The Great Crash, the Depression, and the New Deal Policies 1920-1941

Introduction: 1920s Boom and the Great Depression

  • The 1920s experienced economic growth and social change but ended with the Great Crash in 1929.

  • The U.S. faced economic depression and high unemployment until World War II in 1941.

  • Presidents Harding, Coolidge, Hoover, and Roosevelt addressed the economic problems after 1929.

  • The federal government's role in the economy increased, creating a welfare state with financial support for citizens.

Causes of the Great Crash

  • World War I boosted the U.S. economy due to increased demand for American products.

  • The stock market rose significantly, and European nations borrowed heavily from the U.S.

  • The U.S. shifted from a debtor to a creditor nation.

  • High interest rates in Europe led U.S. banks to lend money, aiding European imports and German reparations.

  • Reparations: Payments from Germany to France and Britain for WWI damages.

Post-WWI Economic Adjustments

  • The end of WWI in 1919 brought economic challenges:

    • Returning soldiers sought jobs.

    • Factories shifted from war production to peacetime goods.

    • Demand from Britain and France decreased.

    • European agriculture recovered, reducing demand for American crops.

    • Unemployment rose, and GNP dropped by 10%.

    • Prices fell due to overproduction and decreased overseas orders.

    • The Federal Reserve Bank increased interest rates.

  • Government intervention was minimal during the transition from war to peace.

    • GNP: Gross National Product is the total value of all goods and services produced by a country in one year.

Rise of the Automobile Industry

  • Automobile manufacturing transformed the U.S. industry, led by Henry Ford's assembly line.

  • Ford reduced car prices, making automobiles affordable for the masses.

Impact of the Automobile Industry:

  • Stimulated industries like rubber, steel, glass, and coal.

  • Provided employment for many.

  • Led to the construction of roads and bridges.

  • Increased demand for oil and gas.

  • Created gas stations.

  • Improved commuting.

  • Replaced horses and carts in rural areas.

  • Increased travel and leisure.

Agriculture in the 1920s

  • During WWI (1913-1919), agriculture prospered with rising prices and increased mechanization.

  • Farmers borrowed to buy land and machinery, increasing debt.

  • Post-war, agriculture declined:

    • Demand and prices dropped as Europe recovered.

    • Domestic demand decreased due to reduced immigration.

    • Farm incomes and living standards declined.

  • Government support was limited due to diverse farming interests and a lack of presidential interest.

The Dust Bowl

  • The 1930s drought in the Southern U.S. caused the Dust Bowl.

  • Mechanized farming practices left topsoil vulnerable.

  • Oklahoma, New Mexico, Colorado, Texas, and Kansas were affected.

  • Agricultural workers migrated to towns and California in search of work.

Growth of Consumerism

  • Electricity in factories and homes increased industrial output and created demand for new products.

  • Electric appliances like refrigerators and vacuum cleaners became popular.

  • Entertainment industries (radios, phonographs, movies) grew.

  • Consumer credit emerged, allowing people to buy products with installment plans.

The Stock Market Crash

  • The stock market crash worsened the economic crisis but was not the sole cause.

  • A brief recession in the early 1920s was followed by a growth period, with the Dow Jones index rising by 400% between 1921 and 1929.

  • Speculation, financed by borrowing, drove the market.

Economic Weaknesses

  • Politicians and businessmen failed to understand the post-war economy.

  • Income and wealth inequality increased.

  • Major trading partners faced political instability.

  • High tariffs hurt U.S. exports.

  • Construction and car production slowed.

  • Poverty existed in rural areas and "one industry" towns.

  • Wages were low, limiting purchasing power.

Causes and Impact of the Depression

  • Factors contributing to the Great Depression:

    • Decline in agriculture

    • Overproduction in industry

    • The U.S. banking system

    • Growing tariff wars

    • The failure of the market system

    • Lack of investment

    • Deflation

The Great Crash of October 1929

  • In 1928, the Federal Reserve increased interest rates and cut the money supply.

  • Loss of confidence in the markets emerged.

  • Banks speculated on the stock market with customer deposits.

  • October 23 saw a fall in stock prices, followed by a catastrophic collapse on October 29.

  • Banks and insurance companies went bankrupt.

President Herbert Hoover's Response

  • Hoover believed in RUGGED INDIVIDUALISM, that people should succeed through their own efforts with equal opportunity.

  • Economic experts felt the federal government should not interfere directly in the economy and that it would straighten itself out.

  • Hoover believed in limited government intervention and private charities.

  • Hoovervilles: Shantytowns that emerged as a result of Hoover's policies.

  • Hoover took actions like the Federal Farm Board, National Credit Corporation, Federal Home Loan Bank Act, and Reconstruction Finance Corporation but were too limited.

Hoover Takes Action

  • Federal Farm Board and National Credit Corporation to help farmers and banks.

  • Federal Home Loan Bank Act to help reduce mortagages.

  • THE RECONSTRUCTION FINANCE CORPORATION gave loans to banks and businesses to create jobs.

  • Relief and Reconstruction Act for federal spending.

  • Bank Credit Act 1932 provided aid to banks and stock markets.

The Bonus Army & End of Hoover's Presidency

  • WWI veterans demanded bonuses, leading to the Bonus Army protest in Washington.

  • Hoover's response to the Bonus Army was unpopular, leading to his replacement by FDR.

Franklin D. Roosevelt's New Deal

  • FDR promised a "New Deal" of schemes, public works, financial reforms, and regulations.

  • He won the election due to:

    • Blame on Hoover.

    • Belief that he had solutions.

    • Charisma and effective radio use.

    • Record as NY governor.

  • Roosevelt's "Brain Trust" advocated for government regulation of the economy.

  • FDR used fireside chats to restore confidence.

Opposition from the Supreme Court

  • The Supreme Court had the power to declare acts of Congress unconstitutional.

  • Roosevelt criticized the Supreme Court for striking down New Deal policies.

  • Schechter Poultry Corp v. United States ruled against the National Industrial Recovery Act.

Roosevelt's Court Packing Plan

  • Roosevelt attempted to increase the number of Supreme Court judges in 1937.

  • Plan failed, but the Court shifted its approach.

Arguments For and Against the New Deal

  • Arguments IN FAVOR:

    • Brought stability and security.

    • Unemployment dropped, the banking system stabilized, and the stock market recovered.

    • The Deal bought sense and more stability into the housing and mortgage market.

  • Arguments AGAINST:

    • Roosevelt was inconsistent.

    • Failed to resolve the effects of the Great Depression.

    • Harmed the economy because he over-regulated and micro-managed.

    • Roosevelt behaved unconstitutionally.

Causes of the Great Depression

  • Mass production created a surplus of goods.

  • High tariffs like the Smoot-Hawley Tariff (1930) restricted international trade.

  • Speculation in real estate and stocks increased.

  • The stock market crashed on October 29, 1929.

    • Business went bankrupt, banks failed.

The Human Experience

  • Over 10 million Americans became unemployed.

  • People lost homes and begged for food.

  • Minority groups suffered the most.

  • The Dust Bowl caused farmers to lose their lands.

  • Children suffered from malnutrition.

President Hoover's Actions

  • Hoover believed in Laissez-faire economics and Rugged Individualism.

  • He took early steps to help end the depression, like cutting taxes, increasing federal spending, and meeting with business leaders.

  • Later he established the Reconstruction Finance Corporation (RFC) to give emergency loans to stop banks and businesses from going bankrupt.

The New Deal

  • The “New Deal” was a major turning point in American history.

Problems facing the Nation in 1933

  • Widespread Unemployment

  • Collapse of the Banking System

  • Decreased Production, Mortgage Foreclosures

  • The “Dust Bowl”

The New Deal: 3Rs

  • Relief, Recovery, and Reform

  • FIRST NEW DEAL (Relief & Recovery)

    • The Bank Holiday, Emergency Banking Act

    • Work Relief for the unemployed – the Civilian Conservation Corps (CCC)

    • The Public Works Administration (PWA) and the Civil Works Administration (CWA)

    • Agriculture Adjustment Act (AAA)

    • The Tennessee Valley Authority (TVA)

    • The National Recovery Act

  • SECOND NEW DEAL (Reform & Security)

    • The Works Progress Administration (WPA)

    • The Social Security Act (SSA)

    • The National Labor Relations Act (“Wagner Act”)

    • Fair Labor Standards Act (FLSA)

    • The Federal Deposit Insurance Corporation (FDIC)

    • The Securities and Exchange Commission (SEC)

Cultural Impact of the Great Depression

  • The Depression created disillusionment with traditional American beliefs in the free market and consumerism.

  • John Steinbeck’s novel The Grapes of Wrath depicted the plight of the “Okies”.

  • Langston Hughes was an African American poet who wrote of the sufferings of the African American community.

  • Dorothea Lange took photographs of poor immigrants and sharecroppers, including the famous image “Migrant Mother”.

Escapism

  • Optimistic, fun movies, musical shows, radio singers, and comic strips were very popular.