history quiz ch 22-23

Chapter 22 Crash and Depression 1929 - 1933

I. The Economy in the Late 1920s

A. Continued Prosperity Expected – the economy had remained generally strong throughout the decade. As

Herbert Hoover’s Presidency began in March of 1929, many people had a great deal of confidence in American

businesses and felt that prosperity would continue for the foreseeable future.

●

The average of real wages had risen 40% since 1914 and unemployment averaged below 4%.

●

Stock market prices soared to record high levels.

B. Underlying Weaknesses – although the U.S. economy appeared very strong on the surface, by the end of

the 1920s there were a number of problems that would contribute to the economy’s failure.

1. Overuse of credit – Americans bought many items on credit, causing many people to have large personal

debts.

2. Speculation in the stock market – prior to WWI, mainly wealthy people dealt in the stock market. During

the 1920s, the practice of buying on margin (credit) led millions of average Americans to purchase stocks.

The fact that these stocks were bought with borrowed money inflated the value of the stock market.

3. Overproduction – by the late 1920s U.S. factories were producing goods faster than consumers were willing

or able to buy them. This led to large surpluses and many industries began to reduce production, meaning

fewer jobs.

4. Weak Farming Economy – farmers had faced hard economic times throughout the 1920s. Many farmers

had taken out loans during WWI when demand and prices for their goods were high. When demand

decreased dramatically after the war, farmers were unable to pay back their loans. This caused many banks

in rural areas to fail.

5. Distribution of wealth – Much of the wealth generated during the 1920’s was concentrated in the upper

classes.

Although conditions had improved overall for American workers, many still faced difficult working

conditions, and relatively low pay. Many Americans could not afford to partake in the consumerism of the

1920’s.

This led to a market that simply could not support the tremendous supply that the American economy

was capable of generating.

II. The Stock Market Crash

●

●

●

A. The Crash – For most of 1929, the stock market continued to soar. It peaked on September 3 and then

prices began to fall gradually.

On Thursday, October 24 many investors sold their stock out of concern over falling prices.

Black Tuesday – on October 29 panic set in among investors and stock prices plummeted as over 16 million

shares were sold. By November 13 American investors had lost over $30 billion.

This crash, combined with other weaknesses in the American economy, would cause the Great Depression,

which would last throughout the 1930s.

B. Cycle of Failure – The American economy became locked in a cycle of negative events/behaviors that

would feed off each other, preventing any chance at recovery.

●

In response to economic uncertainty, American consumers reduced their spending, leading businesses to

lose profits.

●

●

Businesses, faced with severe reductions in profits, began to cut wages and hours and lay off workers.

Reduced wages and high unemployment meant that consumers had even less to spend.

Banks – the stock market crash meant that many businesses and private individuals could not pay their loans.

At the same time, depositors began flooding into the banks to withdraw their savings.2

●

Many banks did not have nearly enough money to repay the huge number of depositors, and were forced to

close and those who had not withdrawn their money lost it. (“

“)

C. Worldwide Effects – The economies of European nations relied heavily on U.S. investments while

providing an important market for American products.

●

●

After the stock market crash, U.S. companies were not able to continue investing in Europe.

U.S. banks stopped lending money to European nations which halted the re-payment from Europe of

previous loans.

●

●

This caused European economies to fail and they no longer provided a market for U.S. goods.

In an attempt to protect domestic industries, Congress passed the Hawley-Smoot Tariff (1930), the highest

tariff in U.S. history. This did not have the desired effect, as European countries countered with their own

tariffs and international trade declined even further.

III. Effects of the Depression

After 1929, the Depression grew steadily worse as unemployment rose and banks continued to fail.

A. Social Effects

●

Many people who had become unemployed were now homeless; they relied on organized and individual

charity to survive. Some states provided relief programs to the poor, but soon ran out of money.

●

As the number of homeless increased, shelters became full and “Hoovervilles” developed all over the

country.

●

Many families broke apart as a result of the depression. Often men left in search of work with the hopes of

sending money back to their families.

●

Minorities ( Blacks, Hispanics, Asians ) faced increased discrimination. Many lost their jobs, as white

workers were given preference.

●

A number of Mexican immigrants as well as some Mexican-Americans, who were citizens, were deported

to Mexico in order to open up more jobs to other groups.

B. Farmers - farmers throughout the country faced bank foreclosures on their farms because they could not

pay their loans or taxes.

●

The “Dust bowl”

– Many farms in the Great Plains region were destroyed as overuse of the land and

drought led to severe topsoil erosion.

●

Farmers who lost or abandoned their land moved around the country looking for work especially in

California. Over 2.5 million people left the Great Plains region during the 1930’s.

C. Political Impact

●

Some Americans turned to alternative political ideas. Significant numbers of people joined the communist,

and socialist parties. However this did not greatly affect national elections. (It did lead to persecution of

some individuals after WWII)

●

Meanwhile Hoover and the Republican Party became associated with the depression in the minds of the

American public. This would ultimately help lead to 20 years of Democrats controlling the White House.

●

The prohibition on alcohol was largely viewed to have failed and now was seen as preventing job growth.

In response, the 18th Amendment (Prohibition) was repealed in 1933.

Demographic Impact

During the depression there was movement of millions of people within the United states for a variety of

reasons, but mainly in search of work.

The 1930’s is the only decade during which more people left the United States than immigrated to it.

Marriage and childbirth rates dropped significantly because people were concerned they would not be

able to support a family.

●

●

●3

●

●

●

●

The divorce rate also declined because the process costs money.

●

The suicide rate rose more than 50% due in part to a sense of personal failure.

IV . Hoover’s Response to the Depression

Hoover had a conservative view of government. He, along with many others, believed it was not the

government’s role to directly provide relief to people in the form of welfare or jobs.

Hoover’s initial approach was to encourage private businesses to provide jobs and maintain wage levels,

while also trying to encourage the American people to have confidence in business and banks.

As the Depression worsened, Hoover reluctantly changed his approach and approved increased government

spending on construction projects to create jobs.

In 1932, the Reconstruction Finance Corporation (RFC) was established and gave government credit to

banks so they could extend loans. The RFC also lent money to states to allow some unemployment relief to

be paid out.

A. The bonus Army - Congress had voted to give veterans from WWI a bonus payment, but it was not

scheduled to be paid until 1945.

●

A group of WWI veterans from Portland, Oregon decided to go to Washington D.C. to demand payment of

the bonus. Many other veterans from around the country joined in the protest and set up a camp of 20,000

people near the White House.

The House of Representatives passed a bill to pay the bonus that year, but the Senate rejected the bill.

When some of the veterans said they would stay in their camp until the bonus was paid, President Hoover

sent the police to clear them out. This led to a disturbance in which 2 veterans were killed by police.

Hoover next sent the Army under its Chief of Staff, Douglas McArthur, to evacuate the Bonus Marchers.

McArthur used cavalry, tanks and tear gas to drive out the marchers and set fire to their camp.

B. Election of 1932

Hoover ran for re-election against Democratic candidate Franklin Delano Roosevelt, the governor of New

York.

In his campaign, FDR promised a “New deal” for the American people that would greatly increase the

government’s role in the economy and in providing relief.

FDR won by 7 million popular votes, and took 89% of the Electoral College votes. This overwhelming

victory provided Roosevelt with a strong popular mandate that would help persuade Congress to cooperate

with his agenda.

●

●

●

●

●

●4

Chapter 23 – The New Deal

I. Roosevelt Takes Over

In his inaugural address, Franklin Roosevelt stated “the only thing we have to fear is fear itself.”

One of Roosevelt’s greatest talents was his ability to communicate with the American people, and gain their

confidence.

Roosevelt was the first president to effectively use mass media, delivering his messages to the nation on the

radio through his “fireside chats”

.

Major Problems of the Great depression

1. 2. 3. 4. 5. Unemployment-due to the crash and the problem of overproduction before the Great depression.

Homelessness- People who cannot pay their rent and mortgages are being evicted or having their

homes foreclosed upon. This included many farmers as well.

Bank failures- Due to the financial downturn, non-payment of loans, and depositors withdrawing

their money.

Deflation- was keeping the price of goods to low for businesses to make profits

Lack of consumer confidence/spending- even people who had money to spend were reluctant to do

so out of fear of further economic downturns

A. The First Hundred Days- As F.D.R. took office he promised bold experimentation. He would continue to

try different programs to find a way to end the Depression.

●

He assembled a group of advisors known as the “Brain Trust.” These were businessmen and people from

the academic world who helped develop New Deal programs.

●

Congress was extraordinary cooperative with President Roosevelt, passing some of his proposed legislation

in a matter of hours.

●

Roosevelt initiated more legislation in his first one hundred days in office than any president in history.

B. Bank Holiday- On his second day in office Roosevelt issued an order closing all American banks.

●

During this time Congress enacted the Emergency Banking Act which provided for government assistance

to some banks.

●

●

All banks had to pass an inspection before being allowed to reopen.

In his first fireside chat Roosevelt encouraged Americans to put their money back into the banks. He

assured people that their deposits would be safe.

●

Within a few months, over a billion dollars in deposits had been retuned to the nation’s banks.

II. Relief, Recovery, and Reform- Roosevelt’s New Deal was based on these three principles.

●

●

Relief - for citizens in the form of financial assistance, the creation of jobs, and mortgage assistance.

Recovery- the government would take steps to manage the economy and help businesses, banks, and

farmers to operate profitably.

●

Reform- the government would put in place new economic regulations aimed at stopping financial abuses

and preventing future depressions.

A. Relief legislation

●

Congress's first major effort to deal with the massive unemployment was to pass the Federal Emergency

Relief Act. The resulting Federal Emergency Relief Administration (FERA) was headed by Harry L.

Hopkins.

●

Hopkins's agency granted about $3 billion to the states for direct relief payments or for wages on work

projects.5

●

The Home Owners’ Loan Corporation (HOLC) assisted many households that had trouble paying their

mortgages.

Public Works Programs- throughout the New Deal, Roosevelt developed numerous programs to create jobs

through government spending.

●

Most jobs were created through the construction of various public facilities and infrastructure, such as roads,

bridges, airports, schools, and parks.

●

The first of these programs was the Civil Works Administration (CWA). It provided about 4 million

people with temporary jobs.

●

The civilian conservation corps (CCC) - provided employment for about 3 million men in government

camps. Their work included reforestation, fire fighting, flood control, swamp drainage, building reservoirs

and irrigation systems.

●

The Tennessee Valley Authority (TV A) was a regional program to bring development to the impoverished

Tennessee Valley. The main success of this program was the building of numerous hydro-electric dams that

generated electricity and provided affordable power to the area.

B. Recovery Programs

National Industrial Recovery Act (NIRA)

●

NIRA allowed businesses to disobey anti-trust laws and cooperate with each other in order to fix prices.

This was aimed at solving the problem of deflation.

●

In exchange businesses were required to to adopt codes that regulated working conditions and labor

practices which included minimum wages, restrictions on working hours and recognition of labor unions..

●

The National Recovery Administration (NRA) was created as a part of NIRA to coordinate the

government’s cooperation with business including the development of specific codes for each industry.

●

Workers were formally guaranteed the right to organize unions and bargain collectively through

representatives of their choosing, not through the company's choosing.

Help for Farmers

●

Congress passed the Agricultural Adjustment Act (AAA). This program paid farmers to reduce the

amount of crops they grew. This was aimed at eliminating surpluses in order to raise prices.

●

It also set up programs for government purchases of farm goods and helped many farmers to keep their land

through mortgage relief.

●

The AAA did raise prices for farm goods and helped many farmers, however it also led to many farm

workers and sharecroppers being put out of work due to the reduction of crops.

C. Reform Measures- gave the government greater authority over the economy, especially banking and the

stock market.

●

In 1933 Roosevelt ended the gold standard, and Congress passed legislation giving the government more

control over the value of currency.

●

In the Glass-Steagall Banking Reform Act, Congress gave the federal government the power to oversee

the operation of all banks in the Federal Reserve System and to regulate loan practices.

●

It also created the Federal Deposit Insurance Corporation (FDIC) which insured individual bank deposits

up to $5,000, ending the epidemic of bank failures.

●

The Truth in Securities Act required all companies that offered stocks to provide accurate information

about their financial health to the public.

●

The Securities and Exchange Commission (SEC) was established to monitor the operation of the stock

market.

III Setbacks for the New Deal- Roosevelt’s programs helped, but by no means did they end the Depression.

By 1935 some were concerned that nothing the government could do would end the Depression.6

A. Criticism of the New Deal

Conservatives criticized the New Deal for granting too much control to the government especially to Roosevelt

himself.

●

They felt that the government was too involved in the economy, and that the New Deal was stifling free

enterprise and self reliance.

●

They also criticized the enormous deficit spending that was creating a huge national debt.

Liberals including socialists, argued that the New Deal was not comprehensive enough in battling the

Depression.

●

They pointed out that there were still millions of Americans suffering. Many liberals argued that the

government had not gone far enough to redistribute wealth in America.

●

Senator Huey P. Long publicized his "Share Our Wealth" program in which every family in the United

States would receive $5,000. Roosevelt saw him as a possible threat in the upcoming election. He would

ultimately not be a factor because he was assassinated in 1935

●

Dr. Francis E. Townsend attracted millions of senior citizens with his plan that each citizen over the age of

60 would receive $200 a month. This helped inspire the Social Security Act

B. The Supreme Court Strikes Down New Deal Legislation

●

●

The conservative justices on the Supreme Court ruled against New Deal programs 7 times.

In the Schechter Case, 1935, the Supreme Court declared certain parts of NIRA to be unconstitutional. The

court ruled that Congress had gone beyond regulating interstate commerce, and that NIRA had given the

President legislative powers. (violates separation of power).

●

In US v Butler 1936, The Supreme Court also overturned some important parts of the Agricultural

Adjustment Act.

IV . The “Second New Deal”

●

In 1935, with the depression still enduring, Roosevelt launched the Second New Deal. This was another

sweeping round of legislation to set up programs aimed at ending the depression, and helping those in

need.

●

Works Progress Administration (WPA)- initiated more public works projects, creating millions of jobs

in construction, but also included many jobs for artists, writers, photographers and performers.

●

Some criticized the agency for paying people to due "useless" jobs such as painting murals and taking

photographs.

●

Wagner Act (National Labor Relations Act)- provided protection for unions, and guaranteed collective

bargaining. This greatly increased the power and size of unions in the United States. It also set up the

National Labor Relations Board to handle complaints regarding unfair labor practices.

●

Social Security Act- set up the Social Security System which provided payments for elderly, unemployed

disabled and families in need. This was a permanent social welfare system that has been expanded over

time.

V . The Election of 1936

●

As the election of 1936 neared, the New Deal had achieved significant progress, and millions of people

who had received relief from the government were grateful to Roosevelt. However, the depression still

continued and many people wondered if the government would ever be able to end it.

●

The election of 1936 was set to be a referendum. The Republicans condemned the New Deal for its

radicalism and "fiscal irresponsibility."

●

President Roosevelt was reelected as president in a lopsided victory. He had forged a powerful and

enduring voting coalition of the South, black voters, urban populations, and the poor.

●

Ratified in 1933, the 20th Amendment shortened the period from election to inauguration by 6 weeks.

FDR took the presidential oath on January 20, 1937, instead of the traditional March 4.

VI. Roosevelt Responds to the Supreme Court7

●

●

●

●

●

●

●

●

With his re-election, Roosevelt felt that the American people had approved the New Deal. This motivated

him to take action against the Supreme Court for its rulings against some of his programs.

President Roosevelt asked Congress to pass legislation allowing him to take action against the Supreme

Court to the Supreme Court for every member over the age of 70 who did not retire; the maximum number

of justices would now be 15.

Congress rejected this plan to “pack” the Supreme Court. It also received little support from or the

general public.

Roosevelt was criticized for attempting to break down the system of checks and balances among the 3

branches of government.

Eventually the Court became more sympathetic towards the New Deal, upholding the National Labor

Relations Act (Wagner Act) and the Social Security Act.

A succession of deaths and resignations of justices enabled Roosevelt to appoint 9 justices to the Court

through the traditional process.

In Response to the Supreme Court’s ruling on the AAA, Roosevelt persuaded Congress to pass the Soil

Conservation and Domestic Allotment Act of 1936. This sought to reduce production of more common

crops by paying farmers to plant soil-conserving crops.

The Second Agricultural Adjustment Act of 1938 continued conservation payments; if farmers obeyed

acreage restrictions on specific commodities, they would be eligible for payments.

VII. Roosevelt Attempts to Scale Back the New Deal

●

●

After Roosevelt's first term, from 1933-1937 significant recovery had taken place.

In 1937, the Roosevelt administration cut back on spending for New Deal programs out of concerns about

the growing national debt.

●

It was hoped that as New Deal Programs were scaled back, that private businesses would begin hiring more

workers. However with the additional burden of Social Security taxes, many companies were reluctant to

increase their payrolls.

●

The reduction in government spending led to increasing unemployment and a renewed recession (The

“Roosevelt Recession”)..

●

In response, Roosevelt once again increased Federal Government spending to stimulate a recovery.8

●

●

●

●

●

Summary

Critics of the New Deal charged the president with spending too much money on his programs, significantly

increasing the national debt.

They also claimed that direct financial assistance and other forms of relief were undermining the virtues of

self reliance and entrepreneurial initiative.

Some claimed that private enterprise was being suppressed and states' rights were being violated.

Another criticism was New Deal was that it did not end the depression; it merely administered

“band-aids" since it was not until the outbreak of World War II that the U.S. economy fully recovered.

New Deal supporters point out that relief helped millions of Americans survive the depression. Roosevelt

believed that the government was morally bound to prevent mass hunger and starvation by "managing" the

economy.

●

Supporters also point to economic reforms aimed to prevent future economic collapses.

Overall, the New Deal greatly increased the size of the federal government and increased its power and

responsibilities. It also fundamentally changed the role of the government in terms of its involvement in the

economy and in providing for the social welfare of the population.

●

●

The New Deal also greatly increased the infrastructure of the nation.

Many of the New Deal programs would disappear after the 1930’s, but some remained in place. Most

notable among them is the Social Security System, which has been expanded in the ensuing decades.

New Deal Programs Quick Reference

1933

●

●

●

●

●

●

Emergency Banking Act- provided relief and regulation for banks.

Federal Deposit Insurance Corporation (FDIC)- insured bank deposits.

Agricultural Adjustment Act- provided relief for farmers, tried to raise prices of farm products by limiting

production.

National Industrial Recovery Act (NIRA)- regulated industries, tried to provide recovery for businesses,

helped businesses to raise prices, but also set minimum wage standards. Created the National Recovery

Administration (NRA) which set codes for how businesses should operate.

Civilian Conservation Corps (CCC)- created jobs in conservation (parks).

Tennessee Valley Authority (TV A)- regional relief organization, carried out public works projects. Built

hydroelectric dams to provide power to the region.

Home Owners' Loan Corporation (HOLC) assisted many households that had trouble paying their

mortgages.

1935 (Second New Deal)

Works Progress Administration (WPA)- initiated more public works projects, creating millions of jobs

including many for artists, writers, photographers and performers.

Wagner Act (National Labor Relations Act)- provided protection for unions, guaranteed collective

bargaining, set up National Labor Relations Board. Greatly increased the power of unions.

Social Security Act- set up the Social Security System which provided payments for elderly, unemployed

and disabled. Was a permanent social welfare system that has been expanded over time.