The Great Depression and the
New Deal (1929-41)
Textbook chapters 8 and 9
Sections in this unit:
Hoover
First New Deal
Second New Deal
The Great Depression
 Herbert
Hoover elected 1928
 Black Thursday: October 24, 1929
– Stock prices drop precipitously, eventually lose
80 percent of value by 1933
 Buying
on margin 90 percent – for stocks
 Bank failures, bank runs
 Most severe deflation in U.S. History (1/3)
 Unemployment level rises to 25 percent by
1933
Hoover Responds
 Republican
Congress turns surplus into
deficit
 Proposed Reconstruction Finance
Corporation, Congress agrees (1932)
–
$2 billion in loans to get banks to lend
 Dust
bowl: Farmers endure worst drought
in 100 years
–
Impact increased by farming techniques
 Strikes
based on wage cuts
 Bonus March on Washington
Hoover and “Austerity”
Your textbook stresses Hoover talks about local solutions, but...
Federal spending increases every year under Hoover (1929-33), and at
a faster rate than under Roosevelt (though Congress spends money).
In current dollars, Congress increased federal spending an average of
23 percent per year under Hoover (1929-33), compared with 13 percent
per year under Roosevelt (1933-40). Roosevelt increased from a higher
base, however.
The New Deal
The First New Deal (1933-35)
New Deal First “100 Days”
March 4: Inauguration “The only thing we have to
fear is fear itself.”
March 5-9: Roosevelt pronounces “Bank Holiday”
March 12: Fireside chats begin
March: CCC passed
April: Gold standard abolished by Executive Order
6102 (Americans must turn in gold to Federal
Reserve for $20.67/oz... dollar officially valued at
$35/oz. in 1935, though Americans can not get
gold coins any more)
May: Federal Emergency Relief Act, AAA, TVA,
Federal Securities Act
Civilian Conservation Corps
(CCC)
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
One of the first New Deal programs
(1933), and it survived until 1942
Built roads, bridges, dams, and engaged in
conservation efforts
Not very controversial (unlike NRA, and
WPA in Second New Deal)
Agricultural Adjustment
Administration (AAA)
Created May 1933
Tried to keep agricultural prices up
Bought and destroyed agricultural products
to reduce excess supply.
Also paid farmers not to farm.
Taxed some farmers to pay for the
subsidies, and some farmers sued to stop
the tax. They won in the Supreme Court, in
the 1936 case, U.S. v. Butler.
New Deal First “100 Days”
Last day of 100 day session of Congress, the
National Industrial Recovery Act is passed,
creating the National Recovery
Administration (NRA).
NRA: National Recovery
Administration
 Symbol:
Blue Eagle
 Sought to regulate
prices and wages by
combining industry
with government
 Headed by WWI
General Hugh S.
Johnson
Hollywood support for NRA enlisted:
http://www.youtube.com/watch?v=DZ-F-bh4Upo
Hugh S. Johnson
Time magazine “Man of the Year”
1933
Creeped out Roosevelt’s Secretary of
Labor Frances Perkins (first female
cabinet member) by distributing The
Corporate State by Mussolini’s
favorite economist Raffaello Viglione.
Time magazine said he gave a
“fascist salute” during a New York
City NRA parade
Fell out of favor with Roosevelt after
he rebelled against Roosevelt’s
“court-packing” scheme
NRA rules included …
Ban on pressing pants for less than $0.40.
One man jailed for pressing pants for only
$.035
Maximum of four strippers in a burlesque
act
Chickens can’t be picked by customers, they
must be randomly picked.
10 million pages of rules and regulations
“The NRA was discovering it could not enforce its
rules. Black markets grew up. Only the most violent
police methods could procure enforcement.… They
roamed through the garment district like storm
troopers. They could enter a man’s factory, send him
out, line up his employees, subject them to minute
interrogation, take over his books on the instant.
Night work was forbidden. Flying squadrons of these
private coat-and-suit police went through the district
at night, battering down doors with axes looking for
men who were committing the crime of sewing
together a pair of pants at night. But without these
harsh methods many code authorities said there
could be no compliance because the public was not
back of it.”
- New Deal Opponent John T. Flynn
Schechter v. U.S. (1935)
Chicken farmer wanted to let customers pick out
their own chickens
NRA argued: In order for national rules to be
uniform, chicken picking must be random
Schechter flouted the NRA (like a lot of people)
and took his case to the Supreme Court and won a
9-0 decision.
Court ruled that the legislature can’t delegate
authority to the NRA.
NRA abolished that year.
Schechter Case and
“Fuhrerprinzip”
Hitler’s Germany: “The Fuhrer's Orders
have the Force of Law"
Mussolini: “Duce,” the “boss,” also said “In
every class, among all citizens, nothing is
done against the state, nothing is done
outside the state”
U.S. Constitution begins: “All legislative
powers herein granted shall be vested in a
Congress…”
U.S. v. Butler (1936)
“The act invades the reserved rights of the states.
It is a statutory plan to regulate and control
agricultural production, a matter beyond the
powers delegated to the federal government.
The tax, the appropriation of the funds raised,
and the direction for their disbursement, are but
parts of the plan. They are but means to an
unconstitutional end. “
- U.S. Supreme Court, citing the 10th Amendment to
the U.S. Constitution.
Court-Packing Scheme
After Schechter and Butler cases …
Roosevelt proposes increasing the number of
Supreme Court justices from 9 to 15 (giving
him an opportunity to appoint a majority of
justices).
Congress refuses to consider the proposal,
but by the end of his third term Roosevelt
has appointed all the justices anyway.
New Deal Opponents
From the right:

American Liberty League: Al Smith and John W. Davis,
Democratic Presidential nominees for 1928 and 1924 –
seek repeal of New Deal spending/regulations

John T. Flynn, progressive writer/author
From the left:

Fr. Charles Coughlin, radio talk show host and antiSemite (sympathizes with some fascist policies)

Louisiana Democratic Governor Huey Long (“Kingfish,”
Share the Wealth), assassinated 1935

Socialists, communists
The New Deal
Second New Deal (1935-39)
WPA: Works Progress
Administration (1935)

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Largest New Deal Agency; 8 million employed in
it at one time or another before it was abolished
in 1943
Cost $7 billion 1936-39
Built roads, bridges, airports, schools and other
public buildings
Labeled “make-work” by critics,
Headed by Brain-Trust member Harry Hopkins
(later revealed as a WWII-era Soviet spy by the
Venona documents) who was known for “tax,
spend and elect” quote (not a quote, but a
paraphrase)
Fair Labor Standards Act of
1938


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First national minimum wage of $0.25 per hour
(~$7.00 in today’s dollars)
Today the minimum wage is $7.25 per hour
($8.00 in Mass.)
Exempted farms, gratuity-based professions and
some family businesses
Prohibited child labor
Guaranteed time-and-a-half for more than 48
hours per week.
New Deal Agencies Today




FDIC: Federal Deposit Insurance Corporation
(insured up to $25,000)
Social Security Administration (initial tax 1% for
employers plus 1% for employees; today it’s a
combined 15.5%)
Federal Housing Administration: Bank
guarantees for home loans.
FCIC: Federal Crop Insurance Corporation
insures farmers against weather, climate change
and pests.
New Deal Agencies Today, cont’d



Fannie Mae: The Federal National Mortgage
Association buys mortgages from banks to keep
banks lending. (And recently precipitated the
housing crisis)
SEC: Securities and Exchange Commission
regulates the buying and selling of stocks.
TVA: Tennessee Valley Authority helped electrify
rural areas of the Appalachian mountains. Also
construction projects.
New Deal Agencies Today, cont'd
Social Security Program
Created from an idea by Francis Townshend, who
proposed a national minimum income for retired
people.
Guaranteed a minimum income for people who
worked and paid into the system and are over 65.
Guaranteed income for people disabled on the job.
Pays a $255 death benefit
In 1960s, partial medical treatment passed
(Medicare) to program
Pay-as-you-go program
Why the depression started
Keynesian School:



“Animal spirits,” a
stampede to buying
stocks
Too much investment in
stocks
Correction symptoms
need to be fixed to a
“liquidity trap.”
Austrian School
(Hayek and von
Mises)




Low interest rates (easy
credit)
Animal spirits
Too much investment in
stocks
Appropriate correction
(recession is the cure)
Why did it last?
Keynesian

Government
spending cuts in
1937 led to crash
same year
Austrian

Too much
government
interference/
spending led to
new economic
bubbles, 1937
recession
Spending and Unemployment
Under Presidents
Racial Change in the New Deal
Roosevelt initiates “Black Cabinet” of AfricanAmerican advisors (Federal Council of
Negro Affairs) to advise him, including one
woman, Mary McLeod Bethune.
In June 1941, he issued Executive Order
8802, creating the Fair Employment
Practices Committee (FEPC), which
prohibited discrimination in federal
employment (not always followed).