The GREAT DEPRESSION & the NEW DEAL [APUSH Unit 7 Topics 9-10] Period 7: 1898-1945

Introduction to the Great Depression

The Great Depression was a severe worldwide economic downturn that began in the late 1920s and lasted until the late 1930s. The transition from the prosperity of the 1920s to economic decline drastically altered the global landscape, impacting millions of lives and reshaping economic policies. Understanding the causes and effects of the Great Depression is crucial, especially considering its pivotal moment marked by the stock market crash on October 29, 1929, commonly referred to as Black Tuesday, when stock prices collapsed, leading to widespread financial devastation.

Causes of the Great Depression

Overproduction in Agriculture

Farmers, driven by the booming agricultural market during and after World War I, overproduced crops and livestock, leading to plummeting prices and severe debt. As demand fell post-war, many farmers found themselves unable to pay back loans taken for equipment and land. The situation was exacerbated by high tariffs, most notably the Hawley-Smoot Tariff (1930), which not only limited export capabilities but also deepened the financial plight of farmers who were unable to sell their goods abroad.

Speculation in the Stock Market

The 1920s saw rampant speculation in the stock market, where investors engaged in risky practices such as buying on margin, which allowed them to borrow money to purchase stocks. This artificial inflation of stock prices created an unsustainable bubble. When the stock market crashed, investors faced massive losses, and the inability to repay margin loans further deepened economic instability, leading to widespread bankruptcies.

Economic Consequences Post-Crash

The immediate aftermath of the crash resulted in widespread poverty, homelessness, and unemployment. Banks failed at alarming rates; over 9,000 banks closed from 1930 to 1933, which wiped out savings for countless families. The surge in foreclosures led to the rise of shantytowns known as "Hoovervilles", named after President Herbert Hoover, whom many blamed for failing to adequately address the crisis.

Government Response: Hoover vs. Roosevelt

Hoover’s Approach

President Hoover adhered to a laissez-faire economic policy, believing that minimal government intervention would allow the economy to correct itself and recover. He attempted relief measures but remained committed to not engaging in direct government aid, leading to criticism that his responses were insufficient.

Roosevelt’s Election (1932)

In the 1932 election, Democrat Franklin D. Roosevelt defeated Hoover, advocating for a strong federal response to the economic crisis through his platform known as the New Deal. Roosevelt emphasized government intervention and the need for major reforms to restore confidence in the economy.

The New Deal

Overview of the New Deal

Roosevelt's New Deal represented a series of programs and reforms designed to address the economic destruction caused by the Great Depression. The New Deal sought to provide relief for the unemployed, recovery for the economy, and reform of the financial system to prevent future depressions.

Relief Programs

1. Public Works Administration (PWA): This initiative created jobs through federal infrastructure projects including roads, bridges, schools, and dams, aiming to boost employment and stimulate economic activity.

2. Tennessee Valley Authority (TVA): This program focused on economic development in the Tennessee Valley region by improving flood control, providing electricity, and generating jobs.

3. Civilian Conservation Corps (CCC): Aimed at young men, the CCC provided jobs in conservation and environmental projects, promoting restoration and development of natural resources.

Recovery Initiatives

• National Industrial Recovery Act (NIRA) of 1933 established various codes of fair competition, aiming to stabilize prices and improve working conditions. It helped set minimum wages and regulated hours to enhance labor standards.

Reform Measures

1. Glass-Steagall Act (1933): This law provided increased regulation of the banking sector by separating commercial banking from investment banking, ensuring the safety of bank deposits through the establishment of the Federal Deposit Insurance Corporation (FDIC).

2. Securities and Exchange Commission (SEC): Created to regulate the stock market, the SEC was tasked with preventing corporate abuses and ensuring transparency in financial reporting.

3. Social Security Act (1935): A landmark piece of legislation that created a social safety net by providing income for retired workers aged 65 and older through payroll taxes.

Criticism of the New Deal

Despite its intentions, the New Deal received criticism from various quarters:

• Liberals argued it favored businesses over individual citizens, claiming that the relief measures were insufficient to assist the poor and unemployed adequately.

• Conservatives contested that the New Deal constituted federal overreach and imposed excessive regulations on businesses.

Roosevelt’s Court-Packing Plan

In a controversial move, Roosevelt proposed a plan to appoint additional justices to the Supreme Court, aiming to secure a favorable majority for New Deal legislation. This plan faced widespread criticism and bipartisan opposition, raising concerns about presidential overreach and the separation of powers.

Legacy of the New Deal

The New Deal left a lasting legacy, establishing fundamental reforms and regulatory frameworks that shaped modern American economic policy. It realigned political affiliations, particularly among African Americans, workers, and ethnic minorities, increasingly associating them with the Democratic Party. The New Deal marked a transformation toward a limited welfare state, influencing U.S. politics and economic thought for decades to come.