The Great Depression and the New Deal 

 

  1. The Collapse of the Bull Market

    1. Bull Market - The 1920s saw a steady surge in the value of stocks, with total values almost tripling across the decade

    2. Fundamental Problems in the Market and the Economy

      1. An oversaturation in the market in durable goods (cars, washing machines, etc.) led to a decrease in consumer spending

      2. Much of the growth of the Stock Market was based on speculation, not real values

        1. Increasingly, those with money to invest put it into the market

        2. This led to a steady rise in stock prices, which encourage ever more investing

        3. Because people believed the steady rise would continue, they were willing to borrow to buy stock

        4. Many banks and corporations loaned out large amounts of money to purchase stocks

        5. By 1929, consumer debt had reached new highs, and spending dropped dramatically

    3. The Crash

      1. By late October, 1929, a number of important investors had begun to pull out of the market, seeing it as increasingly shaky

      2. October 24, 1929 - Panic selling ensued after several days of decline. Investors lost $10 billion in one day.

      3. Within a month, the market ha fallen by 50%

      4. The decline continued more slowly after that, and did not bottom out until 1933

    4. Immediate Impact of the Crash

      1. Rising stock prices could no longer pay the loans people had taken out to buy stock, which was now worth much less than what people owed

      2. Thus many people went bankrupt, as did a number of banks and businesses that had loaned them money

      3. Those institutions that survived the initial crash stopped loaning money for anything, particularly stocks and consumer credit

      4. As a result, many business either failed outright  or were forced to lay off large number of workers

      5. Also, no more loans to prop up post-war Europe, and European countries began to default on older loans

      6. Europe responded by devaluing currencies and raising trade barriers, as did countries elsewhere

        1. World trade declined by two thirds

        2. American farmers saw their sales drop by 50%

    5. A Continuing Downward Spiral

      1. As each firm closed, more people lost their jobs, which meant even less consumer spending, forcing other firms to close

      2. Unemployment hit 25% by 1932, and Gross National Product shrank 33%

      3. By the end of the 1930, 6000 of America's 25,000 banks had failed.

      4. The Great Depression is in full swing
         

  2. Herbert Hoover Responds

    1. President Hoover resisted calls for government intervention

      1. Felt the decline was temporary, that American business would soon recover

      2. Instead urged voluntarism, that  churches and charities should help the needy

      3. Rejected government aid to the poor directly or through charities as demeaning to the American people

      4. But most charities were quickly overrun, unable to cope with the crisis

    2. Hoover tries to help the business and farming community

      1. Created the Reconstruction Finance Corporation to prop up banks and insurance companies that were in trouble

        1. This did little good, as bank failures accelerated

        2. Over 10,000 had collapsed by 1933

      2. A new Federal Farm Bureau bought up surplus crops to try to prop up farm prices

      3. Cut taxes to encourage investment (but most businesses already had too much capacity)

      4. Some money was spent on new public woks projects

    3. Hoover's polices failed, and were increasingly rejected by those who demanded direct help to the poor

    4. The Bonus Army

      1. In the summer of 1932, 22,000 military veterans marched on Washington to demand early payment of bonuses due them in 1945

      2. Some of them set up a ramshackle camp on the river banks, building shacks out of scrap material

      3. Hoover sent Gen. Douglas MacArthur to clear them out

    5. The Dust Bowl (1932-1939)

      1. To make matters worse, an ecological disaster was developing on the Great Plains, particularly in Oklahoma and Kansas

      2. A long drought combined with decades of over farming, led to severe erosion and huge duststorms

      3. Lasted till 1939 - over 3.5 million people abandoned their farms, moving to the cities and California, primarily
         

  3. The Election of 1932

    1. Franklin Delano Roosevelt was swept into office in a major landslide for the Democrats

    2. Signaled a major shift in American politics, creating a new Democratic coalition

      1. Poor farmers  from agricultural states in the South and West

      2. Urban voters, particularly from the working class

      3. Immigrants

      4. By 1934, Blacks would join this coalition, solidifying the basic Democratic alliance for the next 45 years
         

  4. The New Deal

    1. Relief, Recovery and Reform - these would be the three prongs of FDR's effort to combat the Depression

      1. FDR actively sought to give direct aid to people where needed (relief)

      2. But put even more money into putting people to work building needed infrastructure that would help economic recovery

      3. Instituted a number of reforms in labor, business, and the stock market to prevent future collapses like that in 1929

    2. Saving the Banks

      1. Upon inauguration, FDR declared a bank holiday to stem the tide of failures

      2. Introduced legislation to give government backing to banks, guaranteeing them and guiding weak ones to solvency

    3. National Recovery Administration

      1. FDR's first effort at economic recovery focused on using federal power to organize cooperation between business and labor

      2. Involved setting production limits and establishing minimum wages

      3. However, was overly bureaucratic and eventually ruled unconstitutional

    4. Tennessee Valley Authority

      1. This was more successful, and continues to operate today

      2. Organized regional planning to build dams and create cheap electricity in the mid-South

      3. Had the advantage of putting many people to work and providing power for business and industry in the region

    5. Putting People to Work

      1. The Civilian Conservation Corps - sent two million young people to work building trails and parks

      2. Work Progress Administration (WPA)

        1. put three million people a year working,  mainly on both federal construction projects

        2. also put many artists and entertainers on the payroll

        3. But wages were low, and millions still had no jobs, so the economic impact was modest

    6. Social Security (1935)

      1. Growing political dissent pushed FDR to take more direct action to help the poor

      2. The Social Security Act established programs to help the elderly, the disabled, and the unemployed

        1. created a system of new taxes to fund retirement pensions

        2. also provided benefits for the disabled and those who lost their jobs after the law was enacted

        3. however, payments were generally small, and some industries were exempt

        4. That said, Social Security eventually pulled most of the elderly out of dire poverty

      3. The United States had never done anything like this before - for the first time, the federal government was taking responsibility for the poor

    7. A New Deal for Labor

      1. Two pieces of New Deal legislation fundamentally changed status of labor in America

      2. National Labor Relations Act (Wagner Act), 1935

        1. Promoted by Sen. Robert Wagner

        2. guaranteed the rights of workers to unionize

        3. gave federal support to collective bargaining

      3. Fair Labor Standards Act (1938)

        1. established a minimum wage

        2. established minimum and maximum work hours - and time and half for overtime

        3. Some industries were exempted, and the minimum wage was only 40 cent/hr.

        4. But 12 million people got a raise because of it.

        5. Laid the basis for more workplace reforms in the future
           

  5. Impact of the New Deal on Society

    1. The Impact of Eleanor Roosevelt

      1. FDR's wife did much to promote social justice and the rights of the poor and minorities

      2. Did much to reach out personally to many groups commonly ignored by politicians

      3. Promoted equal treatment for women and minorities in  the WPA and other relief and recovery programs

      4. Made particular effort to improve conditions for Afro-Americans

    2. Organized Labor

      1. The Wagner Act greatly increased the power of unions, and resulted in millions joining unions

      2. These unions had a number of successes in increasing workers wages and improving working conditions

      3. Committee of Industrial Organization

        1. formed as a committee within the American Federation of Labor to organize unskilled as well as skilled workers

        2. organized workers on an industry-wide basis, not just particular skills or crafts

        3. used much more aggressive tactics than the AFL traditionally used, and brought in many new members

        4. expelled by the AFL, became the Congress of Industrial organization

        5. began organizing blacks, unskilled workers, and others ignored by the AFL, and made gains in many industries

      4. Still, only 28% of workers were in unions by the end of the 1930s

    3. Minority groups such as Blacks, Amerindians, and Mexican Americans generally did much worse in the Depression than whites

      1. Many Mexicans were forcibly deported as the Dust Bowl created millions of rural unemployed

      2. Black unemployment reached 50%, but the WPA employed African-Americans on a color-blind basis

      3. FDR's "black cabinet"

        1. FDR was criticized by black leaders for allowing discrimination and segregation in some government facilities and programs, like the CCC and the TVA

        2. Nor did he support civil rights legislation, not wanting to antagonize Southern politicians

        3. Instead, sought black support by appointing blacks to a number of positions in the New Deal agencies

        4. These appointees had some impact on government policies, though blacks made only modest gains under the New Deal

      4. Amerindians did somewhat better, gaining more autonomy as FDR dropped assimilationist polices

        1. The Indian Reorganization Act (1934) overturned the Dawes Act, worked to restore the political independence of the tribes

        2. The IRA also promoted the study and preservation of Amerindian culture

    4. Women

      1. Women were discriminated against heavily in favor of men because of belief that men were the only true family bread winners

      2. Married women in particular were commonly fired to make room for men

      3. Many women were in jobs not covered by minimum wage laws

    5. Overall Impact

      1. The New Deal did not really solve the Depression, though it did employ many people and provided basic relief

      2. While placing some federal control over much of the economy, the basic structure of the economy was left intact

      3. The government did, however, take responsibility for the poor and the elderly, and began to promote labor

      4. And the coalition that FDR built became the center of Democratic politics for almost fifty years