Great Depression & New Deal

Part I. What Caused the Great Depression? The stock market crash of 1929 was the event that started the Great Depression. The depression was caused by several weaknesses in the economy.

ProducersConsumers Wages (Jobs) Purchases

Primary Causes of the Great Depression

1. Not Enough Buyers 40% of all families lived in poverty—before the crash The richest 1% owned 59% of the nation’s wealth. The poorest 87% owned only 10% of the nation’s wealth. Therefore, demand for many products was low. The market for luxury goods was destroyed by the crash.

Why Distribution Matters “Three quarters of the U.S. population would spend essentially all of their yearly incomes to purchase consumer goods such as food, clothes, radios, and cars. These were the poor and middle class: families with incomes around, or usually less than, $2,500 a year…While the wealthy too purchased consumer goods, a family earning $100,000 could not be expected to eat 40 times more than a family that only earned $2,500 a year, or buy 40 cars, 40 radios, or 40 houses. Through such a period of imbalance, the U.S. came to rely upon two things in order for the economy to remain on an even keel: credit sales, and luxury spending and investment from the rich.” Gusmorino, Paul A., III. "Main Causes of the Great Depression." (May 13, 1996).

2. Too Much Debt People began buying many goods on credit, often more than they could afford 80% of all families had no savings What happened when people couldn’t pay back loans?

3. Bank Failures The crash took an especially heavy toll on the nation's banks. Many had made loans to stock market speculators that could never be paid off -- and simply ran out of money. During the Depression, more than 9,000 banks failed nationwide. This meant that depositors lost all their money. It also reduced available credit, making the recovery more difficult.

4. Over-speculation in Stocks A “Get Rich Quick” attitude caused many to speculate. People risked everything by buying “on the margin.” The percentage of American households owning stock in 1929 was probably less than ten percent. However, the crash was devastating to certain families and have a psychological effect on the entire nation.

5. Overproduction & Layoffs Industries were producing much more than could be sold. They were forced to lay off workers and lower prices. The cycle gets worse…

6. Farming Crisis Farmers suffered through droughts and low prices. With low prices, farmers were unable to repay their loans or purchase goods. More banks collapsed.

7. Government Mistakes The government set low interest rates before the crash and raised them afterward. Stock market speculation was unregulated. Bank deposits were not guaranteed. To protect the nation's businesses the U.S. imposed higher tariffs (Hawley-Smoot Tariff of 1930). Foreigners stopped buying American products.

Part 2: The Effects of the Great Depression

Christmas Day Breadlines in New York City, 1931

Summary of effects Unemployment: 25% Homelessness Hunger Psychological depression More Cooperation

Part 3: Solutions At first, President Hoover favored the traditional government approach—do little and wait for things to get better. Private charities were responsible for helping the poor

Hoover’s Attitude “I do not believe that the power and duty of the general government ought to be extended to the relief of individual suffering…though people support the government, the government should not support the people.” --Herbert Hoover, 1930

Discussion: why do you think Hoover believed this?

Desperate times call for desperate measures… Hoover himself began to change his views… Hoover started some huge projects (like the Hoover dam) Tariffs were raised, but this backfired Hoover supported programs to help banks extend loans to struggling businesses

Election of 1932 By 1932, the American people wanted new leadership. Democrat Franklin Delano Roosevelt (FDR) easily defeated Hoover. Roosevelt promised the American people a New Deal.

FDR’s Inaugural address “The only thing we have to fear is fear itself”

Part 4: The New Deal The New Deal was FDR’s plan to help the nation get through the great depression by enacting many government programs designed to provide: Relief Recovery Reform Examples of New Deal programs include…

Federal Emergency Relief Association FERA helped fund local relief efforts. However, FDR wanted to avoid government “handouts” So…

Public Works Programs

Public Works Administration (1933) allowed $3.3 billion to be spent on the construction of public works to provide employment. The Civilian Conservation Corps (1933) was a public work relief program for unemployed men, focused on natural resource conservation. Work Projects Administration (1935) was the largest New Deal agency, employing millions of people and spending $7 billion.

Government jobs helped people get by… But who would pay their salaries?

FDR endorsed deficit spending The government has a deficit when it spends more than it collect in taxes. This money is borrowed to be paid back in the future. When is it appropriate for the government to deficit spend?

FDIC Created by Glass-Steagall Act of 1933 The Federal Deposit Insurance Corporation guaranteed bank deposits—this helped restore confidence in banks.

Agricultural Adjustment Act (1933) The AAA restricted production during the New Deal by paying farmers to reduce crop area so as to effectively raise the value of crops, thereby helping farmers. The farmers were paid subsidies by the federal government for leaving some of their fields unused. 6 million piglets and 220,000 pregnant cows were slaughtered in the AAA's effort to raise prices.

National Labor Relations Act aka Wagner Act (1935) Guaranteed the right of workers to join labor unions. Francis Perkins looks on as Franklin Roosevelt signs the National Labor Relations Act.

Social Security Act (1935) Collects Social Security taxes from all workers. Pays government pensions to retired and disabled people. Also funds unemployment benefits. Ida May Fuller, the first recipient

Results of the New Deal Helped people get by, eased suffering Provided hope It did NOT end the depression (WWII did) Tradition of a more active and more expensive government