Chapter 24: The Great Depression and the New Deal, 1929-1939 I. Causes of the Depression



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Chapter 24: The Great Depression and the New Deal, 1929-1939
I. Causes of the Depression

A. The Stock Market Crash

  • There was extreme prosperity in the 1920’s.

  • Prices were steadily rising and the stock market was values at $27 billion.

  • Some 9 million Americans were playing the stock market, borrowing most of what the stock was worth.

  • Margin buying - the use of credit, in which stockbrokers lent speculators up to 75% of the stock’s actual cost.

  • Black Thursday - October 24, 1929 - there was an unexpected volume of selling on Wall Street, and stock prices plunged.

  • Black Tuesday - October 29, 1929 - the bottom fell out as millions of investors ordered their brokers to sell, when there were no buyers to be found.

  • From then on the stock market continued to decline.

B. Uneven Distribution of Income

  • Wages were barely rising compared to the rise in production and corporate profits.

  • The top 5% richest people received a third of the income.

C. Excessive Use of Credit

  • Brought on by the increased desire for material things.

D. Overproduction of Consumer Goods

E. Weak Farm Economy

  • Farmers suffered from high debts and low cost for their products.

  • Severe weather and long drought.

F. Government Policies

  • Government had high faith in businesses and did little to control them.

  • High tariffs protected U.S. industries, but severely hurt farmers.

G. Global Economic Problems

  • Resulting in high debts from World War I.

  • Worldwide depression.


II. Effects of the Depression

  • The U.S. Gross National Product - the value of all goods and the nation’s economy - dropped from $104 billion to $56 billion.

  • 20% of banks close, wiping out 10 million savings accounts.

  • People lost their trust in the banks.

  • 25% of the workforce became unemployed.

  • The power of the federal government increased.

  • Poverty and homelessness increased.

  • Hoover Valley - A section of central park where jobless men lived in boxes and used newspapers and blankets, known as Hoover blankets.


III. Hoover’s Policies

  • President Hoover believed the prosperity would return.

  • He urged voluntary action and restraint, telling business to cu wages, unions not to strike, and private charities to increase their efforts.

  • He believed that relief should come from state and local government’s not the federal government.

A. Worldwide Depression

  • Hawley-Smoot Tariff - June 1930, Hoover signed a tariff that was the highest ever and set tax increases of 31-49% on foreign imports.

  • This was one of Hoover’s worst mistakes because Europe enacted even higher tariffs against the United States, which reduced trade between nations, causing both the U.S. and other nations to sink even deeper into depression.

  • Debt Moratorium - Hoover’s proposed suspension on the payment of international debt, which was accepted by both Britain and Germany.

B. Domestic Programs: Too Little, Too Late

  • In 1931, Hoover finally decided that some government intervention was necessary.

  • Federal Farm Board - Originally created in 1929, the board’s powers were now enlarged, authored to help farmers stabilize prices by temporarily holding surplus grain and cotton in storage. However, they were too modest to handle the continued overproduction.

  • Reconstruction Finance Corporation (RFC) - Federally funded government corporation designed in 1932 to prop up faltering railroads, banks, life insurance companies, and other financial institutions.

  • The idea was to benefit big business and then have the benefits “trickle down” to smaller businesses to bring a huge recovery.

C. Protest

  • Farmers - Many banned together to stop banks from foreclosing on their farms and homes.

  • The Farm Holiday Association was formed in attempt to reverse the drop in prices by stopping the entire crop of grain harvested in 1932 from reaching the market. The effort collapsed after some violence.

  • Bonus March - In the summer of 1932, a thousand unemployed World War I veterans marched to Washington D.C. to demand immediate payment of the bonuses promised to them in 1945. They were eventually joined by thousands more veterans and their families.

  • Congress failed to pass the bill they sought.

  • Hoover ordered the army to break up the march.

  • This caused many Americans to regard Hoover as heartless and uncaring.


IV. The Election of 1932

A. Democrats

  • Nominated Franklin D. Roosevelt

  • Roosevelt pledged a “new deal” for the American people, the repeal of Prohibition, aid for the unemployed, and cuts in government spending.

  • Won with 60% of the vote.

  • The house of Congress also went to the Democrats.

B. Republicans

  • Warned that a Democratic victory would only result in worse economic problems.

  • Hoover lost, but was still president until Roosevelt was inaugurated.

  • He was considered to be a “lame duck” president.

  • He was unable to cope with the worsening depression and Roosevelt refused to work with Hoover until Roosevelt was inaugurated and Hoover was gone.


V. Franklin D. Roosevelt

  • Expanded the federal government and greatly enlarged the powers of the presidency.

  • He greatly admired his cousin, Theodore Roosevelt, and followed closely in his footsteps.

  • Roosevelt’s wife, Eleanor, became the most active first lady in history.

  • She served as the president’s social conscience and influenced him to support minorities and the less fortunate.


VI. The First New Deal

A. The Three R’s

  • Relief for people out of work.

  • Recovery for business and the economy as a whole.

  • Reform of American economic institutions.

B. Brain Trust

  • A group of advisors that Roosevelt entrusted to work with him on the New Deal.

  • Francis Perkins - First woman cabinet member, worked as the industrial commissioner.

  • Harold L. Ickes - Organized liberal Republicans.

  • Henry A. Wallace - Secretary of agriculture.

  • Harry Hopkins - Worked with relief programs.

  • John Maynard Keynes - A British economist who dealt with financial policies.

  • Mary McLeod Bethune - Dealt with African American issues and civil rights.

C. The First Hundred Days and Recovery Programs

  • Roosevelt called Congress into a hundred-day-long special session.

  • Congress passed into law every request by the president.

  • Bank Holiday - Designed to restore confidence in failing banks, Roosevelt ordered banks to close for a holiday on March 6, 1933. The banks would be reopened after allowing enough time for the government to reorganize them on a sound basis, known as the Emergency Banking Act.

  • Repeal of Prohibition - The Beer-Wine Revenue Act legalized the sale of beer and wine, ratified the Twenty-first Amendment, which repealed the Eighteenth Amendment, officially ending prohibition.

  • Fireside Chats - A series of radio talks in which the president insured the trusting of banks.

  • The Federal Deposit Insurance Corporation (FDIC) - Guaranteed individual bank deposits of up to $5,000.

  • The Home Owners Loan Corporation (HOLC) - Provided refinancing of small homes to prevent foreclosures.

  • The Farm Credit Administration - Provided low-interest farm loans and mortgages to prevent foreclosures on the property of indebted farmers.

  • The Federal Emergency Relief Administration (FERA) - Offered outright grants of federal money to states and local governments that were operating soup kitchens and other forms of relief for the jobless and homeless.

  • The Public Works Administration (PWA) - Allotted money to state and local governments for building roads, bridges, dams, and other public works, becoming the source of thousands of jobs.

  • The Civilian Conservation Corps (CCC) - Employed young men on projects on federal lands and paid their families small monthly sums.

  • The Tennessee Valley Authority (TVA) - A huge experiment in regional development and public planning, hiring thousands of people to help one of the nation’s poorest regions.

  • Industrial Recovery Administration - An attempt to guarantee reasonable profits for business and fair wages and hours for labor. This also gave workers the right to organize and bargain collectively.

  • After two year the National Recovery Administration was declared unconstitutional in the case Schechter v. U.S.

  • Agricultural Adjustment Administration (AAA) - Encouraged farmers to reduce production by offering to pay government subsidies for every acre they plowed under. The AAA was also declared unconstitutional.

  • The Civil Works Administration (CWA) - This agency hired laborers for temporary construction projects sponsored by the federal government.

  • The Securities and Exchange Commission (SEC) - Created to regulate the stock market and to place strict limits on the kind of speculative practices that had led to the Wall Street crash in 1929.

  • The Federal Housing Administration (FHA) - Gave both the construction industry and homeowners a boost by insuring bank loans for building new houses and repairing old ones.



VII. The Second New Deal

  • Set off in the summer of 1935, largely focused on relief and reform.

A. Relief Programs

  • Works Progress Administration (WPA) - Spent billions of dollars to provide people with jobs. 3.4 million men and women were employed in the first year.

  • National Youth Administration (NYA) - Provided part-time jobs to help young people stay in high school and college or until they could get a job with a private employer.

  • Resettlement Administration (RA) - Provided loans to sharecroppers, tenants, and small farmers. It also established federal camps where migrant workers could find decent housing.

B. Reform Programs

  • National Labor Relations (Wagner) Act - Replaced the labor provision of the NIRA, guaranteeing a worker’s right to join a union and a union’s right to bargain collectively. It also outlawed business practices that were unfair to labor.

  • National Labor Relations Board (NLRB) - Empowered to enforce the law and make sure that workers’ rights were protected.

  • Rural Electrification Administration (REA) - Provided loans for electrical cooperatives to supply power in rural areas.

  • Federal Taxes - A revenue act of 1935 that significantly increased the tax on incomes of the wealthy.

  • The Social Security Act - Created a federal insurance program bases upon the automatic collection of taxes from employees and employers throughout people’s working careers. The Social Security trust fund would then be used to make monthly payments to retired persons over the age of 65.


VIII. The Election of 1936

  • The economy had improved, but was still weak.

  • Roosevelt was a popular choice for the Democrat nomination because of all his work with the New Deal.

A. Alf Landon

  • The Republican nominee.

  • He was progressive minded and accepted most of the New Deal legislation, but criticized the Democrats for spending too much money.

B. The Results

  • Roosevelt swept the win with more than 60% of the popular vote and all but two states.

  • The Democrats reign was supported by the Solid South, white ethnic groups in the cities, Midwestern farmers, labor unions, and African Americans in northern cities.


IX. Opposition to the New Deal

A. Liberal Critics

  • Socialists and extreme liberals in the Democratic party criticized the New Deal for doing too much for business and too little for the unemployed and the working poor.

  • They believed the president failed to address the problems of ethnic minorities, women and the elderly.

B. Conservative Critics

  • Huge attacks for giving the federal government too much power.

  • Business leaders were alarmed by increased regulations, pro-union beliefs, and the financing of government programs with borrowed money.

  • Many objected to deficit financing.

  • The American Liberty League was created to stop the New Deal from “subverting” the economic and political system.

C. Demagogues - Playing on the American people’s desperate want for immediate solutions to their problems.

  • Father Charles E. Coughlin - Through radio broadcasts and the founding of the National Union for Social Justice, he called for issuing an inflated currency and nationalizing all banks, becoming very anti-Semitic and Fascist until his superiors in the Catholic Church ordered him to stop.

  • Dr. Francis E. Townsend - Proposed the Townsend Plan, a simple plan for guaranteeing a secure income for senior citizens, which soon became to be known as the Social Security system.

  • Huey Long - Proposed a “Share Our Wealth” program that promised a minimum annual income of $5,000 for every American family, to be paid for by taxing the wealthy. He was considered to be the most dangerous challenge to Roosevelt.

D. The Supreme Court

  • Court-reorganization Plan - Also known as the “Court-packing” bill, it proposed that the president be authorized to appoint to the Supreme Court an additional justice for each justice who was older than the age of 70.5 years

  • Roosevelt proposed to bill as a way to eliminate the Supreme Court as an obstacle to the New Deal.

  • Reaction - Republicans and even many Democrats were outraged at the idea because they saw it as an attempt to tamper with the system’s checks and balance system which lead them to believe that the president wanted to give himself power as a dictator.

  • For the first time, Roosevelt’s bill was not pushed through by Congress and it was even stuck down by the majority of the Senate.

  • Aftermath - Even though his bill didn’t go through, the Court continued to pass other bills and many of the older justices retired, allowed Roosevelt to appoint new ones.


X. Rise of Unions

  • From the New Deal, the National Industrial Recovery Act and the Wagner Act caused a lasting change in labor-management relations by legalizing labor unions.

  • Union memberships soared from 3 million to over 10 million by 1941.

  • The Committee of Industrial Organizations (CIO), lead by John L. Lewis, was the joining of industrial labor unions in 1935 and was extended to all workers in an industry regardless of their race, sex, or skill.

  • Even though collective bargaining was protected by federal law, many companies still resisted union demands and strikes were therefore a frequent occurrence.

  • Strikes were common during the depression, especially in the steel and automobile industry.

  • The Fair Labor Standards Act was also passed in 1938, establishing:

- A minimum wage

- A maximum workweek of 40 hours and time and a half for overtime

- Child-labor restriction on those under 16
XI. The Last Phase of the New Deal

  • The Fair Labor Standard Act was the last act passed in Roosevelt’s second term, after that the New Deal lost momentum.

A. Recession, 1937-1938

  • Banks were becoming more stabilized, business earnings were increasing, and unemployment was slowly declining.

  • Causes - The Social Security tax reduced consumer spending and by reducing spending for relief, the president hoped to balance the budget and reduce national debt.

  • Keynesian Economics - The use of deficit spending, like “priming the pump” in order to increase investment and create jobs.

  • With this belief, Roosevelt’s spending on public works and relief went up and so did employment and industrial production.

B. Weakened New Deal

  • Although the economy was improving, there was no boom and problems still remained.

  • People began to slowly loose faith in Roosevelt as Republicans and conservative Democrats began to block New Deal reform legislation.

  • Also, in 1938, fears of the aggression of Nazi Germany diverted U.S. attention away from domestic policy and began to focus on foreign affairs.


XII. Life During the Depression

  • Millions of people lived through the depression but were plagued with the “depression mentality” - an attitude of insecurity and economic concern.

A. Women

  • Many women sought work in order to support their families.

  • People accused women of taking jobs from men, so they did not receive heavy factory jobs.

  • Even though there were fights for women’s equality, many New Deal programs allowed women to receive lower pay.

B. Dust Bowl Farmers

  • The severe drought ruined crops in the Great Plains, creating a dust bowl.

  • Thousands of farmers migrated away from the dust bowl, usually to California, where they searched for farm or factory work that was often not found.

C. African Americans

  • Racial discrimination continued as African Americans were often the last hired and the first fired in the desperate search for jobs.

  • They were often excluded from relief programs and civil rights leaders received little support from President Roosevelt.

  • However, African Americans who found low-paying jobs with the WPA and the CCC did receive some support and they received moral support from Eleanor Roosevelt.

  • Fair Employment Practices Committee - Set up to assist minorities in gaining jobs.

D. Native Americans

  • Indian Reorganization (Wheeler-Howard) Act (1934) - Repealed the Dawes Act and returned lands to the control of tribes and supported the preservation of Native American cultures.

E. Mexican Americans

  • They suffered extremely from discrimination and with the New Deal’s programs and completion for jobs, many thousands of Mexican Americans were forced to return to Mexico.



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