The Great Depression

What caused the most severe economic crisis in American

history? How did presidential

administrations react?

Black Tuesday

• October 29, 1929

• The U.S. Stock Market lost 90% of its value.

• The stock market crashes triggering the economic collapse

The Causes of the Great Depression

1. A Speculative Boom Leads to a Spectacular Crash– A “bull market” versus a “bear market”

• A rise in stock prices versus a drop in stock prices• The 1920’s could be characterized as a bull market

– The ability to buy on margin• $1000.00 buys $10,000.00 worth of stock• Price goes up, sell the stock, pay the broker, the rest is

profit• IF the price goes up…

• Speculation – a risky investment to get rich quick– Stock prices were not accurately reflecting the real

value of the companies

The Causes of the Great Depression

2. A Banking Crisis Wipes Out People’s Savings–Where do you think

the money was coming from that brokers were lending?

– Bank runs fueled the panic

– Banks were not safe anymore

The Causes of the Great Depression

3. Overproduction Puts Too Many Goods in Stores– Assembly line and mass production increases

output with decreasing demand– Not enough consumers to buy all the products

4. A Widening Wealth Gap Leads to Rising Debt– Profits for business owners did NOT lead to

increasing wages– An estimated 40% of Americans lived in poverty– Credit allowed Americans to make up for this

uneven distribution of wealth in the ‘20s (we were buying things we really couldn’t afford)

5. High Tariffs Hurt Foreign Sales

The Causes of the Great Depression

6. Farmers Were the First to Experience the Pain of Underconsumption (Overproduction?)– When the war ended,

their markets disappeared

– Farmers lost everything as banks seized their property for payment of debts

Government Actions Make a Bad Situation Worse

• The Role of the Fed– The Federal Reserve (Fed) manages the nation’s money

supply (this is called monetary policy)• Discount Rate = the rate of interest the Fed charges banks to

borrow money

– Low interest rates make borrowing easy (the story throughout the 1920’s)

– 1931 the Fed raises the discount rate, raising interest, decreasing the money in circulation, depriving businesses of the capital they needed

• The Hawley-Smoot tariff sets record high rates to protect American industry but destroys international trade– Farmers and businesses lose overseas markets

• The Great Depression was a global event

The Story of the Bonus Army• In May, 1932 veterans flocked to

Washington D.C. for payment of a bonus due in 1945 (they needed the money now)

• By summer, 12,000 WWI vets were in the capital

• President Herbert Hoover believed in self-reliance, rugged individualism and hard work, not handouts

• He ignored the veterans at first then with tear gas, tanks and armed soldiers, he cleared out the Bonus Army

• The nation was stunned

How To Respond: Three Perspectives

• The Conservative Response: Let the economy stabilize–Maintain the status quo– Opposed to large scale government

interference– The economy will

stabilize if left alone– It is all part of the

business cycle– Any government

intervention should only be at the local level

How To Respond: Three Perspectives

• The Liberal Response: The government must help– Government is needed to protect individuals

from dangerous working conditions, monopolies or unsafe food

– Called for the funding of public works = government funded construction projects

– New taxes to raise money for social welfare (or allow deficit spending)

– Government needs to take an active role in the capitalist system to help by working with business

How To Respond: Three Perspectives

• The Radical Response: Capitalism must go– Radicals desire sweeping social, political or

economic change (could be through democratic means or via revolution)

– Communism would allow government planners to distribute wealth according to people’s needs

– The working class would rise up against the “greedy capitalists”

• Local communities, churches and private charities could take care of their own

• Hoovervilles were on the rise

• The conservative response was failing– Reconstruction Finance

Corp. to issue gov’tloans to banks, RRsand other big businesses

– A “trickle down” theory (too little, too late)

Hoover’s Conservative Response

• Hoover (R) vs. Franklin D. Roosevelt (D)• FDR promised

America a “New Deal”

•New Deal:–relief for needy–economic recovery–financial reform

•With his “Brain Trust,” FDR formulates policies to alleviate problems

The Election of 1932

The 100 Days (The “First New Deal”)

•This nation asks for action and action now -FDR (first inaugural)

•Passes over 15 major New Deal laws like…–Emergency Banking Relief Act (after a “bank holiday”) permits Treasury Dept. to inspect banks and decide which are insolvent, sound, or need loans–By the end of 1933, Prohibition is repealed by the 21st Amendment (liquor taxes can go the government…not organized crime)

• Shoring up Society– FERA to provide state and communities with funds to

help the jobless– PWA creates jobs through heavy construction

projects

• Shoring up the Financial Sector– FDIC, SEC

• Shoring up Free Enterprise– NIRA creates the NRA

• An increase in government regulation and economic planning

• Helps business with price controls to limit competition

• Unions get minimum wages and collective bargaining

• The unemployed get more public works projects

• To help farmers– AAA to reduce production and raise prices

• To promote economic development– TVA to “electrify” the Tennessee Valley and

provide flood and erosion control

• To help homeowners– Home Owners’ Loan Corp. to

help meet mortgage payments– FHA to insure loans

• To help the “forgotten man”– CCC for jobs

The Country in Economic Distress• Unemployment– From 1929 - 1933 almost 1 in 7

businesses failed– 1929: 3.1% unemployment / 1933: 25% – The unemployed had little to spend,

businesses lost customers, so they closed = increasing unemployment

• Farms lost half their value– Foreclosure (lose the farm, the $, the

home, the livelihood)– Tenant farmers and sharecroppers in the

South fared even worse • Mississippi annual income fell from $239.00 in

1929 to $117.00 in 1933

Financial Stress Affects Families

• Financial stress leads to psychological stress as adults lose their jobs, status, authority and self-respect

• Marriage and birth rates declined• Divorce rates declined– Couldn’t afford to live separately– Couldn’t afford the legal fees

• Families lost their homes = eviction• Teenagers left home in search of

work

Financial Stress Affects Families• Estimated that 1 in 5 New York children

were malnourished and a lack of proper nutrition made people vulnerable to disease– Couldn’t afford medical care– Soup kitchens and breadlines multiplied

Like the Joads in the Steinbeck novel, The

Grapes of Wrath, families head to

California to escape the Dust Bowl

While droughts continued in the West, floods plagued the East and indicated a need for federal

action

Struggling to Get By• 80,000 drop out of college between 1932 –

1933• Took any jobs available

simply to keep a paycheck coming (better than receiving a government handout)

• Those who were still employed worked fewer hours for less pay

• Charitable giving didincrease– Even Al Capone

financed a soup kitchen

• Public assistance though, was running out

The New Deal and Its Legacy

How did the expansion of government during the

New Deal affect the nation?

New Deal Critics• From the Right (conservatives)– Too radical, too much, unconstitutional

• From the Left (liberals)– Not enough action, not enough help• Dr. Francis Townsend proposes a $200.00

monthly payment for everyone over the age of 60• Charles Coughlin (a “radio” priest) claims

FDR has out-Hoovered Hoover and wasn’t doing enough• Huey Long, a Louisiana senator, launches a

“Share our Wealth” campaign for guaranteed jobs and guaranteed incomes

The Second New Deal• Beginning in 1935: more legislation–When is the next election going to

occur?

• WPA hires musicians, writers, artists, construction workers– Eventually the WPA hires 7% of the

American workforce

The Supreme Court Attacks the New Deal

• Strikes down the N.I.R.A.– No presidential power to

issue “codes of fair competition”

• Strikes down the A.A.A.– “beyond the powers

delegated to the federal government”

• FDR tries to add additional justices to “pack” the Court in his favor– Bad idea, much public anger over

the scheme

…And Even More• Wagner Act (National Labor Relations

Act)– The Bill of Rights for organized labor– Union membership climbs to 28% of the

total labor force

• Social Security– Retirement and disability

The Impact(s) of the New Deal• A good deal for workers

– Secured the right to form unions– Secured the right to bargain collectively

• A mixed deal for women– The influence of FDR’s wife Eleanor was huge– An unprecedented number of female workers

were hired by FDR’s administration– Not all women fared well as society was slow to

change

• A disappointing deal for African-Americans– Oppression didn’t change– Even New Deal agencies practiced segregation

The Impact(s) of the New Deal

• A better deal for American Indians– Commissioner of Indian Affairs, John

Collier, reversed some harmful policies of previous administrations

• A New Deal Coalition for Democrats–Women + minorities + industrial workers

+ immigrants + southern whites + city dwellers

Relief

• Millions of Americans enjoyed some form of help.

• Direct relief or jobs that provided a steady paycheck

• Programs such as Social Security and unemployment insurance became a fixture of government.

Recovery

• Not as successful at economic recovery

• Unemployment remained high.

• Some critics argued that Roosevelt needed the support of big business.

• Other critics said that the New Deal didn’t spend enough money.

The Impact of the New Deal

Reform

• More successful and long-lasting

• FDIC restored public confidence in the nation’s banks.

• SEC restored public confidence in stock markets.

• New Deal left thousands of roadways, bridges, dams, public buildings, and works of art.

The foundation for the modern welfare state (government responsibility) was

laid and deficit spending by the government becomes the norm