The Great Depression
What caused the most severe economic
crisis in American history?
How did presidential administrations
react?
Black Tuesday
• October 29, 1929
• The U.S. Stock
Market lost 90%
of its value.
• The stock market
crashes triggering
the economic
collapse
The Causes of the Great
Depression
1. A Speculative Boom Leads to a Spectacular
Crash
– A “bull market” versus a “bear market”
• A rise in stock prices versus a drop in stock prices
• The 1920’s could be characterized as a bull market
– The ability to buy on margin
• $1000.00 buys $10,000.00 worth of stock
• Price goes up, sell the stock, pay the broker, the rest is profit
• IF the price goes up…
• Speculation – a risky investment to get rich quick
– However stock prices were not accurately reflecting
the real value of the companies
The Causes of the Great
Depression
2. A Banking Crisis
Wipes Out People’s
Savings
– Where do you think the
money was coming from
that brokers were
lending?
– Bank runs fueled the
panic
– Banks were not safe
anymore
The Causes of the Great
Depression
3. Overproduction Puts Too Many Goods in Stores
– Assembly line and mass production increases output
with decreasing demand
– Not enough consumers to buy all the products
4. A Widening Wealth Gap Leads to Rising Debt
– Profits for business owners did NOT lead to
increasing wages
– An estimated 40% of Americans lived in poverty
– Credit allowed Americans to make up for this uneven
distribution of wealth in the ‘20s (we were buying
things we really couldn’t afford)
5. High Tariffs Hurt Foreign Sales
The Causes of the Great
Depression
6. Farmers Were the First
to Experience the Pain
of Underconsumption
(Overproduction?)
– When the war ended,
their markets
disappeared
– Farmers lost everything
as banks seized their
property for payment of
debts
Government Actions Make a
Bad Situation Worse
• The Role of the Fed
– The Federal Reserve (Fed) manages the nation’s money
supply (this is called monetary policy)
• Discount Rate = the rate of interest the Fed charges banks to
borrow money
– Low interest rates make borrowing easy (the story
throughout the 1920’s)
– 1931 the Fed raises the discount rate, raising interest,
decreasing the money in circulation, depriving
businesses of the capital they needed
• The Hawley-Smoot tariff sets record high rates to
protect American industry but destroys
international trade
– Farmers and businesses lose overseas markets
• The Great Depression was a global event
The Story of the Bonus Army
• In May, 1932 veterans flocked to Washington
D.C. for payment of a bonus due in 1945
(they needed the money now)
• By summer, 12,000 WWI vets were in the
capital
• President Herbert Hoover believed in selfreliance, rugged individualism and hard
work, not handouts
• He ignored the veterans at first then with tear
gas, tanks and armed soldiers, he cleared out
the Bonus Army
• The nation was stunned
How To Respond:
Three Perspectives
• The Conservative Response: Let the economy
stabilize
– Maintain the status quo
– Opposed to large scale government interference
– The economy will
stabilize if left alone
– It is all part of the
business cycle
– Any government
intervention should
only be at the local level
How To Respond:
Three Perspectives
• The Liberal Response: The government must
help
– Government is needed to protect individuals from
dangerous working conditions, monopolies or
unsafe food
– Called for the funding of public works =
government funded construction projects
– New taxes to raise money for social welfare (or
allow deficit spending)
– Government needs to take an active role in the
capitalist system to help by working with business
How To Respond:
Three Perspectives
• The Radical Response: Capitalism must go
– Radicals desire sweeping social, political or
economic change (could be through democratic
means or via revolution)
– Communism would allow
government planners to
distribute wealth according
to people’s needs
– The working class would
rise up against the “greedy capitalists”
Hoover’s Conservative Response
• Local communities,
churches and private
charities could take
care of their own
• Hoovervilles were
on the rise
• The conservative
response was failing
– Reconstruction Finance
Corp. to issue gov’t
loans to banks, RRs
and other big businesses
– A “trickle down” theory
(too little, too late)
The Election of 1932
• Hoover (R) vs. Franklin D. Roosevelt (D)
• FDR promised
America a
“New Deal”
• New Deal:
–relief for needy
–economic recovery
–financial reform
• With his
“Brain Trust,” FDR
formulates policies
to alleviate problems
The 100 Days (The “First New Deal”)
• This nation asks for action and action now
-FDR (first inaugural)
• Passes over 15 major New Deal laws
like…
–Emergency Banking Relief Act (after a
“bank holiday”) permits Treasury Dept. to
inspect banks and decide which are
insolvent, sound, or need loans
–By the end of 1933, Prohibition is repealed
by the 21st Amendment (liquor taxes can go
the government…not organized crime)
• Shoring up Society
– FERA to provide state and communities with funds to
help the jobless
– PWA creates jobs through heavy construction projects
• Shoring up the Financial Sector
– FDIC, SEC
• Shoring up Free Enterprise
– NIRA creates the NRA
• An increase in government
regulation and economic planning
• Helps business with price controls
to limit competition
• Unions get minimum wages and
collective bargaining
• The unemployed get more public
works projects
• To help farmers
– AAA to reduce production and raise prices
• To promote economic development
– TVA to “electrify” the Tennessee Valley and
provide flood and erosion control
• To help homeowners
– Home Owners’ Loan Corp. to
help meet mortgage payments
– FHA to insure loans
• To help the “forgotten man”
– CCC for jobs
The Country in Economic Distress
• Unemployment
– From 1929 - 1933 almost 1 in 7 businesses failed
– 1929: 3.1% unemployment / 1933: 25%
– The unemployed had little to spend, businesses
lost customers, so they closed = increasing
unemployment
• Farms lost half their value
– Foreclosure (lose the farm, the $, the home, the
livelihood)
– Tenant farmers and sharecroppers in the South
fared even worse
• Mississippi annual income fell from $239.00 in 1929
to $117.00 in 1933
Financial Stress Affects Families
• Financial stress leads to psychological
stress as adults lose their jobs, status,
authority and self-respect
• Marriage and birth rates declined
• Divorce rates declined
– Couldn’t afford to live separately
– Couldn’t afford the legal fees
• Families lost their homes = eviction
• Teenagers left home in search of work
Financial Stress Affects Families
• Financial stress leads to psychological
stress as adults lose their jobs, status,
authority and self-respect
• Marriage and birth rates declined
• Divorce rates declined
– Couldn’t afford to live separately
– Couldn’t afford the legal fees
• Families lost their homes = eviction
• Teenagers left home in search of work
Like the Joads in the
Steinbeck novel, The
Grapes of Wrath, families
head to California to
escape the Dust Bowl
While droughts continued in the
West, floods plagued the East
and indicated a need for federal
action
The New Deal and Its
Legacy
How did the expansion of
government during the New Deal
affect the nation?
New Deal Critics
• From the Right (conservatives)
– Too radical, too much, unconstitutional
• From the Left (liberals)
– Not enough action, not enough help
• Dr. Francis Townsend proposes a $200.00
monthly payment for everyone over the
age of 60
• Charles Coughlin (a “radio” priest) claims
FDR has out-Hoovered Hoover and wasn’t
doing enough
• Huey Long, a Louisiana senator, launches a
“Share our Wealth” campaign for
guaranteed jobs and guaranteed incomes
The Second New Deal
• Beginning in 1935: more legislation
– When is the next election going to occur?
• WPA hires musicians, writers, artists,
construction workers
– Eventually the WPA hires 7% of the American
workforce
The Supreme Court Attacks
the New Deal
• Strikes down the N.I.R.A.
– No presidential power to
issue “codes of fair
competition”
• Strikes down the A.A.A.
– “beyond the powers
delegated to the federal
government”
• FDR tries to add
additional justices to
“pack” the Court in his
favor
– Bad idea, much public anger over
the scheme
…And Even More
• Wagner Act (National Labor Relations Act)
– The Bill of Rights for organized labor
– Union membership climbs to 28% of the total
labor force
• Social Security
– Retirement and disability
The Impact(s) of the New Deal
• A good deal for workers
– Secured the right to form unions
– Secured the right to bargain collectively
• A mixed deal for women
– The influence of FDR’s wife Eleanor was huge
– An unprecedented number of female workers
were hired by FDR’s administration
– Not all women fared well as society was slow to
change
• A disappointing deal for African-Americans
– Oppression didn’t change
– Even New Deal agencies practiced segregation
The Impact(s) of the New Deal
• A better deal for American Indians
– Commissioner of Indian Affairs, John Collier,
reversed some harmful policies of previous
administrations
• A New Deal Coalition for Democrats
– Women + minorities + industrial workers +
immigrants + southern whites + city dwellers
The Impact of the New Deal
Relief
• Millions of
Americans
enjoyed some
form of help.
Recovery
Reform
• Not as successful
at economic
recovery
• More successful and
long-lasting
• Unemployment
remained high.
• FDIC restored
public confidence in
the nation’s banks.
• Direct relief or
jobs that provided • Some critics
• SEC restored public
a steady paycheck
argued that
confidence in stock
Roosevelt needed
markets.
• Programs such as
the support of big • New Deal left
Social Security
business.
and
thousands of
unemployment
• Other critics said
roadways, bridges,
insurance became
that the New Deal
dams, public
a fixture of
didn’t spend
buildings, and
government.
enough money.
works of art.
The foundation for the modern welfare state
(government responsibility) was laid and deficit
spending by the government becomes the norm