The Great Depression Begins

The Roaring 20s Come Crashing Down

Roaring 20s False Growth=Overproduction

• 1920s Consumer Economy: – Based on productivity/purchasing

power/employment cycle

• Between 1924-1927 U.S. production doubled… but due to technological innovation– No new jobs added

• More goods available…but lacks demand = Overproduction

Roaring 20s False Growth =Unequal Distribution of Wealth

• Unequal Distr. of Wealth– 1% owns as much as bottom

42% of American families (sound familiar?)

– 42% below poverty line

• Small middle class– Low savings…cut back on

purchases– Further hurts econ.

• But this is all a thing of the past, right?...Not so fast…

Daily Show: Unequal Distribution of Wealth

Unequal Distribution of Wealth Today

• Top 10% of nation, possess 50.5% of nation’s income• U.S. income inequality is the highest it’s been since 1928.

– In 1982, the highest-earning 1% of families received 10.8% of all pretax income, while the bottom 90% received 64.7%

– 2012, the top 1% received 22.5% of pretax income, while the bottom 90%’s share had fallen to 49.6%.

So Why Does All This Matter?

What was the impact of income inequality on the economy?

Entering a Depression Activity Unequal distr. of wealth Not enough $ being spent…why? Chronic surpluses Layoffs/plant closings Even fewer goods purchased More layoffs People can’t pay back credit Bank failures Bank runs (only small % get their $) Fewer goods purchased etc…

Overview: Causes of the Depression

• Slowing Economy– Uneq. Distr. Wealth→ Overproduction →layoffs

• Institutional Causes– Corruption in Stock Market…Leads to Stock Crash

• Buying on Margin/Speculation

– Stock Crash (Black Tuesday)…Leads to Banking Collapse• Banks lost on stock investments/bad loans

– Banks Collapse…People Lose Life Savings→ Panic– Banking Panic → Bank Runs → More Bank Closures– More people lose $ → Less $ to Spend→ ↑ unemployment

Causes: Weakness in the Stock Market…Buying on Margin

• Public invests in comp. by purchasing stocks…in return…expect a profit

• Booming 1920s economy… money plentiful…banks quick to make loans to investors

• Buying on Margin– Investors only had to pay 10% of

stock’s actual value at time of purchase…balance paid at later date (buying stocks on credit!)

– When stocks drop…Margin Calls…investors struggle to pay back loans

Causes: Weaknesses in the Stock Market…Speculation

• Stock Speculation– Led to artificially inflated stock

prices; rise in stocks was not based on profits/earning reports…

– People buy and sell stocks (artificially raising stock price) to make a quick $

– B/c of all this buying/selling stock value increased (i.e. GE stock $130→$396/share)

– Quick turnover doesn’t aid comp…need long term investments

• Unscrupulous Traders– Buy and sell share intentionally to

inflate a comp. stock value– Gave false confidence in US market

The Market Crashes• Oct. 1929:

• Running out of investors (uneq. Distr. Of wealth)

• Today: Top 5% own 82% of individual stocks

• Investors confidence dropped→ market collapse

• Black Tuesday: Oct. 29, 1929• Panic Selling (16.4 million shares sold!)

– All try to sell at once…bottom falls out– Brokers make “margin calls”– Many bankruptcies as banks call in loans

• Recognized as “start” of Depression

• Minority of people (10%) traded stocks, but they possessed vast wealth → crash has ripple effect on the economy

Black Tuesday—Oct. 29, 1929The Stock Market Crashes

• NYC Stock Market crash worsened the depression…which would last until 1942

“Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult

life pass by before getting back to even.”

Banking Collapse• The fall of the Banks

– Banks had loaned billions to investors/speculators &…– Invested bank customers $ in stock market

• Stock Collapse…– Investors unable to pay back loans…Bank investments

falter– Banks lose their customers money they had invested in

stocks

• Banks cut back on loans– Less Investment

Bank Runs• Banks on verge of collapse…

– Deposits not insured…thus if bank collapses…

– …People lose all their money…leads to Bank Runs

• Bank Runs– Customers make run to banks to

withdraw deposits…crushes banks– Only a fraction of people get their

money out…rest lose their $– 10% banks go under

Impact on the Poor• Mass consumption

already low…even lower after bank collapses

• Unemployment ↑– No govt. asst. at first

• B/c purchasing power ↓… productivity cut back… further unemployment

• Vicious Economic Cycle…

Unemployment

Purchasing Power Productivity

Dust Bowl (1930-1936)• What factors caused Agricultural Depression?

– Overproduction; Drying up of foreign markets; cheap crops from other countries driving prices down

• Dust Bowl– Where: Great Plains (1930-1936)– Causes?

– Severe drought, poor farming methods led to rapid soil erosion…– Period of severe dust storms causing major agricultural

and ecological damage in U.S. – Millions of acres of farmland = useless

• 100s of thousands lose their homes (Okies)– Many Migrate to California– Travel farm to farm picking fruit/crops at starvation wages– John Steinbeck: The Grapes of Wrath

Lawrence Svobida was a Kansas wheat farmer who saw his life’s work destroyed in the 1930s.

“When I knew that my crop was irrevocably [forever] goneI experienced a deathly feeling which, I hope, can affect aman only once in a lifetime. My dreams and ambitions . . .and my shattered ideals seemed gone forever. The verydesire to make a success of my life was gone, the spirit andurge to strive were dead within me. Fate had dealt me a cruel blow above which I felt utterly unable to rise.”

2.5 million people left the Great Plains

Causes of the Depression Thesis Activity

• Step 1:– Preview the reading on the causes of the Great

Depression

• Step 2:– Write a thesis statement in response to the

following prompt:• To what extent did the economic prosperity of the

1920s, disguise serious economic problems?• To what extent was the Stock Market Crash in 1929

responsible for the start of the Great Depression?

Photo Analysis Prompts1. What’s one common theme you can identify between

the photos you viewed?2. Which photos stood out to you the most and why?3. What was the setting of the photos?4. What’s one question you have after viewing the

photos?5. What’s one question you’d like to ask the individuals

in the photos?6. What can you assume about the Great Depression

from the photos you observed?

Hoover’s Response

…Or Lack Thereof

Election of 1928: “Calm before the Storm”

• Al Smith (D) v. Herbert Hoover (R)– Alfred E. Smith

• Catholic• Advocated Social Legislation• Repeal of Prohibition

– Herbert Hoover• Head of Food Administration (WWI)• Sec. of Commerce (Coolidge)• Hoover’s Views on Government

– 1922 publ. American Individualism– Condemns government regulation (Laissez-Faire)

Hoover Elected: 1928

• "We in America today are nearer to the triumph over poverty than ever before in the history of any land...We have yet reached the goal, but given a chance to go forward with the policies of the last eight years, we shall soon with the help of God be in sight of the day when poverty will be banished from this nation." Herbert Hoover 1928

The Depression Hits…

• 12 million unemployed (25%)– 50% in Chicago

• Hobos Rise• Millions lose savings• GNP decreases 33%• Prices decrease 40%• Rural: reduce meals, kids shoeless• 30,000 businesses close (1932); Mass bank failures

Stats of the Great DepressionFertility Rates (per 100,000 women aged 15-44)in 1928: 93.8in 1929: 89.3in 1930: 89.2in 1931: 84.6in 1932: 81.7in 1933: 76.3in 1934: 78.5in 1935: 77.2in 1936: 75.8in 1937: 77.1in 1938: 79.1in 1939: 77.6in 1940: 79.9in 1941: 83.4in 1942: 91.5in 1943: 94.3

Average divorce rate, (per 1,000 people)1920-1929: 1.61930-33: 1.41934-39: 1.81940-46: 2.81947-64: 2.5

Average rate of death by suicide (per 100,000 population)1920-1928: 12.11929: 18.11930-1940: 15.4

Opener:

• Identify 3 causes of the Great Depression, as well as explain how each caused the economy to sink into a depression.

President Hoover’s Initial Response• Against Government Intervention

– Opposed federal aid to unemployed• State/City Government should provide aid

– Calls on private agencies/charity to help poor/unemployed

• Bread Lines/Soup Kitchens– Provide funds to feed livestock; not people though

• Opposes deficit spending– Encourage private business to maintain investment– Wanted a balanced budget

– Depression worsens…forced to act– Public Works Projects– Reconstruction Finance Corp.

– Pro-Business

Shantytowns: “Hoovervilles”

Finding Escape in Film

Average Weekly Movie Attendancein 1927: 57 millionin 1930: 90 millionin 1931: 80 millionin 1932: 60 millionin 1933: 50 million

Radio & Comics

Global Depression Worsens:Tariff Wars (1931)

• Smoot Hawley Act– Highest level tariff in US History– Impact?

• Fatal error...world had become a GLOBAL ECONOMY

• Foreign Reprisals– U.S. productivity decreased again

Global Economy• 1931, the Soviets flooded the

world market with cheap wheat– Need $ to pay back loans to

Austrian Banks…can’t meet payments

• Austrian banks had borrowed from German banks

• Austrian banks and loaning German banks therefore were forced into bankruptcy

• German banks had borrowed from Americans– U.S. banks began to go

bankrupt– Wiping out life savings of

thousands of Americans

AMERICANS REACT TO HOOVER• Hoover increasingly unpopular

– Out of Touch…• Relief…Too Little, Too Late

– NCC, Reconstruction Finance Act, Federal Home Loan Act, Some Public Works (Hoover Dam)

• Bonus March Begins on D.C.

• Bonus Army March– WWI Vets march on

Washington demanding early payment of the cash bonuses due to them in 1945.

– Estimated 15,000-20,000 vets• Vets set up HOOVERVILLES

– Shantytowns Set up• Hoover Meals

– Food scraps• After one year Bonus Marchers

forcibly dispersed by the Army (MacArthur/Eisenhower)…What impact did this have on public’s view of Hoover?

Frustration Fuels Protest

Political Cartoon 11. What is symbolism of

the squirrel and why is it a “wise economist?”

2. What has happened to the man? What does that mean for him?

3. What point is the cartoonist trying to make?

Political Cartoon 2

1. What is “it” and why should America “Blame it on Hoover?”

2. Who might the people that are pointing at Hoover be and why did the cartoonist pick them?

3. What point is the cartoonist trying to make?

Political Cartoon 3

1. Who are the two people in the cartoon?

2. What do all the items on the desk symbolize?

3. What point is the cartoonist trying to make? What evidence from our class discussions supports the author’s interpretation of political response to the Great Depression?

Franklin D. Roosevelt

The New Deal

Election of 1932• Hoover (R)

– Opposes direct federal public assistance

• Rugged Indidvidualism

– State/Local Asst./Charity– Public Works– Pro-Business (RFC)

• Roosevelt (D)– Governor of New York– Promise New Deal– Broaden role of Govt.

• Govt. has duty to help its people in need

– Public Works Projects– Direct Relief, Reform

1932 Election Results• Hoover (R) v. Roosevelt (D)

– Hoover…No Hope– Roosevelt…Landslide

Victory

• Results– Popular Vote: 57%– Electoral college: 89%

FDR’s Inaugural Address

• http://www.c-spanvideo.org/program/FRoo• Inaugural Address Analysis

The New Deal• The New Deal:

• Roosevelt’s plan/programs to solve the econ. Problems of the Depression

• 1933-1939 (though many programs still exist today)

• Revolutionary: Changes Way Govt. Functions• Estbl. idea that government should

play an active role ensuring the well-being of its citizens

• Relief, Recovery, Reform– Relief: Immediate Aid/Assistance

(unem.)– Recovery: Long Term Growth for the

Nation to Pull Out of Depression– Reform: Changes to Economy/Govt.

to Ensure It Doesn’t Happen Again

The First New Deal: The Hundred Days

• The Hundred Days– Period in which Roosevelt guided thru congress 15

major bills which, together, formed the basis of the First New Deal…began addressing cause/effect of Depression

– Specific Actions:• National Bank Holiday; Glass Steagall Act; FDIC• Securities and Exchange Commission• HOLC• AAA• CWA; CCC; PWA• FERA

Fireside Chats

An American family sits around the radio listening to President Roosevelt answer his critics in his first fireside chat.

“There is an element in . . . our financial system more important than currency [money], more important than gold, and that is the confidence of the people. Confidence and courage are the essentials of success in carrying out our plan. You people must have faith; you must not be stampeded by rumors or guesses. Let us unite in banishing [driving away] fear. We have provided the machinery to restore our financial system; it is up to you to support and make it work. It is your problem no less than it is mine. Together we

cannot fail.”

According to Roosevelt, how should the American people help the government deal with the banking crisis?

RADIO BROADCASTFireside Chats

Step 1: Banking Crisis• 1st Step: What were the problems w/ the banks?• Bank Holiday

– Banks Closed…Why?– Govt. Inspections…Banks allowed to open when

“healthy”– Restores Confidence=People Redeposit $/Banks Invest

• Glass Steagall Act and FDIC (1933 Banking Act)– Separates Investment and Commercial Banking

• Repealed in 1999…Partial Cause of Current Recession

– FDIC: Government Insures Bank Deposits

Step 2: Stock Market Reform• What were the problems with the Stock Market?• Securities & Exchange Commission

– Police the Stock Market– Restrict Buying on Margin– Monitors productivity reports/fraud on market

• Dropped the ball in lead up to 2007…Bernie Madoff

Step 3: Put More $ in Circulation

• US Off the Gold Standard: Increase $ in Circulation– Must turn gold in to Fed– Inflation: Cause dollar value to lower

• Keynesian Economics• Inflation Gives Government Spending Power

– Wages and Prices Increases

Step 4: Direct Government Intervention

• NIRA and NRA– Form Industry Codes

– Hours; prices; production limits; set up minimum wages– Recognize Unions– Permit Collective Bargaining– Restore Competition

• Liberty League– NIRA Challenged as Communist– Supreme Ct. Overturns NIRA in Schechter Poultry v.

U.S.…Executive Branch overreached its leg. Power.

Step 4: Direct Government Relief• Home Owners Loan Corporation• Aid for Unemployed

– Civilian Conservation Corps (CCC)• Infrastructure Projects, Forestry, Flood Control• African Americans Excluded

– Fed. Emergency Relief Admin. (FERA)• Gave states $ to provide relief/public works

projects– Works Progress Administration (WPA)

• Takes over for FERA; 8 million jobs – National Youth Administration (NYA)

• Work & Education for youth (16-24)• Financial Aid

– Created 10-12 million jobs, but unemployment still 6 million

WPA

Step 4: Direct Government Intervention

• Tennessee Valley Authority– Used to Promote hydroelectric power…7 states– Control Flooding– River Navigation– Lowers Costs….Nationalized

Step 4: Direct Government Intervention

• Agricultural Adjustment Act– Subsidies: Farmers paid not to produce– Negatives

• A.A. farmers disprop. Hurt• Food production down when millions

starving

– Declared Unconstitutional (1935)

• Food Stamp Act of 1939– Gave away surplus food to poor– Guaranteed small farmers a market

Step 5: Social Reform• National Labor Relations Act (Wagner Act)

– Legitimized Unions, Strikes, Collective Bargaining– Negotiate as group for wages and better conditions

– Outlawed blacklists and anti-union activities

• Social Security Act– Retirement, Survivors, and Disability Insurance– Unemployment Insurance– Medicare (Health insurance for elderly)– Provides cash grants to states for Medicaid– Children’s Health Insurance Program

• Fair Labor Standards Act– Minimum Wage– 44 hr. work week; Overtime– Child Labor Laws

Criticisms of New Deal• Conservative Criticisms

– Opposition from Wealth Industrialists…Why?

– Criticized by some as “Socialism”

• NIRA• Social Security• Tennessee Valley Auth.• Wagner Act

– Too much regulation of business– Growing federal govt. at

expense of states’ rights– Deficit Spending causing

growing debt

• Criticism on the Left– New Deal didn’t go far enough– Want greater involvement to

address uneq. distr. of wealth

• Huey Long– Champion of the Poor– Share Our Wealth Society

• Call for Mass Redistribution of wealth

• Francis Townshend– Intro. idea of creating Social Security

• Father Coughlin– Called for nationalizing the banking

system

New Deal Under Attack

• The Supreme Court & the New Deal– Court Strikes Down NIRA/NRA

• Schechter Poultry Company v. U.S. (1935)• Court argued had given Executive branch too much

legislative authority…

– Court Strikes Down the AAA• U.S. v. Butler (1936)• Ruled Fed. Govt. was impeding upon States’ authority

– Considering cases on Social Security and Wagner Act

Roosevelt and Court Packing Scheme• Election of 1836: FDR wins in

Landslide– Mandate to continue New Deal

• Goal 1: Reorganize the Supreme Court; add judges…Why?– Sup. Ct. had just ruled New Deal

programs unconstitutional …worries about fate of others

– Court Packing: Pres. would get to appoint. add.’l justice for every justice 70 or older

• Potential Result: court would’ve ↑9→15 justices

– Political Mistake: Checked by Congress

1937 Recession• 1937, Econ. reaching pre-

Dep. Levels• Calls to cut govt. spending

– Concern w/ debt

• Triggers Recession• FDR authorizes funds for

WPA/PWA– Keynesian Economics

• What accounted for rapid drop in unemployment b/n 1940-1942?

Growing International Concerns

• 1939: FDR proposes no new domestic Reforms

• Election of 1940– Breaks tradition: seeks 3rd

term– Big issue: WWII…allies

(G.B.) embroiled v. Nazi Germany

• FDR Wins in 1940

Impact of the New Deal• Social Security• FDIC & SEC• TVA• Financial Aid to Students• Min. Wage/40 hr. week• Protection for

unions/collective bargaining• Farm Subsidies• Keynesian Economics

– Deficit Spending

• 2,500 hospitals, 45,000 schools, 13,000 parks/ playgrounds, 7,800 bridges, 800,000 miles of roads, 1,000 airfields, employed 50,000 teachers

• New Deal stimulated the economy…but only WWII would solve any lingering issues

• Changed role of federal government: good or bad?

Minorities in the Depression

• “Last Hired, First Fired”

• Excluded from some public works programs

• Disproportionately hurt by AAA programs

• Harlem decimated as funding stopped flowing to black communities

Minorities & the Impact of the New Deal

• WPA records accounts of former slaves• Party Demographic Shift: Northern

African Amer., farmers, immigrants, women, progressives, and intellectuals make up the New Democratic Party

• First woman, Frances Perkins, and Africans Americans appt. to Cabinet positions

• “Black Cabinet”• Mary McCleod Bethune

– Bethune-Cookman College– Advisor to FDR

Selected New Deal ProgramsProgram Purpose

Emergency Banking Relief Act Gave the executive branch the right to regulate banks

Farm Credit Act (FCA) Refinanced loans to keep farmers from losing their land

Civilian Conservation Corps (CCC) Created jobs for single, unemployed young men

Agricultural Adjustment Act (AAA) Paid farmers to grow less (declared unconstitutional)

Tennessee Valley Authority (TVA) Built dams and power plants in the Tennessee Valley

Federal Deposit Insurance Corporation (FDIC) Guaranteed deposits in individual bank accounts

National Industrial Recovery Act (NIRA) Established fair competition laws (declared unconstitutional)

Civil Works Administration (CWA) Provided jobs for the unemployed

Works Progress Administration (WPA) Created jobs in construction, research, and the arts

National Youth Administration (NYA) Provided part-time jobs to students

National Labor Relations Act (Wagner Act) Recognized unions’ right to bargain collectively

Social Security Act Provided government aid to the retired and unemployed

Main Ideas of Great Depression1. The U.S. stock market crashed in 1929.

2. The economy collapsed after the stock market crash.

3. Many Americans were dissatisfied with Hoover’s reaction to economic conditions.

4. Roosevelt defeated Hoover in the election of 1932.

5. Congress approved many new programs during the Hundred Days.

6. Critics expressed concerns about the New Deal.

7. New Deal programs continued through Roosevelt’s first term in what became known as the Second New Deal.

8. Roosevelt clashed with the Supreme Court over the New Deal.

9. Parts of the Great Plains came to be known as the Dust Bowl as severe drought destroyed farms there.

10. Families all over the United States faced hard times.

11. Depression-era culture helped lift people’s spirits.

12. The New Deal had lasting effects on American society.