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THE GREAT DEPRESSION &

FDR’S NEW DEAL

Causes of the Great Depression

• Agricultural Decline• Overproduction lower prices

inability to repay loans• Drought/Dust Bowl

Causes of the Great Depression

• Buying on credit– living beyond one’s means

By 1929, Americans racked up more than $6 billion in personal debt — more than double the 1921 level.

Causes of the Great Depression

• Overproduction– surplus of goods

• No ability to continue to buy products due to excessive debt.

Causes of the Great Depression

While factory workers’ wages rose 8%, factory output increased by 32%. As a result, worker incomes rose modestly, while rich investor incomes skyrocketed.

• Rising wages masked unequal distribution of wealth

Causes of the Great Depression

• Stock Market Crash• Until September 1929, the stock

market continued to rise.

Many people borrowed money to buy stock, assuming prices would continue to go up.

Some economists feared that stocks were over-priced (speculation).

Causes of the Great Depression

• Stock Market Crash• On October 29th, 1929, the stock

market went into a free fall as investors tried to sell at any price.

16 million shares were sold on “Black Tuesday.”

Billions of dollars were lost in a few hours.

Many who bought stocks on margin were wiped out.

Causes of the Great Depression

• Stock Market Crash• The stock market crash didn’t start the

Great Depression by itself. Instead, it quickened the collapse of the U.S. economy.

Effects of the Great Depression

The banking system feels the effects of the crash first. People fear that their money will be lost so they run to the bank and attempt to withdraw their funds.

But banks don’t have enough of their money on hand as cash. These bank runs cause banks to fail.

Effects of the Great Depression

Business failures

• Factories closed, causing worker layoffs.

• This lowered demand for goods.

• By 1933, the unemployment rate reached 25%.

Effects of the Great Depression

Passage of the Hawley-Smoot Tariff

The strategy was a mistake. Other nations retaliated and raised tariffs

as well.

The resulting drop in world trade only made the glut of American factory and farm products harder to sell.

Congress passed the Hawley-Smoot Tariff to protect American manufacturers from foreign competition.

Effects of the Great Depression

Worldwide Depression

Hoover’s Response to the Great Depression

Like most economists of the day, he believed that up and down swings in the economy were a natural part of the business cycle. It was thought that strong businesses would weather storms without the support of the government.

At the start of the economic downturn, Hoover took a hands-off approach.

Hoover’s Response to the Great Depression

Hoover saw that he must do something.

Asked businesses to keep wages, employment, and prices at current levels

Called for tax cuts, lower interest rates, and public works

Asked wealthy to donate more money to charity

Hoover’s Response to the Great DepressionBut volunteerism failed.

Hoover put his faith in localism, a policy whereby problems are best solved at the local and state levels.

• Towns and states didn’t have the necessary resources to deal with the depression.

• Hoover did not support direct federal aid to individuals.

Hoover’s Response to the Great Depression

Congress passed the Reconstruction Finance Corporation

RFC employed trickle-down economicsThe RFC gave billions of dollars to

banks and large businesses.Lend to, and invest in, struggling

businesses who would hire workers and thus end the depression.

The RFC failed-- businesses did not hire more workers; not enough

Hoover’s Response to the Great Depression

One Success of the RFC

Construction of Hoover Dam in NevadaIncreased

electricity and farm land in SW.

Hoover’s Response to the Great Depression

Bonus Army– marched on Washington demanding pensions

In the summer of 1932, almost 20,000 veterans set up camps and occupied vacant buildings. In July, police tried to evict them and riots erupted.

Hoover’s Response to the Great Depression

Bonus Army– disbursed by U.S. Military

Hoover ordered General Douglas MacArthur to remove the veterans. He used tear gas, cavalry, tanks, and troops with fixed bayonets.

Press photos of troops using excessive force angered the American public.

The eviction of the Bonus Army doomed Hoover’s bid for re-election.

Americans were ready for new leadership and a greater role for the government in solving problems.

• Based on Keynesian Economics• John Maynard Keynes• Demand-side economics• Use government spending to prime the

pump• Creates demand and generates economic

growth

FDR’S NEW DEAL

• Emergency Banking Relief Act • Bank Holiday• Reopened stable banks• Took us off the gold standard (creates inflation)

• Glass-Steagall Banking Reform Act• FDIC: Federal DepositInsurance Company• Insured deposits

FDR’S NEW DEAL

• Civilian Conservation Corps• Priming the Pump• Camps for men 18-25 years old• Reforestation, flood control, drainage,

trails• Sent home pay to families• Criticism: militarized nation’s youth

FDR’S NEW DEAL

• Agricultural Adjustment Act• Creating artificial scarcity• Paid farmers to reduce acreage• Unintended consequences:

• Slaughtering of animals• Declared unconstitutional• Increased unemployment initially

• 2nd AAA passed• Constitutional• Rewarded farmers for planting certain

crops• Paid for through government spending–

not taxes

FDR’S NEW DEAL

• National Recovery Administration• Industries would accept fair codes of

competition• Laborers given rights• Industries spread out employment by

reducing hours of each worker• Encouraged Americans to purchase goods

from companies who followed these fair codes.

• Unconstitutional– can’t regulate businesses not involved in interstate commerce

FDR’S NEW DEAL

• Tennessee Valley Authority• Built dams along tributaries of Tennessee River• Expanded electricity• “Creeping socialism”– govt. setting prices• Constitutional but couldn’t be replicated• Employed African Americans (segregated camps)• Economically revitalizes the South

FDR’S NEW DEAL

• Securities and Exchange Commission• Regulates buying and selling of stocks• Oversees all activities on the Stock Market• Establishes rules for trading stocks• Stabilizes the stock market

FDR’S NEW DEAL

• Works Progress Administration• Largest New Deal Program • Construction of public works• Jobs for unemployed white collar workers

(dancers, artists)• Highly criticized for “make work” policies

FDR’S NEW DEAL

• Social Security Act• Unemployment insurance• Old-age pensions• Taxes: employers and employees• Children can’t care for parents in urbanized economy• Age 60: Life expectancy

FDR’S NEW DEAL

• Wagner Act• National Labor Relations Board• Workers earn right to collectively bargain• Led to establishment of Congress of Industrial

Organization• Fair Labor Standards Act

• Minimum Wage• Maximum hour work week• Prohibited child labor

FDR’S NEW DEAL

• Net Results:• Alphabet Soup• Relief: provide relief from bad situations

created by the Depression• Recovery: provide economic growth• Reform: prevent a Depression from

occurring again• Some improvement but not until

government spending began accelerating.• WWII is what really propels the US out of

the Depression

FDR’S NEW DEAL

• Criticism of New Deal:• Charles Coughlin• Dr. Townshend• Huey Long

• Too much power to federal government• Supreme Court struck down some provisions• Court-packing scheme by FDR– stopped by

Congress

FDR’S NEW DEAL

• Role of Women:• Eleanor Roosevelt: • Frances Perkins: 1st female cabinet member

• African Americans:• Received some benefits from the New Deal • Advised FDR• FDR couldn’t be as supportive as he wanted– fear of losing Southern Democrats’ votes

• Native Americans:• Indian New Deal• Restored tribal identities• Revoked assimilation policies

FDR’S NEW DEAL