The Great Depression

AMERICAN HISTORY - TURNER

I. Introduction

A. Terms

1. Recession – Economic decline over 6 months

2. Depression – Extreme recession lasting beyond 6 months

a. Increased unemployment and bankruptcies, decreased production, investment and credit

3. Inflation – Increase in prices (decline of purchasing power)

4. Deflation – Decrease in prices (increase of purchasing power).

a. Much worse than inflation. Lower prices result in businesses firing workers, less people to buy goods, more supply, less demand, prices drop further

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B. 1920s Prosperity

1. Credit – Many Americans bought new products (washing machines, refrigerators, etc.) using credit

2. Stock Market – A bull market (rising) in the 20s caused many people to invest, often short term

a. Stocks – Partial ownership of a company; Stock Market – Where stocks are traded

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b. Speculation – Investing to make a quick profit.

i. Problem – Short term investment doesn’t help company, results in inflated values.

c. Buying Stock on the Margin – Using credit to purchase stock (Ex. Pay 20%, borrow 80%)

i. Problem – Original loan must be paid, even if stock tanks.

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II. The Beginning

A. Likely Causes of the Great Depression - No single cause, complex economic, social and political situation

1. Failing Industry – America’s basic industries (steel, railroads, textiles) are challenged by Europe

a. European nations have recovered from WWI and begin producing again

b. New Technologies – Cars replace need for railroads

2. Uneven Wealth – Rich got richer, poor poorer. 50% of Americans live below poverty line

a. Consumers spend less because they make less

3. Credit – Increased debt led to less actual spending

4. Decline in Exports – Europe imported less

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5. Decline in Global Economy – Global trade halted due to tariffs, can’t make profits or pay debts

a. Hawley-Smoot Tariff – Raised tariffs on 20,000 goods. Reduced trade by 50%.

i. Sparked tariff wars, other nations responded with similar tariffs

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B. Stock Market Crash – Oct. 29, 1929 – “Black Tuesday” – Stocks market loses 24% of it’s value ($30 billion) in 2 days. Caused by heavy speculation, buying on the margin, less trade, less consumption.

1. Stocks rebounded that week, but investors had lost faith. Investors panicked and withdrew investments, worsening the crash.

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C. Banks – Bad banking practices (Ex putting customers cash into stocks) led to bank closures. When banks lost money in stocks, they couldn’t make loans. Less credit impacted individuals and businesses

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1. Bank Closures – By 1932, 10% (3500) banks had closed. If a bank closed, people lost their money. No insurance. People lose faith in banks.

a. Run on a Bank – Customers fear bank is closing, everyone demands their money.

2. Glass-Steagall – Law creating regulations limiting how banks could use customer’s money. Repealed in 1999 directly leading to financial crisis of 2008.

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D. Farmers – WWI led to more production, increased profits.

1. Debt - New inventions like tractors caused debt

2. Crop Prices Decline – Demand drops, but farmers keep producing same levels

3. Farming Techniques – Besides overproduction, farmers exhausted the soil by not rotating crops

a. Crop Rotation – Alternating crops to replace nutrients in the soil. Ex. Soybean, corn, soybean

b. Soil Conservation – Farmers failed to stop erosion (water, wind). Topsoil removed

c. Uncultivated – With prices so low, many farmers just stopped cultivating crops

i. With no crops or grass to absorb rain, ground turned to dust

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4. Dust Bowl – Severe drought that led to enormous dust storms throughout the Midwest

a. Farmers defaulted on their mortgages, forced to move to find work. Many head to California.

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E. Social Effects – Psychologically, people were demoralized. Between 1928-1932 suicide rates rose by 30% with 3x more people admitted to mental institutions. Most rationed goods, limiting consumption of goods.

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III. Government Response

A. Herbert Hoover – Republican elected in 1928, favored a laissez-faire (hands off) style government

1. Believed in private donation (charity) > Government interference

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a. Result – Very little help was given. Unemployed and homeless are forced to get food from soup kitchens and live in shantytowns. People began to blame Hoover.

i. Examples Hooverville (homeless shantytowns), Hoover blanket (Newspaper used for cover), Hoover flag (empty pocket turned inside out)

b. Rationing – Limiting consumption of food and goods

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2. Public Works Programs – After heavy criticism, Hoover directs funds into projects

a. Federal Home Loan Bank Act – Lowered mortgage rates for farmers, allowed farmers to refinance their loans and avoid foreclosure

b. Reconstruction Finance Corporation (RFC) – Provided emergency funding to banks

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B. Election of 1932

1. Republican Hoover vs. Democrat Franklin Delano Roosevelt (FDR)

a. Hoover’s laissez-faire policy vs. FDR’s government interventionist policy

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2. Bonus Army – WWI veterans were due a bonus in 1945, but wanted it delivered early

a. 20,000 veterans protest in DC. Hoover allows protests, encampments.

b. Congress votes down bill to give early bonus, but veterans refuse to leave

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c. Hoover orders General Douglas MacArthur to clear protestors. Using gas canisters and bayonets, the army burns the shantytown forcing the veterans out.

i. Public is horrified; FDR privately responded, “this elects me”

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3. Election – FDR wins with 23 million votes over Hoover’s 16 million.

a. FDR would be elected 4 times, serving 3 before his death

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IV. New Deal

A. Roosevelt promised a “new deal for the American people” focusing on:

1. Relief for the needy

2. Economic recovery

3. Financial reform

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B. First Hundred Days – In FDR’s first 100 days in office, 15 new deal laws were passed

1. Emergency Banking Relief Act – Created a national bank holiday one day after taking office. All banks shut down & could only reopen after government inspection

a. Restored faith in the banking system

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2. Fireside Chat – FDR used radio to discuss issues of public concern

a. Made the public feel as if the President cared and was listening.

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C. Alphabet Soup – Nickname given to FDR’s new deal programs known by their acronyms

1. Works Progress Administration (WPA) - Largest agency, employed millions in rural areas. Built public buildings, projects and roads

2. Civilian Conservation Corps (CCC) – Millions of men used to build wildlife conservation projects

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3. Tennessee Valley Authority (TVA) – Provided relief to the TN valley, extremely poor region. Built 20 dams along TN river, creating hydroelectric power to a region that didn’t have electricity

4. National Youth Administration (NYA) – paid high school and college students to attend school. Allowed kids to go to school and still help family monetarily

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5. Agricultural Adjustment Act (AAA) – In an effort to raise crop prices and help farmers, this bill paid farms NOT to farm, keeping supply low and raising prices.

a. Critics argued raising prices hurt consumers, poorer farmers didn’t benefit

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D. Critics

1. Dependency – Some believed government aid would make people dependent on federal aid

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2. Huey Long – Argued not enough was being done to redistribute wealth

3. Father Coughlin – Priest who had popular radio show, believed the New Deal to be too moderate

a. National Union for Social Justice – Feared by Democrats, the NUSJ was Coughlin’s organization that sought to become a political party and prevent FDR’s reelection.

b. Message became pro-fascist and anti-semitic, Coughlin was forced off the air in 1939.

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E. Court Packing Scheme – Supreme Court began ruling ND programs to be unconstitutional. FDR proposed expanding the court by 6 judges, which would be selected by him (and support his programs)

1. Hurt public image, however due to death & resignation, FDR replaced 7 justices

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F. Eleanor Roosevelt – FDR’s wife; due to his polio, Eleanor traveled the country in his stead. Realizing the New Deal wasn’t benefiting many people, she pushed FDR for a Second New Deal to help the “forgotten man”

1. Second New Deal – New wave of programs including the WPA and Social Security Act

a. Social Security – Workers pay tax which went to help the elderly, those with disabilities and the unemployed.

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V. The New Deal’s Lasting Effect

A. New Deal policies still in effect today

1. Social Security – provided aid to elderly based on age

a. Broken? – In 1950 16 workers supported 1 retiree, today 3:1, 2030 estimated 2:1.

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2. Environment – CCC planted trees, TVA helped stop floods

3. Impact on people – TVA still helps give electricity to TN valley region

4. Economics – FDIC helps insure peoples money in banks; SEC enforces federal stock laws

B. Role of expanding federal government - Attempted to regulate supply and demand, created federal jobs

1. Put the US govt. in debt; by 1934 US was in debt $3.3 billion

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C. End of Great Depression – World War II

1. Government spending on World War II – deficit reached $54 billion but money went to put people to work building tanks, airplanes, supplying the war effort

2. America would emerge from WWII as the most powerful nation in the world, politically, militarily and economically.

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