Unit 5: Boom and Bust

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Unit 5 Boom and Bust
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Chapter 17
1929-1932

• The Great Depression Begins

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I. Causes of the Depression A. The Scenario
1. Prosperity of the 20s a. total
economic output had grown 50
b. revolution in technology autos
airplanes c. building of roads and buildings
d. radio, gin jazz
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2. But all is not as it seems a.
farming depressed b. old industry threatened
by new industry (tech. advances) c.
surpluses mounting in warehouses d. government
polices allowed too much
consolidating, easy credit,
speculation resulting in high debt
e. unequal distribution of wealth
hurting purchasing power
1920s Economy
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B. The Election of 1928 1. The
Candidates a. Herbert Hoover (R) food
dude, Sec.of Commerce b. Alfred E.
Smith (D) A Catholic! 2. Campaign Issues
(Rum, Romanism, Ruin) a. Prohibition
Hoover dry, Smith wet b. Religion
Hoover Quaker, Smith Catholic c. Economy
Prosperity-Republicans took the credit
two cars in every garage
1928 Election
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1928 Election Results
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Hoover's "Rugged Individualism" "We are
challenged with a peace-time choice between
the American system of rugged individualism
and a European philosophy of diametrically
opposed doctrines Doctrines of
paternalism and state socialism " Our
American experiment in human welfare has
yielded a degree of well-being
unparalleled in all the
world. It has come nearer to the abolition of
poverty, to the abolition
of fear of want than humanity
has ever reached before"
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C. The Long Bull Market 1. Optimism
a. Stock prices at new highs Bull Market
encourages many Americans to invest heavily
in stock- Stock Market system
for buying selling shares of companies
Bull Market long period of rising stock
prices b. Many bought stock on margin.
Investors able to put down10-20 in to buy
stock, the rest available on easy credit.
- worked ok until prices began to
fall - American public was in
enormous debt their wealth was all in
paper
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RCA 1928 - 85 1929 - 505
Paper Profits Speculative Bubble
1928-1930 40
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c. Margin Call Broker could demand
investor to repay immediately. Result of
this practice investors sensitive to
any drop in price. Sold quickly fearing
inability to repay loan d. Banks loaned M on
speculative schemes. Speculators took
risks, betting market would climb, hoped
to sell stock make quickly
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C. The Great Crash 1. Crash! a.
Margin Calls led to customers putting
stocks up for sale at rapid pace market
falls in a tailspin b. October 24, 1929
Black Thursday 13M shares sold off. 5B
lost! As stock prices fell more brokers
called on customers to put up more cash
unleashing a vicious cycle sending
prices on the stock exchange plunging.
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- NY bankers stepped up to buy stocks at
prices higher than going rate - trading
stabilized, market recovered until
10/29 - bankers really had only forced prices
up temporarily then sold their own
securities got out of the market.
Fall continues c. October 29, 1929 Black
Tuesday 16 million shares sold off as
panic swept stock exchange. 9B lost! d.
Within days, the wealth of a large part of the
country which had concentrated in vastly
inflated stock prices, vanished
Black Tuesday
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2. Banks in a Tailspin a. Banks weakened
- banks had lent money to speculators
- banks had invested depositors in the
stock market, b. When stock values
collapsed, banks lost , speculators
couldnt repay loans c. Banks made less
loans, less credit now available
leads to a recession d. Some banks
cant recover and must close
customers lose their savings crisis of
confidence in banking system
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e. News of bank failures caused panic
customers withdraw , more
banks collapse f. Banks make by
lending received by depositors collect
interest on loans. Banks hold on to
only small amt of to cover day to
day biz Banks collapse when too
many people withdraw their
g. 10 of nations banks close
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A Bank Run
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D. The Roots of the Great Depression -
Causes 1. Uneven Distribution of Wealth
a. 5 of Americans earned 30 of nation's
income b. Govt policy reduced taxes on
highest income so they would reinvest in
stocks or place it in savings acct (Trickle
Down Theory) c. not enough to farmers
workers who would have bought consumer
goods thus kept in circulation
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2. Overproduction a key cause of
Depression a. new technology increased
production capacity of farms and factories
- many Americans cant afford to
purchase these products(under-consumption)
(low wages) b. Americans buy on
Installment Plan down-payment
monthly installments c. To pay off
debts, some reduced other purchases.
Leads to decreased consumption. Less
consumption leads to lower
production leads to unemployment ripple effect
on economy
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So, to summarize it, HIGH DEMAND for consumer
goods and agricultural products led to
OVERPRODUCTION.
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It Had a A Domino Effect

• Here
• Abroad

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3. Dangerous Foreign Trade Balance Loss of
Export Sales a. Banks lent to stock
speculators instead of foreign
companies b. w/o loans from US banks,
foreign companies purchased fewer
US products (These economies were already on
verge of economic collapse) c.
Hawley-Smoot Tariff protectionist bill threw
up trade barriers across the US
prompted Europeans to retaliate - to do the
same thing, worsening crisis for both US
Europe. In 1932, US exports fell to about 1/5 of
what they had been in 1929 hurts US
manufacturers farmers d.
Europe in it's own economic crisis in 1931. Banks
in Europe failed. Europe in a cycle of
poverty political instability
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4. Govt Policies Mistakes by the Federal
Reserve a. Artificially low interest
rates - fed speculative schemes.
Helped cause the Depression in these ways 1)
encouraged banks to make risky loans 2) led
biz leaders to believe economy still
expanding - thus, borrowed more to expand
production a mistake since it
led to overproduction at a time
when sales were falling - companies had to
lay off workers to cut costs b. Fed then raised
interest rates, tightening credit c. Govt policy
of laissez-faire - belief that depressions were
a normal part of the business cycle
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Buying on Credit increased personal
debt.Higher interest rates caused LESS DEMAND
for goods.
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The Business Cycle
The Inevitable Ups and Downs...
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5. Stock Market based Economy a.
speculation drove up market prices beyond the
stocks value b. practice of buying on
margin encouraged more speculation
Causes of Great Depression
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II. Life During the Depression A. The
Depression Worsens 1. How bad does it get?
a. by 1933, over 9000 bank failures b. by
1932, 30,000 companies went out of
biz c. by 1933, over 12 M unemployed
¼ of workforce d. avg family income only
1,600/yr
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Statistical Terms
Item 1929 1932 -GNP 104b 54b -Inv.
Capital 10b 1b -Income 82m 40m -Exports
5.2b 1.6b -Unemployment 3 25
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An Unemployment Line
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Gross National Product
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2. Lining Up at Soup Kitchens a. bread
lines/soup kitchens people lined up for
free food
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Soup Line
Soup Line
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3. Living in Makeshift Villages a. people
forced out of home, onto street b.
shantytowns/Hoovervilles c. people wandering
streets hobos
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Hooverville, USA
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Portland
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Cleveland
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New York City, Central Park
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Sacramento
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Hoovervilles were a familiar part of the Oklahoma
City skyline for nearly a decade.
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Populated by families from all walks of life and
occupations,
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from those who lost their farms, hoping to find
work in the city
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Norman family, lost farm the year before, 1939
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to blue collar urban workers, left unemployed
from factory and small business closings
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..and professionals, teachers and bankers.
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May Avenue bridge, southside, Canadian River
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and provided with access to drinking water for a
nominal monthly fee.
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Rent one dollar, collected by the city,
no sanitation.
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Food distributed by Saint Anthony's hospital
after patients had been fed the only foodline in
Oklahoma City by 1939.
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Sorting fruit discarded from the downtown
farmers market.
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shack with pidgeon coop
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Many residents of this camp sneak into the
stockyards early in the morning to milk cows.
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"We may not have much of a home here but we will
have one in Heaven."
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Effects of the Crash
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4. The Dust Bowldrought
irresponsible farming techniques a.
farm crisis
overproduction/decreased demand/debt
b. drought on the Great Plains
c. Dust Bowl - no grass/shrubs to hold
moisture soil blew away Many lost farms
some moved to CA Okies
Dust Bowl
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The Dust Bowl
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B. Escaping the Depression 1. Hollywood
a. Movies - Marx Bros
- Marlene Dietrich/Greta Garbo -
Disney Snow White the Seven Dwarfs
1937 - Gone With the Wind
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2. Radio - listened to news,
comedy shows - Lone Ranger
- The Guiding Light a soap opera
because shows sponsers were
often makers of laundry soaps
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Golden Age of Radio
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3. Depression in Art a. American
Gothic b. John Steinbecks The
Grapes of Wrath c. 35 mm
camera great picture magazines
Life, Fortune, Time
A man reading a magazine near his trailer home.
Sarasota, Florida, January 1941.
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Architecture

• Mt. Rushmore
• Empire State Bld.
• Rockefeller Center

Art
Grant Woods American Gothic
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Photo Journalism
Margaret Bourke-White
Dorothea Lange
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George Washington Bridge
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Played Games...
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III. Hoover Responds A. Promoting Recovery
1. Voluntary Efforts Public Works a.
organized series of conferences brings
together heads of banks, RRs biz,
labor, govt - urged cooperation b. Increased
public works (govt-financed building
projects) 1) led to some construction
increases - but didn't make up for
majority of jobs lost in private sector 2)
enough jobs could only be created thru
more govt spending
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c. Hoover against increased govt
spending 2 ways to pay 1) taxes -
increased taxes hurts consumers biz
2) deficit spending - had to borrow from
banks, then banks had less
for biz expansion or consumer
mortgages etc
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B. Pumping into economy 1. Trying to
rescue banks a. asks FRB to put more in
circulation refused b. NCC
(National Credit Corporation) - pool of
to enable banks to continue lending in
their communities c. RFC (Reconstruction
Finance Corporation) - made loans
to Banks, RRs, Ag Institutions -
failed to increase its loans enough to meet
need - economy declines
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1. Direct Help for Citizens a. Hoover
opposed direct relief - socialist to do
so. Better left to state city govt b. By
1932, political support for direct relief
growing - Emergency Relief Construction Act
- 1.5B for public works 300m
to states for direct relief
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Herbert Hoover
Rugged Individualism
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3. In an Angry Mood a. Hunger Marches
- Some organized by American
Communist Party - "feed the hungry,
tax the rich" - right to petition govt
b. Farmers Revolt - farmers especially
hard hit - had heavily mortgaged land to
pay for seed, feed equip. After WWI,
prices fell, farmers couldn't make
mortgages - 1/20 farmers foreclosed upon -
attempt to drive up prices by
destroying crops
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Farm Foreclosure Sale
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c. Bonus Marchers - WWI vets demand
their 1000 bonus, not actually due for
payment until 1945. 1) 25,000 vets walked,
hitchhiked, or road the rails to
DC 2) camped in Hoovervilles in DC -
starving desperate men w/ no job,
no hope of finding one 3) police/army sent to
clear vets from city - press coverage
Bonus Army
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Chapter 18
1933-1939

• Roosevelt The New Deal

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I. FDR takes office A. FDR's Rise to Power
1. 1932 election a. Hoover (R) v. FDR
(D) b. FDR wins as Depression turned voters
away from Hoover 2. Progressive Reformer
as NY Senator 3. Polio stricken in 1921
w/ Polio - paralyzing disease w/ no
cure a. 1950, Dr. Jonas Salk develops Polio
vaccine b. Today, Polio no longer a threat
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4. FDR as Gov of NY a. cut taxes for
farmers reduced public utility rates b.
set up unemployment agency in NY in 1931 -
direct relief c. grew popular for using govt
pwr to help people in economic distress d.
energy optimism also made him popular
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5. FDR Inaugurated a. before he took
office, unemployment grew, bank runs
increased b. Americans feared FDR would abandon
gold standard. 1) 1 oz gold set of
2) people withdrew from banks to convert it
to gold before it lost value 3) led
to more bank runs c. The situation when FDR took
office 1) March '33 over 4000 banks collapsed.
9M savings accts wiped out (led to bank
holidays - Closing banks before bank
runs put them out of biz) 2) 25
unemployment
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II. The First New Deal A. The Hundred Days
Begins 1. March 9-June 16, 1933 1st Hundred
Days - promised American people a "New Deal"
promised a special session of Congress
to deal w/ economic crisis a. Congress
passed 15 major acts to meet economic
crisis - Sometimes w/o even reading
them b. approach was "take one method and try
it. If it fails, try another"
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2. A Divided Administration - 3 groups a.
New Nationalism - believed govt biz
should work together to manage economy,
regulate wages, prices, production b. Govt
planning - govt planners should run key parts
of govt - distrusted biz leaders c. New
Freedom - blamed lrg trusts. Govt had
to restore competition - supported breaking up
big cos. allow competition to set wages,
prices production - govt
should regulate to keep
competition fair
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B. 1st big challenge address banking
crisis 1. Declared bank holiday - closed all
banks. a. passed Emergency Banking Relief Act
- banks would be inspected to check for
solvency. - only those in sound
financial health would be allowed to
reopen b. this would reassure people that
open banks could be trusted keep them
from withdrawing their out of panic
c. Banks closed for 1 week. d. Helped to
restore public confidence in banking
system
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2. Fireside chats March 12 began series of
radio talks where FDR explained his
policies in simple, friendly way a. encourage
people to put back in banks -
security b. worked - people deposited instead
of withdrew
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3. Regulating Banks Brokers - banks still
needed reform new regulations for banks
stock market a. SEC - regulated stock
market by monitoring corps to make
sure they provided proper info to
investors (prevent fraud) b. FDIC
- provided govt insurance for bank
deposits up to certain amt
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C. Agricultural Recovery - AAA May 1933 1.
Agricultural Adjustment Administration -
farmers hit the hardest in depression. Farm
prices low b/c farmers grew too much food a.
AAA - ? agricultural surplus ? prices for
struggling farmers 1) gave subsidies to
farmers who did not plant crops or raise
certain livestock 2) with existing
crops/livestock, AAA paid farmers
to plow under crops slaughter
livestock (6 m piglets slaughtered) 3)
worked w/in 2 yrs, farm income ? more
than 50 4) Farm Mortgage Act -
provided to keep farmers from
losing land to foreclosure
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2. Criticism a. waste to kill animals, plow
under crops b. raising food
prices in depression times
unethical c. not all farmers benefited.
Helped Commercial farmers the most.
d. Poor tenant farmers (blacks) -
homeless jobless when land
taken out of production
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D. Industrial Recovery 1. NIRA - established
NRA - to stimulate production
competition by having US industries set
us a series of codes designed to regulate
prices, output, general trade practices.
Fed govt agreed to enforce codes. - if
cooperative, Fed would suspend anti-trust
legislation. Gave workers right to form unions
bargain collectively a. membership in NRA
voluntary b. to get members to join, NRA led
publicity campaign - got a blue
eagle decal for joining - hoped public would
boycott those that didn't
have decal
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2. NIRA declared unconstitutional a. lrg
corps wrote codes to benefit themselves -
hurt small biz b. corps didn't recognize
rights of labor to organize c.
tried to stabilize prices by lowering
production, rather than redistributing
to US consumers encouraging
them to buy
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E. Providing Debt Relief - debt main obstacle
to recovery 1. HOLC - to help homeowners pay
mortgage a. bought mortgage from bank b.
refinanced them in a way that
homeowners could pay c. saved 1/5 mortgaged
homes d. HOLC only made loans to employed
people. If you lost your job, HOLC
foreclosed too 2. Farm Credit Admin (FCA)
a. helped farmers refinance mortgages b.
helped many keep their land
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F. Spending Relief Programs - aimed at
reversing low consumption - organized work
programs for unemployed 1. CCC - employed
single men, 18-25, for natural resource
conservation a. built dams, planted trees,
fought fires etc b. lived in camps c.
provided nourishment d. offered courses to
develop job skills/ earn High
School diplomas e. by 1941, 2.5 M men thru
the program found work
fellowship instead of drifting into
political extremism
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2. Public Works Emergency Relief a. FERA -
granted federal to state local govts
to be used to help unemployed by
creating relief projects b. PWA - lrg scale
engineering projects such as hwys, dams,
powerplants, bridges - Hoover Dam on Colorado
river - Grand Coulee Dam on Colombia River
c. TVA - built hydroelectric plants dams aimed
at improving 7 Southern states
attracting industry in south -
successful - eased poverty provided them
w/ long-lasting resources for a better life
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3. CWA - provided employment in construction of
airports, parks, schools roads a.
hired workers directly - on govt payroll b.
spent so much , hired so many people, FDR
concerned that people begin to expect govt to
give them jobs - shut it down G. Effects of
1st New Deal 1. by end of 1st yr, FDR convinced
Congress to pass many new programs,
policies 2. did NOT restore prosperity, but did
restore hope optimism faith in the nation
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III. The 2nd New Deal A. Challenges to the
New Deal 1. Criticism from right
(conservatives) a. increasing debt (over
30B by '35) b. pro-labor, socialistic,
dictatorial, anti-biz c. 1934, organized
American Liberty League - called FDR a
fascist New Deal destroying
Constitution leading US to bankruptcy
socialism d. no overwhelming support -
Dem's gain 10 more seats in Congress
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2. Criticism from left - believed FDR not going
far enough - called for shift of wealth from
rich to Middle Class poor a. Father
Charles Coughlin ("radio priest") - had 40 m
audience - criticized FDR on radio
program - called for nationalization of big biz
banking - called for more tax on
wealthy
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b. The Townsend Plan - Dr. Alfred
Townsend - supported "old age pension" plan -
200/mo for all over 60, but had to
spend it or return it - believed plan
would increase spending,
remove people from labor force, free
up jobs for unemployed - but when
pointed out that his plan would
bankrupt country,lost support
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c. Huey P. Long - Gov, Sen from LA - "Share our
Wealth" plan to make "every man a king", a
5K homestead, a 2.5K/yr job, college! -
how? Soaking the rich - take their , give it
to needy - assassinated in Baton Rouge, 1935
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B. Launching the 2nd New Deal (1935) - 1st
New Deal failed to generate a rapid economic
recovery - production consumption rose, but
below pre-crash level - unemployment
figure never fell below 10 - Dust Bowl
in the Plains - But FDR had restored
confidence, rebuilt optimism created
hope - goal to speed up recovery, provide
economic security, ensure reelection in '36
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1. WPA ('35) a. primary relief agency of 2nd
New Deal b. attempt to provide work, not
welfare - provide useful projects c.
contructed bldgs, hwys, airports, schools d.
Fed. Theater Project, Fed. Art Project,
Fed Writers Project - employed actors,
musicians writers e. Employed 3 M jobless
at a time. By 1943, had employed 9M
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2. Supreme Court's Role a. Supreme Court
declares NRA unconstitutional in
Schechter v. US (1935) - NIRA codes
unconstitutional "sick chicken" case
b. SC dominated by aging, conservative
Republicans c. FDR began working on new
series of programs to keep voters support
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3. Rise of Industrial Unions a. SC also
struck down section of law that
established labor's right to organize b. FDR
needed working class vote in 1936
election c. FDR thought unions could help end
depression high wages higher
consumption boost to the economy d.
NLRB (Wagner Act) - workers can organize
unions w/o interference from employers can
bargain collectively - workers could vote to
decide whether they wanted a union -
binding arbitration
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e. CIO - organized industrial unions
(workers in particular industry, skilled
unskilled) - focuses 1st on steel auto
industry f. Sit - Down strikes - GM workers
stopped, but refused to leave factory -
led to founding of UAW
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C. Social Security Act (1935) 1. one of most
important in US History! 2. goal to provide
security for elderly unemployed workers 3. an
insurance bill - paid premiums to receive
benefits 4. also welfare pay. to needy people
disabilities, poor families w/ young,
dependent children a. monthly retirement
benefit - collectable at 65 when
retired b. unemployment insurance c.
came from payroll taxes on workers employers
d. helped many at first, but left out neediest
in society - farmers domestic help (65
of all blacks in this category)
established principle that govt should be
responsible for those who, through
no fault of their own, were
unable to work
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IV. The New Deal Coalition A. Roosevelts
Second Term 1. Political realignment Black
Americans voting patterns shift from
Republican Party (party of Lincoln) to
Democratic Party (party of FDR) 2. Core of
Democratic party now includes (still pretty much
true today) a. Black Americans b.
farmers c. labor (unions) d.
minorities e. new immigrants f. women g.
intellectuals h. progressives
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3. Roosevelt appts blacks and women to
positions in his Administration a. Francis
Perkins Sec of Labor 1st woman
cabinet post 4. Election of 1936 a. FDR
(D) vs. Landon (R) b. FDR wins easily over
60 of popular vote
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5. Court-Packing Plan a. 1936 SC declares
AAA unconstitutional other
acts likely to follow b. FDR furious that
nine old men could block
wishes of the majority of people c. FDRs
plan - new justices could be added to SC if
any had served over 10
yrs and did not retire
when age 70. - would have allowed FDR to
appoint as
many as 6 new justices d. public reaction?
Outrageous! - viewed as a scheme to interfere
with Constitutional
principal of Separation of
Powers e. FDRs reputation tarnished
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6. The Roosevelt Recession late 1937 a.
after period of steady drops,
unemployment rose b. FDR adopted ideas of John
Keynes - Keynesian Economics argues that
govt should spend heavily during a
recession, even if it had to run
a deficit, in order to jump-start the
economy c. spring of 1938 FDR asks
Congress for 3.75 b
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B. The Last New Deal Reforms 1. National
Housing Act a. established US Housing
Authority b. subsidized loans for builders
willing to buy blocks of slums
build low-cost housing 2. Farm Security
Admin a. gave loans to tenant farmers so they
could purchase land 3. Fair
Labor Standards Act a. provided more
protection for workers b. abolished child
labor c. 40 hr work week
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4. New Deal Legislation slows a. Republicans
gained seats in 1938 midterm
elections b. FDR preoccupied with events in
Germany Japan
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C. The Legacy of the New Deal 1. Did not end
Depression, but did increase security and
stability 2. Broker State a. people now
looked to govt to balance competing
economic interests to broker
conflicts btwn diff.
interests b. people looked to govt to protect
their interests 3. Govts New Role a. new
public attitude govt had a duty to maintain a
safety net
safeguards and relief programs to
protect them from economic disaster b. safety
net more expensive govt c. New Deal
increased size and scope of US govt