The Great Depression

BACKGROUND Economies historically pass through good and bad periods that regularly repeat themselves These periods of business activity are referred to as the “business cycle” The bad times are called recessions or depressions, depending on the severity Depressions are characterized by business failures, high unemployment, and falling prices or inflation The Great Depression was the worst depression in our nation’s history

THE BIG QUESTIONS What were the causes of the Great Depression? Why was Herbert Hoover unable to cope with the Great Depression? What were the effects of the Great Depression? How did the New Deal offer a new approach to confronting the Great Depression?

CAUSES Overproduction – manufacturers were producing more goods than they could sell (cars, radios, appliances, etc.) Speculation – more and more people were speculating in the stock market in hopes of “getting rich quick”  Many began buying on margin (getting loans from a bank or stock broker)  People also speculated in Real Estate

CAUSES CONTINUED… Shaky Banking – Some bankers invested their depositors’ money in unsound investments  It was common practice for banks to invest depositors’ funds in businesses to enable them to pay interests on deposits  The government failed to regulate the banking system or the stock market  Consumers bought more than they could afford and over-extended credit

CAUSES CONTINUED… Restricted International Trade – American tariffs were enacted to protect American markets  Tariffs made it hard for producers to sell overseas, since other countries retaliated by setting high tariffs of their own  In 1930, President Hoover signed the highest tariff in U.S. history  The shrinking of world trade contributed to the Great Depression

THE DEPRESSION BEGINS THE STOCK MARKET CRASH – October 29, 1929  On October 24, stock prices began moving sharply downward  Top bankers bought stocks above current market prices to try to stop the rapid decline  By October 29, stock prices kept falling faster and faster, prices were at an all- time low, and the market crashed

CONTINUED… IMPACT ON BUSINESS  Corporations could not raise funds  People could not repay loans  Banks failed and thousands lost their life savings  The demand for goods decreased (prices fell, factories closed)  People couldn’t pay rent or mortgages (lost homes)

CONTINUED… THE HUMAN IMPACT  People felt worthless  Traditional optimistic outlook was replaced by confusion and chaos  With no unemployment insurance or bank deposit insurance, private charities were overwhelmed  People were homeless and hungry  Millions depended on soup kitchens for food  Writers and photographers like John Steinbeck and Dorothea Lange recorded the misery of the times

THE DUST BOWL A series of droughts, in the Great Plains, in the early 1930s dried up crops and topsoil, turning the soil to dust Lasting for a decade, heavy winds carried topsoil across hundred of miles, burying homes and destroying harvests Farmers were forced to abandon their farms Many moved west to California (over 1M were forced from their land)

MEXICAN REPATRIATION The Immigration Acts of the 1920s had restricted European immigrants, but not Mexican Many Mexicans had come to the U.S. to escape the turmoil of the Mexican Revolution (pass medical & literacy tests & pay a small tax) Many settled in “barrios” in California, Texas or other southwestern states Worked long hours for low wages at hard labor Many faced prejudices (segregated schools, etc.)

CONTINUED… With less demand for labor during the Depression, white Americans sought jobs filled by Mexican-American immigrants Hostility grew toward Mexican immigrants It was more difficult to enter the U.S. Hoover authorized the Mexican Repatriation Act to send Mexican-Americans back to Mexico (over half a million were forcibly returned, rather legal or not)

PRESIDENT HOOVER AND THE DEPRESSION Remained true to laissez-faire capitalism, despite the spiraling economic problems Rejected demands for the government to provide unemployment to the needy Believed this would reduce the incentive to work Believed private organizations should provide emergency relief, not the government The Federal reserve made matters worse by reducing the money supply, not increasing it

HOOVER FINALLY RESPONDS He believed that when prices dropped low enough, people would begin buying again, but a lack of aggregate (total) demand prevented this from happening Eventually cut taxes, increased federal spending on public projects, and directed a federal agency to buy surplus farm crops Established the Reconstruction Finance Corporation to give emergency loans to banks and businesses

CONTINUED… These policies were seen as too little, too late His lack of leadership frustrated most Americans Shanty towns of homeless families and the unemployed became known as “Hoovervilles” and sprang up on the outskirts of many cities By the end of Hoover’s term, about 100,000 businesses failed and unemployment reached 13 million (25%)

FRANKLIN ROOSEVELT AND THE NEW DEAL Defeated Hoover in a landslide election in 1932 when he promised Americans a New Deal to put them back to work A major turning point in American history  Marked an end to the view that government and economy should be completely separate  Established the principle that the federal government bears the main responsibility to ensure the smooth running of the Am. Economy  Permanently increased the size and power of the federal government

ROOSEVELT’S NEW STYLE OF LEADERSHIP Considered the Great Depression as a national emergency Created the “Brain Trust” made up of talented people from leading universities to develop new and creative strategies to deal with the crisis Addressed the nation by radio addresses known as “fireside chats” where he explained his policies in simple conversational terms Presented himself as an optimist His experiences in overcoming polio helped him meet the challenges of the Depression

WOMEN IN THE GREAT DEPRESSION Eleanor Roosevelt – became the eyes and ears of the president by traveling throughout the country, and later around the world. She was a political activist and spoke for women’s rights, the cause of peace, and the poor Frances Perkins – first female member of the U.S. Cabinet (Secretary of Labor in 1933), serving for 12 years. She oversaw the Civil Conservation Corps and the Public Works Administration and helped pass the Fair Labor Standards Act, Nat’l. Labor Relations Act, and Social Security Act.

NEW DEAL LEGISLATION Roosevelt told the American people that the “only thing we have to fear is fear itself.” Blamed the selfishness of bankers and financiers for the crisis Called a special session of Congress to push through legislation what would have been difficult to pass in less critical times Congress passed almost all of the important bills Roosevelt submitted in his First Hundred Days in office

THE THREE R’s – RELIEF, RECOVERY, & REFORM RELIEF  The Banking Crisis: If depositors felt a bank was unsound, the would remove their money. If word of this spread, others would also, and the bank would fail. 10,000 banks had failed in the early days of the Depression.  To restore consumer confidence, Roosevelt immediately declared a Bank Holiday, closing all the nation’s banks  Each bank could only re-open after government inspectors found it to be sound

CONTINUED…  Relief to Homeowners and Farmowners: Many were unable to make payment on mortgages.  Banks seized their property and forced them out of their homes and farms  The government passed legislation making emergency loans available  Relief for the Unemployed: over 25% of the workforce was out of work  No unemployment insurance & many were without food or shelter  Roosevelt favored “work-relief,” emergency public jobs for people

CONTINUED RECOVERY  Key to recovery is to stimulate demand  Measures were designed to restore the economy by increasing incentives to produce and by rebuilding purchasing power  Priming the Pump: The idea that pouring money into the economy would get it working again.  Putting money into consumers’ hands would let them spend more and increase demand for products  More workers would be hired, thus continuing increased purchasing power and consumer demand

CONTINUED… REFORM  Aimed at removing defects in the structure of American economy to ensure another Depression would not occur  Many measures were based on the belief that government should protect individuals against risks they could not handle on their own

IMPACT OF & REACTIONS TO THE NEW DEAL LABOR: fastest growth period of union membership in U.S. history. Roosevelt wanted to raise wages to help fight the Depression. CRITICISM: Some proposed alternative approaches to dealing with the Depression.  The Liberty League : charged Roosevelt to being a “traitor to his class” and attempting to establish a popular dictatorship  Dr. Francis Townsend: wanted to give citizens over 65 a pension of $200 a month to be spent in a month. He believed this would create new jobs and end the Depression

CONTINUED…  Father Coughlin: Gave radio addresses to millions, called for the nationalization of banks and utilities, and preached anti-Semitism. Was supported by nativists and those who distrusted Wall Street bankers. The Catholic Church ordered him to end his broadcasts.  Huey Long: promised to give each Am. Family an income of $5000 per year to be paid for by taxing the rich. He was assassinated before mounting his campaign to run against FDR.

THE SUPREME COURT AND THE NEW DEAL Posed the greatest threat to the New Deal Ruled that both the NIRA and AAA were unconstitutional In Schechter Poultry v. U.S. (1937), the Supreme Court ruled that even during a national crisis, Congress can not give the President more powers than those granted in the Constitution Fearing the court might declare other New Deal legislation unconstitutional, FDR proposed a plan to allow the President to add a new appointment to the Supreme Court for each justice over 70 ½ years old.

CONTINUED… The plan, if adopted, would have given FDR the right to appoint 6 Justices, giving him control over the court. It was viewed by many as an attempt to upset the traditional separation of powers Despite his popularity, the public condemned this move and Congress rejected it After this challenge to the court, the justices generally stopped overruling New Deal legislation

IMPACT OF STATE & FEDERAL GOVERNMENTS Power of federal government increased Government had a positive responsibility to make sure the national economy ran smoothly and efficiently and made it possible to control citizens’ private actions Taxes rose dramatically to fund new gov’t programs States implemented their own versions of New Deal policies Established a legacy of gov’t. agencies, regulations, and procedures that remain with us today