The Great Depression 1929-1940

BACKGROUND

Economies historically pass through good and bad periods that regularly repeat themselves

These periods of business activity are referred to as the “business cycle”

The bad times are called recessions or depressions, depending on the severity

Depressions are characterized by business failures, high unemployment, and falling prices or inflation

The Great Depression was the worst depression in our nation’s history

THE BIG QUESTIONS

What were the causes of the Great Depression?

Why was Herbert Hoover unable to cope with the Great Depression?

What were the effects of the Great Depression?

How did the New Deal offer a new approach to confronting the Great Depression?

CAUSES

Overproduction – manufacturers were producing more goods than they could sell (cars, radios, appliances, etc.)

Speculation – more and more people were speculating in the stock market in hopes of “getting rich quick”Many began buying on margin (getting

loans from a bank or stock broker)People also speculated in Real Estate

CAUSES CONTINUED…

• Shaky Banking – Some bankers invested their depositors’ money in unsound investments It was common practice for banks to invest depositors’ funds in businesses to enable them to pay interests on deposits

The government failed to regulate the banking system or the stock market

Consumers bought more than they could afford and over-extended credit

CAUSES CONTINUED…

Restricted International Trade – American tariffs were enacted to protect American marketsTariffs made it hard for producers to sell

overseas, since other countries retaliated by setting high tariffs of their own

In 1930, President Hoover signed the highest tariff in U.S. history

The shrinking of world trade contributed to the Great Depression

THE DEPRESSION BEGINS

THE STOCK MARKET CRASH – October 29, 1929On October 24, stock prices began moving sharply downwardTop bankers bought stocks above current market prices to try to stop the rapid declineBy October 29, stock prices kept falling

faster and faster, prices were at an all-time low, and the market crashed

CONTINUED…

IMPACT ON BUSINESSCorporations could not raise fundsPeople could not repay loansBanks failed and thousands lost their

life savingsThe demand for goods decreased

(prices fell, factories closed)People couldn’t pay rent or mortgages

(lost homes)

CONTINUED…

THE HUMAN IMPACT People felt worthless Traditional optimistic outlook was replaced

by confusion and chaos With no unemployment insurance or bank

deposit insurance, private charities were overwhelmed

People were homeless and hungry Millions depended on soup kitchens for food Writers and photographers like John

Steinbeck and Dorothea Lange recorded the misery of the times

THE DUST BOWL

A series of droughts, in the Great Plains, in the early 1930s dried up crops and topsoil, turning the soil to dust

Lasting for a decade, heavy winds carried topsoil across hundred of miles, burying homes and destroying harvests

Farmers were forced to abandon their farms

Many moved west to California (over 1M were forced from their land)

MEXICAN REPATRIATION

The Immigration Acts of the 1920s had restricted European immigrants, but not Mexican

Many Mexicans had come to the U.S. to escape the turmoil of the Mexican Revolution (pass medical & literacy tests & pay a small tax)

Many settled in “barrios” in California, Texas or other southwestern states

Worked long hours for low wages at hard laborMany faced prejudices (segregated schools, etc.)

CONTINUED…

With less demand for labor during the Depression, white Americans sought jobs filled by Mexican-American immigrants

Hostility grew toward Mexican immigrantsIt was more difficult to enter the U.S.Hoover authorized the Mexican

Repatriation Act to send Mexican-Americans back to Mexico (over half a million were forcibly returned, rather legal or not)

PRESIDENT HOOVER AND THE DEPRESSION

Remained true to laissez-faire capitalism, despite the spiraling economic problems

Rejected demands for the government to provide unemployment to the needy

Believed this would reduce the incentive to work

Believed private organizations should provide emergency relief, not the government

The Federal reserve made matters worse by reducing the money supply, not increasing it

HOOVER FINALLY RESPONDS

He believed that when prices dropped low enough, people would begin buying again, but a lack of aggregate (total) demand prevented this from happening

Eventually cut taxes, increased federal spending on public projects, and directed a federal agency to buy surplus farm crops

Established the Reconstruction Finance Corporation to give emergency loans to banks and businesses

CONTINUED…

These policies were seen as too little, too late

His lack of leadership frustrated most Americans

Shanty towns of homeless families and the unemployed became known as “Hoovervilles” and sprang up on the outskirts of many cities

By the end of Hoover’s term, about 100,000 businesses failed and unemployment reached 13 million (25%)

FRANKLIN ROOSEVELT AND THE NEW DEAL

Defeated Hoover in a landslide election in 1932 when he promised Americans a New Deal to put them back to work

A major turning point in American history Marked an end to the view that government

and economy should be completely separate Established the principle that the federal

government bears the main responsibility to ensure the smooth running of the Am. Economy

Permanently increased the size and power of the federal government

ROOSEVELT’S NEW STYLE OF LEADERSHIP

Considered the Great Depression as a national emergency

Created the “Brain Trust” made up of talented people from leading universities to develop new and creative strategies to deal with the crisis

Addressed the nation by radio addresses known as “fireside chats” where he explained his policies in simple conversational terms

Presented himself as an optimistHis experiences in overcoming polio helped

him meet the challenges of the Depression

WOMEN IN THE GREAT DEPRESSION

Eleanor Roosevelt – became the eyes and ears of the president by traveling throughout the country, and later around the world. She was a political activist and spoke for women’s rights, the cause of peace, and the poor

Frances Perkins – first female member of the U.S. Cabinet (Secretary of Labor in 1933), serving for 12 years. She oversaw the Civil Conservation Corps and the Public Works Administration and helped pass the Fair Labor Standards Act, Nat’l. Labor Relations Act, and Social Security Act.

NEW DEAL LEGISLATION

Roosevelt told the American people that the “only thing we have to fear is fear itself.”

Blamed the selfishness of bankers and financiers for the crisis

Called a special session of Congress to push through legislation what would have been difficult to pass in less critical times

Congress passed almost all of the important bills Roosevelt submitted in his First Hundred Days in office

THE THREE R’s – RELIEF, RECOVERY, & REFORM

RELIEFThe Banking Crisis: If depositors felt a bank

was unsound, the would remove their money. If word of this spread, others would also, and the bank would fail. 10,000 banks had failed in the early days of the Depression. To restore consumer confidence, Roosevelt immediately declared a Bank Holiday, closing all the nation’s banks

Each bank could only re-open after government inspectors found it to be sound

CONTINUED…

Relief to Homeowners and Farmowners: Many were unable to make payment on mortgages. Banks seized their property and forced them out of their homes and farms

The government passed legislation making emergency loans available

Relief for the Unemployed: over 25% of the workforce was out of work No unemployment insurance & many were without food or shelter

Roosevelt favored “work-relief,” emergency public jobs for people

CONTINUED

RECOVERYKey to recovery is to stimulate demand Measures were designed to restore the

economy by increasing incentives to produce and by rebuilding purchasing power

Priming the Pump: The idea that pouring money into the economy would get it working again. Putting money into consumers’ hands would

let them spend more and increase demand for products

More workers would be hired, thus continuing increased purchasing power and consumer demand

CONTINUED…

REFORMAimed at removing defects in the

structure of American economy to ensure another Depression would not occur

Many measures were based on the belief that government should protect individuals against risks they could not handle on their own

IMPACT OF & REACTIONS TO THE NEW DEAL

LABOR: fastest growth period of union membership in U.S. history. Roosevelt wanted to raise wages to help fight the Depression.

CRITICISM: Some proposed alternative approaches to dealing with the Depression. The Liberty League : charged Roosevelt to

being a “traitor to his class” and attempting to establish a popular dictatorship

Dr. Francis Townsend: wanted to give citizens over 65 a pension of $200 a month to be spent in a month. He believed this would create new jobs and end the Depression

CONTINUED…

Father Coughlin: Gave radio addresses to millions, called for the nationalization of banks and utilities, and preached anti-Semitism. Was supported by nativists and those who distrusted Wall Street bankers. The Catholic Church ordered him to end his broadcasts.

Huey Long: promised to give each Am. Family an income of $5000 per year to be paid for by taxing the rich. He was assassinated before mounting his campaign to run against FDR.

THE SUPREME COURT AND THE NEW DEAL

Posed the greatest threat to the New DealRuled that both the NIRA and AAA were

unconstitutionalIn Schechter Poultry v. U.S. (1937), the Supreme

Court ruled that even during a national crisis, Congress can not give the President more powers than those granted in the Constitution

Fearing the court might declare other New Deal legislation unconstitutional, FDR proposed a plan to allow the President to add a new appointment to the Supreme Court for each justice over 70 ½ years old.

CONTINUED…

The plan, if adopted, would have given FDR the right to appoint 6 Justices, giving him control over the court.

It was viewed by many as an attempt to upset the traditional separation of powers

Despite his popularity, the public condemned this move and Congress rejected it

After this challenge to the court, the justices generally stopped overruling New Deal legislation

IMPACT OF STATE & FEDERAL GOVERNMENTS

Power of federal government increasedGovernment had a positive responsibility to make

sure the national economy ran smoothly and efficiently and made it possible to control citizens’ private actions

Taxes rose dramatically to fund new gov’t programs

States implemented their own versions of New Deal policies

Established a legacy of gov’t. agencies, regulations, and procedures that remain with us today