The Great Depression + New Deal

Sick Economy (Early 1920s)

  • Consumers and farmers were in debt.

  • Key industries (railroads, textiles, steel) were struggling.

  • After World War I, demand dropped, leading to a 40% decline in prices.

  • Farmers went into debt, making it hard to pay back loans and causing many to lose their property.

Credit and Consumerism

  • Many Americans lived beyond their means.

  • People bought goods on credit and paid interest.

1928 Election

  • Republican: Herbert Hoover

    • Promised to continue the years of prosperity.

  • Democrat: Alfred E. Smith

Hoover’s Philosophy

  • Believed in "rugged individualism" (people should succeed through their own efforts, not government handouts).

  • Called on key businesses to stop firing workers and cutting wages/hours instead of using direct federal aid.

Stock Market

  • Economists warned about weaknesses in the economy.

  • Dow Jones Industrial Average: A measure of the stock market’s overall health.

  • Bull Market: A period when stock prices rise, and many Americans rushed to buy stocks and bonds.

  • Speculation: Buying stocks and bonds with the hope of quick profit while ignoring the risks.

  • Buying on Margin: Purchasing stock by paying a small down payment and borrowing the rest.

  • Result: Unrestrained buying and selling of stocks.

Black Tuesday – October 29, 1929

  • Stock prices plunged.

  • Shareholders tried to sell their stocks, but there were no buyers.

Post-Crash Effects

  • People panicked and rushed to withdraw their money from banks.

  • Many banks had gambled with deposits in the stock market, so not everyone got their money back.

  • From 1929 to 1932, the Gross National Product (GNP) was cut in half.

  • Millions lost their jobs.

  • By 1933, about 25% of the workforce (around 13 million people) was unemployed.

  • Many who kept their jobs faced pay cuts and reduced hours.

World Shockwave

  • Most of Europe also fell into a depression.

  • World nations were interdependent on the global market.

  • America’s economic collapse led to Europe’s collapse, and vice versa.

Cause and Effect

  • The United States imported fewer goods, and investors pulled their money from world markets.

  • 1930 Hawley-Smoot Tariff Act: Raised the highest tariff in U.S. history.

    • Hurt American manufacturers and farmers by cutting foreign trade.

    • Other countries responded by raising their own tariffs, worsening global trade.

The New Deal

Franklin D. Roosevelt (FDR)

  • Born in New York; educated at elite schools.

  • Fifth cousin to President Theodore Roosevelt.

  • Served as Assistant Secretary of the Navy.

  • In 1921, at age 39, he contracted polio and was partially paralyzed.

  • Elected Governor of New York in 1928.

  • Elected U.S. President four times.

First 100 Days (1933)

  • FDR pushed an "avalanche" of bills through Congress.

  • These laws created many new government agencies, often called the "Alphabet Soup" agencies (because of their initials, like AAA, CCC, TVA, etc.).

Fireside Chats

  • Radio talks in which FDR explained issues and government policies to the public.

  • Aimed to calm fears and build public confidence.

Banking

  • Federal Deposit Insurance (FDIC): Insured bank accounts up to $5,000.

  • Goal: Restore people’s confidence in the banking system.

Key New Deal Policies

  • Securities and Exchange Commission (SEC)

    • Regulated the stock market.

    • Aimed to stop insider trading and unfair practices.

  • Agricultural Adjustment Act (AAA)

    • Provided the first direct subsidy to farmers.

    • Paid farmers to reduce production (not to plant certain crops) and sometimes destroy excess crops and livestock.

    • Goal: Reduce supply to raise farm prices.

Civilian Conservation Corps (CCC)

  • Public works program run in part through the Army.

  • Employed young men (often ages 18–25) in conservation projects.

  • Recruits planted trees, built parks, and worked to prevent soil erosion and flooding.

Tennessee Valley Authority (TVA)

  • Built dams and power plants along the Tennessee River and its tributaries.

  • Brought electricity, flood control, and development to rural, poor areas in the Tennessee Valley.

  • Private power companies opposed the TVA because it created government-owned competition.

National Industrial Recovery Act (NIRA)

  • Aimed to stimulate industrial recovery.

  • Created the Public Works Administration (PWA) in 1933.

  • PWA put about 4 million people to work during the winter of 1933–1934 on projects such as building schools and roads.

Housing Programs

  • Home Owners’ Loan Corporation (HOLC)

    • Provided loans to homeowners facing foreclosure.

    • Helped people refinance mortgages so they could keep their homes.

  • Federal Housing Administration (FHA)

    • Insured loans for mortgages and home repairs.

    • Encouraged new housing construction and repairs.

Direct Relief

  • Federal Emergency Relief Administration (FERA)

    • Provided $500 million to give direct relief to the needy.

    • About 50% went to states as grants-in-aid to provide food and clothing to the unemployed, the elderly, and the ill.

    • The other 50% went to states to support work relief programs.

    • Considered the first large-scale federal welfare program.

Second New Deal (1935–1937)

  • FDR called on Congress to pass more programs, especially to help farmers and workers.

  • Works Progress Administration (WPA)

    • Major work-relief program.

    • Paved streets and highways.

    • Built bridges, airfields, post offices, and other public buildings.

    • Also employed artists, writers, and actors.

    • Helped restore forests and improve parks.

Wagner Act (National Labor Relations Act)

  • Guaranteed workers the right to form unions.

  • Protected the right to bargain collectively with management (negotiate wages and working conditions).

  • For the first time, the federal government officially recognized and protected labor unions.

Social Security Act (1935)

  • Financed by a tax paid by employees and employers.

  • Created a cooperative system of unemployment compensation and old-age insurance.

  • Workers who paid Social Security taxes out of their wages would receive monthly benefits upon retirement at age 65.

  • Also provided aid to certain groups such as the disabled and dependent children.