Unit 11: The Great Depression and the New Deal
Economies usually pass through good and bad periods and then repeat themselves. The ups and downs
of all of this business activity are known as the business cycles. The bad times are usually led by business
failures and high unemployment. These times are called depressions. The Great Depression was the
worst one in our nation’s history.
Causes of the Great Depression
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Overproduction: cars and radios were made at a high rate and the consumer did not have the
money to purchase those goods.
Speculation: many people bought stocks hoping to get rich and drove the cost of the stock too
high.
 Many stocks were purchased on margin (paid 10% of stock price and paid the rest when the
stock sold)
 If the stock price continued to rise, no worries. But, if it fell below the value the owner often
did not have enough money to pay for the loss.
Shaky Banking
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Bankers use the money deposited into their banks to fund business investments or loans. The
banks then pay the depositor an interest on the deposit.
There were some banks that used the deposits to fund stocks or other investments that did not
yield a profit.
This is what caused some banks to close as depositors wanted their money back.
Restricted International Trade
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High U.S. tariffs forced other countries to create high tariffs on U.S. trade
This made it hard for countries to trade goods and added to the problems during the Great
Depression
The New York Stock Market Crash
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October 29, 1929 stock fell to an all-time low
Days prior, bankers stepped up and bought up lots of shares to keep prices up
This just delayed the crash
From Wall Street to Main Street
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Corporations or companies could no longer raise money to keep producing goods
People who lost their money in stocks could not pay there bank loans
Banks ran out of money and were forced to close
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People who had savings in banks lost their money and could not pay home loans and lost their
houses
Without money, people could not buy goods so the demand for goods caused companies to
close and many Americans lost their jobs
Prices on all goods fell and companies could not stay in business
Without a safety net like unemployment insurance, people did not have money to survive
Americans were forced to live on the streets
The Human Impact of the Depression
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During the 1920’s Americans started to define their self-worth with material possessions
Once the depression struck, they felt worthless
Americans waited for things to turn but more businesses failed and farmers lost their farms
They turned to soup kitchens and other charities, but they too were stressed
Writer John Steinbeck and photographer Dorothea Lange were instrumental in recording the
suffrage
Dorothea Lange suffered from polio as a child. She felt she could relate to the suffrage of the
depression
The government hired her to document the effects of the depression
The Dust Bowl
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In the 1930’s farmers on the Great Plains were faced with a decade long drought which led to
financial disaster
Since the 1870’s farmers eagerly tilled up millions of acres of land and cut down all the grass
that holds the topsoil in place
They tapped into underground water resources
A series of long droughts caused the top soil in some areas to blow away and burry homes and
crops hundreds of miles away
Farmers were forced to move after they were unable to harvest crops and pay their bills
Many moved west to California but before it was over, over one million farmers lost their farms
This became the largest natural disaster in American history
John Steinbeck wrote articles on the Oakies (the Harvest Gypsies 1936)
Oakies are farmers from Oklahoma that moved to California to work in the migrant farm camps
These articles were the basis for his famous novel, The Grapes of Wrath
Mexican Repatriation
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The immigration acts of the 1920’s did not apply to the immigrants from Mexico or the Americas
Mexicans entered the U.S. freely as long as they passed a medical and literacy test
Paid a small tax
Settled in Barrios and accepted backbreaking work for low wages
They were escaping the Mexican revolution
In Texas, Mexican Americans were barred from white public schools and faced other prejudices
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The Mexican Repatriation Act sent many Mexican Americans back to Mexico during the Great
Depression
The white farmers sought the farm work that the Mexican Americans were occupying
Hoover Philosophy and his failure to haul the depression
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By 1932 President Hoover did little to relieve the poverty and results of the poor economy
He soon became the most despised person in America as most Americans blamed him for the
depression because of unwillingness to change his stance on laissez-faire capitalism
Hoover’s Philosophy
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He did not support the government involvement of unemployment payments
He felt this would not drive the Americans to seek work and undermine the “Rugged
Individualism they were known for
He expected that private organizations should provide the emergency relief
He felt the economy would bounce back when prices got low enough for Americans to start
buying
Aggregate Demand prevented the economy from recovering because without work the
Americans could not afford even the low prices
Hoover Finally Responds
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Hoover cut taxes and increased federal spending on public projects
The government bought up surplus farm crops
He established the Reconstruction Finance Corporation that gave emergency loans to banks
and businesses
This did not trickle down to the average American and was seen as too little too late
Many Americans lost their homes and were forced to live in shacks
Shanty towns in the outskirts of most cities were known as “Hoovervilles”
Between 1929 and 1933 100,000 American businesses failed
13 million people were out of work (25% of America’s work force)
Franklin Roosevelt and The New Deal
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1932 FDR was elected president based on his New Deal strategy to get Americans back to work
Roosevelt’s Philosophy and Style
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Introduced the idea that the federal government should bear the responsibility for ensuring a
smooth running government
Permanently increase the size and power of the federal government
A New Style of Leadership
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The “Brain Trust” was established and served in his administration (leaders from top
universities)
He asked them to be creative in developing new strategies and programs to deal with the crisis
Roosevelt had frequent public addresses with the nation by radio (Fireside Chats)
Struck by Polio at 39, he sympathized with the poor and struggling
Eleanor Roosevelt traveled with him and became an activist for women’s rights, cause of peace,
and the poor
Women in The Great Depression
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Eleanor Roosevelt felt women had a demanding task of making ends meet by cooking, cleaning,
and caring for children while the men were out looking for work and making money
Mrs. Roosevelt wrote the book, It’s up to the Women
Book stated that women’s courage had pulled us through crisis like this before and it was up to
them to pull us through the depression
Francis Perkins was the first female member of the U.S. Cabinet and appointed as Secretary of
Labor in 1933
She was instrumental in overseeing the Civil Conservation Corps and the Public Works
Administration
Passed the Fair Labor Standards Act, the National Labor Relations Act, and the Social Security
Act
New Deal Legislation: Relief, Recovery, Reform
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First Hundred Days of Roosevelt’s time in office he passed measures through Congress
In his inaugural address to the public he told the people “the only thing you have to fear, is fear
itself”
The New Deal Measures were referred to as the three R’s—Relief, Recovery, and Reform
Relief
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The Banking Crisis - Short term action to tide the people over till the economy recovered
Bank Holidays were meant to give consumer confidence back to depositors
Bank would close for inspectors to make sure the bank was financially sound and then reopen to
the public
Gave people the confidence the bank was good to deposit your money
Relief to Homeowners and Farmowners – legislation passed to make emergency loans available
Relief for the Unemployed – “work relief” gave people emergency public jobs
Relief Legislation During the New Deal
Federal Emergency Relief Act 1933 – state and local gov’ts provided “make-work” projects to hire
millions of people
Civilian Conservation Corps 1933 – young men planted trees in forests and lived in camps and were
provided free food, most of their pay was sent home to their parents
Public Works Administration 1933 – federal jobs by building public projects, schools, roads, courts, post
offices, bridges
Works Progress Administration 1935 – jobs for artists, writers, and musicians to paint murals, produce
plays, and create other artworks
Recovery
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Key was to stimulate demand to restore the economy by increasing incentives to produce and
by rebuilding people’s purchasing power
“Recovery” Measures During the New Deal
Priming the Pump – pouring money into the economy to get it working again. Gov’t money into
consumers’ hands, to spend more and increase demand for products, leading to workers being hired
and increasing purchasing power and consumer demand
National Recovery Administration 1933 – asked business to follow codes that set price standards,
production limits, and minimum wages. 1935 Supreme Court found the NRA unconstitutional because
the feds could not interfere with business activities conducted in a state
Agricultural Adjustment Acts – asked farmer to plant less (did not work) 1938 raised farm prices by the
gov’t buying up farm surpluses and stored them till prices went up
Reform
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Set up to ensure the American economy would never go through another Depression again and
protect individuals against risks they could not handle on their own
“Reform” Legislation During the New Deal
Federal Deposit Insurance Corporation 1933 – insured bank deposits protected against loss of savings if
a bank fails
Tennessee Valley Authority 1933 – built 21 gov’t owned dams along the Tennessee River, controlling
floods and producing electricity
Securities and Exchange Commission 1934 – watch over the stock market, prevent fraud and prevent
another crash
National Labor Relations Act 1935 – “Wagner Act” gave workers the right to form unions, bargain
collectively, submit grievances to NLR board
Social Security Act 1935 – most important measure, gave workers unemployment insurance, old age
pensions, insurance if they died early. Workers and employers paid new contributions to fund these
benefits
The Impact of the New Deal on Labor
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Union memberships in the 1930’s was the largest in U.S. history as Roosevelt tried to raise the
wages of labor to help fight the depression.
New Deal Legislation Favorable to Labor
Norris-LaGuardia Act 1932 – prohibited the use of injunctions against peaceful strikes
National Industrial Recovery Act 1933 – gave workers the right to form unions, employers could not
refuse to hire union members, act was later declared unconstitutional
Wagner Act 1935 – Stimulate unionization of workers by protecting the rights of unions to bargain
collectively with employers, membership in unions grew rapidly, replaced the NIR act
Reactions to the New Deal
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The Liberty League was a conservative group that charged FDR as a traitor to his class and felt
he tried to establish a popular dictatorship
Dr. Francis Townsend did not feel FDR went far enough with the help, he wanted to give people
over 65 a pension of $200 a month to spend in the same month, this would stimulate the
economy faster
Huey Long wanted to give each family an income of $5000 a year by taxing the rich, he was
assassinated before he could campaign against FDR
Father Coughlin wanted nationalization of banks and utilities, he was anti-Semitic, eventually
the Catholic Church ordered an end to his radio broadcasts
The Supreme Court and the New Deal
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The Supreme Court ruled that two of FDR’s New Deal strategies were unconstitutional
National Industrial Recovery Act and the first Agricultural Adjustment Act
The Supreme Court ruled in Schechter Poultry v. U.S. 1937 Congress could not give the President
more powers than those granted in the Constitution
Roosevelt’s Court-Packing Scheme 1937
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FDR tried to have the President add a new Supreme Court Justice for every Justice over the age
of 70 1/2
This would give him the chance to add 6 new Justices
The public and Congress did not like this and was not allowed, however this did impact the
current Justices as they stopped overruling New Deal Legislation
The Impact of the New Deal on State and Federal Governments
The New Deal left a lasting change to how involved the Federal Government was in business and
everyday American life. It was different than the old days of just preventing dishonesty and maintaining
safety in business, it now had the responsibility to make sure it ran smoothly. The Federal Government
was now more involved in everyday life of Americans than ever before with many of the new agencies
aimed at protecting how Americans lived and preventing the poor times of the depression. Many of the
New Deal legislations still stand today but some went away after WWII.