The Great Depression and the New Deal 1929-1939. The Great Depression Begins.

The Great Depression and the New Deal

1929-1939

The Great Depression Begins

The Great Depression BeginsAfter the 1920s decade of prosperity and buying on credit, the bottom dropped out of the economy starting in 1929. That year marked the beginning of the worst economic slow-down in United States history. This time was called the Great Depression.

You have already seen the disparity of income in the 1920s, the problems in the farm economy, and the widespread practice of buying stocks on credit. These were all factors that led to the Great Depression. Let’s look at each of these factors and at other factors that made the disaster even worse.

Major Factors That Caused the Great Depression

Disparity of Income

Collapse of the farm economy

Stock market speculation

Disparity of IncomeFor some, the Roaring Twenties never “roared.” The wealth of the decade ended up in the hands of too few people. Approximately 30% of the nation’s wealth was controlled by only 5% of the people. Roughly 40% of Americans could not afford the basic necessities of life. This disparity of income meant that people who owned the factories became rich while the people who worked in the factories or farmed remained poor. And for the poor, the Great Depression only deepened their misery. Farmers and low wage factory workers were already experiencing hard times. The Great Depression only made things worse.

Question: What’s the big deal about disparity of income? We’ve always had rich and poor. How did that help cause the Great Depression?

The problem wasn’t so much that some people made more money than others-even a lot more. It was that the wealth of the nation was in the hands of “Big Business.” The disparity of income was more about the abuses of large businesses than about who was rich and who was poor. When hard times came, the wealthy simply closed the doors of their factories and left the workers to make their own way.

The Farm Economy and Overproduction

During World War I, farm prices had never been higher, and the demand had never been greater. After all, American farmers were feeding Europe as the Europeans fought with one another. But after the war, farmers continued to produce at record levels. Farm prices dropped and so did the demand. Surpluses of farm products further pushed down the prices until the farm industry was at the point of collapse.Farmers began to suffer from overproduction in the early 1920s, but overproduction also caught up with other industries. By 1928, many industries began to slow down because they were making more consumer goods than people could buy. When factories have more goods than they can sell, they cut production and lay off workers. Without jobs, people buy even less, and the economy begins to spiral downward. During the Great Depression, many factories either closed or laid off thousands of workers.

The Stock Market CrashYou’ve already seen how the run-away stock speculation of the 1920s set the stage for the stock market crash. People were buying stocks on credit, and the prices of stocks grew higher than they were actually worth.In 1929, the stock market began to grow unstable. People would panic and sell their stocks. Their actions caused stock prices to drop. Then the market would make a small recovery, and prices would rise again.

The Stock Market Crash On October 24, 1929, Black Thursday, people once again panicked and sold stocks in great numbers. This time, the panic did not stop. In the days that followed, more people panicked. Over the next month, stock prices dropped drastically.This panic caused the stock market to crash, or drastically drop in value. People lost millions of dollars almost overnight. The stock market crash during this time is called the Wall Street Crash of 1929. The crash marked the official beginning of the Great Depression.

Other Factors

As the economy spiraled downward, other things happened that caused more misery. A high tariff choked off trade with Europe, banks failed, and workers were laid off by the millions.

High TariffsIn an attempt to protect American jobs and to boost the sagging farm economy, a high protective tariff was passed in 1930. But rather than help, the high tariff caused European countries to strike back. After all, the United States wasn’t the only country suffering from a depression. So was all of Europe. Europe raised their tariff rates on American goods. Trade between America and Europe slowed to a trickle. The depression in the United States and in Europe deepened.

Bank FailuresAlready weakened by the stock market crash, banks were soon in deep trouble. Banks use the money people deposit into savings in order to make loans. Banks make money off the interest on those loans. Under ordinary circumstances, there is plenty of money coming in from loans and to pay out as people need to withdraw savings. However, bank failure can happen when a bank doesn’t have enough money coming in to pay out what people are withdrawing.During the Great Depression, people who lost their jobs often could not pay back their loans. The unemployed then needed their savings that had been deposited at a bank. People trying to withdraw their savings as banks struggled to collect on loans caused banks to run out of money. During the Great Depression, many banks failed and had to close.

Bank FailuresAs more banks closed, people began to panic and to want their money back. When people try to withdraw their savings from a bank all at one time, it is called a bank run or a run on the bank. Bank runs caused even more bank failures. People with money in closed banks lost their savings. By 1932, over 5,000 banks had failed. As the banking system collapsed, people lost their homes, their farms, and their businesses as well as their savings.

UnemploymentWith no one to buy the consumer goods, warehouses began to fill up. Industries lowered production and laid off workers. U.S. Steel and Ford Motor Company, two of the largest companies in the country, closed factories and fired workers by the thousands. By the end of 1932, there were more than 13 million unemployed workers in the United States. Almost 25% of Americans who wanted a job could not find one.By 1933, farm prices were so low that it wasn’t even worth harvesting the crops. Crops rotted in the fields because there was no market for them. Thousands of farmers and farm laborers were now unemployed. The depression effectively put an end to tenant farming and share cropping. The collapse of the farm economy was complete.

THE END

What was life like living during the Great Depression?

Many families sought to cope by planting gardens, canning food, buying used bread, and using cardboard and cotton for shoe soles. Despite a steep decline in food prices, many families did without milk or meat. In New York City, milk consumption declined a million gallons a day. Many did not have money for proper medical and dental care. As a result, the overall health of adults and children was very poor.

What was life like during the Great Depression?

The Depression had a powerful impact on family life. It forced couples to delay marriage and drove the birthrate below the replacement level for the first time in American history. The divorce rate fell, for the simple reason that many couples could not afford to maintain separate households or pay legal fees. But rates of desertion soared. By 1940, 1.5 million married women were living apart from their husbands. More than 200,000 vagrant children wandered the country as a result of the breakup of their families.

Bread Lines and Soup KitchensAs more and more unemployed were unable to care for themselves or their families, local charities tried their best to help. Although few actually starved, many felt the pinch of hunger and experienced the effects of malnutrition. Hunger results from not getting enough to eat; malnutrition happens when not enough of the right foods are eaten. Without a balanced diet, the body suffers from malnutrition.

Bread Lines and Soup KitchensTo help people who had no place to turn, local charities set up soup kitchens and bread lines. Soup kitchens were places where the hungry could get a hot meal. Bread lines were places that gave out bread to the needy. The need was soon so great that local charities and state governments simply did not have the resources to provide for everyone. And although the soup kitchens and bread lines helped many, these gifts to the needy only deepened the sorrow of the lines.

EntertainmentFood wasn’t the only thing the weary souls of the 1930s needed. They also needed a way to escape the misery and despair of hard times-if only for a little while. Radio was already a popular form of entertainment before the depression, and it continued to be a comfort for many.The fantasy worlds created by Hollywood movies also provided a means of escape during the 1930s. Even though the characters changed, the message in the movies was often the same. No matter what troubles the movie stars faced, things always worked out in the end. One popular movie of the time was Gone with the Wind. It was an epic tale of the hard times in the South after the Civil War. Things were bad, but the heroine (Scarlet) survived it all. The message was clear: you can make it. And that was just the message that desperate people needed to hear.

Entertainment

The Hoover AdministrationThe stock market crash cost the American people billions of dollars. Layoffs in industry cost millions of jobs. Banks failed by the thousands. Businesses closed. And the nation drifted into despair. Because the government expected the economy to recover on its own, President Herbert Hoover did little to interfere with the process. He believed the following:

The economy would recover on its own because it always had before.

Individuals should help themselves. State governments and charities should take care of those in

need.

The Hoover AdministrationAs the nation watched and waited for the recovery to come, things got progressively worse. Jobs were scarce. Many lost their savings in the stock market crash or in bank failures. Many lost their homes when they could not make the mortgage payments. It was a terrible time when starvation seemed a real possibility for many.

Hoover eventually realized that the Great Depression wasn’t going to get better on its own. In the last year as President, he proposed legislation to help businesses recover. But his efforts were too little too late.

Question: What legislation did Hoover suggest, and who was it designed to help?

Hoover’s bill created the Reconstruction Finance Corporation (RFC). The purpose was to loan money to banks, railroads, and insurance companies. By the time the legislation was passed, the depression had grown so severe that the RFC had little impact on such a great need.

The RFC was eventually expanded to loan money to state governments to meet the needs of their citizens, but did nothing to aid citizens directly.

HoovervillesBecause he did little to help, Hoover was blamed for the Great Depression. The homeless built shacks out of whatever they could find. They used scrap tin, scrap lumber, and tar paper. (Tar paper was heavy paper soaked in tar. It wasn’t very strong, but it was waterproof.) Groups of shacks were called Hoovervilles.

The Bonus ArmyWorld War I veterans had been promised a bonus for military service in the war. But they were not to receive the bonus until 1945. Desperate veterans wanted the money now and marched on Washington to ask for it. They were called the Bonus Army.The veterans set up a shanty town in sight of the capitol building. When Congress failed to pass a bill to pay the bonus early, Hoover ordered the Bonus Army to leave. When they refused to go, Hoover ordered the United States Army to remove them. Many of the veterans and their families were injured, and one or two actually died. Hoover became even more unpopular.

Hoover vs. The Bonus Army

The Dust BowlAs if the farmers had not suffered enough, a terrible drought hit the Great Plains and other western areas beginning in 1931. Crops withered in the fields. The lack of rain along with the years of damaging farming practices turned the soil into dust. With few trees and no plant roots to hold the soil in place, heavy winds picked and carried it away. The Midwest literally became a Dust Bowl because of the huge dust storms.

The Dust BowlMany farmers lost their land and moved to other areas of the country. Their only choice was to become migrant workers, moving place to place in search of jobs. Some went to California and other farming areas in search of better lives.The Grapes of Wrath was a novel by John Steinbeck. It was written about one of these migrant families and their journey from Oklahoma to California during the years of the Dust Bowl. It was a hard life, which Steinbeck detailed in the book.

Question: What was an “Okie”?

Okie was a term given to migrant workers from Oklahoma. It wasn’t meant to be nice.

FDR Elected President

FDR as PresidentWith the deep misery that many Americans faced, it’s little wonder that Hoover lost the 1932 election. Franklin D. Roosevelt (FDR), the Democrat, won in a landslide victory. A landslide occurs when a candidate wins an election with a large number of votes over his opponent. It would be up to FDR to get the economy going again.

FDR as PresidentIn his inaugural address, FDR tried to reassure the American people.

…So first of all, let me assert my firm belief that the only thing we have to fear is fear itself-nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory…

-Franklin D. Roosevelt Inaugural Address, 1933

FDR as PresidentFDR’s approach was simple and honest. The President promised action. He would try some things. If they worked, great! If they didn’t work, he would try something else. His attitude is summed up in his quote, “Do something. And when you have done that something, if it works, do it some more. And if it does not work, then do something else.” FDR also planned to work in stages. He called his plan the New Deal.

FDR as President

FDR’s Three R’s Relief-Provide immediate help for the

needy. Recovery-Get the economy going again. Reform-Change the things that had caused

the depression in the first place.

Bank HolidayOnce in office, the first action FDR took was to declare a four day bank holiday. He closed all the remaining banks and promised the American people that the banks would not reopen until every bank had been inspected and declared solvent. (Solvent means banks are financially stable.) His actions along with the Emergency Banking Act passed by Congress restored confidence in the banking system and stopped large numbers of people from trying to take their money out of banks.

Question: What did the banking holiday actually do for the banking industry?

When FDR declared the bank holiday, it was to give the banks a little break so they could regroup. As more and more people lost confidence in the banking system, bank runs became more frequent. The holiday stopped people from taking out all their deposits.The bank holiday also helped restore confidence in the banking system. Roosevelt had promised that only healthy banks would be allowed to reopen. People were more likely to trust the banks that did open after the holiday.

The Hundred DaysFDR then proposed a number of bills to Congress aimed at rebuilding the economy. In the first 100 days of his administration, FDR with the help of Congress passed more legislation than at any time before or since. The period has become known as the Hundred Days.The legislation passed under FDR’s New Deal has sometimes been referred to as alphabet soup because the bills are often referred to by their initials.

New Deal Legislation Passed in 1933 Civilian Conservation Corps (CCC)-The CCC gave young

men jobs working on national parks and other conservation projects

Federal Emergency Relief Act (FERA)-This act provided federal money for state and local relief agencies.

Tennessee Valley Authority (TVA)-The TVA was a federal corporation that established conservation projects in the Tennessee River Basin. It built dams to generate electricity, provided flood control, improved navigation on the Tennessee River, and boosted economic development in the region.

New Deal Legislation Passed in 1933 National Industrial Recovery Act (NIRA) and National

Recovery Administration (NRA)-The NIRA gave the President the authority to regulate businesses. It established the NRA to oversee and enforce codes of conduct for fair competition. These codes set prices of products, minimum wages for workers, and maximum weekly work hours.

Agricultural Adjustment Act (AAA)-The AAA was designed to increase farm prices by encouraging farmers to reduce production. It taxed food processors to get the money to pay farmers not to produce as much.

Federal Deposit Insurance Corporation (FDIC)- The FDIC insured bank deposits up to $2,500. It is still in effect today although deposits are now insured up to $250,000.

Question: What was the NRA, and why was the NRA poster so important to businesses?

NRA is the National Recovery Administration. Each industry was supposed to establish a set of rules to govern competition, prices, and labor.When the rules, or codes as they were called, were approved by the NRA, businesses could display the blue eagle poster or put the seal on t heir goods. The hope was that people would boycott businesses or goods that did not have the poster or the seal.

Question: What does Muscle Shoals, Alabama, have to do with the TVA?

In 1918, the government built a dam on the Tennessee River to make electricity. It also built plants to produce nitrates for explosives during World War I. These were located in present-day Muscle Shoals. Some people wanted the government to continue to own the facilities at Muscle Shoals. Others, did not. In 1933, the government won.The TVA was created as a government operation to take charge of the Muscle Shoals project and to develop the Tennessee Valley region. The Southern Appalachian region (the mountainous areas) of the TVA was an extremely poor area of the Tennessee Valley River basin that greatly benefited from the project. In fact, the standard of living for the entire region increased quickly as a result of the TVA.

TVA Map

Farmland Before TVA

Guntersville, AlabamaTVA Flooding Farmland

Fireside ChatsShortly after declaring a bank holiday, President Roosevelt went on the radio in an evening broadcast to explain the banking crisis and his actions to the American people. This broadcast was the first of what would become known as his fireside chats.In these informal radio addresses, FDR would often begin with, “Good evening, friends.” He used the broadcasts to explain his programs and to gather support for his New Deal proposals. The fireside chats were more popular than any of the favorite programming from the Golden Age of Radio. FDR continued to use the chats into the 1940s as the United States moved closer to another world war.

FDR Communicates With America

http://www.youtube.com/watch?v=b6KSOaaWqb4

Constitutional AmendmentsThe New Deal wasn’t the only legislation of the 1930s. Two constitutional amendments were also passed and ratified during the period. The 20th Amendment was passed in 1932 and ratified in 1933. The 21st Amendment was passed in March of 1933 and ratified in December. Why was the 21st Amendment ratified so quickly? You’ll find out.

Twentieth AmendmentThe 20th Amendment is called the Lame Duck Amendment. Lame Ducks are politicians who have not been re-elected but still hold office. The 20th Amendment reduced the amount of time between the election and the time that new politicians took office.Elections are held the first Tuesday in November. Congress traditionally met in December of that same year. It was called the Lame Duck Session because there were lame duck politicians in it. Little was accomplished. The 20th Amendment did away with the December session of Congress. Newly elected representatives now met with the new Congress on January 3rd.The 20th Amendment also reduced the time between the election of a new President and the time he took office. Inauguration Day was moved from March 4th to January 20th. It also said that if something happened to the President-elect before he took office, the vice president-elect would take office January 20th.

Twenty-first AmendmentThe 21st Amendment repealed the 18th Amendment and ended Prohibition. The reason it was approved so quickly is that Americans were thirsty! Now Americans could legally make, transport, and sell alcohol again. Many saw it as a good thing. Farmers could sell their grain to make alcohol, people could drink alcohol again, and the government got the tax money from alcohol sales.

The Second New DealBy 1935, the economy was improving, but some New Deal programs were running into trouble in the courts. The Supreme Court declared several program unconstitutional, including the AAA and the NRA. In response, FDR initiated a new round of programs sometimes called the Second New Deal. Some of these programs were aimed at the “abuses of big businesses,” as FDR called it. Others were more permanent reforms to protect citizens and help ensure that a collapse in the economy this bad never happened again.

The Supreme Court Kills the NRA

http://www.youtube.com/watch?v=zoXpafrimqs

start at min 37

Second New Deal Legislation Works Progress Administration (WPA)-The WPA was an

agency that employed millions of public works projects. It included projects to employ artists, writers, and actors.

Social Security Act (SSA)-This Act provided pensions for the elderly, unemployment insurance, and aid to dependents and the disabled.

National Labor Relations Act (NLRA) or The Wagner Act-This Act guaranteed the right to unionize and to bargain collectively. It also created the National Labor Relations Board to supervise union elections and hear complaints of unfair labor practices.

Fair Labor Standards Act (FLSA)-This Act forbade child labor, established a minimum wage, and set the work week at forty hours.

Critics of the New DealEven though the economy was improving, the New Deal’s massive relief programs were taking a toll on the federal treasury. The cost of the programs was more than the government was taking in. When the government spends more than it takes in, it’s called deficit spending. Even though FDR wasn’t happy with budget deficits, he knew that in order to bring relief to the American people, deficits would be needed in short term.

FDR’s Budget SpeechOur policy is succeeding. The figures prove it. Secure in the knowledge that steadily decreasing deficits will turn in time into steadily increasing surpluses, and that it is the deficit of today which is making possible the surpluses of tomorrow, let us pursue the course we have mapped.

-Franklin D. Roosevelt

Budget Speech, 1936

FDR’s Outspoken Critics

Criticism of the New Deal came from all sides. Some believed that the President was taking his relief and reform measures too far. Others believed he and the government weren’t doing enough. Here’s a summary of some of the more outspoken critics.

FDR’s Outspoken Critics Some business men were angry at FDR’s support for organized

labor. They were against the government having so much control of the economy, so they thought FDR’s programs went too far.

A Roman Catholic priest, Father Charles Coughlin, who had Nazi and Fascist ideals criticized FDR’s administration for not doing enough to bring about social justice. The priest voiced his ideas on his extremely popular radio show that was more political.

The radical governor of Louisiana, Huey Long, didn’t think FDR wasn’t doing enough to distribute the wealth. This socialist politician had his own Share-Our-Wealth plan to take money from the rich and give to the poor.

A doctor from Washington state, Dr. Francis Townsend, also did not think the government was doing enough. He wanted to give the elderly a $200 per month pension.

Huey Long & Share Our Wealth Campaign

http://www.youtube.com/watch?v=hphgHi6FD8k

http://www.youtube.com/watch?v=RzLMRAz5G_4

The Supreme Court In 1935, the New Deal picked up an even more powerful critic, the Supreme Court. Conservative judges of the court ruled five New Deal laws unconstitutional, including parts of the National Recovery Administration (NRA) and the Agricultural Adjustment Act (AAA). In 1936, four more rulings went against the President’s plan.After FDR won re-election in 1936 by a greater margin than in 1932, he became even more determined to continue his New Deal programs because the people supported them. In 1937, FDR devised a plan to deal with the Supreme Court. He proposed a bill that would add more justices to the court. His critics called it the Court Packing Bill. His plan was to add a judge for every existing judge that was over 70 years old. Since at the time six of the nine judges were over 70, he could have added six new judges who were favorable to his legislation.

The Court Packing Bill

The bill was defeated in Congress. Many from his own party failed to support the measure. After the failed scheme, two things happened. First, the Supreme Court began to uphold New Deal programs as legal. Second, FDR began to lose support in Congress for the New Deal, even from Democrats.

Question: What was FDR thinking? Wasn’t the number of Supreme Court justices set by the Constitution?

Actually, the Constitution doesn’t say how many justices there should be. It only mentions a Chief Justice but doesn’t say how many associate justices the court should have. The current size of the Court (one Chief Justice and eight associate justices) was established by the Judiciary Act of 1869. If FDR had gotten Congress to pass the bill, he could have added more associate justices to the Court. Although it may have been an intellectually smart idea, it was a real political blunder.

Question: What did FDR do about his New Deal programs that had been declared unconstitutional?

He simply removed the unconstitutional parts and sent them back to Congress, or he proposed new legislation to do what he wanted in a different way.

Question: How did an Alabama native help FDR’s Supreme Court situation?

Although the Court had begun to look more favorably at New Deal programs, one of the conservative justice decided to retire in May 1937. FDR promptly appointed a more liberal justice, Hugo Black from Alabama, to replace him. The balance in the court had now shifted from conservative to more liberal.

Deficit Spending FDR’s critics were not the only ones concerned by the

growing federal deficits; he was also concerned. In 1937, he cut spending on job programs in half in an effort to get deficit spending under control. He also proposed tax increases on the wealthy and on corporations. Almost immediately, unemployment went up and the economic recovery stalled.

It is unclear whether excessive government spending would have ended the Great Depression. It is certain that in 1938, the economy wasn’t strong enough to generate enough jobs without government help. Perhaps we’ll never know.

In 1939, the Second World War began in Europe. American industries quickly geared up to support the war effort. War industries would again bring prosperity to the United States. The Great Depression was finally over.