... the most serious economic depression the world had ever seen...
Ben Walsh, GCSE Modern World History (2004)
commenting on the different theories about why the USA fell into depression.
1. The Depression was terrible
These are the 'facts' of the Depression as you will see them presented in most textbooks.
(Some Farmers Were Handling Hardship Very Badly) 1. Statistics:
● In 1931, 238 people were admitted to hospital suffering from starvation.
● International trade slumped from $10bn in 1929 to only $3 bn in 1932.
● 5000 banks went bankrupt 1929-1932, including the Bank of America.
● In 1932 a quarter of a million Americans had their homes repossessed, and a fifth of all farmers lost their farms.
● In 1932, 20,000 companies went out of business.
● By 1933:
- Industrial production had fallen by 40%
- Prices had fallen 50%
- Wages had fallen by 60%
- Share prices had fallen by 80%
- 5000 more banks went bankrupt.
- 25% of Americans were unemployed.
● The depression was particularly fierce in agriculture, and things were made worse by the ‘dust bowl’ caused by over-farming.
● Many farmers could not afford their mortgage repayments and many ‘Okies’ (from Oklahoma) and ‘Arkies’ (from Arkansas) had to abandon their farms and go fruit-picking in California (the famous novel The Grapes of Wrath is about this).
3. Welfare and Despair:
● America and no Welfare State. Many unemployed Americans were reduced to picking over rubbish dumps or begging (cf the song ‘Buddy, can you spare a dime’).
● SOME towns set up soup kitchens and groups like the Salvation Army (and even Al Capone) organised charity hand-outs – hence the term ‘on the breadline’.
● In the land of opportunity this was seen as a terrible failure, and 23,000 people committed suicide in 1932 alone.
4. Hobos and Hoovervilles:
● Homeless people went to live in shanty towns called ‘Hoovervilles’ (as an insult to President Hoover). ‘Hobos’ travelled round looking for jobs, usually riding illegally on freight trucks.
5. Hatred of Hoover:
● The government did not know how to stop the Depression, and Hoover believed in ‘rugged individualism’, and stuck to the idea that it was not the government’s job to interfere with business.
● In 1930 the Smoot-Hawley Act raised tariffs, in 1931 the Fed raised interest rates, and in 1932 the government raised taxes - all three simply made the Depression much worse.
● Most Americans came to blame the President for the Depression. Shanty towns were called ‘Hoovervilles’, but there was also ‘Hoover leather’ (cardboard soles for shoes) and ‘Hoover blankets’ (newspapers). ‘In Hoover we trusted, but now we are busted’.
● There were many protest marches and riots. When banks tried to re-possess some farms, local farmer banded together and drove them off with pitch-forks.
7. Bonus Army:
● In 1932, 20,000 unemployed ex-soldiers set up a Hooverville in Washington to ask for their war pension (‘bonus’) to be paid early; Hoover set the army on them, who drive them away with guns and tear-gas.
Last summer, in the hot weather, when the smell was sickening and the flies were thick, there were 100 people a day coming to the dumps. A widow, who used to do housework and laundry, but now had no work at all, fed herself and her 14-year-old son on garbage. before she picked up the meat she would always take off her glasses so that she couldn't see the maggots.
New Republic magazine (1933)
There is not an unemployed man in the country that hasn't contributed to the wealth of every millionaire in America. The working classes didn't bring this on, it was the big boys...
We've got more wheat, more food, more cotton, more money in the banks, more everything in the world than any other nation that ever lived ever had, yet we are starving to death. We are the first nation in the history of the world to go to the poorhouse in an automobile.
Will Rodgers (1931)
2. Or was it?
1. Hoover did not do nothing:
● In 1930 he cut taxes and the Committee for Unemployment Relief was formed.
● In 1931 he gave $4000 million to state governments to set up schemes to provide work (e.g. the Hoover Dam). The Davis-Bacon Act encouraged firms to maintain high wages by requiring "prevailing" (union) wages to be paid on federal construction contracts.
● In 1932 he passed the Emergency Relief Act ($300 million to provide unemployment pay) and the Reconstruction Act (which set up the Reconstruction Finance Corporation to provide $1500 million of loans to help businessmen). The Norris-La Guardia Act protected trade unions and the Glass-Steagall Act helped banks by making it easier for them to borrow from the federal reserve.
All this is usually either not mentioned at all, or dismissed as ‘too little, too late’. In fact, it was exactly what the ‘New Deal’ was later to copy.
2. Not all industries or places suffered:
● The Depression was worst in farming, and in the old industries (80% of steel workers were unemployed in Toledo. 'New' industries (such as films, electronics and airplanes) continued to expand and pay high wages.
● Many people who managed to keep their jobs were BETTER off, because prices were much lower.
● Certain areas of the economy thrived. The Empire State Building was finished in 1931, and the San Francisco Golden Gate Bridge was started in 1932
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What did Roosevelt introduce to deal with the Depression?
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Mr. Roosevelt is the only man we ever had in the White House who would understand that my boss is a sonofabitch.
North Carolina mill worker (c. 1935)
In the 1928 election, President Hoover had promised Americans ‘a chicken in every pot and a car in every garage ... but by 1932, America was in depression.
In the November 1932 election, therefore, Roosevelt promised ‘a new deal for the American people’ if they elected him. The result was a landslide – Roosevelt won 42 of the 48 states, the biggest US election victory ever.
In his Fourth Fireside Chat (June 1934), Roosevelt said that his ‘New Deal’ had three related steps:
• Relief (helping the poor and unemployed to survive)
• Recovery (getting the economy going again) and
• Reform (changing things so a depression could never happen like that again).
Can Fdr Achieve ... New Social Standards 'N Fairness
First, he set about offering relief and trying to get the economy to recover.
After 1935, however, he set about a much more radical agenda of social reform (the ‘second New Deal’).
First, however, he was faced by a crisis. During the four months Roosevelt was waiting to come into office (March 1933), the economy declined further, culminating in a banking crisis. At the beginning of March, millions of people marched into their banks and demanded their money – as they were allowed – in gold. It was impossible; banks in 34 states closed and padlocked their doors. The entire financial system of the USA was in the verge of collapse.
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The First New Deal
Roosevelt persuaded Congress to give him emergency powers from 9 March to 16 June 1933 (the 'Hundred Days'). Although many of Roosevelt's ideas were not new (some just copied Hoover's), 1933 - especially the 100 days - saw a burst of legislation to tackle the Depression like never before.
Roosevelt undertook a series of measures to keep the American people on his side.
- The Farm Loan Act and the Bankruptcy Act prevented banks from foreclosing on solvent businesses until they had had a chance to borrow from the Federal Reserve.
- The Home Loan Act and the Home Owners Loan Corporation did the same for ordinary home owners.
c. Prices and Wages
- The Agricultural Adjustment Act (AAA) paid farmers to take fields out of production; the idea of this was to stop over-production and to drive up prices.
- The NRA (National Recovery Administration) was set up, where businessmen joined a ‘Roll of Honour’ (and were allowed to show a blue eagle symbol) where they promised to cut production and pay good wages – 2.5 million firms, employing 22 million people, joined the scheme.
- FDR also abolished Child Labour – this put more adults into work.
You will read in some books that FDR abolished the gold standard (linking the value of the dollar to a certain weight of gold). This is not true. He did:
- stop people owning gold (they had to deposit it in banks)
- increase the price of gold from $20 to £35 an ounce.
This stopped people hoarding/saving their money, and increased the amount of government reserves. Since the dollar was still linked to gold, moreover, many foreign investors bought American dollars for gold, which increased the amount of government reserves.
3. Alphabet Agencies:
FDR set up what came to be called the ‘alphabet agencies’ because their names were reduced to acronyms. The main ones were:
a. CCC (Civilian Conservation Corps):
provided paid conservation work to give unemployed young men jobs – by 1941, 2.5 million had taken part PLUS millions of trees panted/ parks and forest areas developed
b. FERA (Federal Emergency Relief Administration): provided matched funding to help states organise payments to the unemployed and homeless.
c. WPA (Works Progress Administration):
ran projects which provided work for the unemployed, e.g. building airports, schools, hospitals or bridges – millions earned a small wage and felt valuable.
d. TVA (Tennessee Valley Authority):
built 21 dams in ten years – stopped flooding, provided cheap electricity and provided work.
The Fireside Chats
(NB they are worth reading or listening to – they will give you the best impression of what FDR was about.)
These chats were brilliant propaganda and had three key aspects:
- Homeliness – the chats were delivered “like a father discussing public affairs with his family in the living room”.
- Reasonableness – FDR said that he was not going to make false promises, and that he would not succeed every time
- Blame – he spoke of ‘the 10%’ who wanted the New Deal to fail – the rich.
Ordinary people believed that he was fighting the rich and selfish in their behalf – as a result, even though the gains of the first New Deal were not great, FDR won the 1936 election by another landslide
I can assure you that it is safer to keep your money in a reopened bank than under the mattress.
1st Fireside Chat, (March 1933)
Dear Mr. President: This is just to tell you that everything is all right now. The man you sent found our house all right, and we went down to the bank with him and the mortgage can go on for a while longer. You remember I wrote you about losing the furniture too. Well, your man got it back for us. I never heard of a President like you.
Letter to the President from an old man and his wife, (summer, 1933)
● set up a national system of unemployment insurance.
4. National Housing Act (1937):
● Provided loans to buy houses
● Reduced excessive rents.
5. Fair Labour Standards Act (1938):
● Set hours and conditions of work
● Fixed a minimum wage.
But here is the challenge to our democracy: In this nation I see tens of millions of its citizens - a substantial part of its whole population - who at this very moment are denied the greater part of what the very lowest standards of today call the necessities of life...
I see millions denied education, recreation, and the opportunity to better their lot and the lot of their children.
The PWA and the TVA provided valuable economic and social infrastructures, such as roads, airports, schools, theatres, dams etc.
Roosevelt's new laws about social security/ minimum wage/ labour relations and trade unions survived and protected ordinary people’s rights and conditions. Democracy survived in America (unlike Italy and Germany)
became the people's hero - he was elected four times.
Democracy survived in America (unlike Italy and Germany). The New Deal became a model of how a democratic government ought to behave - arguably influenced the British Welfare State of 1948. And in 1998, when the Labour Government of Britain was trying to introduce new laws to help poor people, it called it: a New Deal.
Whether the New Deal was a success or failure is not easy to judge.
Individual programmes were a success, such as T.V.A. Others, such as A.A.A. succeeded in getting food prices to rise, which was good for the farmers, but did not help the millions who were out of work and hungry.
The New Deal did not solve the problem of unemployment,
but merely made the situation not as bad as it might have been’
- indeed, Roosevelt's insistence on a balanced budget, healthy interest rates and ‘sound money’ may have helped to continue it. Roosevelt had no new ideas how to end the depression – just Hoover’s schemes only bigger. By 1935 he had failed to end unemployment (which was only down to 10.6 million), and – although unemployment fell to 7.7 million in 1937 – when Roosevelt tried to cut back government expenditure in 1938, it rose again to 10.4 million. It is not really fair to criticise Roosevelt for this - no one at that time knew how to end the Depression - but the Depression did not end until the Second World War got production going again.
2. Damaged Blacks and immigrants
– in fact, many were laid off as a direct result of the New Deal’s attempts to give workers rights.
3. Determined Opposition (BRASS)
a Businessmen hated the New Deal because it interfered with their businesses and supported workers’ rights. Rich people accused Roosevelt of betraying his class. Henry Ford hired thugs to attack his trade union workers.
b Republicans hated the expenditure, which they said was wasteful (‘boondoggling’ – jobs for the sake of jobs). CWA had to be abolished in 1935, though immediately replaced by the PWA. After 1938, Republicans took over the Senate, and Roosevelt was unable to get any more New Deal legislation through.
c Activists like Huey Long (Senator for Louisiana who started a Share the Wealth’ campaign to confiscate fortunes over $3m) and Francis Townsend (who campaigned for a pension of $200 a month) said it did not go far enough.
d State governments opposed the New Deal, saying that the Federal government was taking their powers.
e The Supreme Court ruled that the NRA codes of employers’ conduct, and the AAA programme, were illegal because they took away the States’ powers. Because of this, in 1937, Roosevelt threatened to force old Supreme Court judges to retire and to create new ones; the crisis was averted when the Supreme Court reversed its decisions.
This cartoon shows New Deal legislation throwing Black workers out of a job. Other people accused the AAA of driving farm labourers from the land by making farmers cut back production.
Some people claimed that by trying to 'pack' the Supreme Court,