the New Deal grew the federal government to enormous lengths not
originally intended by the Constitution.
– Progressives from the far left felt that Roosevelt didn’t do enough to socialize the economy and completely
eliminate income inequality.
• The New Deal also had a large number of supporters.
– Those who supported Roosevelt believed that the president was consistent in his balanced approach between
two extremes: unregulated, free market capitalism and overregulated, ironclad socialism.
• What actually ended the Great Depression, however, was World War II.
– The enormous amount of spending on military production got the US out of the Depression by expanding
industry.
– However, as a result, the federal deficit ballooned from $2.9 billion in 1939 to $54.5 billion in 1943.
SOCIAL AND ENVIRONMENTAL
EFFECTS
• Agriculture was stabilized due to policies of parity, in which a price was determined to keep
farmers income stable.
• The Tennessee Valley Authority was created to construct dams and power plants in the
Tennessee River Valley.