Unit 6 – The Great Depression Unit 6 – The Great Depression and New Dealand New Deal

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The years after World War I actually The years after World War I actually planted the seeds for the Great planted the seeds for the Great

Depression.Depression.

These years were the “Roaring Twenties” and “Jazz Age”. It was a period marked by a general prosperity, “anything goes” behavior, bootleg booze, speakeasies,

“flappers” dancing the “Charleston”, Ford Model T’s, ordinary people buying things on the installment plan, and the wealthy getting into the booming stock market.

Wall StreetWall Street• No where did the future look brighter than

on Wall Street.Wall Street – common name for the New York

financial district located in the lower portion of Manhattan (and also the name of an actual street in the area) where the New York and American stock exchanges are headquartered. It is also a generic term for anything associated with investing or the stock market.

““On MarginOn Margin””

What does it mean to “Buy on the Margin” in Wall street?

Why was this established?

What did it mean when the stock market crashed for all the stock that was “Bought on the Margin”?

Buy Now, Pay LaterBuy Now, Pay Later• In the 1920’s, thanks to alluring ads for

enticing products, the idea of buying on credit was born.

Why was “Buy Now, Pay Later installment plans added into the economy by government?

What became reality with this idea?

Why Should A Manufacturer Why Should A Manufacturer Go Along With the Go Along With the Installment Plan?Installment Plan?

• Because of the basic reality of supply and demand.

• Throughout the 1920’s, supply and demand got out of balance.

• American manufacturers were churning out so much in the way of consumer goods that people’s demands weren’t keeping up with the supply of goods in overstocked warehouses.

• This abundance was the result of an astonishing increase in the productivity of workers.

• In the 1920’s the output per worker in American industry leapt by nearly 2/3.

• However, this happened at a time when wages were not keeping up.

• As a result, manufacturers were making enormous profits.

• This was great, so long as workers bought what was being made!

• Hence, the appeal of the installment plan in moving products from shelves and off the sales floor.

Reasons for the Wall Reasons for the Wall Street BoomStreet Boom

• You have underpaid workers turning out goods in record amounts that they can only afford to buy on credit.

• This enormous output at bargain labor costs creates wealth for people who already have far more than enough money, thereby widening the income gap.

• Those with more than enough money bought outrageous amounts of stock shares.

• Those who couldn’t afford to buy stock shares, did so anyway. . . On margin.

The Economy of the Late 1920sThe Economy of the Late 1920s

• “Everybody ought to be rich”

• 200 large companies controlled 49% of all American industry

• Too many goods, not enough demand

• Farm prices fell after WWI

• Farmers not able to repay their debts

Income Distribution, 1929

1

5

29

65

$10,000 and Over

$5,000-$9,999

$2,000-$4,999

$1,999 and under

Figures courtesy of Prentice Hall

• On Black Tuesday, October 29, 1929, most people sold their stocks at a tremendous loss.

• This collapse of the stock market is called the Great Crash. This signaled the beginning of the Great Depression.

• Overall losses totaled $30 billion.

• The Great Crash was part of the nation’s business cycle, a span in which the economy grows, and then contracts.

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Effects of the Great Crash, 1929Effects of the Great Crash, 1929Great Crash

Investors

Businesses and WorkersInvestors lose

millions.

Businesses lose profits.

Consumer spending drops.

Workers are laid

off.

Businesses cut investment and

production Some fail.

Banks

Businesses and workers cannot repay bank loans.

Savings accounts are wiped

out.

Bank runs

occur.

Banks run out of

money and fail.

World Payments

Overall U.S. production plummets.

U.S. investors have little or no money to

invest.

U.S. investments in

Germany decline.

German war payments to Allies fall off.

Europeans cannot afford

American goods.

Allies cannot pay debts to

United States.

The Stock Market CrashThe Stock Market CrashFrom Riches to RuinFrom Riches to Ruin

• Many wealthy families lost everything

• Some even committed suicide

• Millions of people who never owned a single stock lost their jobs, farms and homes

• The crash triggered a much wider, long term crisis known as the Great Depression

• The Depression had a ripple effect that hurt the economies of other countries

Unemployment 1925-1933

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1925 1926 1927 1928 1929 1930 1931 1932

Year

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The Great Depression impacted employment by the SHARP increase in Unemployment.

Wheat Prices 1925-1933

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1929

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1932

1933

Year

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Stock Prices 1925-1933

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1925 1926 1927 1928 1929 1930 1931 1932 1933

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Great Crash

The Election of 1928The Election of 1928

• Herbert Hoover

• Supporting business and Prohibition, Hoover was the Republican candidate for President in 1928. His campaign slogan promised:

"A chicken in every pot "A chicken in every pot and a car in every and a car in every

garage.”garage.”

The Hoover The Hoover AdministrationAdministration

• Once the Hoover Administration realized that the economy was not having another of its periodic, temporary re-adjustments, the question was how to provide relief to the unemployed.

• He warned the suddenly broke and out-of-work Americans that any lack of confidence in the economic future or the strength of U.S. businesses was “foolish.”

Depression Worsens

• Soup Kitchens and Bread lines

• Hobos- these were Americans who began to wander around the country, walking, hitchhiking, or “riding the rails”. These were mostly young boys and young men in search for work.

Poverty SpreadsPoverty Spreads• Many people became

evicted from their homes and placed onto the streets.

• Sometimes the homeless built shacks of tar paper or scrap material. These shantytown settlements came to be called Homerville's. (After the president they believed placed them there.)

Photo courtesy of Library of Congress

Poverty Strains SocietyPoverty Strains SocietySome people starved and thousands went hungry.Children suffered long-term effects from poor diet and inadequate medical care.

Impact on Health

Living conditions declined as families crowded into small houses or apartments.Men felt like failures because they couldn’t provide for their families.Working women were accused of taking jobs away from men.

Stresses on Families

Competition for jobs produced a rise in hostilities against African Americans, Hispanics, and Asian Americans.Lynching increased.Aid programs discriminated against African Americans.

Discrimination Increases

Photo courtesy of Library of Congress

HoovervillesHoovervilles

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The Dust BowlThe Dust Bowl

DUST STORM

• Result of 1932 drought in the Great Plains, compiled with the uprooting of the wild grasses for farm land, the soil turned into dust in American pastures without any rainfall.

• Winds rapidly whipped through creating a DUST STORM from the DAKOTAS to TEXAS.

• In 1934 there were 22 storms. In 1937 there were 72 storms that covered the area.

Results of the Dust Storm

• Many families pack their belongings in to old cars or trucks and head west.

• Many of these migrants were from Oklahoma, they became known as “Okies”

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The movement of people from the Dust Bowl demographic areas to California, impacted CA forced the creation of relief crisis in cities like Los Angeles were nearly 20% of the population was in need of relief.

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Escaping the Depression

Hollywood-•People went to the movies to watch films of people who were rich. •People in the business were drawn to Hollywood in search of “reality life”•Movie goers enjoyed cartoons such as WALT DISNEYS “Snow White and the Seven Dwarfs” produced in 1937. •Other films were produced over serious subjects were brought to life through less serious films such as “Mr. Smith goes to Washington”•“Gone with the Wind” a four hour long elaborately costumed film topped the Depression-era epics.

On the Air-•Radio offered entertainment on a more personal level. •Day time radio dramas “Soap Operas” •Began to create a new sense of community, finding common ground among many different people types.

Art-•American Gothic style

Writers-•John Steinbeck- added flesh and blood to journalist’ reports of poverty and misfortune. “The Grapes of Wrath”- became his famous novel that provided a vivid depiction of the difficulties' individuals faced during the Great Depression.

“There goes a gasket. Got to go on. Find a nice place to camp…The foods getting low, the moneys getting low. When we can’t buy no more gas—what then? Danny in the back seat wants a cup of water. Little fella’s thirsty.” -from the Grapes of Wrath

Signs of ChangeSigns of Change

Prohibition Is Repealed!Prohibition Is Repealed!• In February 1933, Congress passed the

Twenty-first Amendment, which repealed the eighteenth amendment prohibiting the sale of alcohol.

The Empire State Building

• 2,500 to 4,000 people worked on the construction.

• The cost of construction was about $41 million.

• At that time, it was the world’s tallest building and had 102 stories and 67 elevators.

• The Empire State Building was one of the last skyscrapers completed in New York before the Great Depression hit the real estate market. Demolition of the existing building at the site started just weeks before the stock market crash of 1929.

• Was officially completed May 1st 1931. Taking only 1 year and 45 days.

The End of an EraThe End of an Era

• Many things that symbolized the 1920s faded away.

– Organized crime gangster Al Capone was sent to prison.

– Calvin Coolidge died.– Babe Ruth retired.

Hoover’s Limited StrategyHoover’s Limited Strategy

• Hoover convinced business leaders to help maintain public confidence in the economy.

• To protect domestic industries, Congress passed the Hawley-Smoot tariff, the highest import tax in history.

• European countries also raised their tariffs, and international trade suffered a slowdown.

• Hoover set up the Reconstruction Finance Corporation (RFC), which gave government credit to banks, industries, railroads, and insurance companies.

• The theory was that prosperity at the top would help the economy as a whole.

• Many Americans saw it as helping bankers and big businessmen, while ordinary people went hungry.

• Hoover did not support federal public assistance because he believed it would destroy people’s self-respect and create a large bureaucracy.

• Finally, public opinion soured for Hoover when he called the United States Army to disband a protest of 20,000 unemployed World War I veterans called the Bonus ArmyBonus Army.

The New Deal

1933-1941

Election of 1932

• Franklin D. Roosevelt– Democrat– Promised a “New Deal” for America

• Plan to end the Depression

• The Three Rs– Relief– Reform– Recovery

• FDR’s wife, Eleanor, was an experienced social reformer.

• She worked for public housing legislation, state government reform, birth control, and better conditions for working women.

• When the Roosevelts campaigned for the presidency, they brought their ideas for political action with them.

Hundred Days• First 3 months of FDR’s

Presidency– Large changes in government

policies, powers, and regulations

• Brain Trust• Bank Holiday

– March 5-9

• “Fireside Chats”– Reassure American public

Alphabet Soup

• Term for FDR’s New Deal Programs– (you’ll get it in a

minute)

• All programs dealt with at least one of the three Rs

Financial Programs

• Emergency Banking Relief Act (EBRA)– Banks prove financial health– Given Certificates by the Government

• Federal Deposit Insurance Corporation (FDIC) *still used to day*– Government Insurance

on Banking Accounts

• Securities and Exchange Commission (SEC)– Regulates the Stock Market

Utilities

• Tennessee Valley Authority (TVA)– Build dams on the Tennessee River

• Controlled flooding• Provided electricity for cheap prices• Created jobs*

Workers• Wagner Act

– National Labor Relations Board– Guaranteed workers’ rights to unionize– Binding arbitration

• A neutral party makes decisions in negotiations

• Fair Labor Standards Act– Minimum wage– Maximum work hours– Banned child labor under 16

New Deal Coalition

• Groups brought together by FDR– Women

• Francis Perkins – Sec. of Labor

– African Americans• Mary McLeod Bethune – Director; Negro NYA

– Also united Indians, the poor, some business interests with programs

Opposition from the Right

• New Deal went too far– Conservatives

• Regulations hurt business and growth• Violated individuals’ rights• Gave government too much power

• Challenged FDR’s reelection in 1936

• Challenged FDR’s next reelection in 1940– Broke the two term tradition

Second New Deal

Agency/Legislation Function

Works Progress Administration (WPA) Combated unemployment; created jobs throughout economy

Rural Electrification Administration (REA)

Brought electricity to isolated agricultural areas

Social Security Act Created unemployment system, dibility insurance, old-age pension, and child welfare benefits.

Public Utility Holding Company Eliminated unfair practices and abuses of utility companies

Banking Act Strengthened the Federal Reserve

Resettlement Act Assisted poor familes and sharecoppers in beginning new farms or purchasing land.

Social Security Act

• Monthly pension for those over 65

• Unemployment Insurance

• Pension for the disabled• Pension for children

whose parent(s) have died

• Provides retirement income.

Roosevelt Recession

• 1937– Government cut spending on New Deal

Programs– Government began collecting Social Security

taxes

• Result– Drop in spending by government, businesses

and consumers– Economy falls again

Opposition from the Courts

• Supreme Court made up of conservatives• Found programs unconstitutional

– Schechter v. US (1935)• NIRA unconstitutional• National government can not regulate intrastate

commerce

– Butler v. US (1936)• AAA unconstitutional• Unfair taxation

Court-Packing Plan

• FDR’s plan to “fix” the Supreme Court• Opposition in Congress

– Gave Executive Branch too much power

• Increased opposition to FDR• He eventually replaced 7 justices who

retired anyway• Constitutional issue concerning “Court-

Packing Plan was that it would weaken the separation of powers.

Impact of the New Deal

• Political– Democrats began appealing to working class

and poorer Americans– Attacked businesses and the wealthy– African Americans begin moving into the Party– Conservative Democrats began leaving the

party

Impact of the New Deal (2)• Social

– A renewed sense of hope in America and faith in democracy

– Government a “safety net”

• Economic– Failed to end the Depression– 1940 – unemployment 14+%

• Those with jobs – same or lower wages from 1929