Great Depression / New Deal Review

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Causes of the Great Depression

1. "roaring 20's" gave false security

2. Some indicators that the US was financially unstable:

   1. Lack of economic diversity/industrial struggles (automobiles, construction, steel)

   2. Farm issues (farmers took loans for more land during war, & could not repay debts)

   3. Poor distribution of income/purchasing power (huge gap between wealthy and poor)

   4. Credit structure (dependent on installment plans. Credit dries up = spending drops = economy slows)

   5. International trade (US exports dropped significantly)

   6. International debt structure (when the US economy slowed, the entire repayment system collapsed)

Creating jobs

-       Civilian conservation corps (CCC)

-       Works progress administration (WPA)

-       Public works administration (PWA)

• Tennessee Valley Authority (TVA)

Fixing business, banks and the stock market

-       Securities & exchange commission (SE)

-       Federal deposit insurance corporation (FDIC)

-       Emergency banking act

• National recovery act (NRA)

Helping farmers

-       Agricultural adjustment act (AAA)

• Rural electrification administration (REA)

Fixing labor relations

-       Wagner Act (National Labor Relations Act / NLRB)

• National recovery act

Providing retirement, security

-       Social security act

• Federal emergency relief act (FERA)

Black Tuesday/Market Crash:

1. October 29, 1929

2. Triggered the Great Depression but did not solely cause it.

3. Leading up to it:

   1. Trading hit record highs

   2. Declining confidence caused investors to pull out

4. One Black Tuesday:

   1. Investors dumped 16 millions shares

   2. Stock values collapsed

   3. Companies lost major value; some businesses became worthless overnight

   4. People lost life savings

   5. Market lost $30 billion

1. Aftermath:

   1. Many investors couldn’t repay brokers

   2. Banks lost millions

   3. Consumer confidence destroyed

2. Market continues falling for months = decade-long recovery

Bank Failures:

1. Panic led people to withdraw savings

2. Some banks had already invested deposits in the stock market = massive losses

3. 1929 - 1932:

   1. About 10,000 banks failed

   2. Depositors lost $2.5 billion

4. Federal Reserve Mistakes:

   1. Raised interest rates when they should have lowered them

   2. Restricted credit instead of expanding it

   3. Made the situation worse by tightening money supply

5. Economic effects:

   1. GNP fell by 50%

   2. Industrial production dropped by 45%

   3. Unemployed rose to 25%

   4. Farm income dropped from $12 billion to $5 billion

Hoover's Response/Rugged Individualism:

1. Believed in rugged individualism:

   1. Americans should solved their own problems without government interference

2. He urged voluntary cooperation from businesses and labor

   1. Lent money to banks and large businesses

   2. Criticized for helping corporations not citizens

   3. Requested congress fund public projects

   4. Not large enough to solve unemployment

Bonus Army:

1. 1932 - marched to Washington (Congress refused)

2. WWI veterans demanded early payment of promised bonuses

3. Hoover refused; protest turned violent

4. U.S. Army forced veterans out; public blamed Hoover

Election of 1932:

1. Republicans nominated Hoover

2. Democrats nominated Franklin D. Roosevelt (FDR):

   1. Governor of NY

   2. Big personality, well-known, charisma

   3. Promised a "New Deal for the American People"

3. FDR won in a landslide

Relief/Recovery/Reform:

1. Relief = immediate help

2. Recovery = restart economy

3. Reform = prevent future crisis's

Bank Holiday & Emergency Banking Act:

• Closed banks temporarily (“bank holiday”) to stop panic

• Allowed only financial stable banks to reopen

• Restored public trust in banks

Agricultural Adjustment Act (SC issues): AAA

• 1933

• paid farmers to reduce crop production

• Reduced surpluses raised crop prices, and increased farmer’s incomes, marking a major expansion of federal involvement in agriculture.

Civilian Conservation Corps:(CCC)

• 1933

• Provided jobs for young, unemployed men working on conservation projects such as deforestation, park development, and soil conservation.

• Reduced unemployment, supported families through wages, and improved the nation’s natural resources

Federal Emergency Relief Act: (FERA)

• 1933

• give direct federal aid to states and local government

• Provided money for food, clothing, shelter, and work relief for the unemployed

National Recovery Act (SC issues): (NRA)

• 1933

• national industrial recovery act - NIRA

• regulate industry

• Established codes of fair competition, minimum wages, maximum hours, and banned child labor

• Encouraged workers right to unionize

Public Works Administration: (PWA)

• 1933

• Funded large-scale public construction projects (bridges, dams, schools, hospitals)

• Helped stimulate the economy by creating jobs and improving infrastructure

Rural Electrification Act: (REA)

• 1935

• Provided loans to bring electricity to rural areas

• Improved quality of life and boosted farm productivity

• By 1950, most rural homes had electricity

Securities and Exchange Commission: (SEC)

• 1934

• Regulated the stock market to prevent fraud and insider trading

• Required companies to provide honest financial information to investors

Restored trust in financial markets after the 1929 crash

Social Security Act:

• 1935

• created pensions for the elderly, unemployed insurance, and aid for disabled individuals

• established a permanent federal safety net

Tennessee Valley Authority: (TVA)

• 1933

• built dams and power plants in the Tennessee Valley

• provided electricity, flood control, and jobs in one of the poorest regions

National Labor Relations Board (Wagner Act) (NLRB)

• 1935 - reform

• treated the national labor relations board

• guaranteed workers' rights to unionize and bargain collectively

• strengthened labor protections permanently

  • working conditions up

  • hours down

  • wages up

Works Progress Administration: (WPA)

• 1935

• employed millions to build roads, schools, airports, and fund artists, writers, and musicians. Largest New Deal jobs program

• fine arts focused rather than real labor

 Federal Deposit Insurance Corporation: (FDIC)

• 1933

• part of the glass-Steagall banking act

• Insured bank deposits to prevent bank runs

• Restored confidence in the banking system

Glass-Steagall Banking Act

effectively separated commercial banking from investment banking and created the Federal Deposit Insurance Corporation (FDIC).

National Debt increase:

1. Heavy government spending

2. Raised concerns over deficit

Supreme Court Issues:

1. Struck down several New Deal programs

2. FDR attempted "court-packing" plan (failed politically)

   1. Add New Justices: For every justice or federal judge over 70 who didn't retire, the President could appoint an additional justice with full voting rights.

   2. Maximum Additions: This would allow for up to six new Supreme Court justices and two per lower federal court.

   3. "Bring in Younger Blood": The goal was to add younger judges with modern perspectives to overcome the conservative Court's opposition to New Deal programs like Social Security.

   4. Legislation: Proposed via the Judicial Procedures Reform Bill of 1937. 

Direct Relief:

1. Federal aid given directly to people

2. Break from Hoover's beliefs

3. meant the U.S. government providing immediate aid (food, shelter, cash, medical help) through programs like the Federal Emergency Relief Administration (FERA) (1933), a New Deal initiative led by Harry Hopkins to help millions struggling with unemployment, shifting from purely financial aid to essential needs and work relief to restore dignity, and eventually evolving into programs like the WPA and Social Security. 

Price regulation:

1. Government set wages and prices

2. Meant to stabilize economy

3. U.S. price regulation under the New Deal, particularly the National Industrial Recovery Act (NIRA) and Agricultural Adjustment Act (AAA), aimed to raise prices by limiting competition and production (cartels) for industries and farmers, forcing prices above market levels, a move intended to spur recovery but criticized for hindering it by increasing costs for consumers and workers.

Speculation & Buying on margin:

1. Contributed to inflated stock prices

2. Made crash more devastating

3. Low Down Payments: Investors could buy stocks by putting down just 10-20% of the price and borrowing the rest from brokers, notes OpenEd CUNY and ThoughtCo.

4. Amplified Gains (and Losses): As long as stocks rose, profits were huge, but a small price drop (e.g., over 10%) meant investors lost their entire initial investment, according to PBS and Investopedia.

5. Collateral: The purchased stocks served as collateral for the loan, but as their value dropped, brokers issued "margin calls," demanding immediate cash to cover the loan, explains Fiveable and ThoughtCo. 

Hoovervilles

1. Shantytowns built by homeless Americans

2. Symbol of Hoover's failed policies - named to mock Hoover

3. Dwellings: Shacks made from salvaged materials like cardboard, tar paper, lumber, and glass; some skilled builders created sturdier homes from stone or brick.

4. Sanitation: Lacked clean water and proper sanitation, leading to disease outbreaks.

5. Terminology: Residents used "Hoover" to describe their plight: "Hoover blankets" (newspaper), "Hoover leather" (cardboard shoe soles).

6. Community: Some camps formed organized communities with mayors and committees, offering mutual support. 

Hawley-Smoot Tariff:

• Purpose: To help struggling American farmers and manufacturers by making foreign goods more expensive.

• Action: Increased U.S. tariffs on over 20,000 imported products by an average of about 20%

• Sponsors: Senator Reed Smoot (R-UT) and Representative Willis Hawley (R-OR).

• Result: Other countries retaliated with their own high tariffs, leading to a dramatic 66% drop in world trade between 1929 and 1934, significantly worsening the Depression.

• Legacy: Widely seen as a catastrophic policy that demonstrated the dangers of protectionism and triggered a downward spiral in world trade.

McNary-Haugen Bill:

Attempt to support crop prices (vetoed by Coolidge)

• Government Purchases: A federal agency would buy surplus agricultural goods (like wheat, cotton) at a set price, aiming to restore prices to pre-World War I levels.

• Export at a Loss: The government would then sell these surplus commodities on the world market at lower prices

• Equalization Fee: The financial losses from selling overseas would be covered by a fee (a type of tax) levied on the farmers producing those crops.