The Great Depression and
The New Deal
U.S. History
The Crash
 On Monday, October 21, 1929 the stock market plunged.
 Frightened customers put their stocks up for sale at a
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frenzied pace, driving the market into a tailspin.
On October 24, Black Thursday, the market plummeted
further.
The following week, October 29 (Black Tuesday) prices
took the steepest dive, losing $10 to $15 billion dollars in
stock value.
By Mid-November stock prices had dropped by over 1/3.
 Some $30 billion was lost
The stock market crash was not the major cause of the
Great Depression, but it undermined the economy's
ability to hold out against its other weaknesses
The Great Depression
 The stock market crash
helped put the economy into
a recession.
 Yet the crash would not have
let to a long-lasting
depression if other forces had
not been at work.
 The roots of the Great
Depression were deeply
entangled in the economy of
the 1920’s.
Causes of the Great
Depression
 During the 1920’s, many Americans bought high cost
items on the installment plan, where they would
make a small down payment and pay the rest in
monthly installments.
 Some buyers eventually were forced by debt to
reduce spending on other items.
 This low consumption then led manufactures to cut
production and lay off employees.
 The slowdown in retail manufacturing had
repercussions throughout the economy, resulting
in a chain reaction which put more and more
Americans out of work.
 Many jobs might have been saved if American
manufactures had sold more goods abroad.
 As the bull market of the 1920s accelerated, U.S. banks
made high-interest loans to stock speculators instead of
lending money to foreign companies.
 Without these loans from U.S. banks, foreign companies
purchased fewer products from American manufacturers.
 The Hawley-Smoot Tariff (1930) raised the average
tariff rate to the highest level in American history
made a huge impact.
 Instead of raising interest rates to curb
excessive speculation, the Federal Reserve
kept its rates very low throughout the
1920s
 The Board’s failure to raise interest
rates significantly helped cause the
Depression in two ways.
 First, by keeping rates low, it
encouraged member banks to make
risky loans.
 Second, its low interest rates led
business leaders to think the
economy was still expanding,
resulting in them borrowing more
money to expand production, which
led to overproduction when sales
were falling.
 Then the Fed made another mistake by
raising interest rates, which tightened
credit which eventually helped put the
company into a recession.
Summery of Causes
 Overproduction and low
demands leads to
employee layoffs
 Low wages reduce
consumer buying power
 High tariffs restrict
foreign demand for
American goods
 Unemployment reduces
buying power further
Impacts of the Great
Depression
Economic:
 The markets crash severely weakened
the nation’s banks in two ways.
 First, many banks had lent money
to stock speculators.
 Second, many banks had invested
depositors’ money in the stock
market, hoping for higher returns
that they could get by using the
money for conventional loans
 When stock values collapsed, the
banks lost money on their
investments, and the speculators
defaulted on their loans.
 Many banks cut back
drastically on the loans they
made, with less credit
available, consumers and
businesses were unable to
borrow as much money as
they had before.
 This helped put the
economy into a recession
 During the first two years of
the Depression, more than
3,000 banks were forced to
close.
 The bank failures in 1929
and early 1930 triggered a
crisis of confidence in the
banking system.
Social:
 By 1933, more than 12 million
workers were unemployed, about
one-forth of the workforce.
 Average family income dropped
from $2,300 in 1929 to $1,600
just three years later.
 People joined bread lines and soup
kitchens to receive free rations of
food
 Also, shanty towns were formed
by newly homeless people,
hobos, on unused or public lands.
 Blaming the president for their
plight, people referred to such
places as Hoovervilles
 http://docsteach.org/activities/74/pr
int
Hoover’s Response

Hoover was seriously worried about the economy,
he organized various conferences to find a solution.
 Hoover wanted to avoid more bank runs
and layoffs by urging consumers and
business leaders to become more rational
in their decision making
 He organized a series of conferences,
bringing together the heads of banks,
railroads, and other big businesses, as well
as labor and government officials to work
to find a solution.
 His next step was to increase public works,
government-financed building projects.
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Hoover also pumped money into the economy by
trying to rescue banks and directly helping citizens
 He requested that Congress set up the
Reconstruction Finance Corporation (RFC) to
make loans to banks, railroads, and agricultural
institutions.
 Congress eventually passed the Emergency
Relief and Construction Act which Hoover
signed on July 21st.
Franklin D. Roosevelt
 Franklin Roosevelt (FDR) was born in
1882 to a wealthy New York family and
later educated at Harvard and Columbia
Law School.
 In 1910, he won a seat in the New York
State Senate, where he earned a
reputation as a Progressive reformer
willing to stand up to the party bosses.
 In 1928 he won the position of Governor
of New York.
 His popularity in there paved the way
for his presidential nomination in 1932
where he won the campaign and
implemented the New Deal
 First Inaugural Speech:
http://historymatters.gmu.edu/d/5057
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Eleanor Roosevelt
 http://www.time.com/ti
me/photogallery/0,2930
7,1906747,00.html
The New Deal
The New Deal altered permanently
the roles of American
government in the economy. It
also fostered changes in people’s
attitudes toward government’s
responsibilities. Organized labor
acquired new rights, as the New
Deal set in place legislation that
reshaped modern American
capitalism.
First 100 Days
 Between March 9 and
June 16, 1933 (Hundred
Days) Congress passed
15 major acts to meet
the economic crisis,
setting a pace for new
legislations that had
never been equaled.
 Together, these
programs made up what
would later be called the
First New Deal.
 The New Deal was not
based on a clear
strategy or a
philosophical platform.
The First New Deal
 The first thing President Roosevelt had to do was to restore
confidence in the banking system.
 Roosevelt agreed with the Securities Act of 1933 and the GlassSteagall Banking Act.
 The Securities Act required companies that sold stocks and bonds to
provide complete and truthful information to investors
 The next year Congress created the Securities and Exchange
Commission, to regulate the stock market and prevent fraud
 The Federal Deposit Insurance Corporation was created to provide
government insurance for bank deposits up to a certain amount,
which also increased confidence in the banking system.
Second Step
 The Agricultural Adjustment Act
that Roosevelt asked Congress to
pass was based on a simple idea
that prices for farm goods were low
because farmers grew too much
food.
 Under the program, the
government would pay farmers
not to raise certain crops, the
farm program was administered
by the Agricultural Adjustment
Administration (AAA).
 Roosevelt and Congress also
enacted the National Industrial
Recovery Act (NIRA) which
suspended the antitrust laws and
allowed business, labor, and
government to cooperate in setting
up voluntary rules for each
industry.
Third Step
 President Roosevelt
introduced several policies that
intended to assist Americans
with their debts.
 He asked Congress to
establish the Home Owners’
Loan Corporation which
bought the mortgages of
many homeowners who
were behind in their
payments.
 Congress also authorized
the Farm Credit
Administration to begin
helping farmers refinance
their mortgages.
Fourth Step
 Roosevelt urged Congress to establish
a series of government agencies that
would organize work programs for the
unemployed.
 The most highly praised New Deal
work relief program was the Civilian
Conservation Corps which offered
unemployed young men the
opportunity to work under the
direction of national forestry
service planting trees, fighting
forest firs, and building reservoirs.
 In June 1933, Congress authorized the
creation of another federal relief
agency, the Public Works
Administration (PWA) which began a
series of construction projects to build
and improve government facilities.
The Second New Deal
 The New Deal had been in
effect for two years, yet the
economy had shown only a
slight improvement.
 President Roosevelt
launched what came to be
called the Second New Deal,
another series of programs
and reforms that he hoped
would speed up the nation’s
recovery, provide economic
security to every American,
and ensure his re-election in
1936.
 In January 1935, Roosevelt began
by asking Congress for nearly $5
billion, much of the money would
be given to the Works Progress
Administration, a new federal
agency headed by Harry Hopkins.
 The Federal Theater Project financed
various elements to the theater.
 Congress began work on a bill that
ranks as one of the most important
pieces of legislation in American
History, the Social Security Act.
 Its major goal was to provide some
security for the elderly and for
unemployed workers.
Programs of the First
New Deal
Agricultural Adjustment Act
(AAA)
Reduced agricultural surplus
and raised prices for
struggling farmers
Federal Deposit Insurance
Corporation (FDIC)
Guaranteed bank deposits to
$2,500.
Civilian Conservation Corps
(CCC)
Employed single men, ages 1825, for natural resource
conservation
Securities and Exchange
Commission (SEC)
Regulated the stock market to
avoid dishonest practices
Public Works Administration
(PWA)
Civil Works Administration
(CWA)
Provided employment in
construction of airports,
parks, schools, and roads
Programs of the Second New
Deal
Works Progress
Administration (WPA)
Combated unemployment;
created jobs throughout
economy
Social Security Act
Coated an unemployment
system, disability insurance,
old-age pension , and child
welfare benefits
Rural Electrification
Administration (REA)
Brought electricity to
isolated agricultural areas
Resettlement Act
Assisted poor families and
sharecropping in beginning
new farms or purchasing land
Impact of the New Deal
•Various new acts enabled people to once again find work (Public Works Admin. Federal
Emergency Relief)
•A Social “Safety Net” was created with the Social Security Act which provided income
for elderly, handicapped, and unemployed and supplied a monthly retirement benefit for
people over 65
•Women and African Americans gained political recognition
•The government took on a new role, expanded its influence, and increased its power over
the economy
•Put new rules on banks, brokers, and the stock market, while other programs placed new
regulations on industrial production and prices, downsized agricultural surplus and raised
farm profits, and granted federal relieve efforts.
Criticisms of the New
Deal
 In the election of 1936, Governor
Alfred Landon became the
Republican nominee.
 He stated that the New Deal
“violates the basic ideals of the
American system…If we are to
preserve our American form of
government, this administration
must be defeated.”
 Critics, like Huey Long who headed
the Union Party, continued to agree
that the New Deal made the
government too powerful and made
the American people too dependent
on government spending.
Legacy of the New Deal
 In terms of its main goal of ending the Depression, the New
Deal was only a limited success.
 Even so, the New Deal gave many Americans a stronger sense
of security and stability.
 As a whole, the New Deal tended to operate so that it balanced
competing economic interests.
 The Federal Government’s ability to take on this new role
was enhanced by two important supreme court decisions.
 The New Deal established what some have called the broker
state, working out conflicts among different interests, which
has continued under the administration of both parties ever
since.
 Probably the biggest change
the New Deal brought about
was the new public attitude
toward government.
 The American people now felt
that the government had a duty
to maintain this safety net even
though it required a larger,
more expensive federal
government that at any time in
American History.
End of the New Deal
 The Recession of 1937 enabled
the Republicans to win many
seats in Congress in the
midterm elections of 1938,
turning the Democratic
majority against the New Deal.
 Together with conservative
Southern Democrats, they
began blocking further New
Deal Legislation
 Roosevelt, meanwhile, became
increasingly preoccupied with
the growing international
threat posed by Germany and
Japan
 By 1939 the New Deal era had
come to an end.