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UNIT X: GREAT DEPRESSION & NEW DEAL
MR. FAEH
I. ELECTION OF 1828
A. Nominations/Campaign/Results
1. Herbert Hoover nominated by Republicans on platform of prosperity and prohibition.
2. Alfred E. Smith nominated by Democrats
-- Tammany Hall boss, Catholic, "Wet" son of Irish immigrants; strong rural and
Southern sentiment against him.
B. Campaign
1. Radio used significantly for the 1st time.
2. Hoover decried un-American "socialism" and preached "rugged individualism"
3. Religious bigotry displayed over Smith’s Catholicism: "A vote for Al Smith is a Vote
for the Pope."
C. Results:
1. Hoover d. Smith 444 to 87; 21,391,993 to 15,016,169
-- Hoover first Republican in 52 years to carry a formerly seceded southern state (5)
except Harding’s taking of Tennessee in 1920.
2. Huge Republican majority was returned to the House of Representatives
II. COMING OF THE GREAT DEPRESSION
A. Long Term Causes
1. *Uneven Income Distribution
a) Maldistribution of purchasing power:
i. The proportion of profits from industrial and agricultural production going to
farmers, workers, and other consumers was too small to create an adequate
market, resulting in low consumer demand versus an ever-increasing supply.
ii. In 1929 over half of U.S. families were too poor to buy basic necessities,
houses, or cars.
iii. The auto and construction industries reduced their work forces, further
limiting purchasing power.
iv. 5% of the population received 30% of the total income
b) Economy dependent on the rich reinvesting and spending---anything that shock
confidence or would have effect on their spending and hence the economy(Galbraith)
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2. *International Debt Structure
a) America’s position in international trade: During the 1920s, exports were a significant
factor in U.S. economy.
i. However, demand for American goods declined by the end of the decade when
European industry and agriculture improved.
ii. Foreign nations were experiencing their own financial crises.
iii. Decline in demand also involved the international debt structure (see below),
which destabilized the European economy.
b) International debt structure: European nations that had been aligned with the United
States during World War I owed large amounts of money to American banks.
i. This was one reason why reparation payments from Germany and Austria were
imposed; it was thought that such payments would help France and Britain to pay
off their American debts.
c) In spite of the faltering economies of European nations, the United States refused to
forgive or reduce debts incurred by European nations.
d) Still greater debts were incurred when American banks made larger loans to European
countries.
i. When the American economy weakened after 1929, it became more difficult for
these nations to borrow from the United States.
ii. High protective tariffs in America made it difficult for European nations to sell
their products in American markets.
iii.
They began to default on their loans due to these factors.
iv. After 1931, the Great Depression spread to Europe as a result of the collapse
of this international debt structure.
3. *Corporate Structure
a) “Corporate Thimblerigging”(Galbraith)---Pyramid effect
4. Consumption/Credit
a) Created a sense of wealth that was not there
i.1920s Autos
1. Bought on credit—Stock Market Crash = people walk away from contract
and consumption
2. Would have happened anyway after 1920s = Most items were things that
buying all at once, but won’t need another for awhile
b) Throughout the 1920s, farmers were in debt. Their land was mortgaged, and crop
prices were too low to allow them to pay off debts to banks.
i. The banking system was inadequately prepared to absorb a major recession.
ii. Small banks, many tied to the agricultural sector of the economy, experienced
failures as many debtors defaulted on loans.
iii. The Federal Reserve system only loosely regulated the banking system.
iv. Some larger banks maintained inadequate reserves against stock market
investments and had made unwise loans.
5. Lack of Diversification
a. Lack of Diversification—The U.S. economy’s prosperity depended upon a few basic
industries, particularly construction and automobiles
i. At the end of the 1920s, these industries began to decline
ii. The newer petroleum, chemical, and plastic industries were not strong
enough to compensate
iii. Construction—had downturn as early as 1927
i. Reduction in Population—reduction in immigration & pop.
(result WWI)
ii. Result in having overbuilding
iv. Housing accounts for 3x GNP—more than Fed. Govt. Spending
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UNIT X: GREAT DEPRESSION & NEW DEAL
MR. FAEH
B. Stock Market Crash(Oct. 1929)
1. Buying on Margin and Overspeculation
a. Bull market = values of stocks continued to increase during the 1920s.
i. Dow Jones in 1924 = 180
ii. Sept. 1929 = 381 -- selling for 16X earnings; Rule of thumb = 10X
b. On margin buying of stocks.
i. Investors purchased stocks from stockbrokers for as little as 5% down
ii. When stock values rose, investors would pay back their debt.
-- If no payment, stocks were held as collateral.
iii. If prices of stock decreased more than 10%, broker would sell stock for
whatever price they could get.
-- Result: Banks and businesses that had financed broker’s loans lost much
iv. Banks loaned money to stockbrokers to facilitate on margin buying.
c. Overspeculation:
i. Investors gambled that prices would continue to rise
ii. Artificial rises in stock & commodity values fueled speculation.
iii. Hoover unsuccessfully tried early to curb speculation through the Federal
Reserve Board.
2. The Great Crash—Oct. 29, 1929 “Black Tuesday”
a. Oct. 29, 1929 ("Black Tuesday") -- Everybody wanted to sell. Within hours,
the stock market crashed.
b. By mid-November, $25 billion in stock value had disappeared
-- Fortunes were wiped out almost overnight; Dow Jones in 1932 = 41.
5. Tradtional historical interpretation puts the Crash as the immediate cause of the
Great Depression.
-- However, no direct connection has ever been proven as the country did not sink into
a major depression December 1930.Other factors more important
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UNIT X: GREAT DEPRESSION & NEW DEAL
MR. FAEH
II. HOOVER’S RESPONSE
A. Hoover’s Philosophy
1. Hoover believed (perhaps correctly) that outside forces in Europe were responsible for the
Great Depression.
a. Economic consequences of WWI (especially Versailles Treaty and German
reparations)
b. Post-war military alliances and doubling of prewar armament.
c. Inflationary public works programs to alleviate unemployment.
d. Unbalanced budgets and increasing debt.
2. Hoover thus took too long to initiate domestic measures to help the economy believing
instead the international system had to be repaired
B. Economic Recovery
1. Volunteerism
a. Volunteerism
i. Hoover believed voluntary cooperation (like in WWI) would enable the country
to weather the depression.
ii. Urged businesses to avoid lay-offs of workers and wage cuts.
iii. Secured no-strike pledges from labor leaders.
iv. Urged all citizens to contribute to charities to ease the suffering.
v. In reality, private charity not adequate to meet the country’s needs
2. Reconstruction Finance Corporation
a. Created by Congress in 1932
b. RFC had appropriation of $500 million and authority to borrow $1.5 billion
for loans to railroads, banks, and other financial institutions.
-- Later, approved legislation authorizing RFC to lend $300 million to states
for relief, & to make loans to states & cities for self-liquidating public works.
c. Prevented the failure of basic firms on which many other elements of the
economy depended, but was criticized by some as relief for the rich.
3. Hawley-Smoot Tariff
a. Tariff became the highest peace-time barrier in the nation’s history.
--Average duty on nonfree goods raised from 38.5% (FordneyMcCumber act of 1922) to nearly 60%.
b. Foreign govt’s interpreted tariff as an economic declaration of war.
-- Trade gaps widened
c. Exacerbated the existing economic depression.
d. International financial chaos resulted in U.S. becoming even more isolationist
4. “Rugged Individualism”
a. Hoover opposed vetoed use of federal funds for relief for the needy.
-- Feared gov’t handouts would destroy the nation’s work-ethic.
b. Compromised by authorizing RFC to lend $300 million to states for relief, &
to make loans to states and cities for self-liquidating public works
5. Norris-La Guardia Anti-Injunction Act (1932)
a. Passed by Congress and signed by Hoover
b. Outlawed "yellow dog" (antiunion) contracts and forbade the federal courts
to issue injunctions to restrain strikes, boycotts, and peaceful picketing.
6. Refusal of relief ("rugged individualism")
a. Hoover opposed vetoed use of federal funds for relief for the needy.
-- Feared gov’t handouts would destroy the nation’s work-ethic.
b. Compromised by authorizing RFC to lend $300 million to states for relief, &
to make loans to states and cities for self-liquidating public works.
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7. Moratorium on international debts (1931)
a. Hoover courageously pushed for a 1-year freeze on international debts to help
European countries (esp. Germany) recover.
b. Yet, the international economy was too heavily damaged for this to make much
difference.
C. Bonus Army
1. 14,000 unemployed veterans marched on Washington in summer of 1932
to lobby Congress for payment of bonus approved in 1932, payable in 1945.
2. At Hoover’s insistence, Senate did not pass the bonus bill and about half of
the Bonus Army accepted congressional transportation home.
3. Remaining 5 or 6K lived in shanties along the Anacostia river and to lobby
for their cause.
4. Hoover called in the Army to remove the bonus army after 2 veterans were
killed in a clash with the police.
-- Veterans driven from Washington and their camps were burned.
5. Significance: Hoover appeared heartless to already angry Americans and
contributed to his defeat in the November elections.
E. Assessment of Hoover
1. Despite not doing enough, Hoover advocated more direct gov’t involvement
than any previous president in the nation’s history.
a. Probably prevented a more serious collapse than did occur.
b. Policies paved the way for the New Deal.
2. Yet, his conservative underpinnings prevented him from going far enough
to solve the worst slump in U.S. history
X. FOREIGN POLICY DURING HOOVER’S ADMINISTRATION
A. Japanese attack Manchuria in September, 1931
1. Open Door shut as Western world was reeling in economic chaos.
2. Violated League of Nations covenant as well as other international agreements
signed earlier by the Japanese government.
-- Collective security in jeopardy.
3. League of Nations condemned the action
a. Result: Japan left the League
b. Hoover, reflecting isolationism of the nation, wanted no part in military action in
Far East.
c. U.S. severely handicapped the League by not taking part in preventing Japanese
aggression.
4. Hoover-Stimson Doctrine (1932)
a. Declared U.S. would not recognize any territorial acquisitions that were achieved
by force; Japan infuriated as U.S. had conquered territories a few decades earlier.
b. Japan not deterred: bombed Shanghai in 1932 with appalling losses to civilians.
5. Japanese aggression seen by many historians as the beginning of World War II.
a. Naked aggression was not halted by the League of Nations.
-- U.S. would not commit to collective security
b. Hitler and Mussolini would soon bring Europe to war.
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B. Good Neighbor Policy
1. Hoover aimed to abandon interventionist philosophy of Theodore Roosevelt.
a. Took a goodwill trip after his election in 1928 of Latin American aboard a
U.S. battleship.
b. Great Depression meant less money for U.S. investors to spend overseas thus
decreasing U.S. interest in economic imperialism.
2. 1932, negotiated new treaty with Haiti which provided for later withdrawal
of U.S. troops in 1934.
3. Early 1933, U.S. forces left Nicaragua after an unwelcome stay of nearly 20 years.
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Bibliography:
Bailey, Thomas A., Kennedy, David M.: The American Pageant, 14th edition, Boston: Wadsworth, 2010
Brinkley, Alan: American History: A Survey, 11th edition, New York, New York: McGraw-Hill, 2003
College Board, Advanced Placement Course Description: History -- United States, European History, College
Entrance Examination Board, 2006
Newman, John, Schmalbach, John: United States History: Preparing for the Advanced Placement
Examination, Revised Edition, New York: Amsco Publications, 2004
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