The Great The Great DepressionDepression

Chapter 22

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• By the late 1920s, several industries were “sick.”

• Among these were the textile, steel, railroad, lumber, coal, and construction industries.

• Perhaps the worst hit part of the economy during the 1920s was the farm sector.

• Farmers had increased production and expanded their farms to meet the demand of WWI.

• As demand for farm products declined in the 1920s, farmers overproduced hoping to make up for lower prices.

• This worsened the situation.• Congress tried to offer help but President

Hoover vetoed several farm relief bills.

• By the late 1920s, Americans were buying less – even as American farms and factories were producing more.

• Overproduction became a major problem.

• Americans were not as rich as they seemed.

• They often bought on credit.

• By making credit easily available, businesses encouraged Americans to pile up a large consumer debt.

• Faced with this mounting debt, consumers started spending less.

• There was also an uneven distribution of income

• Most Americans could not afford many of the household products that were being manufactured.

• In contrast, rich Americans continued to make more money.

• In 1927, the wealthiest 5% of American families took in nearly 1/3 of the nation’s income, while the poorest 40% of the population earned just over a tenth of the national income.

1928 Presidential 1928 Presidential ElectionElection

• This election matched Republican Herbert Hoover against Democrat Al Smith.

• Hoover, the Secretary of Commerce (business) under Harding and Coolidge, was a former mining engineer from Iowa who had never run for public office.

• Smith was a career politician who had served four terms as governor of New York.

• Hoover had the advantage of Republicans presiding over the prosperity of the 1920s.

• Smith tried to overcome his heavy Brooklyn accent, his opposition to Prohibition, and his religion (Roman Catholic), but lost the election.

The Market The Market CrashesCrashes

• Through most of the 1920s, prices on the stock market rose steadily.

• Eager to take advantage of this “bull market” (rising stock market prices) many Americans rushed to buy stocks and bonds.

• More and more investors engaged in speculation, the engagement in risky business transactions on the chance of quick or considerable profit.

• As prices rose, wealth was generated on paper, but it bore little relation to the real worth of companies or the goods that they produced.

• The price of stocks had little relationship to the profits that the company was making.

• Many investors began buying on margin – paying a small percentage of a stock’s price as a down payment and borrowing the rest.

• With stockbrokers willing to lend buyers up to 75% of a stock’s purchase price, buying on margin became much too common.

• Buying on margin worked as long as prices continued to rise, since investors could sell their inflated stocks to make a profit and pay off their debt.

• If stocks declined, however, there was no way to pay off the loan.

• Beginning in September 1929 and continuing into October, stock prices began to decline.

What happened in the first 3 hours of trading on the New York Stock Exchange (NYSE) on Thursday, October 24, 1929?

-- unprecedented # of sell orders; stock prices fell by $11 billion

What did a group of bankers agree to do in an effort to stop plummeting prices?

-- they bought up stocks well above the market price

• On October 29, 1929 – known as Black Tuesday – the bottom fell out of the stock market.

• Everybody tried to sell.• By mid-November, investors

had lost $30 billion, an amount equal to American spending in WWI.

• The Stock Market Crash (the name for this steep decline in stock prices) signaled the beginning of the Great Depression – the period from 1929 to 1941, in which the economy was in severe decline and millions were out of work.

1929 1933Unemployment

rate 3.2% 25%Investment in US economy

$16 billion

$340 million

Why it Why it Happened?Happened?

1) Overproduction: overproduction by farmers and a loss of the markets after WWI. Overproduction by manufacturers; not enough consumers (buyers) for all the products.

Why had farm prices dropped following WWI?

1. European agriculture revived

2. grain from Argentina and Australia entered the world market

What effects did the decline in farm income have on the overall economy?

1. rural consumer spending dropped

2. millions of farmers defaulted on debts

3. banks began to fail

2) Easy credit: too many people buying on the installment plan

What did consumers have to do to pay back these loans?

-- cut back on discretionary spending

What did this inevitably lead to?

-- reductions in production and worker layoffs

3) over speculation: too many people taking too many chances in the stock market

4) Unequal distribution of income: too little money in the hands of working people

5) High tariffs: U.S. tariffs did not allow other countries to sell their goods here. Those countries responded with high tariffs against the U.S., which prevented the U.S. from selling its surplus products in their countries.

Which two tariff laws did Congress pass that raised tariffs to unprecedented levels?

-- Fordney-McCumber (1922) and Hawley-Smoot (1930)

How did foreign countries react to high US tariffs?

-- they imposed trade barriers of their own

6) Low interest rates: This allowed too much borrowing, often for speculation. People could borrow money at a low cost, invest it, and have a chance of making a large profit.

Who did the burden of providing relief to the homeless and unemployed fall on in the early days of the Depression?

-- state and city governments working with private charities

How effective were they in providing relief? Why?

-- not very; they lacked resources

The Great Depression in

Global Perspective

Depression leads to new political systems

Military dictatorship Argentina and many countries in Central America

Fascism/militarism Germany, Italy, Japan

Totalitarian communism Soviet Union (Stalin)

Welfare capitalism Canada, Great Britain, France

Definition: government assumes ultimate responsibility for promoting reasonably fair wealth distribution and provides security against bankruptcy, unemployment, and poverty

List the ways in which the Great Depression transformed the American political landscape.

1. Produced a major political realignment, creating a coalition of big city ethnics, African Americans, and Southern Democrats committed to interventionist government (New Deal Coalition)

2. The Depression strengthened the federal presence in American life

Innovations: national old-age pensions, unemployment compensation, public housing, insured bank deposits, etc.

3. Fundamentally altered labor relations, producing a revived labor union movement and a national labor policy protective of collective bargaining.

4. transformed the farms economy by introducing federal price supports and rural electrification

5. led Americans to view the government as the ultimate protector of well-being

The Human Toll

What images of the Great Depression remain firmly etched into the American psyche?

-- breadlines, soup kitchens, shantytowns, men and women selling apples on street corners

The Rise in Unemployment

What effect did the Depression have on …

Families – marriage delayed, birthrate fell, desertion increased, medical and dental care neglected

Men -- Large numbers lost self-respect, became immobilized and stopped looking for work, while others turned to alcohol or became self-destructive or abusive to their families.

Women – many women saw their status rise during the Depression; became decision-makers

Children – More than 200,000 vagrant children wandered the country as a result of the break-up of their families

President President HooverHoover

Unemployment rate when Hoover took office

4.4%

Unemployment rate when Hoover left office

23.6%

What, in a campaign speech during the 1928 presidential election campaign, did Hoover, a self-made millionaire, suggest was the basis of the American system?

-- rugged individualism and self-reliance

In the same speech, what role did Hoover believe the government should have in the economy?

-- it should avoid intervening with business

Who did Hoover believe should deal with problems of poverty and unemployment?

-- “voluntary organization and community service”

Why did Hoover fear direct federal relief programs?

-- they would undermine individual character by making recipients dependent on the government

Hoover’s early attempts to provide relief

Did it work? Why or why not?

1. Appealed to industry to keep wages high to maintain consumer purchasing power

NO: while businesses did maintain wages for skilled workers, it cut hours and wages for unskilled workers and installed restrictive hiring practices that made it more difficult for under qualified younger and older workers to get a job

2. Signed the Smoot-Hawley tariff in 1930 to keep out foreign goods and help American businesses

NO: provoked retaliation from Britain, Canada, France, Germany, and other traditional trading partners; the US found it much more difficult to export its products overseas.

3. Persuaded local and state governments to sharply increase public works spending

NO: the practical effect was to exhaust state and local financial reserves, which led government, by 1933, to slash unemployment relief programs and to impose sales taxes to cover their deficits.

Reconstruction Finance Corporation (RFC)

How long did it last? 21 years

What was the RFC authorized to do?

1.Finance public works projects

2.Provide loans to farmers and victims of natural disasters

3.Assist school districts

How much money did the RFC loan out during its existence? $40.6 billion

Franklin D. Roosevelt

What was FDR’s background?

-- privileged youth, New York State Assembly, Asst. Sec. of the Navy, VP candidate in 1920

What happened to FDR in 1921?

-- he was struck with polio, leaving him paralyzed from the waist down

What office did FDR win in 1928?

-- Gov. of New York

What, during his acceptance speech at the Democratic convention, did FDR promise the American people?

-- a “new deal”

“I pledge myself to a new deal for the American people.”

-- Presidential candidate Franklin Delano Roosevelt as he accepted the Democratic nomination in 1932.

The Bonus Army

What did the Bonus Army want?

-- Congress had voted to give WWI vets a bonus that would be paid in 1945. Desperate vets wanted their money now.

How did the Democratic-controlled House vote? YES, give them their bonus now

How did the Republican-controlled Senate vote? NO, the law says they get it in 1945

Who did Hoover call on to “put an end to rioting and defiance of authority?” The Army

What was done to the Bonus Army’s camps?

-- The camps were burned

What was the electoral result of the 1932 election?

-- FDR – 472 electoral votes; Hoover 59 electoral votes

First Hundred First Hundred DaysDays

The US Economy in 1933% of workforce

unemployed# of homeless Americans Average # of farm

foreclosures/month

25% 1.2 million 20,000

In his inaugural address, FDR expressed confidence that his administration could end the Depression. What FDR quote signified this confidence?

-- “… the only thing we have to fear is fear itself.”

New Deal reform Purpose?

Federal Banking Relief Act Closed all banks for 4 days and reopened solvent banks under gov’t supervision

Federal Emergency Relief Act pumped $500 million into state-run welfare programs

Homeowners Loan Act provided more than 1 million loans totaling $3 billion

Glass-Steagall Act provided a federal guarantee of all bank deposits under $5,000, separated commercial and investment banking, and strengthened the Federal Reserve's ability to stabilize the economy

Agricultural Adjustment Act (AAA) the nation's first system of agricultural price and production supports

National Industrial Recovery Act (NIRA)

first major attempt to plan and regulate the economy

Tennessee Valley Authority Act (TVA)

first direct government involvement in energy production

What did FDR do to generate support for his programs?

-- appealed directly to the American people through radio addresses (“fireside chats”)

What monetary measures did FDR take in order to ease suffering?

1. took the nation off the gold standard

2. devalued the dollar

3. urged the Federal Reserve to ease credit

The New Dealers

What nickname was given to the collection of Ivy League intellectuals and New York state social workers who served as economic advisors to FDR?

-- the “brain trust”

How were New Dealers similar to the Progressives of the early 20th Century? How were they different?

-- similar: both believed that gov’t had a duty to intervene to improve the lives of Americans

-- different: Progressives ideas dealt with morality, whereas New Dealers were more pragmatic in their approach to problems

What FDR quote summed up his pragmatic attitude toward ending the Depression?

--  "Take a method and try it, if it fails, admit it frankly and try another. But above all try something."

The Farmer’s Plight

What, ironically was the farmers’ problem?

-- they grew too much

Why had worldwide crop production soared?

1. more efficient farm machinery

2. improved fertilizers

3. improved plant varieties

Why had demand fallen so much?

1. people ate less bread

2. Europe imposed trade barriers

3. consumers replaced cotton with rayon

How did nature affect southern agriculture?

-- the boll weevil ate the cotton crop

How did nature affect the Great Plains?

-- dry conditions and high winds led to the topsoil blowing away in windstorms

What nickname was given to the area of the Great Plains affected by this?

-- the Dust Bowl

What did more than one million tenant farmers, evicted from their now unproductive lands, do by 1939?

-- moved to California to work as migrant produce pickers

Federal program/act How each was used to help struggling farmers

Tennessee Valley Authority generate electricity for tens of thousands of farm families

Rural Electrification Act brought electricity to 35% of farm families by 1942

Soil Conservation Service helped farmers battle erosion

Farm Credit Association provided some relief from farm foreclosures

Commodity Credit Corporation permitted farmers to use stored products as collateral for loans

Agricultural Adjustment Act raise prices by reducing the supply of farm goods

The National Recovery

Administration

What was the basic idea behind the NRA?

-- representatives of business, labor, and government would establish codes of fair practices that would set prices, production levels, minimum wages, and maximum hours within each industry

What workers’ right did the NRA support?

-- right to join labor unions

What, through rational planning, was the NRA seeking to end?

1. ruinous competition 3. labor conflicts 2. overproduction 4. deflating prices

Jobs Programs

What type of work did those employed in this program do?

Public Works Administration (PWA) In six years the PWA spent $6 billion, building such projects as the port in Brownsville, Texas, the Grand Coulee Dam, and a sewer system in Chicago

Civilian Conservation Corps (CCC) For $30 a month, CCC young men planted saplings, built fire towers, restocked depleted streams, and restored historic battlefields

Civil Works Administration (CWA) it employed 4 million men building 250,000 miles of road, 40,000 schools, 150,000 privies, and 3,700 playgrounds

Works Progress Administration (WPA) first five years alone, the WPA constructed or improved 2,500 hospitals, 5,900 schools, 1,000 airport fields ; also hired artists, writers, etc.

Roosevelt’s Critics

Huey Long – governor and senator from Louisiana; very powerful and ambitious; attacked the New Deal as too conservative

Describe his Share Our Wealth proposal.

-- 100 percent tax on annual incomes over $1 million. The funds would be distributed to the people, guaranteeing every American family an annual income of no less than $2,000. 

Father Charles Coughlin – a religious leader who had a radio show

What types of things did Coughlin preach about on his radio program?

-- He believed that Jews and Communists, in league with bankers and capitalists, were out to get the little man

Francis Townshend – 67 year old health worker who found himself unemployed with only $100 in savings

Explain his elderly pension program.

-- $200 monthly pension for every citizen over the age of 60; recipients had to retire and spend their entire pension every month within the United States

The Wagner Act

Under the Wagner Act, what did the federal government promise labor?

--  to form unions and to bargain collectively

What was the name of the committee set up by the Wagner Act?

-- National Labor Relations Board

What did it have the power to do?

--  prohibit unfair labor practices by employers

Major Labor Union

Type of Labor Organized

American Federation of Labor (AFL)

consisted of craft unions organized by occupation

Congress of Industrial Organization (CIO)

unskilled workers in America's mass production industries

Social Security

What 3 groups of people did the Social Security Act of 1935 provide relief for?

1. elderly

2. dependent children

3. disabled persons

How old did one have to be to receive retirement benefits?

--65

What were these monthly payments based on?

-- previous earnings

How were both the retirement program and system of unemployment insurance financed?

-- federal government and the states

How did the Social Security Act influence Americans’ attitudes?

--  expanded the public's sense of entitlement and the support people expected government to give to all citizens

African Americans and the New Deal

Prior to the New Deal, what political party did most blacks remain loyal to?

-- Republican

What percentage of black voters supported the Democratic Party in 1936?

-- 75%

Many New Deal programs were discriminatory towards blacks. Why did FDR fail to support many civil rights efforts?

-- He needed Southern support to get New Deal legislation passed.

The New Deal in Decline

Explain the outcome of the 1936 Presidential election.

-- FDR defeated Kansas Governor Alf Landon, winning every state but Maine and Vermont.

What 2 New Deal programs were struck down by the Supreme Court as unconstitutional?

-- NRA and AAA

What did FDR propose in his “court-packing scheme?”

-- to appoint 6 new members to the Supreme Court

How did the public respond to this plan?

-- it was rejected by Democrats and Republicans

What changes resulted from the new, more liberal, “Roosevelt Court?”

-- It significantly expanded the government's role in the economy and in civil liberties.

Legacy of the New Deal

1. unemployment insurance

2. old age insurance

3. insured bank deposits

4. reduced violence in labor relations

5. Securities and Exchange Commission (SEC)

6. Shift in government philosophy

The New Deal focused on three

general goals, known as the Three R’s:

1) Relief for persons in need by providing them

with money, loans to make mortgage

payments, or jobs

2) Recovery to the nation as a whole by passing

legislation to assist business, labor, and

agriculture to reestablish their strength

3) Reform of institutions, such as banking to make for economic and social stability, hoping to avoid depressions in the future

End of the End of the DepressionDepression

• The United States began to come out of the Depression in 1939 when World War II broke out in Europe.

• War production put millions of Americans back to work and revived the American economy.

Lasting Effects Lasting Effects of the New Dealof the New Deal

1) The New Deal created a welfare state. The people of the US came to depend on the federal government to advance and protect the

general welfare.

2) The federal government took more control over individuals and private organizations. The state and local governments

would have less power in the years ahead.

3) The crisis of the Depression allowed a shift of power from

the Congress to the Presidency. Presidential

appointed agencies carried out many of the new federal

programs.

4) Many Americans were convinced that deficit spending – spending

more than you are collecting – could be a good thing for the economy. It

placed money in the pockets of citizens, who spent it. Business

expanded and hire more workers.

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