Unit 8

The Economy of the 1920s

• The wealthy elite of the 1920s included men with new money such as Micheal Meehan, Jesse Livermore, and Charles Mitchell, who amassed their fortunes by buying and selling stocks, becoming American royalty, and living like celebrities

• Consumer Credit - people were able to borrow more money and buy what they previously couldn’t, and believed they would pay it off later

• “Permanent prosperity” - the belief in the 20s that the American economy could grow indefinitely and never go down, leading to many Americans overspending with borrowed money because they believed they would be able to pay it off once they got rich

• buying on margin - when investors would buy stocks with borrowed money, essentially making the stock market like a delicate tower of cards because so many people were borrowing money

• Pools - wealthy investors would get together, all buy a cheap stock, pay journalists to promote it, and then sell it off while the stock loses value and the last people to buy it all lose their money

  • Painting the Tape - wealthy investors would make stocks they just bought look exciting so people would buy it and drive up the price

• The “Wild West” Era of Wall Street - there were very few laws governing the market, and people were constantly chasing the chance that they would be able to strike it rich. The market was treated like a gamble and people thought if they didn’t get rich with one stock, there was always a next time

Signs of an Economic Crash

• Economist Roger Babson was one of the few economists who predicted a sharp economic downturn, but people didn’t believe him because they were too preoccupied with permanent prosperity

• By the end of the 1920s, people kept on borrowing money to pay off down payments for new stocks because of the buy now, pay later mentality, further risking an economic collapse

• In March 1929, the stock market was about to crash, but the banks prevented this by giving out loans at lower interest rates, only delaying the crash

• Insider traders assured people that there wouldn’t be a large crash in the weeks preceding Black Tuesday, and people listened because they believed insider traders to have the most information

Presidency of Herbert Hoover

• Herbert Hoover - born in Iowa, orphaned, goes to Stanford for engineering, works in the mining industry, is hired during WW1 to help get food to Belgium, is Coolidge’s Secretary of Commerce, and then runs for president as a Republican

• 1928 Presidential Campaign - Hoover promises poverty will be eradicated if the current policies are preserved

• Rugged Individualism - Hoover’s political philosophy of the government provided less welfare for the people because he believed that people were already inclined to help their neighbors out, so he supported the idea of a weaker government

• October 1929 - the stock market crashes, leading to bank closings, a skyrocket in unemployment, and widespread poverty

• Depression Public Works Projects - to help counter the Depression while not handing out money directly, Hoover started many public works projects like the Hoover Dam, new railroad projects

The Great Depression

Causes

• President Herbert Hoover

  • Smoot-Hawley Tariffs of 1930 - a new set of tariffs that Hoover believed would help the economy as Americans would buy more American-produced goods, but other countries instead retaliated and set tariffs on American goods so producers like farmers didn’t have anybody to sell their products to

• Overproduction

  • The Dust Bowl - with the invention of the tractor, farmers began overproducing on their land in the Midwest, which led to the dirt becoming loose and creating massive dust storms, creating a drought and killing crops. This led some people to move to California, which was well-known for its farming

• Post WW1/Treaty of Versailles

  • The Treaty of Versailles ordered Germany to pay large reparations to the Allies while they were already dealing with their own war debt

  • America lent money to Germany to help pay off debts while also to Great Britain and France to help pay for the costs of the war

• The Federal Reserve

  • interest rates were so low that people took out loans they couldn’t pay off, and they kept on getting lower so people could take out more money

• The Financial Sector

  • Black Thursday - October 24th, 1929, when stock prices first started plummeting but they were kept afloat for a little bit by insider traders

  • Black Tuesday - October 29th, 1929, the actual market crash, where several stocks become essentially worthless, so people try to take their money out from banks, but the banks run out of money to give to people and have to declare bankruptcy

Consequences

• 1932 - 5000 banks failed

  • bank panic - everyone took their money out of the bank at the same time, and many people reached the bank only after the bank ran out of money

• The happy era of the 1920s ended, and there was a cultural and societal depression to complement the economic one

• Hoovervilles - villages of shelters built by people who were made homeless by the Great Depression who were bitter towards Hoover for the economic downturn

• Some people were so rich that they didn’t feel the Depression and some were so poor that nothing changed for them

• The Depression only really ended with the start of US involvement in the war when manufacturing rates needed to go up, and because of the war, the US became the world’s leading manufacturer

Franklin Delano Roosevelt

• FDR was born in Hyde Park, New York, to the Democratic branch of the Roosevelt family. He was distant cousins with Theodore Roosevelt, another US President who was from the Republican branch. He grew up rather sheltered because of his overbearing mother and then went to Harvard

• He marries Eleanor Roosevelt, Theodore Roosevelt’s niece, and has six children with her. After they have children, they have a more formal than romantic relationship

• FDR’s early political career - he is chosen to be Assistant Secretary of the Navy like TR and is then the Democratic Vice Presidential Nominee for the election of 1920, but they lose

• Infection with Polio - While swimming one day, he gets infected with polio and feels like his political career is over. He goes to Palm Springs, Georgia, to try out the latest aquatic technology to help alleviate his symptoms, and there he develops empathy for the children affected with polio, which allows him to connect with common people

• FDR’s later political career - FDR eventually gained enough confidence to run as the Democratic candidate for the Governor of New York, for which he was elected. He then is chosen as the Democratic Presidential Nominee for the election of 1932 and is then elected President in a landslide because Hoover was extremely unpopular due to his handling of the Great Depression and FDR was promising a New Deal

FDR’s Presidency

• “The only thing to fear is fear itself” - FDR is often described as an optimist and said there was nothing worse America could face at the time of his inauguration

• When FDR was sworn in, unemployment rates were at 25%, but he managed to get them down a little, but never below double digits

• FDR believed in a strong federal government that should strive to solve problems and asked Congress for the power to treat the Depression like a war

• Fireside Chats - the thirty radio addresses by FDR that were considered revolutionary for the time because, for the first time in history, people could hear the voice of the president in their living rooms

  • the first one is him announcing a bank holiday and explaining it in simple terms so a general American could understand why he was instating one

  • he received an unprecedented amount of letters from people around the country thanking him for his chats and for being uplifting but at the same time not sugarcoating anything

• The End of Prohibition - prohibition ended in 1933 with the 21st Amendment as a way to help the economy, as it was doing so badly people thought it would be better to get jobs from the alcohol industry

• First 100 Days - FDR did so much within his first hundred days as President, passing 13 laws and 99 executive orders, that it became standard to judge future presidents by their first 100 days

• FDR had a Democratic majority in the Senate and the House, so it was very easy to garner support for his ideas. Unexpectedly, the Democratic Party won more seats in the midterm elections, which is unusual for the presidential party in midterm elections

• Frances Perkins - the first woman in a Presidential Cabinet as the Secretary of Labor

• Democratic Party in the 30s - FDR was a New York Democrat and considered progressive, but most of the Democratic party was from the South and were very conservative and against new ideas like racial equality

• 1936 Election - Roosevelt won re-election in a sweeping landslide, winning every state except Maine and Vermont

  • Republican Party Platform - the Republican candidate ran on the message that the Democratic Party was overstepping its powers on several issues

Civil Rights

• Because FDR was progressive, Black Americans hoped he would help end Jim Crow Laws but many Democrats were Southern so it would be hard to garner support

• FDR’s Black Cabinet - a group encouraged by Eleanor Roosevelt, made up of Black Americans who helped advise FDR on matters

• Eleanor Roosevelt was especially progressive in her perception of Black Americans and formed many close relationships with them

• FDR also appointed the first federal black judge, showing his willingness to hire Black people

FDR’s Tensions with the Supreme Court

• The Supreme Court was constantly pushing back against FDR and his New Deal Programs like the AAA and NRA, which were declared unconstitutional

  • The AAA was declared unconstitutional because the Court believed Congress overstepped its taxing power by having federal agents order ranchers to kill cattle to drive up meat prices in a misguided attempt to help the industry

  • The NRA was declared unconstitutional because it violated the commerce clause of the Constitution by strictly regulating the agricultural industry

• FDR’s Court Packing Plan - since the Supreme Court was often going against his rulings, FDR drafted a plan where for every justice over 70, there should be an additional justice “to improve court efficiency.” It works out in FDR’s favor because six of the nine judges are over 70 so he could have 15 judges on the court, most of whom who would rule in his favor

  • While the plan was technically constitutional, as the President has the power to choose the number of judges as part of checks and balances, it never went to Congress, as many saw it as an overstep of power

• The plan never went through because the Court coincidentally started ruling in FDR’s favor, and judges who didn’t agree with him started retiring

• The New Deal effectively ends after the court-packing plan

The New Deal

• Roosevelt was willing to try any possible solution to help lift America out of the Great Depression, and at the start of his presidency he constantly made new programs

• The New Deal was seen as FDR handing out a new deck of cards to the American people, especially those who felt like they were previously forgotten by the government

• Indian New Deal - FDR gave rights to Native Americans

• Relief, Recovery, and Reform - a slogan to describe FDR’s aim with the New Deal

  • Relief - direct financial payments to Americans, unlike Hoover

  • Recovery - new federal agencies/laws to help keep the economy afloat by things such as public works projects

  • Reform - passing laws to prevent another depression

• Sense of Security - The New Deal provided a sense of security for millions of Americans, like financial security from the FDIC, ending bankruptcies and panic

ABC Soup (from a cafe maybe?)

• FDIC - Federal Deposit Insurance Corporation insuring the bank accounts of citizens in case a bank goes out of business, guaranteeing 2k as insured, which is equal to 250k today

• SEC - Securities and Exchanges Commission regulates Wall Street to prevent insider trading, pools, and other fraudulent activity. It mandated that all public companies on the market publish financial reports of securities (stocks, bonds, etc.), profits, and balance sheets to prevent a monopoly of information

• TVA - Tennessee Valley Authority, created public works projects in the Tennessee Valley to spread electricity to the South, providing jobs because the South was extremely hard hit by the Depression

• CCC - Civilian Conservation Core, an organization that hired unemployed men ages 18-25 to help preserve national parks while also forming a sense of community

• WPA - Works Progress Administration, built projects like highways such as the Merritt Parkway

• SSA - Social Security Act, which gave pensions to old people who had lost their life savings and couldn’t work anymore. It also applied to disabled and unemployed workers who couldn’t find adequate work. When it first came out, it didn’t apply to certain industries, like the agricultural industry, where most of the workers were Black. However, it was eventually expanded 10 years later to include all workers.

• HOLC and FHA - governmental organizations that reformed the housing market by lengthening mortgage payments from 5 years to 30 years and also lowering interest rates for payments

• Public housing was a common form of housing relief, but did discriminate against minorities

Share Our Wealth

• Huey Long - a Democratic governor of Louisiana and Senator who created the idea of “Share Our Wealth” and was positioned to run for President but was then assassinated by a political rival

• While Long understood that the Founders saw the government as a way to protect and secure natural rights, Long believed the government should also protect economic equality and secure the material well-being of all Americans

• “Share Our Wealth” - a movement during the Great Depression to set a limit on individual wealth to equalize incomes so poorer Americans wouldn’t be poor and also have a guaranteed income for everyone in the country

• SOW was popular but never picked up by most politicians like FDR as it was very radical and would’ve hurt US capitalism