Unit 5:
Boom and Bust
Chapter 17
The Great
Depression Begins
I. Causes of the Depression
A. The Scenario
1. Prosperity of the 20s
a. total economic output had grown
50%+
b. revolution in technology: autos &
airplanes
c. building of roads and buildings
d. radio, gin & jazz
2. But all is not as it seems:
a. farming depressed
b. old industry threatened by new
industry (tech. advances)
c. surpluses mounting in warehouses
d. government polices allowed too
much consolidating, easy
credit, speculation resulting in high
debt
e. unequal distribution of wealth
hurting purchasing power
1920s Economy
B. The Election of 1928
1928 Election
1. The Candidates
a. Herbert Hoover (R) food dude, Sec.of
Commerce
b. Alfred E. Smith (D) A Catholic!
2. Campaign Issues (Rum, Romanism, Ruin)
a. Prohibition – Hoover dry, Smith wet
b. Religion – Hoover Quaker, Smith Catholic
c. Economy – Prosperity-Republicans took
the credit
“two cars in every garage”
1928 Election Results
Hoover's "Rugged Individualism"
"We are challenged with a peace-time choice
between the American system of rugged
individualism and a European philosophy of
diametrically opposed doctrines – Doctrines of
paternalism and state socialism“
" Our American experiment in human welfare has
yielded a degree of well-being unparalleled in all
the world. It has come nearer to the abolition of
poverty, to the abolition of fear of want than
humanity has ever reached before"
C. The Long Bull Market
1. Optimism
a. Stock prices at new highs – Bull Market
encourages many Americans to invest heavily in
stockStock Market: system for buying & selling shares
of companies
Bull Market: long period of rising stock prices
b. Many bought stock on margin. Investors able to
put down10-20% in $ to buy stock, the rest
available on easy credit.
- worked ok until prices began to fall
- American public was in enormous debt & their
“wealth” was all in paper
RCA
1928 - $85
1929 - $505
“Paper Profits”
“Speculative
Bubble”
1928-1930: 40%
c. Margin Call: Broker could demand
investor to repay immediately. Result of
this practice: investors sensitive to
any drop in price. Sold quickly fearing
inability to repay loan
d. Banks loaned M$ on speculative schemes.
Speculators took risks, betting market
would climb, hoped to sell stock & make
$ quickly
C. The Great Crash
1. Crash!
a. Margin Calls led to customers putting
stocks up for sale at rapid pace – market
falls in a tailspin
b. October 24, 1929 – Black Thursday –
13M shares sold off. $5B lost! As stock
prices fell & more brokers called on
customers to put up more cash
unleashing a vicious cycle sending prices
on the stock exchange plunging.
- NY bankers stepped up to buy stocks at
prices higher than going rate - trading
stabilized, market recovered until 10/29
- bankers really had only forced prices up
temporarily – then sold their own securities
& got out of the market. Fall continues
c. October 29, 1929 – Black Tuesday – 16 million
shares sold off as panic swept stock exchange.
$9B lost!
d. Within days, the “wealth” of a large part of the
country which had concentrated in vastly inflated
stock prices, vanished
Black Tuesday
2. Banks in a Tailspin
a. Banks weakened
- banks had lent money to speculators
- banks had invested depositors’ $ in the
stock market,
b. When stock values collapsed, banks lost $,
speculators couldn’t repay loans
c. Banks made less loans, less credit now
available – leads to a recession
d. Some banks can’t recover and must close –
customers lose their savings – crisis of
confidence in banking system
e. News of bank failures caused panic
– customers withdraw $, more
banks collapse
f. Banks make $ by lending $ received
by depositors & collect interest on
loans. Banks hold on to only small
amt of $ to cover day to day biz –
Banks collapse when too many
people withdraw their $
g. 10% of nations banks close
A Bank Run
D. The Roots of the Great Depression Causes
1. Uneven Distribution of Wealth
a. 5% of Americans earned 30% of nation's
income
b. Govt policy reduced taxes on highest
income: so they would reinvest in stocks
or place it in savings acct (Trickle Down
Theory)
c. not enough $ to farmers & workers who
would have bought consumer goods &
thus kept $ in circulation
2. Overproduction a key cause of Depression
a. new technology increased production capacity
of farms and factories
- many Americans can’t afford to purchase these
products(under-consumption) (low wages)
b. Americans buy on Installment Plan –
down-payment + monthly installments
c. To pay off debts, some reduced other
purchases. Leads to decreased consumption.
Less consumption leads to lower
production leads to unemployment – ripple effect
on economy
So, to summarize it,
HIGH DEMAND
for consumer goods
and
agricultural products
led to
OVERPRODUCTION.
It Had a
A Domino Effect
•Here
•Abroad…
3. Dangerous Foreign Trade Balance: Loss of Export Sales
a. Banks lent $ to stock speculators instead of foreign
companies
b. w/o loans from US banks, foreign companies purchased
fewer US products (These economies were already on
verge of economic collapse)
c. Hawley-Smoot Tariff – protectionist bill – threw up trade
barriers across the US – prompted Europeans to retaliate
- to do the same thing, worsening crisis for both US &
Europe. In 1932, US exports fell to about 1/5 of what
they had been in 1929 – hurts US manufacturers &
farmers
d. Europe in it's own economic crisis in 1931. Banks in
Europe failed. Europe in a cycle of poverty & political
instability
4. Govt Policies & Mistakes by the Federal Reserve
a. Artificially low interest rates - fed speculative schemes.
Helped cause the Depression in these ways:
1) encouraged banks to make risky loans
2) led biz leaders to believe economy still expanding
- thus, borrowed more $ to expand production – a
mistake since it led to overproduction at a time
when sales were falling –
- companies had to lay off workers to cut costs
b. Fed then raised interest rates, tightening credit
c. Govt policy of laissez-faire - belief that depressions were
a normal part of the business cycle
Buying on Credit
increased
personal debt.
Higher interest rates
caused
LESS DEMAND
for goods.
The Business Cycle
The Inevitable Ups and Downs...
5. Stock Market based Economy
a. speculation drove up market prices
beyond the stocks value
b. practice of buying on margin
encouraged more speculation
c. Not enough gov’t REGULATION (rules)
of the stock market
Causes of Great Depression
II. Life During the Depression
A. The Depression Worsens
1. How bad does it get?
a. by 1933, over 9000 bank failures
b. by 1932, ~ 30,000 companies went
out of biz
c. by 1933, over 12 M unemployed –
¼ of workforce
d. avg family income only $1,600/yr
Statistical Terms
Item
1929
-GNP
$104b
-Inv. Capital $ 10b
-Income
$82m
-Exports
$5.2b
-Unemployment 3%
1932
$54b
$ 1b
$40m
$1.6b
25%
An Unemployment Line
Gross National Product
2. Lining Up at Soup Kitchens
a. bread lines/soup kitchens – people
lined up for free food
Soup Line
Soup Line
3. Living in Makeshift Villages
a. people forced out of home, onto street
b. shantytowns/Hoovervilles
c. people wandering streets – hobos
Hooverville, USA
Portland
Cleveland
New York City,
Central Park
Sacramento
Hoovervilles were a familiar part of the
Oklahoma City skyline for nearly a
decade.
Populated by
families from all
walks of life and
occupations,
…from those who
lost their farms,
hoping to find
work in the city…
Norman family, lost farm the year before, 1939
…to blue collar
urban workers,
left unemployed
from factory and
small business
closings…
..and professionals,
teachers and bankers.
May Avenue bridge,
southside, Canadian River
…and provided
with access to
drinking water
for a nominal
monthly fee.
Rent: one dollar, collected by the city,
sanitation.
no
Food
distributed by
Saint Anthony's
hospital after
patients had
been fed; the
only foodline in
Oklahoma City
by 1939.
Sorting fruit discarded from
the downtown farmer’s
market.
…shack with pidgeon coop
Many residents of this camp
sneak into the stockyards early
in the morning to milk cows.
"We may not have much of a home here
but we will have one in Heaven."
Effects of the Crash…
4. The Dust Bowl:drought +
irresponsible farming techniques
a. farm crisis –
overproduction/decreased
demand/debt
b. drought on the Great Plains
c. “Dust Bowl” - no grass/shrubs to
hold moisture – soil blew away
Many lost farms – some moved to
CA “Okies
Dust Bowl
The Dust Bowl
B. Escaping the Depression
1. Hollywood
a. Movies
- Marx Bros
- Marlene Dietrich/Greta Garbo
- Disney – Snow White & the Seven
Dwarfs 1937
- Gone With the Wind
2. Radio
- listened to news, comedy shows
- Lone Ranger
- The Guiding Light – a soap opera
because shows sponsers
were often makers of laundry
soaps
Golden
Age of
Radio
3. Depression in Art
a. American Gothic
b. John Steinbeck’s – The Grapes of
Wrath
c. 35 mm camera – great picture
magazines: Life, Fortune, Time
A man reading a
magazine near his
trailer home.
Sarasota, Florida,
January 1941.
Architecture
•Mt. Rushmore
•Empire State Bld.
•Rockefeller Center
Grant Wood’s
American Gothic
Margaret
Bourke-White
Dorothea
Lange
George Washington
Bridge
III. Hoover Responds
A. Promoting Recovery
1. Voluntary Efforts & Public Works
a. organized series of conferences brings
together heads of banks, RRs & biz,
labor, govt - urged cooperation
b. Increased public works (govt-financed
building projects)
1) led to some construction increases but didn't make up for
majority of jobs lost in private sector
2) enough jobs could only be created thru
more govt spending
c. Hoover against increased govt
spending. Why? b/c 2 ways to pay
1) taxes - increased taxes hurts
consumers & biz
2) deficit spending - had to borrow
from banks, then banks
had less $ for biz expansion or
consumer mortgages etc
B. Pumping $ into economy
1. Trying to rescue banks
a. asks FRB to put more $ in circulation –
refused
b. NCC (National Credit Corporation) pool of $ to enable banks to continue
lending $ in their communities
c. RFC (Reconstruction Finance
Corporation) - made loans to
Banks, RRs, Ag Institutions
- failed to increase its loans enough to
meet need - economy declines
1. Direct Help for Citizens
a. Hoover opposed direct relief - socialist
to do so. Better left to state & city govt
b. By 1932, political support for direct
relief growing
- Emergency Relief & Construction Act
- $1.5B for public works & $300m
to states for direct relief
Herbert Hoover
“Rugged Individualism”
3. In an Angry Mood
a. Hunger Marches
- Some organized by American
Communist Party - "feed the hungry,
tax the rich"
- right to petition govt
b. Farmers Revolt - farmers especially
hard hit - had heavily mortgaged land to
pay for seed, feed & equip. After WWI,
prices fell, farmers couldn't make
mortgages
- 1/20 farmers foreclosed upon attempt to drive up prices by
destroying crops
Farm Foreclosure Sale
c. Bonus Marchers - WWI vets demand
their $1000 bonus, not actually due for
payment until 1945.
1) 25,000 vets walked, hitchhiked, or
road the rails to DC
2) camped in Hoovervilles in DC starving & desperate men w/ no job,
no hope of finding one
3) police/army sent to clear vets from
city - press coverage
Bonus Army
Chapter 18
Roosevelt
& The
New Deal
I. FDR takes office
A. FDR's Rise to Power
1. 1932 election
a. Hoover (R) v. FDR (D)
b. FDR wins as Depression turned voters
away from Hoover
2. Progressive Reformer as NY Senator
3. Polio: stricken in 1921 w/ Polio paralyzing disease w/ no cure
a. 1950, Dr. Jonas Salk develops Polio
vaccine
b. Today, Polio no longer a threat
Click the Speaker button
to listen to the audio again.
4. FDR as Gov of NY
a. cut taxes for farmers; reduced public utility
rates
b. set up unemployment agency in NY in
1931 - direct relief
c. grew popular for using govt pwr to help
people in economic distress
d. energy & optimism also made him popular
5. FDR Inaugurated
a. before he took office, unemployment
grew, bank runs increased
b. Americans feared FDR would abandon
gold standard.
1) 1 oz gold = set # of $
2) people withdrew $ from banks to
convert it to gold before it lost value
3) led to more
bank runs
c. The situation when FDR took office
1) March '33: over 4000 banks collapsed. 9M
savings accts wiped out (led to bank
holidays - Closing banks before bank runs
put them out of biz)
2) 25% unemployment
II. The First New Deal
A. The Hundred Days Begins
1. March 9-June 16, 1933: 1st Hundred
Days - promised people a "New Deal“ &
promised to convene a special session of
Congress to deal w/ economic crisis
a. New Deal = 3 s: Relief, Recovery,
Reform
1) Relief: Immediate Action aimed to
ease suffering of the needy/
unemployed/farmers
2) Recovery: Designed to help the
economy/business recover –
programs to restart flow of consumer
demand
3) Reform: Help prevent future
economic crises
b. Congress passed 15 major acts to meet
economic crisis - Sometimes w/o even
reading them
c. approach was "take one method and try
it. If it fails, try another – but above all,
try something!
2. A Divided Administration - 3 groups
a. New Nationalism - believed govt & biz
should work together to manage economy,
regulate wages, prices, & production
b. Govt planning - govt planners should
run key parts of govt
- distrusted biz leaders
c. New Freedom - blamed lrg trusts. Govt
had to restore competition
- supported breaking up big cos. &
allow competition to set wages,
prices & production
- govt should regulate to keep
competition fair
B. 1st big challenge : address banking crisis
1. Declared bank holiday - closed all banks.
a. passed Emergency Banking Relief Act banks would be inspected to check for
solvency. - only those in sound
financial health would be allowed to
reopen
b. this would reassure people that open
banks could be trusted & keep them from
withdrawing their $ out of panic
c. Banks closed for 1 week.
d. Helped to restore public confidence in
banking system
2. Fireside chats: March 12: began series of
radio talks where FDR explained his
policies in simple, friendly way
a. encourage people to put $ back in
banks - security
b. worked - people deposited instead of
withdrew
3. Regulating Banks & Brokers - banks still
needed reform – new regulations for banks
& stock market:
a. SEC - regulated stock market by
monitoring corps to make sure they
provided proper info to investors
(prevent fraud)
b. FDIC - provided govt insurance for bank
deposits up to certain amt
C. Agricultural Recovery - AAA May 1933
1. Agricultural Adjustment Administration farmers hit the hardest in depression. Farm
prices low b/c farmers grew too much food
a. AAA -  agricultural surplus &  prices for
struggling farmers
1) gave subsidies to farmers who did not
plant crops or raise certain livestock
2) with existing crops/livestock, AAA paid
farmers to plow under crops & slaughter
livestock (6 m piglets slaughtered)
3) worked: w/in 2 yrs, farm income  more
than 50%;
4) Farm Mortgage Act - provided $ to keep
farmers from losing land to foreclosure
2. Criticism of AAA
a. waste to kill animals, plow under
crops
b. raising food prices in depression
times unethical
c. not all farmers benefited. Helped
Commercial farmers the most.
d. Poor tenant farmers (blacks) homeless & jobless when
land taken out of production
D. Industrial Recovery
1. NIRA - established NRA - to stimulate
production & competition by having US
industries set us a series of codes designed to
regulate prices, output, & general trade
practices. Fed govt agreed to enforce codes. if cooperative, Fed would suspend anti-trust
legislation. Gave workers right to form unions &
bargain collectively
a. membership in NRA voluntary
b. to get members to join, NRA led publicity
campaign
- got a blue eagle decal for joining
- hoped public would boycott those that
didn't have decal
2. NIRA declared unconstitutional by SC
a. lrg corps wrote codes to benefit
themselves - hurt small biz
b. corps didn't recognize rights of labor
to organize
E. Providing Debt Relief - debt main obstacle
to recovery
1. HOLC - to help homeowners pay mortgage
a. bought mortgage from bank
b. refinanced them in a way that
homeowners could pay
c. saved 1/5 mortgaged homes
d. HOLC only made loans to employed
people. If you lost your job, HOLC
foreclosed too
2. Farm Credit Admin (FCA)
a. helped farmers refinance mortgages
b. helped many keep their land
F. Spending & Relief Programs - aimed at reversing
low consumption - organized work programs for
unemployed
1. CCC - employed single men, 18-25, for natural
resource conservation
a. built dams, planted trees, fought fires etc
b. lived in camps
c. provided nourishment
d. offered courses to develop job skills/ earn
High School diplomas
e. by 1941, ~ 2.5 M men thru the program:
found work & fellowship instead of
drifting into political extremism
2. Public Works & Emergency Relief
a. FERA - granted federal $ to state & local
govts to be used to help unemployed by
creating relief projects
b. PWA - lrg scale engineering projects such as
hwys, dams, powerplants, bridges
- Hoover Dam on Colorado river
- Grand Coulee Dam on Colombia River
c. TVA - built hydroelectric plants & dams
aimed at improving 7 Southern states &
attracting industry in south
- successful - eased poverty & provided
them w/ long-lasting resources for a
better life
The TVA
3. CWA - provided employment in construction of
airports, parks, schools & roads
a. hired workers directly - on govt payroll
b. spent so much $, hired so many people, FDR
concerned that people begin to expect govt to
give them jobs - shut it down
G. Effects of 1st New Deal
1. by end of 1st yr, FDR convinced Congress to pass
many new programs, policies
2. did NOT restore prosperity, but did restore hope &
optimism & faith in the nation
Major “First New Deal” Programs
III. The 2nd New Deal
A. Challenges to the New Deal
1. Criticism from right (conservatives):
a. increasing debt (over $30B by '35)
b. pro-labor, socialistic, dictatorial, anti-biz
c. 1934, organized American Liberty
League
- called FDR a fascist; New Deal
destroying Constitution; leading US to
bankruptcy & socialism
d. no overwhelming support - Dem's gain
10 more seats in Congress
2. Criticism from left - believed FDR not going
far enough - called for shift of wealth from
rich to Middle Class & poor
a. Father Charles Coughlin ("radio priest")
- had 40 m audience - criticized FDR on
radio program
- called for nationalization of big biz &
banking
- called for more tax on wealthy
b. The Townsend Plan - Dr. Alfred
Townsend
- supported "old age pension" plan $200/mo for all over 60, but had to
spend it or return it
- believed plan would increase
spending, remove people from labor
force, free up jobs for unemployed
- but when pointed out that his plan
would bankrupt country,lost support
c. Huey P. Long - Gov, Sen from LA
- "Share our Wealth" plan to make "every
man a king", a $5K homestead, a
$2.5K/yr job, college!
- how? Soaking the rich - take their $, give
it to needy
- assassinated in Baton Rouge, 1935
B. Launching the 2nd New Deal (1935) - 1st
New Deal failed to generate a rapid
economic recovery
- production & consumption rose, but
below pre-crash level
- unemployment figure never fell below
10%
- Dust Bowl in the Plains
- But FDR had restored confidence, rebuilt
optimism & created hope
- goal to speed up recovery, provide
economic security, ensure reelection in
'36
1. WPA ('35)
a. primary relief agency of 2nd New Deal
b. attempt to provide work, not welfare provide useful projects
c. contructed bldgs, hwys, airports, schools
d. Fed. Theater Project, Fed. Art Project,
Fed Writers Project - employed actors,
musicians & writers
e. Employed 3 M jobless at a time. By
1943, had employed ~ 9M
2. Supreme Court's Role
a. Supreme Court declares NRA
unconstitutional in Schechter v. US
(1935) - NIRA codes unconstitutional
"sick chicken" case
b. SC dominated by aging, conservative
Republicans
c. FDR began working on new series of
programs to keep voters support
3. Rise of Industrial Unions
a. SC also struck down section of law that
established labor's right to organize
b. FDR needed working class vote in 1936
election
c. FDR thought unions could help end
depression: high wages = higher consumption
= boost to the economy
d. NLRB (Wagner Act) - workers can organize
unions w/o interference from employers & can
bargain collectively - workers could vote to
decide whether they wanted a union
- binding arbitration
e. CIO - organized industrial unions
(workers in particular industry, skilled &
unskilled)
- focuses 1st on steel & auto industry
f. Sit - Down strikes - GM workers
stopped, but refused to leave factory
- led to founding of UAW
C. Social Security Act (1935)
1. one of most important in US History!
2. goal to provide security for elderly & unemployed workers
3. an insurance bill - paid premiums to receive benefits
4. also welfare pay. to needy people: disabilities, poor
families w/ young, dependent children
a. monthly retirement benefit - collectable at 65 when
retired
b. unemployment insurance
c. $ came from payroll taxes on workers & employers
d. helped many at first, but left out neediest in society farmers & domestic help (65% of all blacks in this
category)
*** established principle that govt should be
responsible for those who, through no fault of
their own, were unable to work
Second New Deal Programs
IV. The New Deal Coalition
A. Roosevelt’s Second Term
1. Political realignment: Black Americans’ voting patterns
shift from Republican Party (party of Lincoln) to
Democratic Party (party of FDR)
2. Core of Democratic party now includes (still pretty much
true today):
a. Black Americans
b. farmers
c. labor (unions)
d. minorities
e. new immigrants
f. women
g. intellectuals
h. progressives
3. Roosevelt appts blacks and women to
positions in his Administration
a. Francis Perkins: Sec of Labor – 1st
woman cabinet post
4. Election of 1936
a. FDR (D) vs. Landon (R)
b. FDR wins easily – over 60% of
popular vote
5. Court-Packing Plan – FDR’s Big Mistake!
a. 1936 – SC declares AAA
unconstitutional – other acts likely
to follow
b. FDR furious that “9 old men” could
block wishes of the majority
c. FDRs plan:
- new justices could be added to
SC if any had served over 10 yrs
and did not retire when age 70.
- would have allowed FDR to
appoint as many as 6 new
justices
d. public reaction? Outrageous!
- viewed as a scheme to
interfere with Constitutional
principal of: Separation of
Powers
6. The Roosevelt Recession – late 1937
a. after period of steady drops,
unemployment rose
b. FDR adopted ideas of John Keynes
- Keynesian Economics: argues that
gov’t should spend heavily during a
recession, even if it had to run
a deficit, in order to jump-start the
economy
c. spring of 1938: FDR asks Congress
for $3.75 b
B. The Last New Deal Reforms
1. National Housing Act
a. established US Housing Authority
b. subsidized loans for builders willing to buy
blocks of slums & build low-cost housing
2. Farm Security Admin
a. gave loans to tenant farmers so they
could purchase land
3. Fair Labor Standards Act
a. provided more protection for workers
b. abolished child labor
c. 40 hr work week
4. New Deal Legislation slows
a. Republicans gained seats in 1938
midterm elections
b. FDR preoccupied with events in
Germany & Japan
Adolf Hitler
Prime Minister
Hideki Tojo
C. The Legacy of the New Deal
1. Did not end Depression, but did increase security and
stability
2. Broker State
a. people now looked to gov’t to balance competing
economic interests – to “broker” conflicts btwn
diff. interests
b. people looked to gov’t to protect their interests
3. Gov’ts New Role
a. new public attitude: gov’t had a duty to maintain a
“safety net” – safeguards and relief programs to
protect them from economic disaster
b. safety net = more expensive gov’t
c. New Deal increased size and scope of US gov’t