The Great Depression

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The Great Depression

• Chapter 22
• p. 640

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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.

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• 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.

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• 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.

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• 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.

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• In contrast, rich Americans continued to make
  more money.
• In 1927, the wealthiest 5 of American families
  took in nearly 1/3 of the nations income, while
  the poorest 40 of the population earned just
  over a tenth of the national income.

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1928 Presidential Election
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• 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.

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• 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.

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The Market Crashes
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• 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.

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• 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.

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• Many investors began buying on margin paying a
  small percentage of a stocks price as a down
  payment and borrowing the rest.
• With stockbrokers willing to lend buyers up to
  75 of a stocks purchase price, buying on margin
  became much too common.

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• 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.

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• 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

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• 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.

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• 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.

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1929 1933
Unemployment rate 3.2 25
Investment in US economy 16 billion 340 million
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Why it Happened?
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1) Overproduction overproduction by farmers and
a loss of the markets after WWI. Overproduction
by manufacturers not enough consumers (buyers)
for all the products.
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• 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

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

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3) over speculation too many people taking too
many chances in the stock market
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4) Unequal distribution of income too little
money in the hands of working people
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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.
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• 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

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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.
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• 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

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The Great Depression in Global Perspective
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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
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• List the ways in which the Great Depression
  transformed the American political landscape.
• Produced a major political realignment, creating
  a coalition of big city ethnics, African
  Americans, and Southern Democrats committed to
  interventionist government (New Deal Coalition)
• The Depression strengthened the federal presence
  in American life
• Innovations national old-age pensions,
  unemployment compensation, public housing,
  insured bank deposits, etc.

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• 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

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The Human Toll
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• 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

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The Rise in Unemployment
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• 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.

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• 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

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President Hoover
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Unemployment rate when Hoover took office 4.4
Unemployment rate when Hoover left office 23.6
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• 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

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• 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

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Hoovers 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.
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Reconstruction Finance Corporation (RFC)

• How long did it last? 21 years
• What was the RFC authorized to do?
• Finance public works projects
• Provide loans to farmers and victims of natural
  disasters
• Assist school districts
• How much money did the RFC loan out during its
  existence? 40.6 billion

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Franklin D. Roosevelt
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• What was FDRs 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

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I pledge myself to a new deal for the American
people.-- Presidential candidate Franklin
Delano Roosevelt as he accepted the
Democratic nomination in 1932.
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The Bonus Army
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• 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

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• What was done to the Bonus Armys camps?
• -- The camps were burned
• What was the electoral result of the 1932
  election?
• -- FDR 472 electoral votes Hoover 59
  electoral votes

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First Hundred Days
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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.
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New Deal reform Purpose?
Federal Banking Relief Act Closed all banks for 4 days and reopened solvent banks under govt 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

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• 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

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The New Dealers
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• 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 govt 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

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• 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."

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The Farmers Plight
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• 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

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• 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

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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
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The National Recovery Administration
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• 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

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Jobs Programs
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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.
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Roosevelts Critics
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• 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. 

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• 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

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• 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

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The Wagner Act
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• 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

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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
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Social Security
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• 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

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• 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

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African Americans and the New Deal
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• 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.

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The New Deal in Decline
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• 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

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• 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.

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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

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The New Deal focused on three general goals,
known as the Three Rs
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1) Relief for persons in need by providing them
with money, loans to make mortgage payments, or
jobs
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2) Recovery to the nation as a whole by passing
legislation to assist business, labor, and
agriculture to reestablish their strength
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3) Reform of institutions, such as banking to
make for economic and social stability, hoping to
avoid depressions in the future
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End of the Depression
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• 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.

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Lasting Effects of the New Deal
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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.
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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.
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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.
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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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Popular Culture
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