The Great Depression
1929-1940
BACKGROUND
 Economies historically pass through good and bad
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periods that regularly repeat themselves
These periods of business activity are referred to as the
“business cycle”
The bad times are called recessions or depressions,
depending on the severity
Depressions are characterized by business failures,
high unemployment, and falling prices or inflation
The Great Depression was the worst depression in our
nation’s history
THE BIG QUESTIONS
 What were the causes of the Great Depression?
 Why was Herbert Hoover unable to cope with the
Great Depression?
 What were the effects of the Great Depression?
 How did the New Deal offer a new approach to
confronting the Great Depression?
CAUSES
 Overproduction – manufacturers were
producing more goods than they could
sell (cars, radios, appliances, etc.)
 Speculation – more and more people
were speculating in the stock market in
hopes of “getting rich quick”
 Many began buying on margin (getting
loans from a bank or stock broker)
 People also speculated in Real Estate
CAUSES CONTINUED…
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Shaky Banking – Some bankers invested
their depositors’ money in unsound
investments
It was common practice for banks to invest
depositors’ funds in businesses to enable
them to pay interests on deposits
The government failed to regulate the
banking system or the stock market
Consumers bought more than they could
afford and over-extended credit
CAUSES CONTINUED…
 Restricted International Trade –
American tariffs were enacted to protect
American markets
 Tariffs made it hard for producers to sell
overseas, since other countries retaliated by
setting high tariffs of their own
 In 1930, President Hoover signed the highest
tariff in U.S. history
 The shrinking of world trade contributed to
the Great Depression
THE DEPRESSION BEGINS
 THE STOCK MARKET CRASH – October 29, 1929
 On
October 24, stock
prices began moving
sharply downward
 Top bankers bought
stocks above current
market prices to try to
stop the rapid decline
 By October 29, stock prices kept falling
faster and faster, prices were at an alltime low, and the market crashed
CONTINUED…
 IMPACT ON BUSINESS
 Corporations
could not raise funds
 People could not repay loans
 Banks failed and thousands lost their life
savings
 The demand for goods decreased (prices fell,
factories closed)
 People couldn’t pay rent or mortgages (lost
homes)
CONTINUED…
 THE HUMAN IMPACT
 People
felt worthless
 Traditional optimistic outlook was replaced by
confusion and chaos
 With no unemployment insurance or bank deposit
insurance, private charities were overwhelmed
 People were homeless and hungry
 Millions depended on soup kitchens for food
 Writers and photographers like John Steinbeck and
Dorothea Lange recorded the misery of the times
THE DUST BOWL
 A series of droughts, in the Great Plains, in
the early 1930s dried up crops and topsoil,
turning the soil to dust
 Lasting for a decade, heavy winds carried
topsoil across hundred of miles, burying
homes and destroying harvests
 Farmers were forced to abandon their farms
 Many moved west to California (over 1M were
forced from their land)
MEXICAN REPATRIATION
 The Immigration Acts of the 1920s had restricted
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European immigrants, but not Mexican
Many Mexicans had come to the U.S. to escape the
turmoil of the Mexican Revolution (pass medical &
literacy tests & pay a small tax)
Many settled in “barrios” in California, Texas or
other southwestern states
Worked long hours for low wages at hard labor
Many faced prejudices (segregated schools, etc.)
CONTINUED…
 With less demand for labor during the
Depression, white Americans sought jobs
filled by Mexican-American immigrants
 Hostility grew toward Mexican immigrants
 It was more difficult to enter the U.S.
 Hoover authorized the Mexican Repatriation
Act to send Mexican-Americans back to
Mexico (over half a million were forcibly
returned, rather legal or not)
PRESIDENT HOOVER AND THE DEPRESSION
 Remained true to laissez-faire capitalism,
despite the spiraling economic problems
 Rejected demands for the government to
provide unemployment to the needy
 Believed this would reduce the incentive to
work
 Believed private organizations should provide
emergency relief, not the government
 The Federal reserve made matters worse by
reducing the money supply, not increasing it
HOOVER FINALLY RESPONDS
 He believed that when prices dropped low
enough, people would begin buying again, but
a lack of aggregate (total) demand prevented
this from happening
 Eventually cut taxes, increased federal
spending on public projects, and directed a
federal agency to buy surplus farm crops
 Established the Reconstruction Finance
Corporation to give emergency loans to banks
and businesses
CONTINUED…
 These policies were seen as too little, too late
 His lack of leadership frustrated most
Americans
 Shanty towns of homeless families and the
unemployed became known as “Hoovervilles”
and sprang up on the outskirts of many cities
 By the end of Hoover’s term, about 100,000
businesses failed and unemployment reached
13 million (25%)
FRANKLIN ROOSEVELT AND THE NEW
DEAL
 Defeated Hoover in a landslide election in 1932
when he promised Americans a New Deal to put
them back to work
 A major turning point in American history
 Marked an end to the view that government and
economy should be completely separate
 Established the principle that the federal
government bears the main responsibility to
ensure the smooth running of the Am. Economy
 Permanently increased the size and power of the
federal government
ROOSEVELT’S NEW STYLE OF
LEADERSHIP
 Considered the Great Depression as a national
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emergency
Created the “Brain Trust” made up of talented people
from leading universities to develop new and creative
strategies to deal with the crisis
Addressed the nation by radio addresses known as
“fireside chats” where he explained his policies in
simple conversational terms
Presented himself as an optimist
His experiences in overcoming polio helped him meet
the challenges of the Depression
WOMEN IN THE GREAT DEPRESSION
 Eleanor Roosevelt – became the eyes and ears of the
president by traveling throughout the country, and
later around the world. She was a political activist and
spoke for women’s rights, the cause of peace, and the
poor
 Frances Perkins – first female member of the U.S.
Cabinet (Secretary of Labor in 1933), serving for 12
years. She oversaw the Civil Conservation Corps and
the Public Works Administration and helped pass the
Fair Labor Standards Act, Nat’l. Labor Relations Act,
and Social Security Act.
NEW DEAL LEGISLATION
 Roosevelt told the American people that the
“only thing we have to fear is fear itself.”
 Blamed the selfishness of bankers and
financiers for the crisis
 Called a special session of Congress to push
through legislation what would have been
difficult to pass in less critical times
 Congress passed almost all of the important
bills Roosevelt submitted in his First Hundred
Days in office
THE THREE R’s – RELIEF,
RECOVERY, & REFORM
 RELIEF
 The
Banking Crisis: If depositors felt a bank
was unsound, the would remove their money. If
word of this spread, others would also, and the
bank would fail. 10,000 banks had failed in the
early days of the Depression.
To restore consumer confidence, Roosevelt
immediately declared a Bank Holiday, closing
all the nation’s banks
Each bank could only re-open after
government inspectors found it to be sound
CONTINUED…
 Relief
to Homeowners and Farmowners:
Many were unable to make payment on
mortgages.
Banks seized their property and forced them
out of their homes and farms
The government passed legislation making
emergency loans available
 Relief for the Unemployed: over 25% of the
workforce was out of work
No unemployment insurance & many were
without food or shelter
Roosevelt favored “work-relief,” emergency
public jobs for people
CONTINUED
 RECOVERY
 Key
to recovery is to stimulate demand
 Measures were designed to restore the economy by
increasing incentives to produce and by rebuilding
purchasing power
 Priming the Pump: The idea that pouring money
into the economy would get it working again.
Putting money into consumers’ hands would let
them spend more and increase demand for
products
More workers would be hired, thus continuing
increased purchasing power and consumer demand
CONTINUED…
 REFORM
 Aimed
at removing defects in the structure
of American economy to ensure another
Depression would not occur
 Many measures were based on the belief
that government should protect individuals
against risks they could not handle on their
own
IMPACT OF & REACTIONS TO THE
NEW DEAL
 LABOR: fastest growth period of union membership in
U.S. history. Roosevelt wanted to raise wages to help
fight the Depression.
 CRITICISM: Some proposed alternative approaches
to dealing with the Depression.
 The Liberty League : charged Roosevelt to being
a “traitor to his class” and attempting to establish a
popular dictatorship
 Dr. Francis Townsend: wanted to give citizens
over 65 a pension of $200 a month to be spent in a
month. He believed this would create new jobs and
end the Depression
CONTINUED…
 Father
Coughlin: Gave radio addresses to
millions, called for the nationalization of banks and
utilities, and preached anti-Semitism. Was
supported by nativists and those who distrusted
Wall Street bankers. The Catholic Church ordered
him to end his broadcasts.
 Huey Long: promised to give each Am. Family an
income of $5000 per year to be paid for by taxing
the rich. He was assassinated before mounting his
campaign to run against FDR.
THE SUPREME COURT AND THE NEW
DEAL
 Posed the greatest threat to the New Deal
 Ruled that both the NIRA and AAA were
unconstitutional
 In Schechter Poultry v. U.S. (1937), the Supreme Court
ruled that even during a national crisis, Congress can
not give the President more powers than those granted
in the Constitution
 Fearing the court might declare other New Deal
legislation unconstitutional, FDR proposed a plan to
allow the President to add a new appointment to the
Supreme Court for each justice over 70 ½ years old.
CONTINUED…
 The plan, if adopted, would have given FDR
the right to appoint 6 Justices, giving him
control over the court.
 It was viewed by many as an attempt to upset
the traditional separation of powers
 Despite his popularity, the public condemned
this move and Congress rejected it
 After this challenge to the court, the justices
generally stopped overruling New Deal
legislation
IMPACT OF STATE & FEDERAL
GOVERNMENTS
 Power of federal government increased
 Government had a positive responsibility to make
sure the national economy ran smoothly and
efficiently and made it possible to control citizens’
private actions
 Taxes rose dramatically to fund new gov’t programs
 States implemented their own versions of New Deal
policies
 Established a legacy of gov’t. agencies, regulations,
and procedures that remain with us today