The Great Depression
& The New Deal
APUSH ch. 24
Causes?
• What caused the depression?
– Structural causes:
• Agriculture suffered
– Supply high, prices low
• Industrial sector grew unevenly
– Overproduction and low wages
– Profits passed along
to owners, shareholders – most $ went to the top
– Lower wages = lower purchasing
power for the masses
– Vital industries (e.g. RR, steel)
lagged behind consumer good
production
– Global causes
• Worldwide depression
caused by WWI
• Europe stopped buying
US exports – less $$$
Causes?
– Monetary causes
• Failure of the banking system – Federal Reserve decreased money
supply
• Less money available for re-investment in companies
• $$$ was available to some (upper class) due to tax cuts
• Speculation & margin buying rampant – stocks purchased
recklessly on credit
– Borrowing 75% of stock price was common
– Novices were investing heavily (and recklessly) in stocks
– Prices rose rapidly…to levels too high
– “bubble” burst
• Stock prices fell until they were worthless – payment defaults
Black Tuesday
• How did the Crash occur?
– Oct. 29, 1929 – stock prices so low they were
worthless
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Massive trading to try to artificially push prices up
Made problem worse - $30 billion in lost stock prices
Stock market crashes
Banks lose money as speculators default on credit
Banks close as people withdraw all funds
Chain reaction of bank closings – banks always owe $$$ to
each other, so if one closes…
Impact
•
How hard did Depression hit?
– GNP fell by almost 50%
– Farm prices fall 60%
– 5500 banks closed by 1933
– National unemployment was at 25% (higher in some areas)
– Many employed at reduced rates and hours
– Many people lost (literally) every penny they had
Other problems
• Dust Bowl
– By 1930s, Great Plains so over-farmed that soil
erosion led to giant dust storms, and arid landscapes
– Over 3 million rural families leave plains, most head
to California
• Forms the backdrop for many Steinbeck novels
Response
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What was Hoover’s initial response to Depression?
– Not much
– Most people believed economy was cyclical, prone to ups and downs (like
weather)
– Hoover insisted local gov’t take action, businesses “stay the course”
– As the Depression got worse, Hoover was forced into action
• National Credit Corp. to help small banks make loans
• Reconstruction Finance Corp. to make loans to large banks and insurance
companies
• Too little, too late – didn’t work
– Public blamed Hoover
» Hoovervilles, Hoover blankets, etc.
– result – Hoover & Republicans lose 1932 election
1932 Election – no surprise here
FDR & The New Deal
• FDR comes into office in 1933 promising
New Deal – what was the goal?
– Industrial recovery via gov’t regulation and “pump-priming”
– Agricultural recovery via reduction of supply (drive up prices)
– Direct relief through local, state, and federal gov’t agencies
FDR & the Brain Trust
• FDR’s cabinet & advisors
– Mostly upper class, Ivy-league educated elite
• Frances Perkins – Sec of Labor
• Harold Ickes – Sec of Interior
• Harry Hopkins – Sec of Commerce
• Henry Wallace – Sec of Agri.
• Eleanor Roosevelt – wife & social conscience
– FDR’s advisors typically rejected laissez-faire philosophy
• Occasionally went further and adopted leftist principles
• FDR (and his inner circle) sometimes called “traitor to his class”
– What does this mean?
Banking/Finance
• Emergency Banking Act – shuts down all banks, re-organizes &
reinforces them, then reopens them (Bank Holiday)
• Economy Act – reduces federal salaries to reduce deficit
• Federal Securities Act – sets up SEC (Securities and Exchange
Commission) to regulate stock market, prevent reckless trading
• Banking Act of 1933 – sets up FDIC to insure bank deposits up to
$2500
• Banking Act of 1935 – FDIC covers up to $5000 in bank deposits
(restore faith in banks)
• Gold Reserve act – crime to possess or trade in gold –
– gov’t buys up all gold, then melts it
– US essentially abandons gold standard once and for all
FDIC
• Historical insurance limits
– 1934 - $2,500
– 1935 - $5,000
– 1950 - $10,000
– 1966 - $15,000
– 1969 - $20,000
– 1974 - $40,000
– 1980 - $100,000
– 2008 - $250,000
Financial Relief
• Revenue Act – raises taxes substantially on
upper income brackets
• Social Security Act – provides assistance for
retirees, unemployed, families w/ dependant
children, handicapped (Dr. Francis Townsend)
Industry & Labor
• National Industrial Recovery Act – creates NRA to
regulate industries & set labor standards
– Declared unconstitutional by SC, replaced by several
programs
• Fair Labor Standards Act – sets fed. Minimum wage, 40hr work weeks, overtime pay, ends most child labor
• National Labor Relations Act (aka Wagner Act) –
protects rights of unions to organize, collective
bargaining, and use of strikes
– Sets up NLRB for arbitration – pro-union
Employment
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CCC – provides jobs for over ½ million Americans
– Construction jobs in rural areas
– Planted trees, forestry projects, etc.
WPA – jobs in construction, arts, media
– Employed over 3 million (largest employer in US)
TVA – built dams, provided irrigation, hydroelectric power
in South
– Also programs to modernize southern industry
Civil Works Admin. – temporary jobs to unemployed, mostly construction
NYA – work-study programs, part-time job training for teens/young adults
PWA – large scale construction projects
Agriculture
• AAA – raise agri. prices by reducing supply
– Subsidies to farmers
– Declared unconst., but replaced by another AAA in 1938
• Farm Credit Act – helps farmers refinance at low rates
• Federal Farm Bankruptcy Act – limits ability of banks to repossess
farms
• Taylor Grazing act – fed. Gov’t can regulate grazing to protect
against overuse of land
• Soil Conservation & Domestic Allotment Act – same as AAA
• FCIC – Federal Crop Insurance Corp. – like FDIC for farmers –
insures crops & livestock
• Farm Security Admin. – educ./econ. Programs for struggling farmers
Housing
• Home Owners Refinance Act – helps homeowners refinance, avoid
foreclosure
• Home Owners Loan Act – helps people get loans to buy homes
• National Housing Act – gov’t standards for home-building, promotes
mortgage loans
• Resettlement Admin. – relocates struggling urban/rural families to
planned communities
– Helps tenant farmers, sharecroppers
Arts
• Federal Art Project – commissions artists to make murals, paintings,
posters in schools, hospitals, libraries
• Federal Writer’s Project – commissions writers to make accounts of
American folklore
• Federal Theater Project – commissions dramatists/actors to put on
stage production
– All these designed to put $$ into economy, but also create
artistic diversions from misery of depression
• All these were under the WPA
– They made the posters for the agencies
Various things
• Communications Act – sets up FCC to regulate broadcasting
– Also generates revenue by requiring radio (and later TV) stations
to pay licensing fee
• Public Utilities Holding Company act – federal regulation of public
utilities, esp. electricity
• Rural Electrification admin. – to bring elec. Power to rural areas
• Bankhead Jones Act – more funding for land-grant colleges
– Also allows fed gov’t to take over damaged lands, fix them, use
for parks, etc.
• Repeal of Prohibition (21st Amend.)
Were FDR and the New Deal popular?
• 1936 Election
Obstacles
•
What obstacles did New Deal face?
– Supreme Court
• Ruled several New deal programs unconst.
• Schecter v US
– Congress
• Blocked FDR’s attempt to expand SC to 12 members
(and pack court w/ ideological allies)
– Left-wing criticism
• Socialists & communists said New Deal didn’t do enough
• Thought FDR should restrict big business,
not include them in recovery programs
• Huey Long – Louisiana politician who wanted to “soak the rich”
– Right-wing criticism
• Conservatives felt FDR was leading US down road to socialism
• Zealots like Father Charles Coughlin attacked FDR
and New Deal as dishonest, communist, Zionist, etc.
– 1937 Recession
• Why?
– FDR tried to end programs too soon
– Reduced money supply to curb
possible inflation
– Then re-instituted programs to recover
from recession
Organized Labor
• Behavior during depression?
– Formation of CIO
– Many strikes
• Sit down strikes in auto industry
• Walter Reuther – United Auto Workers (UAW)
• Also UMW (United Mine Workers)
under John Lewis
• FDR generally backed the unions
American Society & Culture
• Depression’s impact on arts:
– Music, art, lit often
reflected despair
• Steinbeck novels
• Songs - “Brother Can
You Spare a Dime?”
• American Gothic (Grant Wood)
– Lit. sometime went
further & displayed
radical leftist tendencies
• Clifford Odets Waiting for Lefty
American Gothic
(Grant Wood)
Modern version
Society & Culture
• Distractions?
– Movies
• Provided escapism & air-conditioning
• Gone With the Wind, The Wizard of Oz
– Radio
• Besides news & music, provided series
– Adventures, mysteries, soap-operas
– Fireside chats by FDR
– Music – jazz & swing (big band era)
• Benny Goodman, Duke Ellington, Count Basie, Glenn Miller
Legacy of New Deal
• COMPLETELY transforms American gov’t
– Brings it into daily life for 1st time
– After New Deal, gov’t involved in countless ways
– Many programs still around today (sometimes by other names, in
different forms)
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Welfare & Social Security today
Unemployment insurance
Farm subsidies
FDIC, SEC, FCC, still regulate finance & communication
TVA still in South
NLRB still handles labor disputes
Still no gold standard
Still have min. wage, max. hours, no child labor
Arts projects later become National Endowment for the Arts
Rich were taxed heavily until 1980s
Gov’t still regulates building codes
Gov’t still promotes loans for home-buying
Gov’t is still part of process of aiding business, employment, etc.
Current Attacks
• A recent wave of academic attacks on the
New Deal
– Mostly by conservative historians and political
analysts
– Argue that FDR & New Deal went too far
• Made fed gov’t too big & intrusive
• Spent too much $$$
• Was dangerously undemocratic & authoritarian
– Supreme Ct packing attempt
• Set dangerous precedent
• Also argue New Deal wasn’t really very effective
– Why?