Name __________________________ Date: ________________ Section: 11.1 11.2 11.3 (circle one) U.S.HistoryII Unit6Coursepack:
TheGreatDepression
Thiscoursepackcontainsnearlyallofthedocumentsthatwewilluseinourstudyof
theGreatDepressionandtheNewDeal.Youwillneediteveryday,inclassand
forhomework.Youwillearnademeritforeverydaythatyoudonotbringthis
coursepacktoclass.
Contents
OverproductionandInequality............................................................................................................2
SpeculationandMarginBuying...........................................................................................................5
TheStockMarketCrashes......................................................................................................................8
BankingPanics.........................................................................................................................................11
AnIntroductiontoMoney...................................................................................................................13
TradeandTariffs.....................................................................................................................................16
LifeDuringtheGreatDepression.....................................................................................................18
Hoover’sApproachtotheDepression...........................................................................................21
TheNewDeal............................................................................................................................................25
TheLegacyoftheNewDeal................................................................................................................29
PrimarySource:StatisticsonOverproductionandInequality............................................31
PrimarySources:BlackTuesday......................................................................................................34
PrimarySource:UnemploymentduringtheGreatDepression..........................................35
PrimarySource:HerbertHooveronRuggedIndividualism................................................36
PrimarySource:HerbertHooveronVolunteerism..................................................................37
PrimarySource:FDRontheNewDeal..........................................................................................38
OverproductionandInequality
Source:EmmaLapsansky‐Werneretal.,UnitedStatesHistory(Boston:Pearson
PrenticeHall,2008).
OverproductioninAgriculture
Americanfarmersfaceddifficult
timesduringthe1920s.Farmers
madeuponefourthofthe
Americanworkforceduringthe
decade.Tomeetthe
unprecedentedcropdemands
createdbyWorldWarI,theyhad
increasedharvestyieldsand
boughtmorelandtoputunderthe
plow.Theyalsoboughtcostly
tractorsandothermechanized
farmequipment.Farmerscontractedhugedebtsdoingthis,andtheadditional
mortgagepaymentsfollowedthemintothe1920s.
Afterthewar,thedemandforAmericancropsfellsharply.Between1925and1929,
nearlyeveryexportcropintheworldfellinprice.Millionsoffarmerssuffered
lossesascashcommoditieslikecoffeefellfrom24centsto10centsapoundorrice
depreciated30‐50percentinvalue.Theproblemwassimple.Therewastoomuch
agriculturalproductioninthe1920s–supplyfaroutweigheddemand.Despitethis
drop,postwarproductionremainedhighbecauseofincreasinglymechanizedfarm
equipmentandmoreintensivefarmingmethods.Farmsweregettingbiggerand
experiencinggoodharvests.
Aroundtheworld,cottonproductionincreasedby30percent;rubberproduction
increasedbymorethan80percent.Thefarmingofwheat,beets,sugarcane,tea,
andcocoawasalsoamplified.Meanwhilegovernmentsplacedtariffsonimported
foodstuffstoprotecttheirownfarmers.Germany,forexample,morethantripledits
wheattariffbetween1925and1930.Thesharpreductioninexportsdevastated
agricultureworldwide.Theagriculturalindustrywasstillthebackboneofthe
economiesofmanycountries,includingtheUnitedStates.Heavilyindebtforland
andmachinery,farmersaroundtheglobewereintroublewellbeforetheGreat
Depressionstarted.
However,farmerswerefailingtosellofftheirhugecropsurplusesandpaytheir
debtstobanksandotherinstitutions.
TheresultwasaruraldepressionthataffectedmillionsofAmericans.Hard‐pressed
topaytheirdebts,forcedtosellinagluttedandcompetitiveworldmarket,and
confrontedbyseveralnaturaldisasters,farmersdidnotshareintheboomtimesof
the1920s.Theydidnothavethecashtobuythenewconsumergoodsproducedby
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Americanindustries.Theylivedlargelyoncreditfrommonthtomonth,often
teeteringonthebrinkoffinancialruin.Anydownwardslideintheeconomywas
likelytohitAmerica’sstrugglingfarmersfirstandhardest.
UnequalDistributionofWealth
The1920sintheUnitedStatesareoftenlinkedinourhistoricalmemoriesto
prosperityandgoodtimes.Unlikefarmers,
industrialworkersparticipatedinthegreat
nationalsuccessstory.Duringthe1920s,
theirwagesrosesteadily,asdidtheir
disposableincome.ManypurchasedModel
TFordsalongwithavarietyofother
consumerproducts.Thoughtheywere
certainlynotwealthy,industriallaborers
wereinabetterfinancialpositionthan
theirfathershadbeenagenerationbefore.
Buttheproblemwasthatwhilewagesrosegradually,workerproductivity
increasedastronomically.Between1923and1929,outputperperson‐hourjumped
32%,butworkers’wagesincheduponly8%.Duringthatsameperiod,corporate
profitsfromworkeroutputskyrocketed65%.Allthesefigurespointedtothefact
thatduringthe1920s,therichbecamemuch,muchricher,whileindustrialworkers
simplybecamelesspoor.40percentofthecountrysharedjust12percentofthe
nationalincomebytheendofthedecade.Incontrast,thewell‐to‐dowhomadeup5
percentofthepopulationenjoyedover30percentofthenationalincome.
Thisunevendistributionofthenation’swealthcreatedeconomicproblems.More
than60percentofallAmericanfamilieshadyearlyincomesoflessthan$2,000per
year.Twenty‐fourthousandofthecountry’swealthiestfamiliesenjoyedannual
incomesofmorethan$100,000,whichwas50timesmorethanwhatmostfamilies
wereearning.Butthesewealthyfamiliesdidnoteat50timesmorefoodthanlower‐
incomefamilies.Thewealthiesthouseholdsdidnotpurchase50timesmore
automobilesorradiosorovens.Therichundoubtedlyspentalotonconsumer
products.Theproblemwasthatthewealthiestfewdidnotbuyenoughtokeepthe
economybooming.
Ahealthyeconomyneedsmorepeopletobuymoreproducts,whichinturncreates
evenmorewealth.Inthisway,ahealthyeconomyavoidsunderconsumptionthat
canlimiteconomicgrowth.Theunevendistributionofwealthinthe1920spointed
toanuncertainfuturefortheAmericaneconomy.
Fromtheoverproductionofthestrugglingfarmertotheunderconsumptionofthe
lower‐incomeindustrialworker,deep‐seatedproblemscreatedeconomic
instability.ToomanyAmericansdidnothaveenoughmoneytobuywhatthey
neededorwanted.
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EasyCreditHidesProblems
Foratime,theexpansionofcreditpartiallyhidthisproblem.Americansbought
automobiles,appliances,radios,andothergoodsoncredit.Usingtheinstallment
plan,theypaidasmallpercentagedownandtherestoveraperiodofmonthsor
years.Bytheendofthedecade,80percentofradiosand60percentofcarswere
purchasedoninstallmentcredit.Americansevenboughtstockoncredit,making
suchstockpurchasesonmargin.Everyyear,Americansaccumulatedmoredebt.In
thepast,theyhadfeareddebtandputoffbuyinggoodsuntiltheyhadthecashto
payforthoseitems.However,easycreditchangedthisbehaviorduringthe1920s.
ThegrowingcreditburdencouldmasktheproblemofAmericanslivingbeyond
theirmeansforonlysolongbeforetheeconomyimploded.
KeyTerms:overproduction;underconsumption;inequality(dateforallkeytermsis
“1920s”)
4
SpeculationandMarginBuying
Source:"CausesoftheGreatDepression,”inGreatDepressionandtheNewDeal
ReferenceLibrary,eds.AllisonMcNeill,RichardC.Hanes,andSharonM.Hanes
(Detroit:UXL,2003).
WhatIsStock?
Stocksaresharesintheownershipofacorporation.Thesaleofstockraisescapital,
oroperatingmoney,forthecorporation.Buyingstocksmakesthepurchaserapart
ownerofthecorporation,astockholder.Foreveryshareowned,thepurchasergets
onevoteatstockholdermeetings,thusinfluencingtosomedegreemajorcompany
decisions.Themoresharesowned,thegreatertheinfluenceapersonholds.
Whenstocksareboughtandsold,the
transactionsarereflectedontheNewYorkStock
Exchange.Theoreticallythepriceofastockis
determinedbytheoverallworthandhealthofthe
corporation.However,stockpricesoftengoup
anddownratherunpredictably.
Ifacorporationishealthyandprofitable,itpaysa
certainamountofmoneyperstocksharetothe
stockholders.Thesepaymentsarecalled
dividendsandcanbetakenintheformofmore
stockratherthancashifthestockholderdesires…
StockSpeculation
Speculationinstockmeanstobuystockwiththeassumptionthatitcanalwaysbe
soldataprofit.Businessesneededtosellstocktoraisemoneytoexpand.Bythe
mid‐1920sonly2percentofAmericanswerepurchasingstock.Butas
manufacturingcontinuedtoexpand,stockpricesclimbedupwardandinvestors
mademoney.Wordgotaround,andbythelate1920snearlyeveryonewhohada
decentincomesavedtobuyashareofstock.Itappearedtobeanespeciallysafeway
tomakeeasymoney.However,investorswerenotprotectedfrommisleading
informationaboutstocks.Itwasdifficultforinvestorstoknowexactlywhatthey
werebuying.Companiestoldthepublicthattheyweredoingwell,butthepublic
hadnomeansofconfirmingthatthecompanies'financialreportswerereliable.To
makemattersworse,adangerouswayofbuyingstockdeveloped.Itwascalled
"buyingonmargin."
Buyingonmarginmeansthatapersonpurchasesastockbyusingabitofhisorher
ownmoneyandborrowingtherest.Itissimilartobuyingoncredit.Forexample,to
purchasea$100stockthebuyermightputup$20andborrow$80tomakeupthe
entireprice.Investorsworkedwithinvestmentbrokerstoborrowmoneyandthen
buyastock.Investmentbrokersgottheirloanmoneyfrombanks;brokersand
banksalikebelievedthatthestockmarketwasonapermanentupwardclimb.The
5
brokerssetamarginlimit.Intheexamplethemarginlimitwas20percent,meaning
thattheinvestorhadtokeep20percentofhisorherowncashinvestedinthestock.
Ifthestockvalueincreasedto$130,thentheinvestorpaidbackthe$80borrowed
andwasleftwiththe$20originallyinvestedand$30profit.All$50couldbe
reinvestedinasimilarmanner.The$30profitrepresenteda150percentprofit.
Suchlargeprofitswerecommonasthemarketcontinuedtorise.Investors,using
theirincreasingprofitsandborrowed
money,continuedtobuystocks.This
growingdemandforstockspushed
stockpricesupuntiltheywere
dramaticallyhigherthanthestocks'
realworthbasedontheparticular
company'sprofitsandoverallworth.
Whenstockpricesaresteadilyrising,
themarketiscalleda"bull"market.
Whenthemarketsteadilydrops,itisa
"bear"market.Themarketinmid‐1929
wasaraging"bull"market.
Considerwhatwouldhappeniftheinvestorinthepreviousexamplesawtheprice
ofhisorherstockdropratherthanrise.Ifthe$100priceofthestockdroppedto
$70,thensellingthestockat$70wouldnotevenpaybacktheloanfromthebroker.
Theinvestor,owing$80buthavingonly$70,wouldhavetocomeupwithmore
cash.Thisiswhathappenednottoonesharebuttomillionsofshareswhenthe
marketdroppedinOctober1929.Investorscouldnotcomeupwithenoughcashto
meettheir"margincalls,"demandsbythebrokersformorecash.Inonlyafewdays
severalmillioninvestorslostallthemoneytheyhadinvested,asthemarketturned
intotheworst"bear"marketofthetwentiethcentury.Onedaytheseinvestorshad
beenwealthy;thenext,theywonderedhowtheywouldsurvive.
AMeekFederalReserveSystem
TheFederalReserve,establishedin1913asthenation'scentralbank,couldpossibly
havecontrolledthewildspeculationinthestockmarketandpreventedthecrash,
butthebullsofWallStreet(investorswhowantedtodrivepricesup)overpowered
it.TheFederalReservecontrolledtheloaningofmoneytobanksbyraisingand
loweringinterestrates.(Interestiswhataborrowerpaysalenderfortheuseofthe
money.)IftheFederalReserveloaned$1,000toabankat5percentyearlyinterest,
thenthebankwouldhavetopaytheFederalReserve$50yearlyininterestforuse
ofthat$1,000loan.IftheFederalReserveraisedtheinterestrateto10percent,then
on$1,000thebankwouldhavetopay$100yearlyininterest.Raisingtheinterest
ratecausedbankstoborrowlessfromtheFederalReserve,becausethemoneywas
morecostly.
Inthespringof1929severalprominentfinancialexpertswarnedagainstthe
widespreadspeculationinstocks.Theyknewthepriceofstockshadbeendrivenup
bymarginbuying,untilpriceswerewellaboveanyrealvaluebasedonthe
6
company'sprofitsandoverallworth.TheycalledfortheFederalReservetoraise
interestratessobankswouldnotborrowasmuch.Ifthebanksborrowedless,they
wouldhavelessmoneytoloantoinvestmentbrokers,andthosebrokerswould
havelesstolendtoindividualinvestorswhowantedtobuystockonmargin.This
wouldslowstockspeculation.However,inMarch1929,theFederalReservedecided
nottoraiseinterestratesbuttomerelywarnbankstoreducetheamountofmoney
theywereloaningforstockspeculation.IgnoringtheFederalReserve'sadvice
carriednopenalty.Hopingstockswouldcontinuetorise,thebankswentonlending
toinvestmentbrokers.Theinvestmentbrokerswentonlendingoutthemoneyto
thegeneralpublictoinvestinstocks.Andthepublicwentonbuyingstockson
margin.TheFederalReservemeeklybackeddownandletthespeculationcontinue.
Whenthemarketcrashed,investorscouldnotpaybackbrokers.Hencethebrokers
couldnotpaythebankinterestontheirloans,muchlesspaybacktheloanmoney.
Thusbymid‐1929thebankshadsetthemselvesupforabigfall.
KeyTerms:speculation;buyingonmargin
7
TheStockMarketCrashes
Source:ushistory.org,“TheGreatDepression,”U.S.HistoryOnlineTextbook,
http://www.ushistory.org/us/48.asp.
TheMarketCrashes
Itwasaboomtimeforthestockholder.Stockpricessoaredtorecordlevels.
Millionairesweremadeovernight.Soundlikethestockmarketofthe1990s?Trythe
NewYorkStockExchangeontheeveoftheGreatCrashin1929.
Althoughthe1920sweremarkedbygrowthinstockvalues,thelastfouryearssaw
anexplosioninthemarket.In1925,thetotalvalueoftheNewYorkStockExchange
was$27billion.BySeptember1929,thatfigureskyrocketedto$87billion.This
meansthattheaveragestockholdermorethantripledthevalueofthestock
portfolioheorshewasluckyenoughtopossess.
InhisLadies’HomeJournalarticle,"EveryoneOughttoBeRich,"wealthyfinancier
JohnJ.RaskobadvisedAmericanstoinvestjust$15dollarsamonthinthemarket.
Aftertwentyyears,heclaimed,theventurewouldbeworth$80,000.Stockfever
wassweepingthenation,oratleastthosethathadthemeanstoinvest.
Fuelingtherapidexpansionwastheriskypracticeofbuyingstockonmargin.A
marginpurchaseallowsaninvestortoborrowmoney,typicallyasmuchas75%of
thepurchaseprice,tobuyagreateramountofstock.Stockbrokersandevenbanks
fundedtherecklessspeculator.Borrowerswereoftenwillingtopay20%interest
ratesonloans,beingdeadcertainthattheriskwould
beworththerewards.Thelenderwassocertainthat
themarketwouldrisethatsuchtransactionsbecame
commonplace,despitewarningsbytheFederal
ReserveBoardagainstthepractice.Clearly,there
hadtobealimittohowhighthemarketcouldreach.
Whatcausesstockpricestofall?Althoughthe
workingsoftheNewYorkStockExchangecanbe
quitecomplex,onesimpleprinciplegovernsthe
priceofstock.Wheninvestorsbelieveastockisa
goodvaluetheyarewillingtopaymoreforashare
anditsvaluerises.Whentradersbelievethevalueof
asecuritywillfall,theycannotsellitatashighofa
price.Ifallinvestorstrytoselltheirsharesatonce
andnooneiswillingtobuy,thevalueofthemarket
shrinks.
OnOctober24,1929,"BlackThursday,"thismassivesell‐a‐thonbegan.Bythelate
afternoon,wealthyfinancierslikeJ.P.Morganpooledtheirresourcesandbeganto
buystocksinthehopesofreversingthetrend.
8
ButthebottomfelloutofthemarketonTuesday,October29[“BlackTuesday”].A
record16millionshareswereexchangedforsmallerandsmallervaluesastheday
progressed.Forsomestocks,nobuyerscouldbefoundatanyprice.Bytheendof
theday,panichaderupted,andthenextfewweekscontinuedthedownwardspiral.
Inamatteroftenshortweeksthevalueoftheentiremarketwascutinhalf.Suicide
anddespairswepttheinvestingclassesofAmerica.
SinkingDeeperandDeeper:1929‐33
WhenthestockmarketcrashedonOctober29,1929,fewAmericansbelievedthata
decadelongdepressionwasunderway.Afterall,only4millionAmericanshad
moneyinvestedonWallStreet.90%ofAmericanhouseholdsownedpreciselyzero
sharesofstock.PresidentHerbertHooverquicklyaddressedthenation,professing
hisfaithinthesoundnessoftheAmericaneconomy.Butsoothingwordswere
clearlynotenoughtostoptheshrinkingofadeeplyflawednationaleconomic
system.
Thestockmarketcrashhadmanyshort‐termconsequences.Banksthat
improvidentlylentmoneytofuturestraderstobuystockonmarginfoundthat
manyofthoseloanswouldgounpaid.Consequently,arashofbankfailuresswept
thenation.Thishadatremendousrippleeffectontheeconomy.Ifaworking‐class
familywasunfortunateenoughtohavetheirsavingsheldintrustbyafailedbank—
toobadforthem,alltheirmoneywaslost.
AsAmericanssawbankscloseandsavingsdisappear,lessmoneywasspenton
goodsandservices.Manyconsumerswhohadboughtthenewconveniencesofthe
GoldenTwentiesontheinstallmentplanwereunabletomaketheirpayments.
Businessesbegantolayoffworkerstooffsetnewlosses.Manymanufacturershad
overproducedandcreatedhugeinventories.
Unemploymentbroughtevenlesssavingsand
spending,andtheeconomyslowedyet
anothernotch.Thedownwardspiral
continuedinto1933.The$87billion1929
NewYorkStockExchangewasworthamere
$15billionin1932.Unemploymentrosefrom
1.5millionAmericansin1929toa
debilitating12millionin1932.
Despairsweptthenation.Inadditiontothe
nationwide25%unemploymentrate,many
laborerswereforcedtochoosebetweenwagecutsandapinkslip[beingfired].
Mostpeoplewhoretainedtheirjobssawtheirincomesshrinkbyathird.Soup
kitchensandcharitylines,previouslyunknowntothemiddleclass,wereunableto
meetthegrowingdemandforfood.
9
Desperateforincome,thousandsperformedoddjobsfromtakinginlaundryto
collectingandsellingapplesonthestreet.CollegeprofessorsinNewYorkCitydrove
taxicabstomakeendsmeet.CitizensofWashingtonStatelitforestfiresinthehopes
ofearningafewbucksextinguishingthem.Millionsofbackyardgardenswere
cultivatedtogrowvegetables.
Americansprowledlandfillswaitingforthenextloadofrefusetoarriveinthehopes
offindingafewtablescrapsamongthetrash.
Thestrifewasunevenacrosstheland.Oklahomawasparticularlyhardhit,asa
drought[prolongeddryweather]broughtdrywinds,kickingupa"DustBowl"that
forcedthousandstomigratewestward.AfricanAmericansenduredunemployment
ratesofnearlytwicethewhitecommunities,asAfricanAmericanworkerswere
oftenthelasthiredandthefirstfired.MexicanAmericansinCaliforniawereoffered
freeone‐waytripsbacktoMexicotodecreasejobcompetitioninthestate.The
LatinopopulationoftheAmericanSouthwestsharplydecreasedthroughoutthe
decade,asethnicviolenceincreased.
AsthedaysandweeksoftheGreatDepressionturnedintomonthsandyears,
Americansbegantoorganizetheirdiscontent.
KeyTerms:BlackTuesday;bankingfailure
10
BankingPanics
Source:History.com,“BankRun,”A+ENetworks,2010,
http://www.history.com/topics/bank‐run.
ThestockmarketcrashofOctober1929lefttheAmericanpublichighlynervousand
extremelysusceptibletorumorsofimpendingfinancialdisaster.Consumer
spendingandinvestmentbegantodecrease,whichwouldinturnleadtoadeclinein
productionandemployment.Anotherphenomenonthatcompoundedthenation’s
economicwoesduringtheGreatDepressionwasawaveofbankingpanicsor“bank
runs,”duringwhichlargenumbersofanxiouspeoplewithdrewtheirdepositsin
cash,forcingbankstoliquidateloansandoftenleadingtobankfailure.
DepressionandAnxiety
TheGreatDepressionintheUnitedStatesbeganasanordinaryrecession[economic
downturn]inthesummerof1929,butbecameincreasinglyworseoverthelatter
partofthatyear,continuinguntil1933.Atitslowestpoint,industrialproductionin
theUnitedStateshaddeclined47percent,realgrossdomesticproduct(GDP)had
fallen30percentandtotalunemploymentreachedashighas20percent.
InthewakeofthestockmarketcrashofOctober1929,peopleweregrowing
increasinglyanxiousaboutthesecurityoftheirmoney.Wealthypeoplewerepulling
theirinvestmentassetsoutoftheeconomy,andconsumersoverallwerespending
lessandlessmoney.Bankruptcieswerebecomingmorecommon,andpeoples’
confidenceinfinancialinstitutionssuchasbankswasbeingrapidlyeroded.Some
650banksfailedin1929;thenumberwouldrisetomorethan1,300thefollowing
year.
TheFirstBankRuns
Thefirstoffourseparatebankingpanicsbeganinthefallof1930,whenabankrun
inNashville,Tennessee,kickedoffawaveofsimilarincidentsthroughoutthe
Southeast.Duringabankrun,alargenumberofdepositorsloseconfidenceinthe
securityoftheirbank,leadingthemall
towithdrawtheirfundsatonce.
Bankstypicallyholdonlyafractionof
depositsincashatanyonetime,and
lendouttheresttoborrowersor
purchaseinterest‐bearingassetslike
governmentsecurities.Duringabank
run,abankmustquicklyliquidate
loansandsellitsassets(oftenatrock‐
bottomprices)tocomeupwiththe
necessarycash,andthelossesthey
suffercanthreatenthebank’s
solvency.
11
Thebankrunsof1930werefollowedbysimilarbankingpanicsinthespringand
fallof1931andthefallof1932.Insomeinstances,bankrunswerestartedsimply
byrumorsofabank’sinabilityorunwillingnesstopayoutfunds.InDecember1930,
theNewYorkTimesreportedthatasmallmerchantintheBronxwenttoabranch
oftheBankoftheUnitedStatesandaskedtosellhisstockintheinstitution.When
toldthestockwasagoodinvestmentandadvisednottosell,heleftthebankand
beganspreadingrumorsthatthebankhadrefusedtosellhisstock.Withinhours,a
crowdhadgatheredoutsidethebank,andthatafternoonbetween2,500and3,500
depositorswithdrewatotalof$2millioninfunds.
FromPanictoRecovery
Thelastwaveofbankrunscontinuedthroughthewinterof1932andinto1933.By
thattime,DemocratFranklinD.Roosevelthadwonalandslidevictoryinthe
presidentialelectionovertheRepublicanincumbent,HerbertHoover.Almost
immediatelyaftertakingofficeinearlyMarch,Rooseveltdeclaredanational“bank
holiday,”duringwhichallbankswouldbecloseduntiltheyweredeterminedtobe
solventthroughfederalinspection.Incombinationwiththebankholiday,Roosevelt
calledonCongresstocomeupwithnewemergencybankinglegislationtofurther
aidtheailingfinancialinstitutionsofAmerica.
OnMarch12,1933,Rooseveltgavethefirstofwhatwouldbecomeknownasthe
“firesidechats,”orspeechesbroadcastovertheradioinwhichheaddressedthe
Americanpeopledirectly.Inthatfirstfiresidechat,Rooseveltspokeofthebank
crisis,explainingthelogicbehindhisclosingofallbanksandstatingthat“Your
governmentdoesnotintendthatthehistoryofthepastfewyearsshallberepeated.
Wedonotwantandwillnothaveanotherepidemicofbankfailures.”Hereassured
thenationthatbankswouldbesecurewhentheyreopened,andthatpeoplecould
trustthattheycouldusetheirmoneyastheysawfitatanytime.“Icanassureyou,
myfriends,”Rooseveltintoned,“thatitissafertokeepyourmoneyinareopened
bankthanitistokeepitunderthemattress.”
Roosevelt’swordsandactionshelpedtobegintheprocessofrestoringpublic
confidence,andwhenthebanksreopenedmanydepositorsshowedupreadyto
deposittheircurrencyorgold,signalingtheendofthenation’sbankingcrisis.
12
AnIntroductiontoMoney
Source:N.GregoryMankiw,PrinciplesofEconomics,3rded.(Boston:Cengage
Learning,2003),609‐618.
TheKindsofMoney
Whenmoneytakestheformofacommoditywithintrinsicvalue,itiscalled
commoditymoney.Thetermintrinsicvaluemeansthattheitemwouldhavevalue
evenifitwerenotusedasmoney.Oneexampleofcommoditymoneyisgold.Gold
hasintrinsicvaluebecauseitisusedinindustryandinthemakingofjewelry.
Althoughtodaywenolongerusegoldasmoney,historicallygoldhasbeena
commonformofmoneybecauseitisrelativelyeasytocarry,measure,andverifyfor
impurities.Whenaneconomyusesgoldasmoney(orusespapermoneythatis
convertibleintogoldondemand),itissaidtobeoperatingunderagoldstandard…
Moneywithoutintrinsicvalueis
calledfiatmoney.Afiatissimply
anorderordecree,andfiat
moneyisestablishedasmoney
bygovernmentdecree.For
example,comparethepaper
dollarsinyourwallet(printedby
theU.S.government)andthe
paperdollarsfromagameofMonopoly(printedbytheParkerBrothersgame
company).Whycanyouusethefirsttopayyourbillatarestaurantbutnotthe
second?TheansweristhattheU.S.governmenthasdecreeditsdollarstobevalid
money.Eachpaperdollarinyourwalletreads:“Thisnoteislegaltenderforall
debts,publicandprivate.”…
TheFederalReserveSystem
Wheneveraneconomyreliesonasystemoffiatmoney,astheU.S.economydoes,
someagencymustberesponsibleforregulatingthesystem.IntheUnitedStates,
thatagencyistheFederalReserve,oftensimplycalledtheFed.Ifyoulookatthetop
ofadollarbill,youwillseethatitiscalleda“FederalReserveNote.”TheFedisan
exampleofacentralbank—aninstitutiondesignedtooverseethebankingsystem
andregulatethequantityofmoneyintheeconomy…
TheFedhastworelatedjobs.Thefirstjobistoregulatebanksandensurethehealth
ofthebankingsystem…[TheFed]actsasabank’sbank.Thatis,theFedmakesloans
tobankswhenbanksthemselveswanttoborrow.Whenfinanciallytroubledbanks
findthemselvesshortofcash,theFedactsasalenderoflastresort—alenderto
thosewhocannotborrowanywhereelse—inordertomaintainstabilityinthe
overallbankingsystem.
TheFed’ssecondandmoreimportantjobistocontrolthequantityofmoneythatis
madeavailableintheeconomy,calledthemoneysupply.Decisionsby
13
policymakersconcerningthemoneysupplyconstitutemonetarypolicy…[T]heFed
hasthepowertoincreaseordecreasethenumberofdollarsintheeconomy.In
simplemetaphoricalterms,youcanimaginetheFedprintingupdollarbillsand
droppingthemaroundthecountrybyhelicopter.Similarly,youcanimaginetheFed
usingagiantvacuumcleanertosuckdollarbillsoutofpeople’swallets…
Althoughthisexplanationofthemoneysupplyiscorrect,itisnotcomplete.In
particular,itomitsthecentralrolethatbanksplayinthemonetarysystem.
Recallthattheamountofmoneyyouholdincludesbothcurrency(thebillsinyour
walletandcoinsinyourpocket)anddemanddeposits(thebalanceinyourchecking
account).Becausedemanddepositsareheldinbanks,thebehaviorofbankscan
influencethequantityofdemanddepositsintheeconomyand,therefore,themoney
supply…
TheSimpleCaseof100‐Percent‐ReserveBanking
Toseehowbanksinfluencethemoneysupply,itisusefultoimaginefirstaworld
withoutanybanksatall.Inthissimpleworld,currencyistheonlyformofmoney.
Tobeconcrete,let’ssupposethatthetotalquantityofcurrencyis$100.Thesupply
ofmoneyis,therefore,$100.
Nowsupposethatsomeoneopensabank,appropriatelycalledFirstNationalBank.
FirstNationalBankisonlyadepositoryinstitution—thatis,itacceptsdepositsbut
doesnotmakeloans.Thepurposeofthebankistogivedepositorsasafeplaceto
keeptheirmoney.Wheneverapersondepositssomemoney,thebankkeepsthe
moneyinitsvaultuntilthedepositor
comestowithdrawitorwritesa
checkagainsthisorherbalance.
Depositsthatbankshavereceivedbut
havenotloanedoutarecalled
reserves.Inthisimaginaryeconomy,
alldepositsareheldasreserves,so
thissystemiscalled100‐percent‐
reservebanking…
Nowconsiderthemoneysupplyinthisimaginaryeconomy.BeforeFirstNational
Bankopens,themoneysupplyisthe$100ofcurrencythatpeopleareholding.
Afterthebankopensandpeopledeposittheircurrency,themoneysupplyisthe
$100ofdemanddeposits.(Thereisnolongeranycurrencyoutstanding,foritisall
inthebankvault.)Eachdepositinthebankreducescurrencyandraisesdemand
depositsbyexactlythesameamount,leavingthemoneysupplyunchanged.Thus,if
banksholdalldepositsinreserve,banksdonotinfluencethesupplyofmoney.
MoneyCreationwithFractional‐ReserveBanking
Eventually,thebankersatFirstNationalBankmaystarttoreconsidertheirpolicyof
100‐percent‐reservebanking.Leavingallthatmoneysittingidleintheirvaults
14
seemsunnecessary.Whynotusesomeofittomakeloans?Familiesbuyinghouses,
firmsbuildingnewfactories,andstudentspayingforcollegewouldallbehappyto
payinteresttoborrowsomeofthatmoneyforawhile.Ofcourse,FirstNational
Bankhastokeepsomereservessothatcurrencyisavailableifdepositorswantto
makewithdrawals.Butiftheflowofnewdepositsisroughlythesameastheflowof
withdrawals,FirstNationalneedstokeeponlyafractionofitsdepositsinreserve.
Thus,FirstNationaladoptsasystemcalledfractional‐reservebanking.
Thefractionoftotaldepositsthatabankholdsasreservesiscalledthereserve
ratio.Thisratioisdeterminedbyacombinationofgovernmentregulationandbank
policy…Let’ssupposethatFirstNationalhasareserveratioof10percent.This
meansthatitkeeps10percentofitsdepositsinreserveandloansouttherest…
FirstNationalstillhas$100inliabilitiesbecausemakingtheloansdidnotalterthe
bank’sobligationtoitsdepositors.Butnowthebankhastwokindsofassets:Ithas
$10ofreservesinitsvault,andithasloansof$90…Intotal,FirstNational’sassets
stillequalitsliabilities.
Onceagainconsiderthesupplyofmoneyintheeconomy.BeforeFirstNational
makesanyloans,themoneysupplyisthe$100ofdepositsinthebank.Yetwhen
FirstNationalmakestheseloans,themoneysupplyincreases.Thedepositorsstill
havedemanddepositstotaling$100,butnowtheborrowershold$90incurrency.
Themoneysupply(whichequalscurrencyplusdemanddeposits)equals$190.
Thus,whenbanksholdonlyafractionofdepositsinreserve,bankscreatemoney.
Atfirst,thiscreationofmoneybyfractional‐reservebankingmayseemtoogoodto
betruebecauseitappearsthatthebankhascreatedmoneyoutofthinair.Tomake
thiscreationofmoneyseemlessmiraculous,notethatwhenFirstNationalBank
loansoutsomeofitsreservesandcreatesmoney,itdoesnotcreateanywealth.
LoansfromFirstNationalgivetheborrowerssomecurrencyandthustheabilityto
buygoodsandservices.Yettheborrowersarealsotakingondebts,sotheloansdo
notmakethemanyricher.Inotherwords,asabankcreatestheassetofmoney,it
alsocreatesacorrespondingliabilityforitsborrowers.Attheendofthisprocessof
moneycreation,theeconomyismoreliquidinthesensethatthereismoreofthe
mediumofexchange,buttheeconomyisnowealthierthanbefore.
KeyTerms:fiatmoney;FederalReserve;fractional‐reservebanking(nodatesfor
anyoftheseterms)
15
TradeandTariffs
Source:TaylorHollander,TheGreatDepression:1929‐1939CE,WorldHistoryforUs
All,SanDiegoStateUniversity,
http://worldhistoryforusall.sdsu.edu/units/eight/landscape/08_landscape3.pdf.
ReparationsPaymentsandWarDebts
TheTreatyofVersaillesof1919putanofficialendtoWorldI.IncludedintheTreaty
weretwoverycontroversialclauses(Articles231and232)thatforcedGermanyto
paytheAlliednationsinEuropenearly$32billionoverthefollowingthirtyyears.In
largepartowingtothissettlement,Germanyexperiencedseriouseconomic
problemsduringthe1920s.AfterGermanyfailedtomakepaymentsin1923andthe
FrenchoccupiedtheRuhrregioninretaliation,theUnitedStatesdecidedtostepin
andloanGermanythefundstopayreparations.KnownastheDawesPlan,this
AmericanpolicyenabledGermanytomeetitsobligationsforthenextfiveyears.But
itwasabriefrespite.WhentheGreatDepressionhit,theAmericanloansdriedup
andGermanysoondefaultedonthepaymentsagain.MeanwhiletheAlliednationsin
Europeowed$12billioninwardebtstotheUnitedStates.Thiswasonereasonwhy
theydemandedreparationspaymentsfromGermany.Thereparationsgavethem
thefundstopayofftheirowndebts.Soon,theDawesPlanledtoanabsurd
situation:theAmericansloanedmoneytotheGermans;theGermansusedthose
loanstopayreparationstotheFrenchandBritish;andtheFrenchandBritishused
thereparationstopayofftheirdebttotheAmericans.Despitemanyrequests,the
UnitedStatesrefusedtoshowanyleniencytotheAlliednations.WhenAmerican
loanstoGermanyshrankinthelatetwenties,itwasonlyamatteroftimebeforethe
Alliesdefaultedontheirwardebts.Inshort,themostpowerfulnationsinEurope
wereeconomicallyvulnerabletodisaster.
Protectionism
In1927,atanearlierWorldEconomicConferenceinGeneva,delegatesrecognized
thatathrivingworldeconomywasdependentuponfreetrade.Thebenefitsof
internationaltradewouldnotberealizedunlessallnationsdecreasedtheirtariffsor
taxesonimportedgoodssothattheycouldcompetefairlywithcommoditiesmade
athomeforashareofthemarket.In
1930,however,theUnitedStates
passedtheHawley‐SmootTariffAct
whichleviedduties[taxes]on
thousandsofimportedgoodsto
protectAmerican‐madeproducts
fromforeigncompetition.Overthirty
countriesfiledformalprotests,but
justasquicklysixtycountries
followedsuit.Inthewordsofone
historian,Hawley‐Smoot“gaverise
toaheadlongstampedetoprotection
andrestrictionsonimports”around
16
theworld.Itcametostandasasymbolforthebeggar‐thy‐neighborpolicies—
policiesdesignedtoimproveone’sownlotattheexpenseofthatofothers—
implementedinthe1930s.Itwasalose‐losesituation.UnitedStatesimportsfrom
Europedeclinedfroma1929highof$1,334milliontojust$390millionin1932,
whileUnitedStatesexportstoEuropefellfrom$2,341millionin1929to$784
millionin1932.Overall,worldtradedeclinedbysome66percentbetween1929
and1934.MeanwhileunemploymentcontinuedtoincreaseintheUnitedStates,
whileEuropeancountriesfounditdifficulttopayoffreparationsandwardebts.
Protectionismprovedevenworseforlessdevelopedcountriesthatdepended
heavilyontheexportofrawmaterialsandcashcropsforrevenues.Malaysia,for
example,experiencedan80percentdropinexportrevenuesbetween1929and
1932.Effortstoprotectdomesticindustrieshadadisastrousimpactontheworld
economyandcontributedgreatlytothelengthanddepthoftheGreatDepression.
KeyTerms:DawesPlan;Hawley‐SmootTariff
17
LifeDuringtheGreatDepression
Source:StevenMintzandSaraMcNeil,“TheHumanToll,”2014,
http://www.digitalhistory.uh.edu/disp_textbook.cfm?smtid=2&psid=3434.
TheHumanToll
Aftermorethanhalfacentury,
imagesoftheGreatDepression
remainfirmlyetchedintheAmerican
psyche:breadlines,soupkitchens,
tin‐canshantiesandtar‐paper
shacksknownas"Hoovervilles,"
pennilessmenandwomenselling
applesonstreetcorners,andgray
battalionsofArkiesandOkies[slang
termsforpeoplefromArkansasand
Oklahoma]packedintoModelA
FordsheadingtoCalifornia.
Thecollapsewasstaggeringinitsdimensions.Unemploymentjumpedfromless
than3millionin1929to4millionin1930,to8millionin1931,andto121/2
millionin1932.Inthatyear,aquarterofthenation'sfamiliesdidnothaveasingle
employedwageearner.Eventhosefortunateenoughtohavejobssuffereddrastic
paycutsandreductionsinworkinghours.Onlyonecompanyintenfailedtocutpay,
andin1932,three‐quartersofallworkerswereonpart‐timeschedules,averaging
just60percentofthenormalworkweek.
Theeconomiccollapsewasterrifyinginitsscopeandimpact.By1933,average
familyincomehadtumbled40percent,from$2,300in1929tojust$1,500four
yearslater.InthePennsylvaniacoalfields,threeorfourfamiliescrowdedtogether
inone‐roomshacksandlivedonwildweeds.InArkansas,familieswerefound
inhabitingcaves.InOakland,California,wholefamilieslivedinsewerpipes.
Vagrancyshotupasmanyfamilieswereevictedfromtheirhomesfornonpayment
ofrent.TheSouthernPacificRailroadboastedthatitthrew683,000vagrantsoffits
trainsin1931.FreepublicflophousesandmissionsinLosAngelesprovidedbeds
for200,000oftheuprooted.
Tosavemoney,familiesneglectedmedicalanddentalcare.Manyfamiliessoughtto
copebyplantinggardens,canningfood,buyingusedbread,andusingcardboardand
cottonforshoesoles.Despiteasteepdeclineinfoodprices,manyfamiliesdid
withoutmilkormeat.InNewYorkCity,milkconsumptiondeclinedbyamillion
gallonsaday.
18
PresidentHerbertHooverdeclared,"Nobodyisactuallystarving.Thehoboesare
betterfedthantheyhaveeverbeen."ButinNewYorkCityin1931,therewere20
knowncasesofstarvation;in1934,therewere110deathscausedbyhunger.There
weresomanyaccountsofpeoplestarvinginNewYorkthattheWestAfricannation
ofCameroonsent$3.77inrelief.
TheDepressionhadapowerfulimpactonfamilies.Itforcedcouplestodelay
marriageanddrovethebirthratebelowthereplacementlevelforthefirsttimein
Americanhistory.Thedivorceratefell,forthesimplefactthatmanycouplescould
notaffordtomaintainseparatehouseholdsortopaylegalfees.Still,ratesof
desertionsoared.By1940,therewere1.5millionmarriedwomenlivingapartfrom
theirhusbands.Morethan200,000vagrantchildrenwanderedthecountryasa
resultofthebreak‐upoftheir
families.
TheDepressioninflictedaheavy
psychologicaltollonjoblessmen.
Withnowagestopunctuatetheir
ability,manymenlostpoweras
primarydecisionmakers.Large
numbersofmenlostself‐respect,
becameimmobilizedandstopped
lookingforwork,whileothersturned
toalcoholorbecameself‐destructive
orabusivetotheirfamilies.
Incontrasttomen,manywomensawtheirstatusriseduringtheDepression.To
supplementthefamilyincome,marriedwomenenteredtheworkforceinlarge
numbers.Althoughmostwomenworkedinmenialoccupations,thefactthatthey
wereemployedandbringinghomepaycheckselevatedtheirpositionwithinthe
familyandgavethemasayinfamilydecisions.
Despitethehardshipsitinflicted,theGreatDepressiondrewsomefamiliescloser
together.Asoneobservernoted:"Manyafamilyhaslostitsautomobileandfound
itssoul."Familieshadtodevisestrategiesforgettingthroughhardtimesbecause
theirsurvivaldependedonit.Theypooledtheirincomes,movedinwithrelativesin
ordertocutexpenses,boughtday‐oldbread,anddidwithout.Manyfamiliesdrew
comfortfromtheirreligion,sustainedbythehopethingswouldturnoutwellinthe
end;othersplacedtheirfaithinthemselves,intheirowndoggeddeterminationto
survivethatsoimpressedobserverslikeWoodyGuthrie.ManyAmericans,however,
nolongerbelievedthattheproblemscouldbesolvedbypeopleactingaloneor
throughvoluntaryassociations.Increasingly,theylookedtothefederalgovernment
forhelp.
19
TheDispossessed
Economichardshipandlossvisitedallsectionsofthecountryduringthe
Depression.One‐thirdoftheHarvardclassof1911confessedthattheywerehard‐
up,onrelief,ordependentonrelatives.Doctorsandlawyerssawtheirincomesfall
40percent.Though,nogroupssufferedmorefromtheDepressionthanAfrican
AmericansandMexicanAmericans.
Ayearafterthestockmarketcrash,70percentofCharleston'sblackpopulationwas
unemployedand75percentofMemphis'sblackpopulationwasunemployed.In
MaconCounty,Alabama‐‐homeofBookerT.Washington'sfamousTuskegee
Institute‐‐mostblackfamilieslivedinhomeswithoutwoodenfloorsorwindowsor
sewagedisposalandsubsistedonsaltpork,hominygrits,cornbread,andmolasses.
Incomeaveragedlessthanadollaraday.
ConditionswerealsodistressedintheNorth.InChicago,70percentofallblack
familiesearnedlessthana$1,000ayear,farbelowthepovertyline.InChicagoand
otherlargenortherncities,mostAfricanAmericanslivedin"kitchenettes."
Apartmentownerstooksix‐roomapartments,whichpreviouslyrentedfor$50a
month,anddividedthemintosixsmaller‐unitkitchenettes.Thekitchenettesthen
rentedfor$32dollarsamonth,assuringlandlordsawindfallofanextra$142a
month.Buildingsthatpreviouslyheld60familiesnowcontained300.
TheDepressionhitMexicanAmericanfamiliesespeciallyhard.MexicanAmericans
facedseriousoppositionfromorganizedlabor,whichresentedcompetitionfrom
Mexicanworkersasunemploymentrose.Bowingtounionpressure,federal,state
andlocalauthorities"repatriated"morethan400,000peopleofMexicandescentto
preventthemfromapplyingforrelief.SincethisgroupincludedmanyUnitedStates
citizens,thedeportationsconstitutedagrossviolationofcivilliberties.
PrivateandPublicCharity
Theeconomiccrisisofthe1930soverwhelmedprivatecharitiesandlocal
governments.InSouthTexas,theSalvationArmyprovidedapennyperpersoneach
day.InPhiladelphia,privateandpubliccharitiesdistributed$1millionamonthin
poorrelief.Thisamount,however,providedfamilieswithonly$1.50aweekfor
groceries.In1932,totalpublicandprivatereliefexpendituresamountedto$317
million‐‐$26foreachofthenation's12½millionjobless.
KeyTerms:GreatDepression(date:1929‐1939)
20
Hoover’sApproachtotheDepression
Source:EmmaLapsansky‐Werneretal.,UnitedStatesHistory(Boston:Pearson
PrenticeHall,2008).
CautiousResponsetoDepressionFails
HerbertHooverdidnotcausetheGreatDepression.ButAmericanslookedtohimas
theirPresidenttosolvethecrisis.Hetried.Hooverwasanintelligentman,familiar
withbusinessmethodsandeconomic
theory.Helaboredlonghours,consulteda
widerangeofexperts,andtriedtomarshal
theresourcesofthecountrytosolvethe
problemsofthedepression.Asthe
economicsituationworsened,hetried
severaldifferentapproaches.Intheend,he
failedtodiscovertherightformula,butit
wasnotbecauseoflackofeffort.
HooverTurnstoVolunteerism
Atthestartoftheeconomicdownturn,
Hooverfollowedahands‐offpolicy.Like
mosteconomistsoftheday,Hooverviewed
theupswingsanddownswingsofbusiness
cyclesasnaturaloccurrences.Hefeltthat
governmentshouldnotinterferewithsuch
events.Periodicdepressionswerelikestorms.Theycouldnotbeavoided,but
strongbusinessescouldweatherthemwithoutthesupportofthegovernment.
Apolicyofdoingnothing,however,wasnopolicyatall.Hooversoonrecognizedthis
factandturnedtoapolicyhehadusedinthepast.AsSecretaryofCommerceduring
the1920s,Hooverhadmotivatedbusinessmenandlaborerstovoluntarilywork
towardcommongoals.Toaddressthecurrentcrisis,heaskedbusinessand
industrialleaderstokeepemployment,wages,andpricesatcurrentlevels.He
simultaneouslycalledforthegovernmenttoreducetaxes,lowerinterestrates,and
createpublic‐workprograms.Theplanwastoputmoremoneyintothehandsof
businessandindividualstoencouragemoreproductionandconsumption.This,
Hooversaid,wouldreversethecyclethatledtothedepression.
Lastly,Hooverrequestedthatwealthierindividualsgivemoremoneytocharity.
MillionsofAmericansgavemoney,clothing,andfoodtoprivateandreligious
charities,whichinturndistributedthegoodstothoseinneed.Theideawasforall
Americanstovoluntarilyjoinforcestocombatthedepression.
VolunteerismFailstoBringRelief
Althoughtheideasbehindtheplanweresound,Hoover’sprogramreliedtoomuch
onvoluntarycooperation.ThePresidentbelievedhecouldpersuadeAmericansto
21
actnotintheirownbestinterestsbutinthoseofthecountryasawhole.Hewas
cautioustoencourage,notlegislate,America’srecovery.Butvolunteerismdidnot
work.Businessescutwagesandlaidoffworkersbecauseitwasinthebestinterests
oftheirfamilies.MostAmericansfollowedindividual,notcooperative,courses.
Hooverhadalsoaskedstateandlocalgovernmenttoprovidemorejobsandrelief
measures.Hehadfaithinlocalism,thepolicywherebyproblemscouldbestbe
solvedatlocalandstatelevels.However,townsandstatessimplydidnothavethe
financialorhumanresourcestosuccessfullycombatthecrisis.Makingmatters
worse,thePresidentstronglyresistedusingfederalresourcestoprovidedirect
relieftoindividuals.Believingittobeunconstitutional,Hooveropposedpublic
assistanceandinsteadfavored“ruggedindividualism”sothatpeoplecouldbetter
themselvesthroughtheirownefforts.Yetasthemonthsworeon,unemployment
increased,charitiesranlowonmoney,andlocalandstategovernmentscouldno
longerplugtheleaksintheeconomy.Thecrisisdemandeddecisivefederalaction.
HooverAdoptsMoreActivistPolicies
WithHoovervillesandhomelessnessontherise,thePresident’sfailedpolicieswere
laidbare.PoorAmericanscalledtruckspulledbyhorseormule“Hooverwagons,”
campfires“Hooverheaters,”andcardboardboxes“Hooverhouses.”Theassociation
ofthePresident’snamewithsufferingandwantindicatedAmericans’negative
feelingsabouttheirleader.
Hooverdecidedtoreversecourseandusefederalresourcestobattlethe
depression.Believingtheeconomysufferedfromalackofcredit,Hooverurged
CongresstocreatetheReconstructionFinanceCorporation(RFC).Passedin
1932,theRFCgavemorethanabilliondollarsofgovernmentloanstorailroadsand
largebusinesses.Theactalsolentmoneytobankssothattheycouldextendmore
loanstostrugglingbusinesses.Hooverbelievedthatifthegovernmentlentmoney
tobankers,theywouldlenditinturntobusinessmen.Businessmenwouldthenhire
workers,productionandconsumptionwouldincrease,andthedepressionwould
end.Thistheory,knownastrickle‐downeconomics,heldthatmoneypouredinto
thetopoftheeconomicpyramidwilltrickledowntothebase.
AlthoughtheRFCputthefederalgovernmentatthecenterofeconomiclife,itdid
notworkwellunderHoover’sguidance.TheRFClentoutbillions,butalltoooften
bankersdidnotincreasetheirloanstobusinesses.Additionally,businessesoften
didnotusetheloanstheyreceivedtohiremoreworkers.Intheend,themoneydid
nottrickledowntothepeoplewhoneededitthemost.
DespitethefailingsoftheRFC,Hooversucceededwithoneprojectthatmadea
difference.Duringthe1920s,SecretaryofCommerceHooverhadcalledforthe
constructionofadamontheColoradoRiver.BythetimeHooverbecamePresident
in1929,Congresshadapprovedtheprojectaspartofamassivepublicworks
program.WorkersbrokegroundonBoulderDam(laterrenamedHooverDam)in
22
1930.Constructionbroughtmuch‐neededemploymenttotheSouthwestduringthe
early1930s.
AmericansProtestHoover’sFailures
FromtheOvalOffice,Hooverworkedhardtoendthedepression.Buttomanyout‐
of‐workAmericans,thePresidentbecameasymboloffailure.Somepeopleblamed
capitalism,whileothersquestionedtheresponsivenessofdemocracy.Many
believedtheAmericansystemwasdueforanoverhaul.
SomeUrgeRadicalChange
SomeAmericansthoughttheanswertothe
country’sproblemswastherejectionofcapitalism
andtheacceptanceofsocialismorcommunism.
Theyarguedthatcapitalismcreatedgreat
inequitiesofwealthandanunhealthyatmosphere
ofcompetitioninsociety.Infact,theysawthe
depressionasasignthatcapitalismwasaboutto
collapse.LookingattheSovietUnion,they
maintainedthatastate‐runeconomywastheonly
avenueoutofthedepression.Evenduringthe
worstofthecrisis,though,communistcallsfor
revolutionprovednomatchforAmericandreams
ofprogress,opportunity,andindividualfreedom.
AlthoughsomequestionedtheabilityofAmerica’s
capitalisticanddemocraticinstitutionsto
overcomethecrisis,mostAmericansneverlost
faithintheircountry.
TheBonusArmyMarchesonWashington
MostAmericansdidnotwantarevolutionbut
manydiddesiresubstantialchanges.In1932,onesuchgrouparrivedinWashington
D.C.,demandingasolutiontotheirparticularproblem.Fromacrossthecountry
cameWWIveteransseekingthebonusCongresshadpromisedthem.Theybecame
knownastheBonusArmy.In1924,CongresshadpassedtheAdjusted
CompensationAct,whichprovidedforalumpsumpaymenttotheveteransin1945.
Butin1931,manyveterangroupsbegantocallforanearlypaymentofthebonus,
arguingthatout‐of‐workvetsneededthemoneytosupportthemselves.Congress
agreedandpassedabilltoprovideforearlypaymentofthebonuses.However,
PresidentHoovervetoedthebill,sayingthatmayofthevetsdidnotneedtheearly
payment.
Inprotest,veterangroupsmarchedonWashington.Inthesummerof1932,almost
twentythousandveteransarrivedinthecapital,settingupcampsandoccupying
emptygovernmentbuildings.AriotbrokeoutinJulywhenpolicetriedtoevictthe
marchersfromtheirmakeshiftsettlements.
23
HooverOrderstheBonusArmyOut
AlthoughPresidentHooversympathizedwiththemarchers,hecalledforGeneral
DouglasMacArthurandfederaltroopsto“surroundtheaffectedareaandclearit
withoutdelay.”MacArthurexceededhisorder,decidingtomovethemarchersoutof
thecityaltogether.Heorderedhistroopstoreadteargasandfixbayonets.More
thanonethousandmarchersweretear‐gassed,andmanywereinjured,somevery
badly.
TheaftermathdoomedHoover.Hooverhadnotorderedtheuseofsuchforce
againsttheveterans.Nevertheless,photographsofAmericantroopsmarchingwith
fixedbayonetsagainstraggedveteransshockedthenation.AnychancethatHoover
hadforwinningreelectioninNovemberendedafterthesummerof1932.With
unemploymentnearing25percent,stomachsgrumblingfromhunger,andthe
numberofhomelesspeopleincreasingeveryday,Hoover’spolicieshadfailed
completely.Americanswerereadyforachange. KeyTerms:HerbertHoover;volunteerism;trickle‐downeconomics
24
TheNewDeal
Source:EmmaLapsansky‐Werneretal.,UnitedStatesHistory(Boston:Pearson
PrenticeHall,2008).
RooseveltTakesCharge
In1928,HerbertHooverhadalmostnochanceoflosinghisbidforthepresidency.
In1932however,Hooverhadalmostnochanceofwinningreelection.The
depressionhadtakenitstoll.About25percentofthepopulationwasunemployed.
Bankfailureshadwipedoutpeoples’savings.Thehungrywaitedonlonglinesat
soupkitchens.
Americanswerereadyforachange.InJulyof1932,the
relativelyunknowngovernorofNewYork,FranklinD.
Roosevelt,acceptedtheDemocraticParty’snomination
forPresident…
WhenFDRpledgeda”NewDeal,”hehadonlyavague
ideaofhowheintendedtocombatthedepression.
Convincedthatthefederalgovernmentneededtoplay
anactiveroleinpromotingrecoveryandproviding
relieftoAmericans,heexperimentedwithdifferent
approachestoseewhichoneworkedbest.
The1932electioncampaignpittedRooseveltagainstPresidentHerbertHoover.The
twomenadvocatedverydifferentapproachestotheproblemsoftheGreat
Depression.Hooverbelievedthatdepressionreliefshouldcomefromstateandlocal
governmentsandprivateagencies.Rooseveltbelievedthatthedepressionrequired
strongactionandleadershipbythefederalgovernment.AsHoovernoted,“This
campaignismorethanacontestbetweentwomen....Itisacontestbetweentwo
philosophiesofgovernment.”
Hoover’spopularitydeclinedastheGreatDepressionworsened.Evenlongtime
Republicansdesertedhim.FDR—withthesupportofthosewhoembracedhisideas
aswellasthosewhoopposedHoover’sapproach—wonalandslidepresidential
victory,defeatingHooverbymorethan7millionvotes.
AmericanshadtowaitfourlongmonthsbetweenRoosevelt’selection,inNovember
1932,andhisinauguration,inMarch1933.Meanwhile,theywatchedhelplesslyas
thousandsofbankscollapsedandunemploymentsoared.WhatwouldRooseveltdo
tocombatthedepression?Eventheexpertsdidnotknowwhattoexpect.
TheFirstHundredDaysProvideInstantAction
Duringhisfirsthundreddaysinoffice,RooseveltproposedandCongresspassed15
bills.Thesemeasures,knownastheFirstNewDeal,hadthreegoals:relief,
recovery,andreform.Rooseveltwantedtoproviderelieffromtheimmediate
25
hardshipsofthedepressionandachievealong‐termeconomicrecovery.Healso
institutedreformstopreventfuturedepressions.
FDRSwiftlyRestorestheNation’sConfidence
…Thedayafterhisinauguration,RooseveltcalledCongressintoaspecialsession
andconvincedthemtopasslawstoshoreupthenation’sbankingsystem.The
EmergencyBankingBillgavethePresidentbroadpowers—includingthepowerto
declareafour‐daybank“holiday.”Banksalloverthecountrywereorderedtoclose.
Theclosingsgavebankstimetogettheiraccountsinorderbeforetheyreopenedfor
business.
EightdaysafterbecomingPresident,Rooseveltdeliveredaninformalradiospeech
totheAmericanpeople.Thiswasthefirstofmanypresidentialfiresidechats.They
becameanimportantwayforRoosevelttocommunicatewiththeAmericanpeople.
Inthefirstfiresidechat,FDRexplainedthemeasureshehadtakentostemtherun
onbanks.HiscalmingwordsreassuredtheAmericanpeople.Whenthebankholiday
ended,Americansdidnotrushtotheirbankstowithdrawtheirfunds.Roosevelt
hadconvincedthemthatthebankswereasafeplacetokeeptheirmoney.
ReformingtheFinancialSystem
AnumberofRoosevelt’sproposalssoughttoreformthenation’sfinancial
institutions.OneactcreatedtheFederalDepositInsuranceCorporation(FDIC),
whichinsuredbankdepositsupto$5,000.Inthefollowingyear,Congress
establishedtheSecuritiesandExchangeCommission(SEC)toregulatethestock
marketandmakeitasaferplaceforinvestments.
Thesefinancialreformshelpedrestoreconfidenceintheeconomy.Runsonbanks
ended,largelybecauseAmericansnowhadconfidencethattheywouldnotlose
theirlifetimesavingsifabankfailed.Thestockmarketsalsostabilizedasregulated
tradingpracticesreassuredinvestors.
TheTVAAidsRuralSoutherners
AmericanslivingintheTennesseeRivervalleywereamongthepoorestinthe
nation.Fewhadelectricity,runningwater,orpropersewagesystems.In1933,
CongressrespondedbycreatingagovernmentagencycalledtheTennesseeValley
Authority(TVA).TheTVAbuiltaseriesofdamsin
theTennesseeRivervalleytocontrolfloodsandto
generateelectricpower.Theagencyalsoreplanted
forests,builtfertilizerplants,createdjobs,and
attractedindustrywiththepromiseofcheappower.
Despiteitsaccomplishments,theTVAattracteda
hostofcritics.SomecalledtheTVA“socialist,”
becauseitgavegovernmentdirectcontrolofa
business.Privatepowercompaniescomplainedthat
theycouldnotcompetewiththeTVA,becausethe
26
agencypaidnotaxes.However,theTVA’ssuccessesinimprovinglifeinthe
TennesseeValleyhaveensureditssurvivaltothepresent.
ProvidingReliefandPromotingIndustrialRecovery
DuringhisfirsthundreddaysasPresident,Roosevelt
proposedandCongressenactednumerousother
reliefmeasures.Tocounterthedepression’s
devastatingimpactonyoungmen,FDRcreatedthe
CivilianConservationCorps(CCC).TheCCC
providedjobsformorethan2millionyoungmen.
Theyreplantedforests,builttrails,dugirrigation
ditches,andfoughtfires.Astimewenton,programs
suchastheCCCbecamemoreinclusive,extending
workandtrainingtoMexicanAmericanandother
minorityyouth,aswellastowhites.FDRcalledthe
CCChisfavoriteNewDealprogram…
TheseNewDealmeasuresmarkedaclearbreakfrom
thepoliciesoftheHooveradministration,whichhad
disapprovedofdirectrelieftoindividuals.The$500millionappropriatedforFERA
representedthelargestpeacetimeexpenditurebythefederalgovernmenttothat
time.
ThecenterpieceoftheearlyNewDeal’srecoveryprogramwastheNational
IndustrialRecoveryAct,whichestablishedtheNationalRecoveryAdministration
(NRA).RooseveltcalledtheNIRA“themostimportantandfar‐reachinglegislation
everenactedbytheAmericanCongress.”Workingwithbusinessandlaborleaders,
theNRAdevelopedcodesoffaircompetitiontogovernwholeindustries.These
codesestablishedminimumwagesforworkersandminimumpricesforthegoods
thatbusinessessold.Theideabehindthesecodeswastoincreasethewagesof
workerssotheycouldbuymoregoodsandraisepricessocompaniescouldmakea
profit.
AnotherNewDeallegislativeachievementwasthePublicWorksAdministration
(PWA),whichbuiltbridges,dams,powerplants,andgovernmentbuildings.The
PWAwasresponsibleforbuildingmanyimportantprojectsstillinusetoday,such
asNewYorkCity’sTriboroughBridge,theOverseasHighwaylinkingMiamiandKey
West,andtheBonnevilleDamontheColumbiaRiverinthePacificNorthwest.These
public‐worksprojectsimprovedthenation’sinfrastructureandcreatedmillionsof
newjobsforworkers.
ExtendingSocialandEconomicReform
Inhisfiresidechats,pressconferences,andmajoraddresses,Rooseveltexplained
thechallengesfacingthenation.Hesaidthatthecomplexitiesofthemodernworld
compelledthefederalgovernmentto“promotethegeneralwelfare”andto
intervenetoprotectcitizens’rights.Rooseveltusedlegislationpassedduringthe
27
SecondNewDealtoaccomplishthesegoals.TheSecondNewDealaddressedthe
problemsoftheelderly,thepoor,andtheunemployed;creatednewpublic‐works
projects;helpedfarmers;andenactedmeasurestoprotectworkers’rights.Itwas
duringthisperiodthatthefirstseriouschallengestotheNewDealemerged.
NewProgramsProvideJobs
Inthespringof1935,Congressappropriated$5billionfornewjobsandcreatedthe
WorksProgressAdministration(WPA)toadministertheprogram.Roosevelt
placedhislongtimeassociateHarryHopkinsincharge.TheWPAbuiltorimproveda
goodpartofthenation’shighways,dredgedriversandharbors,andpromotedsoil
andwaterconservation.TheWPAevenprovidedprogramsintheartsfordisplaced
artists.AsHopkinsexplained,artists“havetoeatjustlikeotherpeople.”
By1943,theWPAhademployedmorethan8millionpeopleandspentabout$11
billion.Itsworkersbuiltmorethan650,000milesofhighwaysand125,000public
buildings.AmongthemostfamousprojectsfundedbytheWPAweretheSan
AntonioRiverWalkandpartsoftheAppalachianTrail.
Alloftheseprogramswereexpensive,andthegovernmentpaidforthemby
spendingmoneyitdidnothave.Thefederaldeficit—$461millionin1932—grewto
$4.4billionin1936.Theenormousexpendituresandgrowingdebtledmanyto
criticizethegovernment’spublic‐worksprojectsaswasteful…
SocialSecurityEasestheBurdenonOlderAmericans
TheUnitedStateswasoneofthefewindustrializednationsintheworldthatdidnot
havesomeformofpensionsystemfortheelderly.Duringthedepression,many
elderlypeoplehadlosttheirhomesandtheirlifesavingsandwerelivinginpoverty.
OnJanuary17,1935,PresidentRooseveltunveiledhisplansforSocialSecurity.
Inadditiontocreatingapensionsystemforretirees,theSocialSecurityActthat
Congressenactedestablishedunemploymentinsuranceforworkerswholosttheir
jobs.Thelawalsocreatedinsuranceforvictimsofwork‐relatedaccidentsand
providedaidforpoverty‐strickenmothersandchildren,theblind,andthedisabled.
TheSocialSecurityActhadmanyflaws.Atfirst,itdidnotapplytodomesticsor
farmworkers.SinceAfricanAmericansweredisproportionatelyemployedinthese
fields,theywerenoteligibleformanyofthebenefitsofSocialSecurity.Widows
receivedsmallerbenefitsthanwidowers,becausepeoplepresumedthatelderly
womencouldmanageonlessmoneythanelderlymen.Despitetheseshortcomings,
SocialSecurityprovedthemostpopularandsignificantoftheNewDealprograms.
KeyTerms:FranklinDelanoRoosevelt(dates:inoffice1933‐1945);FirstNewDeal;
SecondNewDeal
28
TheLegacyoftheNewDeal
Source:AdamCohen,“PublicWorks:When‘BigGovernment’PlaysItsRole,”New
YorkTimes,November13,2007.
AtthededicationoftheTriborough
Bridgein1936,FranklinRooseveltmade
animpassionedcaseforpublicworks.
Therewasatimewhennoone
complained,hesaid,“thatour
schoolhouseswerebadlyventilatedand
lighted”orthat“therewereno
playgroundsforchildrenincrowded
tenementareas.”Buttimeshadchanged.
“Peoplearedemandingup‐to‐date
governmentinplaceofantiquated
government,”hedeclared,“justastheyarerequiringanddemandingTriborough
Bridgesinplaceofancientferries.”
TheTriboroughwasbuiltbyRoosevelt’sPublicWorksAdministration,orP.W.A.,
oneofhis“alphabetsoup”agencies.TheNewDealpublicworksprogramsare
mainlyrememberedforgivingjobstovictimsoftheGreatDepression,butasRobert
D.LeighningerJr.arguesinhisrecentbook“Long‐RangePublicInvestment:The
ForgottenLegacyoftheNewDeal,”theyalsotransformedtheAmericanlandscape
andgreatlyimprovedthenation.
Thestoryofthe1930spublicworksprogramsistimelyagain,becausemuchof
Americaisfallingapart.ThedeadlycollapseofaMinnesotahighwaybridgein
Augustshinedalightonthepoorstateofthenation’sbridges,manythousandsof
whichare“structurallydeficient”byfederalstandards.Georgia’sfailuretobuild
enoughreservoirshascontributedtoawatercrisisthatcouldcripplemetropolitan
Atlanta.Weshouldbethinkingtodayaboutreplicatingsomeofthesuccessesofthe
Depression‐eraprograms.
TheP.W.A.,theWorksProgressAdministrationandtheCivilianConservationCorps
wereprimarilyundertakentoputpeopletoworkatatimewhentheunemployment
rateapproached25percent,andtorestartawoefuleconomy.Forward‐looking
officialslikeHarryHopkins,thereliefadministrator,andSecretaryofLaborFrances
Perkinsargued,however,thatpublicworksshouldbedirectedtosociallyuseful
programs.
Notallofitwas.Butthevastmajoritywereenormouslyvaluable.Greatinstitutions
werebuilt,includingtheBayBridge,theHooverDamandWashington’sNational
Airport—nownamedforRonaldReagan,Mr.Leighningernotes,eventhoughitis
“aproductofthetypeof‘biggovernment’programthathespentmostofhispolitical
careeropposing.”TheNewDealprogramsalsobuiltthousandsofimportant
29
buildings,manybeautiful,includingtheAlamedaCountyCourthouseinOakland,the
UniversityofTexasTowerandareconstructedFrenchMarketinNewOrleans.
Someprojectswerehigh‐profile—notably
thegreathydroelectricdamsandthe
presidentialretreatatCampDavid—but
manymorefocusedontheunglamorous
mechanicsofmodernliving,likewatermains,
pumpstations,andsewagetreatmentplants.
TheW.P.A.alonebuilt78,000bridgesand
viaductsandimproved46,000more.It
constructed572,000milesofruralroadsand
67,000milesofurbanstreets.Italsobuiltor
improved39,000schools,2,500hospitalsand
12,800playgrounds.
TheCivilianConservationCorps,Roosevelt’sfavorite,senthundredsofthousandsof
youngpeopleintothecountryside.Theylandscaped,andmadeaccessible,siteslike
thebattlefieldsatGettysburgandAppomattox,andclearedthewayforVirginia’s
SkylineDrive.Mostoftheirtimewasspentontreeplanting,floodcontrol,soil
erosioneffortsandfireprevention.
TheNewDealpublicworksprogramshavelargelyfadedintohistory.Mostpeople
whousetheirhandiwork,likethemillionswhotravelovertheTriboroughorvisit
SanAntonio’sRiverWalk,areunawareofhowtheycametobebuilt.Peoplerarely
thinkaboutviaductsorsewagelines.
Itisalegacy,though,thatisworthrecalling.Thereisareasonwearereadingabout
bridgescollapsing,watersystemsbeingoverburdenedandothersystemfailures—
likethe2003blackout,whichleft50millionpeopleintheNortheastandCanada
withoutpower.Physicalcapitalinvestmentasapercentageofgrossdomestic
product,themeasureofhowmuchthenationisinvestinginitself,isdismallylow
todaybyhistoricstandards—andthe$600billion‐plusbeingdirectedtotheIraq
Warisnothelping…
Thenationisunlikelytoembarkonpublicworksprogramslikethoselaunched
duringtheGreatDepression,unlessthereisanothereconomiccrisisofthatscale.
ButRoosevelt’sbasicidea—thatthegovernmentshouldemployidlehandsto
upgradethenation—shouldneverhavegoneoutoffashion.Thenextpresident
willneedtoconfrontthenation’sdisrepair.Itshouldbeanissueinthecampaign
rightnow.
Questions(atleast7completesentenceseach):
1. HowhastheNewDealshapedtheUnitedStatestoday?
2. Shouldthegovernmentspendmoreonpublicworks?Why?
30
PrimarySource:StatisticsonOverproductionandInequality
Table1:SelectedAgriculturalProductivityStatistics,1915‐19291
Labor‐hoursperunit
1915‐
19
1920‐
24
1925‐
29
Yieldsperacreofland
Wheat
Corn
Cotton
Hay
Milk
Beef
Hogs
Wheat
Corn
Cotton
Hay
100
bushels
100
bushels
Bales
Tons
100
pounds
100
pounds
100
pounds
Bushel
Bushel
Pounds
Tons
98
132
299
10.4
3.7
4.5
3.6
13.9
25.9
168
1.25
90
122
296
10.2
3.6
4.5
3.5
13.8
26.8
155
1.22
74
115
268
9.8
3.3
4.3
3.3
14.1
26.3
171
1.22
Table2:SelectedWholesaleCommodityPrices,1915‐19322
Wheat
Rawcotton
Cotton
Wool
sheeting
Dollars/bushel Dollars/pound Dollars/yard Dollars/pound
1915
1.29
0.10
0.07
0.71
1916
1.33
0.15
0.09
0.85
1917
2.30
0.24
0.15
1.57
1918
2.16
0.32
0.24
1.82
1919
2.42
0.33
0.23
1.78
1920
2.46
0.34
0.29
1.60
1921
1.33
0.15
0.13
0.83
1922
1.21
0.21
0.13
1.24
1923
1.11
0.29
0.16
1.38
1924
1.23
0.29
0.16
1.41
1925
1.67
0.24
0.15
1.39
1926
1.50
0.18
0.12
1.15
1927
1.37
0.18
0.12
1.11
1928
1.32
0.20
0.14
1.16
1929
1.18
0.19
0.13
0.99
1930
0.90
0.14
0.11
0.76
1931
0.61
0.09
0.07
0.62
1932
0.49
0.06
0.06
0.46
1HistoricalStatisticsoftheUnitedStates:ColonialTimesto1970(Washington,D.C.:
GovernmentPrintingOffice,1976).
2MichaelHaines,“TableCc205‐266–Wholesalepricesofselectedcommodities:
1784‐1998,”HistoricalStatisticsoftheUnitedStates:MillennialEditionOnline,eds.
SusanCarteretal.(Cambridge:CambridgeUniversityPress,2006),
http://hsus.cambridge.org.
31
Figure1:ElectrificationandProductivity,1890‐19403
Theleft‐handcolumnforeachyeardisplaysameasureofhowproductiveAmerican
manufacturerswere–thehigherthenumber,themoreproductiveindustrywas.
Table3:ManufacturingWages,1915‐19324
Hourly
Weekly
Year
Dollars
Dollars
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
‐‐‐‐
‐‐‐‐
‐‐‐‐
‐‐‐‐
0.47
0.55
0.51
0.48
0.52
0.54
0.54
0.54
0.54
0.56
0.56
0.55
0.51
0.44
11.22
12.63
14.97
19.12
21.84
26.02
21.94
21.28
23.56
23.67
24.11
24.38
24.47
24.70
24.76
23.00
20.64
16.89
3KevinL.KliesenandDavidC.Wheelock,“TheMicrochipFlexesItsMuscle:CanIt
CompetewithHistory’sBest?”,TheRegionalEconomist,July2001,
https://www.stlouisfed.org/publications/regional‐economist/july‐2001/the‐
microchip‐flexes‐its‐muscle‐can‐it‐compete‐with‐historys‐best.
4RobertMargo,“TableBa4361‐4366–Hourlyandweeklyearningsofproduction
workersinmanufacturing:1909‐1955,”inCarteretal.
32
Figure2:IncomeInequality,1912‐20085
Thisgraphrepresentstheshareoftotalincome,beforetaxes,thatwenttothe
wealthiest1%ofAmericans(thetopline)andthewealthiest0.5%ofAmericans(the
bottomline).Thehigherthenumber,themoreunequalthedistributionofincome.
5HannahShaw,“ExploringIncomeInequality,Part5:TheConcentrationofIncome
andWealth,”OfftheCharts[blog],CenterforBudgetandPolicyPriorities,December
2,2011,http://www.offthechartsblog.org/tag/income‐inequality‐series/;basedon
datainThomasPikettyandEmmanuelSaez,“IncomeInequalityintheUnitedStates,
1912‐1998(2008update),”UniversityofCalifornia,2010.
33
PrimarySources:BlackTuesday
Source:“Headlines,”TheCrashof1929,AmericanExperience,PBS,
http://www.pbs.org/wgbh/americanexperience/features/primary‐
resources/crash‐headlines/.
WaveofBuyingSweepsOverMarketasStocksSwingUpward
RadioFlashesHigh;GeneralMotorsandSteelsSoar
NewYorkWorld,March15,1929
StocksSoarAsBankAidEndsFearofMoneyPanic
NewYorkHeraldTribune,March28,1929
BankerSaysBoomWillRunInto1930
NewYorkWorld,March30,1929
BrokerstoOpenOfficesonShips
NewYorkWorld,October4,1929
PublicLiquidationSpurredbyBears,HitsLowMarket
ScareOrdersFromAllOverCountryHaltTickeranHourinFeverishDay
NewYorkWorld,October20,1929
BrokerageHousesAreOptimisticontheRecoveryofStocks
BrokersinMeetingPredictRecovery
NewYorkTimes,October25,1929
BrokersBelieveWorstIsOverandRecommendBuyingofRealBargains
NewYorkHeraldTribune,October27,1929
GiganticBankPoolPledgedToAvertDisasterasSecondBigCrashStunsWall
Street
LargestFinancialPowersintheCityMeetAfterDayofHystericalLiquidation
SinkingPricesBelowThursday’s
NewYorkWorld,October29,1929
StocksUpinStrongRally;RockefellersBigBuyers;ExchangesClose2‐1/2
Days
NewYorkHeraldTribune,October31,1929
VeryProsperousYearIsForecast
NewYorkWorld,December15,1929
34
PrimarySource:UnemploymentduringtheGreatDepression
Source:SusanCarter,“TableBa470‐477–Laborforce,employment,and
unemployment:1890‐1990,”HistoricalStatisticsoftheUnitedStates:Millennial
EditionOnline,eds.SusanCarteretal.(Cambridge:CambridgeUniversityPress,
2006),http://hsus.cambridge.org.
Number
unemployed Unemployment
Year
(thousands)
rate(%)
1925
2,115
4.68
1926
1,3s21
2.90
1927
1,808
3.90
1928
2,235
4.74
1929
1,383
2.89
1930
4,340
8.94
1931
7,721
15.65
1932
11,468
22.89
1933
10,635
20.90
1934
8,366
16.20
35
PrimarySource:HerbertHooveronRuggedIndividualism
Source:HerbertHoover,“PrinciplesandIdealsoftheUnitedStatesGovernment,”
October22,1928.
HerbertHoovergavethisspeechneartheendofhissuccessfulcampaignforthe
Presidencyin1928.
…During[WorldWarI]wenecessarilyturnedtotheGovernmenttosolveevery
difficulteconomicproblem.TheGovernmenthavingabsorbedeveryenergyofour
peopleforwar,therewasnoothersolution.ForthepreservationoftheState,the
FederalGovernmentbecameacentralizeddespotism[dictatorship]which
undertookunprecedentedresponsibilities,assumedautocratic[undemocratic]
powers,andtookoverthebusinessofcitizens...Howeverjustifiedintimeofwar,if
continuedinpeacetimeitwoulddestroynotonlyourAmericansystembutwithit
ourprogressandfreedomaswell…
Therehasbeenrevivedinthiscampaign,however,aseriesofproposalswhich,if
adopted,wouldbealongsteptowardtheabandonmentofourAmericansystemand
asurrendertothedestructiveoperationofgovernmentalconductofcommercial
business.Becausethecountryisfacedwithdifficultyanddoubtovercertain
nationalproblems—thatis,prohibition,farmreliefandelectricalpower—our
opponentsproposethatwemustthrustgovernmentalongwayintothebusinesses
whichgiverisetotheseproblems…
Youcannotextendthemasteryofthegovernmentoverthedailyworkinglifeofa
peoplewithoutatthesametimemakingitthemasterofthepeople'ssoulsand
thoughts.Everyexpansionofgovernmentinbusinessmeansthatgovernmentin
ordertoprotectitselffromthepoliticalconsequencesofitserrorsandwrongsis
drivenirresistiblywithoutpeacetogreaterandgreatercontrolofthenations'press
andplatform.Freespeechdoesnotlivemanyhoursafterfreeindustryandfree
commercedie.
36
PrimarySource:HerbertHooveronVolunteerism
Source:HerbertHoover,statementtothepress,February3,1931.
PresidentHooverissuedthisstatementin1931,respondingtoseveralmembersof
Congresswhoweredemandingthatthefederalgovernmentshouldspendmoneyto
helppeopleunemployedasaresultoftheDepression.
ThisisnotanissueastowhetherthepeoplearegoinghungryorcoldintheUnited
States…ItisaquestionastowhethertheAmericanpeopleontheonehandwill
maintainthespiritofcharityandofmutualself‐helpthroughvoluntarygivingand
theresponsibilityoflocalgovernmentasdistinguishedontheotherhandfrom
appropriations[spending]outoftheFederalTreasuryforsuchpurposes.
Myownconvictionisstronglythatifwebreakdownthissenseofresponsibility,of
individualgenerositytoindividual,andmutualself‐helpinthecountryintimesof
nationaldifficultyandifwestartappropriationsofthischaracter,wehavenotonly
impairedsomethinginfinitelyvaluableinthelifeoftheAmericanpeoplebuthave
struckattherootsofself‐government.Oncethishashappeneditisnotthecostofa
fewscoremillions,butwearefacedwiththeabyss[bottomlesshole]ofreliancein
futureuponGovernmentcharityinsomeformorother.Themoneyinvolvedis
indeedtheleastofthecoststoAmericanidealsandAmericaninstitutions…
Andthereisapracticalprobleminallthis.Thehelpbeingdailyextendedby
neighbors,bylocalandnationalagencies,bymunicipalities[citygovernments],by
industry,andagreatmultitudeoforganizationsthroughoutthecountrytodayis
manytimesanyappropriationyetproposed.TheopeningofthedoorsoftheFederal
Treasuryislikelytostiflethisgivingandthusdestroyfarmoreresourcesthanthe
proposedcharityfromtheFederalGovernment…
Butafterandcoincidentlywith[atthesametimeas]voluntaryrelief,ourAmerican
systemrequiresthatmunicipal[city],county,andStategovernmentsshallusetheir
ownresourcesandcreditbeforeseekingsuchassistancefromtheFederalTreasury.
37
PrimarySource:FDRontheNewDeal
Source:FranklinDelanoRoosevelt,addresstotheDemocraticNationalConvention,
Chicago,IL,July2,1932.
TherearetwowaysofviewingtheGovernment'sdutyinmattersaffectingeconomic
andsociallife.Thefirstseestoitthatafavoredfewarehelpedandhopesthatsome
oftheirprosperitywillleakthrough,siftthrough,tolabor,tothefarmer,tothesmall
businessman…
ButitisnotandneverwillbethetheoryoftheDemocraticParty.Thisisnotimefor
fear,forreactionorfortimidity…
Andnowonewordaboutunemployment,andincidentallyaboutagriculture.Ihave
favoredtheuseofcertaintypesofpublicworks[government‐fundedprojects]asa
furtheremergencymeansofstimulatingemployment…Justasoneexample,we
knowthataveryhopefulandimmediatemeansofrelief,bothfortheunemployed
andforagriculture,willcomefromawideplanoftheconvertingofmanymillionsof
acresofmarginalandunusedlandintotimberlandthroughreforestation.Thereare
tensofmillionsofacreseastoftheMississippiRiveraloneinabandonedfarms,in
cut‐overland,nowgrowingupinworthlessbrush.Why,everyEuropeanNationhas
adefinitelandpolicy,andhashadoneforgenerations.Wehavenone…
Insodoing,employmentcanbegiventoamillionmen.Thatisthekindofpublic
workthatisself‐sustaining…
IamsurethatthefarmersofthisNationwouldagreeultimatelytosuchplanningof
theirproductionaswouldreducethesurplusesandmakeitunnecessaryinlater
yearstodependondumpingthosesurplusesabroadinordertosupportdomestic
prices…
38
OurRepublicanleaderstelluseconomiclaws‐‐sacred,inviolable,unchangeable‐‐
causepanicswhichnoonecouldprevent.Butwhiletheyprate[talkendlessly]of
economiclaws,menandwomenarestarving.Wemustlayholdofthefactthat
economiclawsarenotmadebynature.Theyaremadebyhumanbeings.
Yes,when‐‐notif‐‐whenwegetthechance,theFederalGovernmentwillassume
boldleadershipindistressrelief.ForyearsWashingtonhasalternatedbetween
puttingitsheadinthesandandsayingthereisnolargenumberofdestitute[poor]
peopleinourmidstwhoneedfoodandclothing,andthensayingtheStatesshould
takecareofthem,ifthereare.Insteadofplanningtwoandahalfyearsagotodo
whattheyarenowtryingtodo,theykeptputtingitofffromdaytoday,weekto
week,andmonthtomonth,untiltheconscienceofAmericademandedaction.
Isaythatwhileprimaryresponsibilityforreliefrestswithlocalitiesnow,asever,
yettheFederalGovernmenthasalwayshadandstillhasacontinuingresponsibility
forthebroaderpublicwelfare.Itwillsoonfulfillthatresponsibility…
Ipledgeyou,Ipledgemyself,toanewdealfortheAmericanpeople.Letusallhere
assembledconstituteourselvesprophetsofaneworderofcompetenceandof
courage.Thisismorethanapoliticalcampaign;itisacalltoarms.Givemeyour
help,nottowinvotesalone,buttowininthiscrusadetorestoreAmericatoitsown
people.
39