The Great Depression

I. Background

A. Coolidge boom of the 20's
1929 - Herbert Hoover
- "We in America are nearer to the final triumph over poverty than ever before in the history of any land."
- How could it happen here?

II. Causes of the Great Depression

6 Basic Theories about what caused the Depression

General Conditions in the US match all 6 theories

A. Overproduction/Underconsumption

1. Dependence on durable goods like autos, radios, etc. for prosperity
2. What happens when all those with the money to buy one have one?

B. Bad Business Practices

Excessive Borrowing
- a. installment buying for luxury items filled credit and could purchase no more
- b. business borrowing to expand during the boom of the 1920s
- c. postponed depression, but made it worse once it occurred
- d. blame Hoover for Laissez-faire policies which ignored this problem even when it was recognized
- e. Bank Failures and Foreclosures
- f. unsound loans to farmers and speculators

C. Government Policy

High tariff policies
- a. Europe could not sell goods to the US - richest country in the world after the war
- b. Without sales they had no money to buy our goods thus lowering demand
- c. They retalliated by raising tariff barriers to US goods making the problem even worse

D. Worldwide Economic Conditions

Economic Disorder created by World War I
- Dislocation of trade due to destruction and death
- Reduced potential market - foreigners couldn't buy
- Hoover argued that this was to blame

E. Business Cycle

inevitable part of economics
diagram and label business cycle on the board

F. Uneven Distribution of Wealth

a. Farmers and workers had wages that were too small to allow them to buy their fair share of goods - thus lower demand and overproduction
b. Severe farm depression
- 1. limited immigration reduced number of new customers
- 2. production and costs both continued to increase
- 3. Agricultural Marketing Act - 1929 - Hoover
  - a. loaned farmers $500 million to store goods until prices went back up
  - b. prices continued down
  - c. farmers could not repay loans
c. 5% owned 1/3
d. Give example

A. Stock Market Crash (immediate cause) - buying on margin

1. "Bull Market"
2. Speculative Bubble
- 1. empty value - stocks bid up over value of dividends and assets - public warning ignored
- 2. speculation - down payment then resale at a profit
- 3. when resale was impossible - panic caused price to crash
3. Buying on margin - using stock as collateral to purchase more stock
- borrowed money from banks - 25% down payment required
4. Black Thursday - Oct. 24, 1929 - panic started
- a. Hoover and Mellon closed the stockmarket on Friday and Monday to allow the public to calm
- b. They declared business sound and reopened the market on Tuesday
5. Black Tuesday - Oct. 29,1929 - worst till 1980s
- a. $14 billion wiped out in one day
- b. $30 billion wiped out within a week
- c. decline continued - public lost confidence
- d. bank foreclosures began
- e. Hoover blamed
6. Auto and housing slump

B. Spiral Effect

1. Loss of money caused many people and businesses to go broke
2. This caused less spending, making overproduction worse
3. Companies laid off workers to keep from going under
4. This caused less spending causing many businesses to go under
5. This caused less spending (see 2) and a downward spiral was created
6. A feeling of hopelessness and despair set in and the American people turned to the President
for leadership and help

III. Hoover's rugged individualism (1929-1932)

A. Rugged Individualism - each individual responsible for self

1. Immediate reaction - discount seriousness of depression
2. Basic Republican philosophy maintained unchanged
- government should be decentralized with most action taken at the state and local level.
- Local government did not have the funds to solve the problems of a worldwide depression
3. Hoover's efforts - focused on aid to business
- 1. Conference of business leaders
- 2. Cut taxes - 3% - made little difference
- 3. Aid farmers
- 4. Aid industry
  - a. "trickle-down"
  - b. 1932 - Reconstruction Finance Corp.
- 5. 1932 - Federal Home Loan Bank Act - designed to aid banks
4. Local government must administer federal money (NO direct relief)
- a. Hoover did not believe in direct relief
- b. State gov'ts and charities should help the poor until the cycle changed - they went broke
- c. Drought victims in Arkansas
- d. 1932 - Emergency Relief and Reconstruction Act
  - Protest - by 1932 mood of country became "ugly"
    - 1. Hoover jokes
    - 2. Farmers' Holiday
  - late attempts to help came in an election year and smacked of politics
  - underestimated the seriousness of the problem
5. Unemployment
- a. 1930 - unemployment between 6 and 7 million - Hoover took no action to help
- b. 1931 - depression still no worse than the one in 1920-21
  - Hoover thought it was nearly over based on prior history of business cycle
- c. 1932 - 20% unemployed - 13 million
- d. eventually gave small amounts of money for public works in 1932 such as Hoover Dam

B. Hawley-Smoot Tariff - 1930

1. raised tariffs to protect American businesses
2. increased tariff wars
3. the opposite of what was needed

C. Moratorium on reparations and war debt payments - 1931

1. European banking system had collapsed
2. Gold drain occurred as Europeans withdrew gold from US banks
3. To keep the gold the US increased interest rates constricting the money supply
4. 30% reduction in money by 1932 - This made recovery impossible
5. Led to bank panics - 5000 closed

D. Reconstruction Finance Corporation (RFC) - Feb. 1932

1. Hoover's main weapon against the Depression - response to new crisis
2. loaned money to financially troubled businesses - to keep them afloat
3. $2 billion - mainly to large corporations - 32,000 businesses had already closed down
4. Expected private charities to help the individual
- Community chest
- Red Cross could only afford 75 cents / family / week

E. Bonus March, 1932 (Hoovervilles)

1. 100,000 willing to go to Russia to work
2. WWI veterans demanded Bonus payments due in 1943 be paid early
3. Bonus Army camped along Potomac River - 20,000
4. Senate refused to give the money
5. Hoover sent army to disperse the remaining protesters
- a. 3 killed
- b. Hoovervilles emptied and burned
- c. fear of communism yet it never emerged
6. Hardhearted image in an election year
- a. Foreclosure Riots
- b. Talk of revolution
7. Spiral Effect accelerated

IV. Transition - Effects

A. Difference from previous depressions
B. After crash
C. Statistics
D. Human terms
E. Could a depression like the 30's happen today?

A. 1932 Election

1. Hoover (R) - blamed for the Depression
2. FDR (D) - paralysis since 1921; wealthy and famous; as governor of NY he had provided relief
- a. Attempt on his life
3. Depression was the only issue
- a. Rep - Hoover (15.5 m; 59)
- b. Dem - Franklin Delano Roosevelt ( 22.8 m; 472)
4. Public voted Republicans out of office in record numbers
5. FDR won the Presidency and Democrats won control of Congress

V. Franklin D. Roosevelt's New Deal (1932-1939)

A. Background Concepts

A. Definition - Experimentation with new ideas
- 1. address the problems of the "forgotten man" - the unemployed
- 2. Brain Trust
  - experts from every field were put into problem solving teams and asked to develop solutions (legislation)
  - Wisconsin Idea - Progressive - Bob LaFollette
- 3. Fireside Chats
  - radio talks by FDR to explain his programs
  - create positive public support by treating people as family
B. First One Hundred Days - "The only thing we have to fear is fear itself"
- 1. 15 major bills - any action to restore confidence - began 3/4/33
- 2. 20th and 21st Amendments
  - a. lame duck amendment
    - 1. effective 1936
    - 2. moved inauguration and the opening of Congress to January from March
  - b. repealed prohibition to stimulate the economy

B. 1st New Deal - 1933-1934

1. rushed - mixed goals and waste resulted
2. 3 goals - relief, recovery, and reform
3. focus on relief and recovery
4. tried to please everyone
5. Criticism of the New Deal
- 1. Mid-term elections indicated lack of success
- 2. End of '34 depression still raged
- 3. Criticism from the "right"
  - -American Liberty League (John Davis, Al Smith)
  - -Called New Deal "socialism" - objected to deficit spending
- 4. Criticism from the "left"
  - -Father Charles Coughlin ("radio priest")
  - -Dr. Francis Townsend (California physician)
  - -Huey P. Long (Governor/Senator of Louisiana)
- 5. How would FDR answer critics? - Expand New Deal

VI. The Second New Deal (launched in '35)

1. Created the GNP to monitor eco. growth
A. More government spending
B. More reform
C. Gov't would be force of regulating supply and demand
D. 1936 Election
- 1. Rep. - Alfred Landon (16.7m; 8)
- 2. Dem. - FDR (27.7m; 523)
- 3. Union Party - William Lemke (followers of Townsend, Long, Coughlin) got 892,000, no electoral votes
F. End of the New Deal
- 1. After reelection, FDR made some mistakes
  - a. "Court-packing" plan
  - b. By late '37, production attained '29 level - thought Depression was over
- 2. Last important measures
  - a. Housing Act (1938)
  - b. Fair Labor Standards Act
- 3. By 1939, focus shifting to foreign policy. Still 10 million unemployed Americans!
- That would change with the Second World War.
D. Programs
- 1. FHA, WPA and NYA, National Labor Relations Act, a 2nd AAA, plus two significant new programs
- 2. Social Security Act
- 3. Revenue Act, or Wealth Tax
- 4. Others
  - a. Resettlement Act
  - b. Rural Electrification Administration

RELIEF, RECOVERY, AND REFORM

1. Relief - aid to the unemployed - Two types

immediate aid (direct)

cut unemployment (work)

C. Relief Efforts
- 1. Get people working - most urgent problem!
- 2. Federal Emergency Relief Act
  - -grants
  - -Harry Hopkins
  - -create job programs
- 3. Civil Works Administration
- 4. Public Works Administration (Harold Ickes)
- 5. Works Progress Administration (1935-1943)
- 6. Other Relief Programs
  - a. Civilian Conservation Corps
  - b. National Youth Administration
  - c. Tennessee Valley Authority

a. Federal Emergency Relief Administration (FERA)

Harry Hopkins - 5/12/33
1. Hopkins disliked handouts - chosen to distribute money to insure efficiency
2. $500 million to states to aid unemployed immediately - $3 billion in 2 yrs.
3. direct relief - provided emergency food, housing, etc.
- a. 8 million received it
- b. not popular made people feel helpless - it was needed however
4. 4 million jobs were also created to run the programs
5. stop gap measure until more permanent jobs could be found

b. Civilian Conservation Corps (CCC) - 1933

1. $300 million - 2.25 million received aid
2. 18-25 year olds - army vets and blacks - supervised by army
3. reforestation, fire trails, cleared swamps, planted trees, cleared land, wildlife parks
4. kept them from competing in the adult job market

c. PWA - 1st New Deal forerunner to WPA - 1933

1. large scale public projects - buildings, dams, bridges
2. part recovery - construction industry
3. too slow to be a good work relief program

d. CWA - 1st New Deal forerunner - 1933

1. 4 million jobs - $1 billion for 6 months then canceled
2. makework and boondoggling
3. some construction type projects adopted by WPA
4. improved morale

2. Recovery - helped industry, banks and farmers recover

B. Monetary Policy
- 1. Immediate need to get money "flowing" and get money to finance programs to combat the depression
- 2. Banking - plan to revive nation's banks
- 3. Reform - Glass-Steagall Banking Act
- 4. Securities Act
- 5. Gold Reserve Act
- 6. Silver Purchase Act
- 7. Reciprocal Trade Agreements Act
- 8. Ended Prohibition
D. Recovery Measures
- 1. Critical task of long-range recovery for industry and agriculture
- 2. Housing - Home Owner's Loan Corp.
- 3. Agricultural Adjustment Act
  - -achieve "parity" between farmer and wage earner
  - -"artificial scarcity" to raise prices, circulate money
  - -law passed after planting season
  - -a success
  - -1936 ruled unconstitutional (U.S. v. Butler)
  - -replaced with the Soil Conservation and Domestic
  - Allotment Act and in 1938 the Second Ag. Adjustment Act
  - -many New Deal programs to help farmers
- 4. National Industrial Recovery Act
  - -Created National Recovery Administration
  - -Something for everybody (bus., labor, consumer)
  - -95% of all industries joined
  - -not really effective
  - -1935 ruled unconstitutional (Schechter v. U.S.)
- 5. National Labor Relations Act

a. Bank Holiday declared by FDR - 3/5/33

1. 4000 banks closed in 1933
2. Emergency Banking Act - 3/9/33
- a. inspect all banks
- b. reopened only sound ones (75%)
- c. used fireside chat to restore the people's confidence
- d. supervision by government of banks that reopened
- e. loans given by Federal Reserve System to support remaining banks
- f. prohibited banks from selling stocks and bonds
- g. prohibited exportation of gold

b. Agricultural Adjustment Act (AAA) - 1933

1. goal - reduce production to raise prices
- a. 40% farms mortgaged - Farm Credit Admin.- 1933
- designed to help there
- b. if prices were not raised - foreclosure then tenant/sharecropping
2. 1/4 to 1/2 of crops destroyed - hunger existed in world and at home
3. paid subsidy based on acres not planted
4. prices increased 50% - hurt consumer
5. subsidy raised through tax on food processors
6. (U.S. v. Butler) - 1936 - declared the tax unconstitutional - interstate v. intrastate

c. National Recovery Administration (NRA-Blue Eagle) - 1933

1. Hugh Johnson - suspended anti-trust laws - favored big business
2. allowed and encouraged business to cooperate to avoid overproduction
3. set wages, etc. as done later by Fair Labor Standards Act
4. Critics
a. National Run Around - paperwork put small businesses out of business
b. allowed collective bargaining - unions
c. American Liberty League - businessmen opposed it - convinced FDR to side with labor
5. (U.S. v. Schechter) - 1935 - Supreme Ct. declared NRA
unconstitutional - intrastate commerce v. interstate

3. Reform - to ward off future depressions

a. Federal Depositors Insurance Corporation (FDIC/FSLIC) - 1933

1. to prevent fear of bank failures
2. guaranteed protection of deposits
3. $2500/account originally $100,000 later
4. bank failures became rare

b. Tennessee Valley Authority (TVA) - May 1933

1. George Norris had fought for this reform since 1920s
2. greatest single public work program attempted
3. socialist - government ownership of utilities
4. provided rural electrification at lower price (10 to 3 cents/kilowatt-hour)
5. criticism - Southeast US got project paid for by entire US
6. special tax breaks could actually be paying more for electricity
7. hurt private companies - measured against TVA
8. Rural Electrification program increased electrified areas from 4% to 25%

c. Gold Reserve Act - 1934

1. US attempted to create inflation to pay for New Deal and help farmers
2. Gold no longer used as money - people turned it in for paper money - stored Ft. Knox
3. $21/ounce raised to $35/ounce = gold returned to US
4. increased monetary supply which stimulated loans and encouraged Recovery

d. Securities and Exchange Commission (SEC) - 1934

1. oversees stock practices to prevent another crash
2. requires full disclosure of company value to protect consumer
3. sets margin requirements

e. Federal Housing Administration - 1934

1. loans for home repairs and construction designed to end homelessness
2. aided banks - did not do much for poor wanting homes

f. Trade Agreement Acts - 1934

1. one-on-one negotiations of tariffs allowed
2. President or Secretary of State negotiates

D. Criticisms/Shortcomings of New Deal

1. Evolution vs. Revolution

a. Populist 1. deficit spending
b. Progressive 2. growth of power
c. preservation of capitalism/democracy 3. influence over economy

2. Father Coughlin

a. Detroit radio priest (nationwide)
b. 1934 blamed banks and industry for the depression
- 1. led to changes in the FED
c. proposed overhauling the monetary system
- 1. led to changes in the Gold Reserve System
d. wanted to abolish Federal Reserve System
- 1. led to changes in the SEC
e. fear of riots created

3. Deficit spending - boondoggling/debt/unemployment = 8 million - 1939

4. Progress didn't benefit all
- a. Okies
- b. Dust Bowl
5. Bureaucracy formed - growth in size and cost of government
6. Socialist experiments - unconstitutional - interfered with free enterprise

E. 2nd New Deal - 1935-1939

1. responded to criticism of 1st new deal
2. Election of 1936 - Democratic dominance continued
- a. Alf Landon (R)
- b. 523 to 8 electoral college vote
- c. considered it a mandate to strengthen the executive branch
3. Executive branch too strong already according to many critics

a. Courtpacking Scheme - 1937

1. Supreme Court had ruled 7 New Deal laws unconstitutional and threatened Social Security and NLRB
2. FDR asked Congress for power to appoint an extra justice for each justice 70 or over (6 of 9 were at least 70)
3. new appointments would have been more favorable
4. Congress said no - once started the court would have become a battleground for each new President
5. Court got the message and began supporting FDR
6. cost FDR some popularity - appeared to be too powerful
- b. Lost confidence of business community
- c. decided to leave business to themselves

4. Basis - Deficit Spending (Pump Priming) - John Maynard Keynes

a. National Debt - increased from $16 billion to $40 billion
b. explain money flow
c. 1937 - economic panic occurred when we stopped pumping and attempted to reduce spending created economic collapse
d. this panic caused him to return the focus more to helping poor, working men

7. Relief

a. WPA - 1935 - 2nd New Deal

1. built post offices, city halls, recreation buildings, roads, taught schools, zoos
2. build 6000 schools - 1st year
3. 5000 sewage treatment plants - 1st year
4. 500,000 miles of roads / 600 airports
5. artists painted murals on buildings - 5,000
6. writers wrote guidebooks
7. actors did public plays - 12,500 employees
- radio and movie escapism continued to be popular, but wealth
- replaced sex as the central theme
8. 15,000 musicians provided concerts and music lessons
9. researchers interviewed people
10. $11 billion - 8.5 million people

b. National Youth Administration (NYA)

1. Part of WPA
2. part time work for 2 million students to keep them in school
3. state records

c. Evaluation of Relief

1. waste
2. no previous example
3. lack of trained personnel
4. prevented starvation
5. self-respect maintained

8. Recovery

a. Wagner Act - 1935 - 2nd New Deal - salvaged from NRA

1. created the National Labor Relations Board
2. reaffirmed the right to collective bargaining - outlawed unfair practices
3. labor unions were tremendously strengthened by this
4. Jones v. Laughlin upheld NLRB - reflected change in the Court
5. Unionism is boosted (Jurisdictional and sit down strikes)
- a. CIO (Congress of Industrial Organizations) - 1936
  - 1. John L. Lewis
  - 2. non-skilled labor
- b. Sitdown Strike - Cleveland, Ohio - auto industry - closed 17 plants
  - UAW recognized by GM
- c. Jurisdictional Strike - a rival union would go on strike against the union it lost the election to
6. Unions became firmly Democratic

b. Fair Labor Standards Act - 1938 - 2nd New Deal - salvaged from NRA

1. minimum wage created - $.25 then $.40
2. minimum work week before overtime created - 44 then 40
3. prohibited child labor
4. interstate businesses only

c. 1938 AAA - paid farmers as before - 2nd New Deal

1. government set the total amount of a crop to be grown in an area - worked with farmers
2. farmers paid for excess crops which were then stored
3. amount paid slightly below parity with 1909-1914 period of farmer prosperity

9. Reform

a. Social Security - 1935 - 2nd New Deal

1. Dr. Francis Townsend - critic of FDR - Townsend Plan
- a. from California - 5 million supporters
- b. proposed pension for people over 60 yrs.
- c. $200/month - all must be spent to pump up economy
- d. paid for by sales tax
2. FDR responded with Social Security - 3 goals
- a. unemployment insurance - direct relief to unemployed for a limited period of time each year
- b. aid to handicapped
- c. pensions for the elderly - scaled down version of Townsend plan
- 1. up to $15/month for those already retired
- 2. $10 to $85/month after 1942 for those working now
- 3. excluded many types of workers
- 3. Pensions paid for by payroll deductions matched by employer donations
- 4. Francis Perkins - Sec. of Labor
  - a. 1st women in cabinet joined in order to gain FDR's acceptance of Soc.Sec.
  - b. served longer than any other

b. Tax Code Restructuring - 1935 - 2nd New Deal

1. Huey P. Long
- a. The Kingfish
- b. Louisiana governor (dictatorlike) - 1928
- c. attacked RR and Oil
- d. state-subsidized lunch and public schools and textbooks
- e. Every man a king
- f. proposed Share Our Wealth
  - a. 100% tax on income over $1 million
  - b. used to aid the poor
  - c. guarantee every family an income of $2500 (very high) and a home worth $5000
- g. assassinated 1935
2. after 1935 FDR sided with underprivileged, unions, revised income taxes for upper income
a. wiped out Mellon's Trickle Down Theory on taxes - 75% maximum rate

VII. Impact of the New Deal

A. The New Deal was a turning point. Even though it did not end the Depression, it did have a major role in the relationship between gov't and the rest of society.
B. What was the impact of the New Deal?
- 1. Political
  - a. Greatly enlarged the role of gov't, and the President, w/o destroying democracy
  - b. Gov't is responsible for the welfare of the people (preamble)
    - the beginning of the "welfare state"
  - c. Put the gov't at the service of the people
  - d. Lots of centralization and bureaucracy (beginning of the "imperial presidency")
  - e. Restored the dignity of the Presidency (after Hoover)
  - f. Many laws of permanent value
  - g. Democratic Party -party of the "underprivileged"
  - h. Renewed faith in democracy, when many were calling for its demise!
- 2. Economic
  - a. Gov't became the "force" to stimulate the economy when the private sector slumped
  - b. Gov't took over control of the economy, not the other way around (laissez-faire to "regulated capitalism")
  - c. Many economic reforms of significant value
  - d. Improved the standard of living of many Americans
  - e. Introduced "Keynesian Economics", worth of deficit spending
  - f. Greater concern for workers
- 3. Social
  - a. Restored confidence and optimism
  - b. Human rehabilitation (jobs, etc.)
  - c. Physical rehabilitation of the nation (renewed emphasis on conservation, dams, parks, etc.)
  - d. Women (role models like Eleanor Roosevelt and Francis Perkins)
  - e. Blacks - "Black Cabinet" advised FDR (Mary McLeod Bethune was most famous; blacks switched to the Democratic Party!
  - f. Mexicans - many migrated to U.S., worked for lower wages
  - (outcry by Americans for them to return home)
  - g. Indians - Indian Reorganization Act allowed a return to tribal ownership and practice of traditional culture
  - h. Unions - high water mark of unionism
  - i. Pop Culture - movies ("Gone With the Wind", "Wizard of Oz") were now in color, radio ("The Lone Ranger", "Superman", first "soaps"), comic strips, sports heroes
  - j. Art and literature - reflected the times
    - -John Steinbeck, William Faulkner, Erskine Caldwell
    - -Grant Wood
C. How would you evaluate the New Deal?
- 1. Goals of domestic policy?
- 2. Accomplishments?
- 3. Grade the 3 R's

IV. Positive Aspects/Achievements of New Deal

A. Confidence restored in US government - riots and strikes that occurred in Europe avoided in 1933

B. Farmers helped some - however not tenant farmers many of whom were black

C. Working people are helped

D. Nation enriched - roads, parks, dams, buildings

Public spending offset private spending leading to recovery

E. Unionism is boosted

F. Reforms in banking and stock exchange - capitalism controlled

G. Dynamic Presidency - strong leadership

H. Minorities (women and blacks) benefited - Eleanor Roosevelt

1. Francis Perkins
2. Blacks = Republicans till FDR - hard hit by Depression
- a. by 1976 = 75% Democrat / FDR made many black appointments and had an unofficial black cabinet
- b. civil rights were not strongly supported by FDR
3. Mary McLeod Bethune - 1st black head of government agency - NYA

I. Changes left incomplete - 1939 - attention turned to foreign affairs

1. New Deal did not end the Depression
2. failed to end unemployment
3. World War II ended the Depression

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