October 29, 1929 – December 7, 1941….ish

Long period of rising stock prices/values.

Buying stocks for more than they’re worth, gambling that its value will continue to rise.

A period of temporary economic decline during which trade and industrial activity are reduced.

A sustained, long-term downturn in economic activity during which trade and industrial activity are reduced.

Presidential SuccessionWoodrow Wilson (Democrat)

Warren G. Harding (Republican – died of a heart attack)Calvin Coolidge (Republican – Replaced Harding)

Herbert Hoover (Republican)Ran Food Administration during WWIHooverizingProsperity of the 1920’s led to an easy

victory for Hoover in the 1928 election.Inauguration speech – “I have no fears for

the future of our country, it is bright with hope!”

Causes of the Great Depression“Roaring 20’s” were a time of great

prosperity and change for many Americans.Good times would not last long.

The Stock MarketProlonged Bull Market in the late 1920’s

convinced many to invest.1929 – 10% of American households owned

stocks.Many bought stocks on margin.

Pay only a small part down.Stockbroker furnishes the remaining amount in

return for commission and interest on the loan.Brokers held the stock for collateral.If stock value went up, it could be sold at a profit

and the loan repaid.

Goal of Margin BuyingMake money quick.Example

Investor takes $1,000 and purchases/invests in $10,000 worth of stock.

Stock broker provides the remaining $9,000 needed, receiving commission and interests for the loan.

If the stock price goes up in value and the investor is able to sell their $10,000 worth of stock for say $11,000 then they just made $1,000 profit (minus the commission and interest of course)

SpeculationStock prices are determined by profits and

future sales predictions.Good sales + good future prediction = rise in

stock value.Poor sales or future prediction = dip in stock

value.1920’s – Many began buying stocks for more

than they are worth, gambling that the stock price would continue rising and they could sell quickly for a profit.

The CrashBull Market only lasts as long as money is

being invested.By 1929 there were few new investors

putting money in.Professional investors/speculators sensed the

danger and began selling off stocks.Stock prices plummeted due to future market

fears, resulting in a lack of investing.

Black TuesdayOctober 29, 1929

Steepest dive in stock prices on this day.Almost 16 million shares of stock are sold off.Between $10-15 billion in stock value is lost.By November, approximately $30 billion had

been lost.This amount was almost equal to the total

value of Americans’ wages for that year.

Bank RunsCrash severely weakened banks.

Banks had loaned nearly $6 billion to stock speculators.Banks had invested their depositors’ money in the

market.Many banks stop loaning money, others are forced to

close, taking their customers’ savings with them.Fear of banks collapsing led to runs on banks.

Many depositors attempt to get their money out before the bank goes down.

Banks that didn’t have enough reserves on hand collapsed.

By 1932, 10% of America’s banks had closed.

Other Factors Turn a Recession into a Depression.

Overproduction and Under consumptionNew production methods and technologies led

to significant increases in production for factories and farms.

Most Americans still couldn’t afford to buy a lot of goods. Many Americans purchased new high cost items

(refrigerators and cars) on credit, paying in monthly installments.

The Ripple EffectNew technology and methods allow

businesses to mass produce more goods than ever during the 1920’s

Debts from buying on credit led many to stop buying goods.Overproducing factories have to cut production.

Less Production = less workers needed, therefore layoffs.Laid off workers lack money to spend so

sales decrease more.Decreased sales means more workers

have to be laid off…and on and on.By 1930, 26,000 businesses had collapsed.

Hawley-Smoot Tariff (1929)Raised tariffs to the highest level in American

history.Attempt to protect American businesses from

foreign competition.Opposite effect, foreign countries raised their

tariffs in response.Fewer American products are sold overseas.

Federal Reserve MistakesPrior to the crash, the Fed kept interest rates

low.Banks were encourage to make risky loans to

speculators.Businesses borrowed more money, expanding

production believing that the economy was still expanding (roaring).

After the crash, the Fed raised interest rates.Cut off credit so people and businesses

couldn’t get loans.

Overarching QuestionHow did stock market Speculation contribute

to the crash of 1929?Investors bought stocks for more than they

were worth, gambling that stock prices would continue climbing and that they could quickly sell for a profit.

When fear caused investors to begin dumping stocks, the market dropped quickly and speculators lost billions of dollars.

UnemploymentLarge numbers of people lost their jobs and

property.People without jobs often went hungry.

Bread lines were a common sight.New York’s YMCA fed up to 12,000 people

daily.

ShantytownsCommunities of shacks set up all over the

country by the homeless.Called “Hoovervilles” after the President,

who they blamed for their troubles.

HobosPeople began wandering the country looking

for a new life; walking, hitchhiking, and often “riding the rails” (sneaking onto boxcars).

How did the following contribute to the “Dust Bowl”?Wheat prices during WWI.Wheat prices after WWI.Bad farming practices (Human error.Natural disasters.

The Dust Bowl and the Great Plains1931-1939Farming disaster caused by poor farming

practices, weather changes, and a drop in crop prices.

Wheat BoomPrior to the late 1920’s, the Great Plains had

been thriving with high wheat production and prices.

Plains farmers had plowed under native grasses which held moisture in the soil, in order to make new fields for wheat.

Abandoned fieldsWhen crop prices dropped in the 1920’s,

many of the wheat fields were left unplanted.

1931 The rain stopped.Exposed soil in unplanted fields dried out, quickly

turning it into lightweight dust.From the Dakotas to Texas, what had been America’s

“bread basket”, was now a giant “Dust Bowl”.Dust clouds formed, blotting out the sun for hundreds

of miles.Dust buried crops, suffocated humans and animals,

ruined engines, and made life miserable on the plains.Dust from the plains was blown to the east coast,

even collecting on the white house and ships in the Atlantic.

(Quote – pg. 407)

Okies and “The Grapes of WrathOkies – Residents who fled during the “Dust

Bowl”To escape the “Dust Bowl”, many farmers who

had lost their land headed west for a new life in California.

Farms in California offered job opportunities to “Dust Bowl” migrants though many didn’t welcome the migrants.

“Okies and dogs not allowed inside.”John Steinbeck’s – “The Grapes of Wrath”

Book describing the experience of a family fleeing the “Dust Bowl” for California.

Overarching Question???What caused the Dust Bowl?

Farmers on the Great Plains had plowed up native grasses, which usually held moisture in the soil, in order to clear new wheat land.

When crop prices fell in the 20’s, farmers left fields unplanted.

A drought, combined with the uncovered soil, created dry dust which easily blew away.

The belief that no matter what a person’s background, he or she can still become successful. (The American Dream)

Hoover’s PhilosophyBelieved in the power of “Individualism”

Felt that people working hard to better their lives would keep the economy going.

Believed that handouts would be addictive and would reduce the incentive for people to work hard.

National Government should not step in to help individual people, only state and local governments should offer direct relief.

Hoover felt that post World War I socialism in Europe had hurt Europe’s economic recovery.

Hoover’s Recovery PoliciesPublic Works Projects

Government financed building projects aimed at employing the unemployed. (not direct relief payment)

However, this did not produce enough jobs to have a significant impact on unemployment.

Banking PoliciesHoover’s Theory – Expand the money supply so

that there is more money available for banks to loan to businesses which could then expand production and rehire workers.

However, the Fed. refused to increase the money supply.

The Reconstruction Finance Corporation

Set up by Hoover in 1932.Made loans to banks, railroads, mortgage

associations and other businesses.Under Hoover, the RFC met with minimum

results.However, FDR continued the use of the RFC

throughout the rest of the Depression.By the end of the Depression, nearly $10 billion

would be spent through this organization.

Emergency Relief and Construction Act

Called for $1.5 billion for public works projects and another $300 million for direct relief loans.First time in U.S. history that the Federal

government provided direct relief funds.Hoover Dam was built as part of this effort,

with construction beginning in 1931.

Discontent and AngerDespite Hoover’s efforts to right the

economic ship, the economic situation continued to worsen.

Hunger MarchesCrowds organized to protest economic

problems.“Feed the hungry, tax the rich.”

Farmer ProtestsCrop prices dropped after WWI.Many farmers had mortgaged their farms to

buy seed, feed, and equipment.These farmers began losing their farms

because they couldn’t pay mortgages.Some farmers began destroying crops and

dumping milk to try to raise prices by reducing the supply.

http://www.budgetfilms.com/clip/13276/

Bonus Marchers – the “Bonus Army”WWI vets had been promised a $1,000 bonus,

to be paid in 1945.A bill had been introduced in 1931 in

Congress, to help veterans out by paying them their bonus immediately.

Vets began marching to Washington D.C. to push for passage of the early payment bill.

Around 15,000 arrive and camp in “Hoovervilles” in D.C.

When the bill was voted down by Congress, many “Bonus marchers” refused to leave, choosing instead to squat in vacant buildings.

Hoover ordered the squatters cleared out.When the police failed, the army was called in.Douglas MacArthur (future WWII hero), ignored

Hoover’s order to leave the “Hooverville” camps alone.

He sends in the cavalry, infantry, and tanks using tear gas to route the veterans and drive them out.

Press coverage showed troops attacking the veterans.

When American’s see and hear of this attack on veterans, Hoover’s reputation could not be saved.

Hoover’s LegacyHoover’s critics feel that he did not do enough

to try and stem the tide of the Great Depression in its early stages.

His belief that the government should not give handouts, made him appear distant and callused to many suffering through the depression.

When the Bonus Army was attacked by MacArthur’s troops, Hoover was villainized by many and his reputation would not recover.

FDR defeated Hoover in the 1932 election. He had criticized Hoover’s attempts, but later took many of the same approaches in his own efforts.

Regular radio addresses by FDR to the nation to let them know what was being done to fix the economy and to lift the hopes of Americans.

Election of 1932

The Depression is worsening.Between 12-13 million people are unemployed.Americans blame Hoover for failing in his

efforts.Time for a change.FDR is elected and delivers his famous

inaugural speech assuring the American people that “the only thing we have to fear, is fear itself….”

http://www.youtube.com/watch?v=Lm3Bntsp2ck

Franklin Delano RooseveltFDR

Former New York Governor. Started the first state relief agency to aid the

unemployed.Distant cousin to Teddy Roosevelt.Wife Eleanor.Crippled by Polio but not stopped. This contributed

to his toughness and optimism during the Depression.Very charismatic.American bitterness towards Hoover made FDR look

even better.

FDR’s “New Deal”FDR’s policies for ending the Great

Depression.Focused on job creation and giving people

hope.Remember cousin Teddy’s “Square Deal”?

The “First New Deal”FDR entered office with 1 in 4 workers

unemployed and a seemingly paralyzed economy.

He immediately began sending bill after bill to Congress to attempt to fix the economy.Theory - try many things and see what works.FDR intentionally picked a cabinet team with

opposing views so that he would get many different opinions.

In his first 100 days, 15 new acts are passed.

Emergency Banking Relief Act (1933)

Most of the nation’s banks had declared “bank holidays” to avoid any more bank runs, closing indefinitely.

As long as banks stayed closed, recovery could not happen.

This act required federal examiners to survey the nation’s banks and only give Treasury Department approval (licenses) to those who were financially sound.

FDR delivered his first “Fireside Chat”, assuring Americans that their money would be safer in banks than under the mattress at home.

The next day, there were more deposits than withdrawals from banks for the first time in a long time.

http://www.youtube.com/watch?v=jt9f-MZX-58

Other Bank Reforms

The Federal Deposit Insurance Corporation. (FDIC)

Provides government insurance for bank deposits up to a certain amount.

Effect – More confidence in the banking system.

Securities and Exchange Commission – (SEC)

Regulates the Stock Market, and prevents fraud.

Watches out for insider trading and other corrupt trade practices.

Prevent professional investors from taking advantage of the average Joe.

Mortgage and Debt Relief

Many government leaders felt the Depression was caused by consumers not spending money because they had debts and mortgages to pay off with their shrinking incomes.

Theory - help relieve the pressure of personal debt/mortgages, and money will be freed up for spending in the economy.

2 SolutionsHome Owners’ Loan Corporation (HOLC)

Bought mortgages of homeowners behind in payments.

Restructured these loan payments to allow for a lower interest rate and longer repayment term.

Only those who still had jobs qualified.Only non-farmers.

Farm Credit Administration (FCA) – Offered new loans to farmers to lower their

mortgage rates.

Government spending of funds raised by borrowing rather than from taxation ( spending what you don’t have.)

Raising Farm and Industry Prices

High production and low prices had been bad for business.

Agricultural Adjustment Administration – (AAA)

Theory – Farm prices were too low because of over production.

New technology and farming practices had led to large increases in production during the 1920’s, but the demand had not increased with it.

AAA sought to control what farmers produced, and how much.Farmers slaughtered around 6 million piglets

and 200,000 sowsplowed under 10 million acres of cotton,

withdrew millions of acres from production, and many other measures.

The AAA was successful in meeting their goal. Farm incomes increased by 50%.

Controversy – You’re destroying food and raising food prices at a time when many in your country are poor and starving.

National (Industrial) Recovery Administration – (NRA)

Attempted to help business, labor groups, and the government work together to revive industries.

Helped set up “voluntary” rules for industry.These rules, known as codes of fair competition…..

Set pricesEstablished minimum wagesLimited factories to two shifts per day

Theory - Allow more businesses to participate in production.

Shortened workers’ hours Theory - Less hours per worker means more workers are

needed.

NIRA FailsIndustrial production actually decreased.1935 – The Supreme court ruled that the

NIRA was unconstitutional.

Relief ProgramsMany in government felt that getting money

into the hands of the needy, would be the fastest way to solve the under consumption problem.

Rather than just giving money to the unemployed, they created work programs.Many public works projects would be

completed.Gave workers a sense of pride and

accomplishment, lifting their spirits.

Civilian Conservation Corps – (CCC)

Employed young men ages 18-25Worked for the forestry service.

Planted trees 200 million trees were planted from north

Texas to North Dakota to help prevent another Dust Bowl.

“The Shelter Belt”Cut trails for, and built up national park

areas.

Life in the CCCYoung men lived in military style camps.Earned $30 a month, $25 of which was sent

immediately home to their families.These young men worked hard, gaining a

sense of self-respect, pride, and achievement.Some 40,000 boys learned how to read

through the CCC program.

Other CCC Accomplishment

125,000 miles of roads built.46,854 bridges built.Over 3,000 fire towers built.318,076 check dams built for erosion control.More than 8 million hours of fighting firesAround 3 billion trees plantedAbout 89,000 miles of telephone wire strung

Public Works Administration – (PWA)1/3 of unemployed workers were construction

workers.PWA put them to work, providing contracts

to construction companies to build...Roads DamsSewer SystemsSchoolsHospitalsMany other public works projects.Spent around $3,300,000 on projects.

Tennessee Valley Authority (TVA)

Tennessee River valley was in particularly bad shape when the depression hit. Poverty, poor farmland, etc.

TVA is established to improve conditions.Built damsProvide cheap electricityImproved irrigationProvided jobsOverall attempted to improve life in east

Tennessee

First New Deal ResultsThe Negatives

Deficit Spending Spent Billions of dollars that the government didn’t

have, therefore it had to borrow.Did not improve the overall economy of the U.S.Unemployment remained high.

PositivesBanks reopened and people again began to deposit

money.Many people had work from the government.

Biggest Positive – Gave Americans a sense of hope and helped them press on with faith in the nation.

“New Deal”, helping or not?

By 1934 opposition to FDR’s “New Deal” was growing.

The economy had barely improved and unemployment was still very high.

Deficit SpendingFDR had abandoned a balanced budget,

borrowing money to pay for his programs.The growing debt which resulted was a great

concern for many Americans.

Republican and Democrat Opposition.Many from both parties began standing up

against the “New Deal”.Republicans and Southern Dems. Felt the

“New Deal” had restricted business too tightly and expanded the federal governments power too much. (socialism)

Other Democrats felt the “New Deal” hadn’t done enough to redistribute wealth from the rich to the middle class and poor Americans.

The Second “New Deal” (1935)FDR was disappointed by failure of his first

“New Deal”.Launched a second round of programs to try

to get the economy moving.

The Works Progress Administration (WPA)

Largest public works program of the “New Deal”$11 billion spent from 1935-19418.5 million workers employed.650,000 miles of roads/streets fixed or built.125,000 public buildings built.8,000+ parks124,000 bridges built or improved.853 airports.

Federal Project Number OnePublicly funded art.Most Controversial part of the WPA.Paid artists, musicians, actors, and writers to

produce murals and sculptures for public buildings, start musical groups, interview and record ex-slave stories, etc.

Eleanor Roosevelt was particularly supportive of Federal One.

The Wagner ActIncreased Union power.Guaranteed workers the right to organize

unions and bargain collectively.Established the National Labor Relations

BoardInvestigated employers’ actions and stopped

unfair practices, such as spying on workers.Led to increased union activity.

Sit-down strikes (Ex. Flint Michigan GM plant).Union membership tripled from 3 to 9 million

between 1933 and 1939.

Social Security ActGoal: Provide security for elderly and

unemployed workers.Workers pay into social security through a

payroll tax.When workers who have paid into Social

Security reach 65, they could retire and receive a monthly retirement pension.

Also contained an unemployment insurance benefit, to provide temporary income to those who are looking for a job.

FDR believed that since Americans will have paid into Social Security before they collect it, then nobody could EVER end the program.

However, later congress would borrow from Social Security for other programs without raising payroll deductions to compensate…..meaning Social Security is running out.

The African American VotePrior to the 1930’s, African Americans had

remained faithful in voting to the Republican Party.Party of Lincoln

African Americans were hit very hard by the depression.

Felt Republicans had taken their vote for granted, doing little to help them in these tough times.“Turn Lincoln’s picture over, that debts been paid.”

Some “New Deal” policies had offered help to African American communities.Eleanor Roosevelt had visited many

communities and encouraged her husband to address some of their problems.

A dramatic shift of the black vote occurs from the Republican party to the Democratic party.

The negative side = FDR did not oppose southern poll taxes, fearing the loss of Southern Democrat votes.

Women’s VoteFDR appointed several women to government

positions.Frances Perkins

First woman cabinet member.Secretary of Labor.

Increased his popularity with women voters.

Election of 1936Republicans try to sell the need for a change.Not successfulFDR wins in a landslide.

60% of the popular voteCarried every state in the electoral college

except Maine and Vermont.“New Deal” jobs had a lot to do with it.

FDR’s Second TermSupreme court had declared many “New Deal”

programs to be unconstitutional.Ex. Schechter Poultry Company vs. U.S. (1935)

Supreme Court ruled that FDR’s National Industrial Recovery Administration (NIRA) was unconstitutional.

Executive branch (President) can’t take powers that are given to the legislative branch by the constitution.

FDR feared other programs would be struck down.

Came up with a “Court Packing” plan.

The Court Packing Plan (1937)1937 – Sent a bill to Congress which would

allow him to increase the number of justices on the court. (Currently nine justices)

If a Supreme Court Justice…..1. Turned 70 years old2. Did not then retire within 6 monthsThe President could then appoint one

additional justice to the court.

StrategyFour justices were in their 70’s already, two

more in their late 60’s.If the bill passed, FDR could possibly appoint as

many as 6 new justices relatively soon.This would allow FDR to put 6 pro “New Deal”

judges into the Supreme court.Effects

FDR looks bad.Appears to be attempting to undermine the

Supreme Court’s independence thereby underminining our system of “checks and balances”.

Americans fear FDR is attempting to drastically increase the President’s power.

Recession of 1937Many Americans had thought the worst was over.FDR decided it was time to cut some spending,

fearing the growing national debt.Cut funding for the WPA and PWA

These cuts aligned with the first Social Security payroll taxes being taken out of worker’s checks.This takes $2 billion out of the economy.

2 million workers lose their jobs.

ProblemMany “jobs” were government relief jobs.Unemployment numbers were deceiving

because these aren’t actual long term jobs.Had people grown dependent on government

relief after all? Was Herbert Hoover’s fears justified?

FDR asks Congress for $3.75 billion more for PWA, WPA, and other programs.

Back to deficit spending!Due to this recession, Republicans are able to

regain many seats in congress in the 1938 elections.

The “New Deal’s” LegacyLimited success in improving the economy.The economy would not recover until WWII

created jobs for everyone.Power/role of the Federal government

increased.Many Americans now expected the

government to act as a safety net from disasters.

FDR’s “New Deal” did give many Americans a sense of stability and hope.

Overarching Question???What two events weakened FDR’s reputation

in his second term?His “Court Packing” plan which made him

appear to be power hungry, undermining our system of “Checks and Balances”.

Also the recession of 1937 in which unemployment jumped back up when FDR tried to cut some of his programs. This showed that a lot of the decrease in unemployment had been due to government relief jobs which were not permanent.

“We have behind us eight terrible years of a crisis….Here we are, and our basic institutions are still intact, our people relatively prosperous and most important of all, our society relatively affectionate….No country is so well off.”

Washington Post, October 9, 1940