The Great Depression and the New Deal

Chapter 23
 New Deal Acronyms
• Social Security (SSA)
• Rural Electrification Admin.
(REA)
• Tennessee Valley Auth. (TVA)
• Works Progress Admin. (WPA)
• Public Works Admin. (PWA)
• Reconstruction Finance Corp.
(RFC)
• Agricultural Adjustment Act
(AAA)
• Security Exchange Commission
(SEC)
• Nat’l. Labor Relations Act
(NLRA)
• Fair Labor Standards Act
(FLSA)
• John Maynard Keynes
• Adam Smith
• Civilian Conservation Corps
(CCC)
• Nat’l. Youth Admin. (NYA)
• Nat’l. Recovery Admin. (NRA)
• Federal Deposit Insurance
Corp. (FDIC)
• Federal Housing Admin. (FHA)
• Civil Works Admin. (CWA)
 Causes of Depression
1. Farm Debt
•Farmers needed loans to pay for farming
•Overproduction drove down prices
•Droughts destroyed crops in 1930
•Too many sharecroppers

2. Decline in Trade
•US raised tariffs to protect American businesses
•Other nations responded by limiting trade with the US
•Europe also struggled with reparations and War debt

3. Consumer Debt
•Installment buying and buying on margin
•Buying on Margin…. Like buying stocks with a down payment
•Everything from cars/radios/tractors to stocks
4. Wealth inequality
•Poverty rate in 1930 was 40%
•If impoverished people lose jobs, their “purchasing
power” reduces
• then the economy collapses
Catalyst: Stock Market Crash, 1929
• 1920s speculation:
– Investors buy stocks hoping price increases
resulting in dividends
– Stock prices “artificially inflated” and did not
reflect true value of company (equipment,
property, sales, profit)
• Margin buying
– Borrow money to pay for stock, pay it back
with dividends
• Black Thursday - October 24, 1929
– Stock prices begin to fall
– This was a “catalytic event”
• Bankers met and agreed to buy stocks at inflated
prices to stop panic
– Temporarily worked
• Black Tuesday - October 29, 1929
– Severe drop in the market
– General Motors dropped from $73 to $8
– $40 billion lost in 2 months
Great Depression by the numbers:
•Gross National Product – from $104B (1929) to $56B (1932)
•20% of all banks closed
•30% of money supply evaporated
•25% unemployment (13m people) (not including farmers)
•1932 the worst year of the depression
 Hoover and the Depression
• Did not believe government should get involved
in “direct relief”
– Tried to distribute aid to companies and state/local govt’s
– Philosophically opposed to the sort of government-people
relationship that FDR would use

• Hoover’s response to emerging depression:

– Hawley-Smoot Tariff (1930) – 40-50% duty on imports
– Reconstruction Finance Corporation (RFC) (1932) – trickle-
down
– Bonus Army (1932)
– Hoover Dam

• People resented Hoover as aloof

– Historians understand him as too slow to respond
– “too little, too late”
 FDR and election of 1932
• Background
– Governor of NY, former Assistant Secretary of Navy
– Wealthy
– Distantly related to Teddy Roosevelt
– polio in 1921, was in a wheelchair
– Excellent speaker, and conveyed empathy for
“forgotten man” – the hard working poor

• Election of 1932
– FDR wins in dramatic landslide, 60% popular vote
– Victory demonstrated Americans’ call for a new style
of government
– FDRs reform policies begin to encourage blacks to
shift from Republican to Democrat party
– “New Deal Coalition” lasted until 1968
• Farmers
• African-American (southern and urban)
• Labor unions
• Banking
• Wealthy liberals
• Women
 First Inaugural Address
• “I am certain that my fellow Americans expect that, on my
induction into the Presidency, I will address them with a candor
and a decision which the present situation of our people impel.
This is preeminently the time to speak the truth, the whole truth,
frankly and boldly. Nor need we shrink from honestly facing
conditions in our country today. This great nation will endure as
it has endured, will revive and will prosper. So, first of all, let me
assert my firm belief that the only thing we have to fear is fear
itself—nameless, unreasoning, unjustified terror which
paralyzes needed efforts to convert retreat into advance. In
every dark hour of our national life a leadership of frankness
and vigor has met with that understanding and support of the
people themselves which is essential to victory. I am convinced
that you will again give that support to leadership in these
critical days.”
 FDR and the Three R’s: Relief, Recovery, Reform
• People take money out of banks causing the banks to go
out of business
– “Bank Run” (4,000 banks closed)
– FDR declares 4 day bank holiday (March 6-10) to stop

• First Hundred Days

– Beginning of FDR’s administration where many
programs were implemented
– “Brain Trust” of industry experts developed these
– Relief, Recovery and Reform (see pages 740-745)
• “Alphabet soup” of programs – CCC, AAA, TVA,
NWA, PWA, FDIC, NRA, Glass-Steagall Act, etc.
• Rooted in Keynesian Economics- stimulate economy
– Relief (Meet needs of hungry and jobless);
– Recovery (Help agriculture and industry);
– Reforms (Change the American Economy)

• Congress rubber stamped many FDR initiatives

– Nation supported ANY change, as long as it appeared
government was doing something
– Many programs had foundations in Progressivism
1st New Deal (1933-34) : Banking
• Emergency Banking Relief Act (1933)
– Gave president power to regulate banking and foreign
exchange
– Fireside Chats
• FDR used radio broadcasts to directly appeal to
people

• Glass-Steagall Banking Reform Act

– Created the FDIC (Federal Deposit Insurance
Corporation) which insured individual deposits in banks
– prohibit banks from selling securities (stocks/bonds)
– Repealed in 1999… and you can see what happened

• Home Owners Loan Corporation (HOLC)

– Provide loans to home-owners facing foreclosure

• Securities and Exchange Commission

– Strictly limited speculation on stock market
– prohibit fraudulent financial statements, insider trading

• Managed Currency
– FDR ordered all gold to be surrendered to Treasury
 1st New Deal (1933-34): Direct Relief
• Civilian Conservation Corps (CCC)
– Provided 3 million jobs working in national forests, flood control,
swamp drainage
– Required to send majority of wages to their families

• Federal Emergency Relief Act (FERA)

– Aim was immediate relief
– gave $3 billion in direct payments to state/local governments

• Civil Works Administration (CWA)

– Part of FERA
– Gave temporary jobs such as raking leaves

• Agricultural Adjustment Act (1st and 2nd) (AAA)

– Goal to make money available for farmers to pay mortgages
– Paid farmers NOT to produce mass-produced crops

• Public Works Administration (PWA)

– Paid state/local governments to pay unemployed to build/upgrade
America’s infrastructure
 1st New Deal (1933-34): Direct Relief
• Tennessee Valley Authority (TVA)
– Experiment in infrastructural
development, huge success
– Hired thousands of people in
Appalachia, the nation’s poorest
regions
– Build dams, electric power plants
to “electrify” a region without
power

• National Recovery Administration

(NRA)
– Created by a law called NIRA
– Force labor and business to work
together
– Suspended anti-trust law
– Big business set up “codes” that
included set prices, fair practices
– Unions allowed to “collectively
bargain”
– Declared unconstitutional by
Schechter v US in 1935
 Dust Bowl
• Dust Bowl originated from droughts through mid 1930s that
destroyed 50 million acres of land
• Created by combination of over farming and lack of
rainwater
– Dry farming and mechanized farming weakened topsoil
and sped the process
• Okies and Arkies
– Bankrupt farmers fled midwest in hopes of better life in
California
– Shown in Grapes of Wrath by John Steinbeck
• Frazier Lemke Farm Bankruptcy Act
– Early attempt to stop farm bankruptcies but it was ruled
unconstitutional
• Resettlement Administration
– Attempted to relocate farmers to better land
• Indian Reorganization Act
– Led by John Collier; allowed for reversal of Dawes Act
– Ended forced assimilation of Indians and allowed for
traditional (i.e. non-farming) ways of life
– Established new tribal governments
DAY 2
 2nd New Deal: 1934-1939
•2nd New Deal focused on the other two R’s, Reform and Recovery
• Consisted of sweeping social welfare programs

• Social Security and Housing:

• FHA (Federal Housing Administration) (1934)
• Provided loans to build and improve people’s homes

• USHA (United States Housing Authority) (1937)

• Designed to promote low income housing; met with mixed
results

• Social Security Act (1935)

• Provided old age insurance and unemployment insurance to
mitigate influence of future depressions
• Paid for with payroll tax on employers and employees
• Not as generous as European pension schemes

• “Indian New Deal” – Indian Reorganization Act, 1934

• Repealed Dawes Severalty Act (1887)
• Returned control of land to tribes
 2nd New Deal: 1934-1939
• Wagner Act – (National Labor Relations Act) (1935)
– Passed to replace the unconstitutional NRA
– Protected unions and establish a board to mediate disputes
between labor and management; created principle of collective
bargaining
– New unions like the CIO (Congress of Industrial Organizations)
and United Auto Workers (UAW) created
– 1 in 4 non-farm workers joined unions by 1941

• Fair Labor and Standards Act (Wages and Hours Bill)

– Passed in response to bloody suppression of CIO strikes steel
industries
– Established minimum wage of 40 cents/hr., maximum hours of 40
– ended child labor under 16

• WPA – Works Progress Administration

– Hired 8.5million, Large scale national works program to create
jobs
– Built schools, bridges, public buildings
– Hired artists to create “public art”
New Visibility for Women
• Eleanor Roosevelt
– Took a lead in advocating for
women’s and minority rights
– Ensured FDR laws included
women’s / minority rights in
New Deal Programs
– Ex: extra relief assistance to
families w/children

• Frances Perkins
– First female member of cabinet
as Secretary of Labor
Frances Perkins
– Helped write Social Security
Act and Fair Labor Standards
Act
 Cracks in the New Deal
Roosevelt Recession, 1937
•1933-37, GDP grew by 10% annually
•Unemployment dropped from 25% to 14%
•SO…. Congress defunded New Deal programs…
•Levels went back up

Court Challenges New Deal

•In 1935-36 the Supreme Court overruled some of FDR’s New
Deal programs
– Argued that the federal government had taken
unconstitutional power over commerce
– For ex: NRA, the AAA

Court Packing Scandal

•FDR tries to increase size of Supreme Court from 9 to 15
unless Justices over 70 retired
– Would allow FDR to pick 6 justices
•First major bill FDR wanted that Congress rejected
•This eroded some of FDR’s support in Congress
 Leftist Opponents to FDR
• Father Charles Coughlin
– “Social Justice” – argued in favor of more-radical reforms;
– advocated for poor and against businesses;
– over 30 million people listened to him on radios;
– eventually accused of being anti-Semitic and was forced to
stop giving speeches by the Catholic Church

• Huey “Kingfish” Long

– Governor of Louisiana
– Share Our Wealth Society
• Guaranteed $5,000 Family Income; Money to buy a
home; Free Education; Cheap food; Paid with tax on
wealthy
– 4.5 million Democrats joined Long; but was assassinated in
1935

• Dr. Francis Townsend

– Argued for guaranteed income for senior citizens to be
funded by sales tax
– Social Security Act was proposed partially to stop support
for Townsend
 Conservative Criticism:
• Critics of New Deal
– Argued that FDR’s heavy hand led to TOO MUCH government

– expanded the power of the government unconstitutionally

(even though banking changes worked) and SCOTUS struck
down numerous New Deal legislations

– Never achieved “full employment” (even though unemployment

did drop)

– National debt doubled in 7 years.

– Hoover: Philosophy of handouts undermined virtues of

initiative.

– Argue that WWII actually ended Great Depression by putting all

Americans back to work (achieving “full employment”)
 Unemployment dropping,
1933-45
Unemployment dropping, 1933-1939
Year Lebergott Darby
1933 24.9 20.6
1934 21.7 16.0
1935 20.1 14.2
1936 16.9 9.9
1937 14.3 9.1
1938 19.0 12.5
1939 17.2 11.3
1940 14.6 9.5
1941 9.9 8.0
1942 4.7 4.7
1943 1.9 1.9
1944 1.2 1.2
1945 1.9 1.9
GDP rising, 1939-39
 New Deal Acronyms
• Social Security (SSA)
• Rural Electrification Admin.
(REA)
• Tennessee Valley Auth. (TVA)
• Works Progress Admin. (WPA)
• Public Works Admin. (PWA)
• Reconstruction Finance Corp.
(RFC)
• Agricultural Adjustment Act
(AAA)
• Security Exchange Commission
(SEC)
• Nat’l. Labor Relations Act
(NLRA)
• Fair Labor Standards Act
(FLSA)
• John Maynard Keynes
• Adam Smith
• Civilian Conservation Corps
(CCC)
• Nat’l. Youth Admin. (NYA)
• Nat’l. Recovery Admin. (NRA)
• Federal Deposit Insurance
Corp. (FDIC)
• Federal Housing Admin. (FHA)
• Civil Works Admin. (CWA)