The Great Crash, the Great Depression, and the New Deal

Curriculum Context and Educational Framework

• Target Audience: The material is specifically designed for the Cambridge AS Level history curriculum, though it is applicable to IGCSE and other examination boards.
• Recommended Background Reading: For students following the IGCSE path, Chapters $2$ and $3$ are the primary areas of coordination for this assessment.
• Historical Timeline Context: This era follows the Civil War, Reconstruction, and the Gilded Age, moving into the modern economic studies of the $1920s$ and $1930s$.

Structural Weaknesses and the Causes of the Great Crash

• The Inherent Nature of American Economics: Historically, the U.S. economy is characterized by "boom-bust" cycles. Periods of intense "bull runs" with endless optimism are followed by sharp loss of confidence and economic plunges, such as the Panic of $1873$.
• Agricultural Overstretch:     * Farmers in the countryside experienced a massive overexpansion of land and equipment.     * Companies like John Deere were active, selling tractors and modern machinery.     * Farmers took out excessive loans that they could not repay because the market prices for agricultural products dropped too low to cover their financial obligations.
• Industrial Displacement: New industries displaced traditional ones. The automobile industry, led by Henry Ford and the mass-produced Model T, replaced horses, buggies, and streetcars, causing job losses in older transportation sectors.
• Industrial Fragility: Economic growth relied on high demand for steel, coal, and raw industrial materials. A downturn in expansion immediately hurt these foundational industries.
• Wall Street Volatility and Manipulation: The internal mechanics of Wall Street in the $1920s$ were poorly regulated. The transcript references Jesse Livermore, described as one of the greatest stock traders, and the book Reminiscences of a Stock Operator to illustrate the "Wild West" nature of the market.
• The Growth of Consumer Credit:     * Higher Purchase: Consumers could buy goods they could not afford upfront. For example, a person with only $5$ could buy $100$ worth of furniture and pay the remaining $95$ in installments.     * Defaults: Widespread use of credit created a short-term boom but led to systemic risk; if thousands of people defaulted, the capital loss to businesses and department stores was catastrophic.
• Buying on the Margin: Investors bought stocks using borrowed money from brokerage firms. If a $50,000$ account used $50,000$ in margin to buy $100,000$ of stock and that stock failed, the investor's money evaporated, and the lender lost their capital.
• Mass Production and Over-Supply:     * Productivity experts and industrial scientists increased efficiency, allowing companies to produce more goods with fewer workers.     * Companies preferred machines because they did not get sick, go on strike, or require a wage bill.     * This led to a "supply glut" where the supply of goods far exceeded consumer demand, leading to bankruptcies.
• Laissez-Faire Government Policy: The government maintained a "let it be" attitude with minimal regulation on borrowing or spending, which allowed the panic to materialize fully by October $1929$.

Impacts and Features of the Great Depression

• The Vicious Economic Circle: The fundamental problem of the Depression was unemployment.     * Unemployed people lack disposable income and live on sustenance wages or savings.     * Lack of purchasing power causes companies to shut down.     * Company closures lead to further unemployment, perpetuating the cycle.
• Global Consequences:     * The U.S. had been providing loans to Germany (to pay reparations to Britain and France for World War I).     * The crash ended these loans, causing financial hardship in Germany and subsequently halting reparation payments to Britain and France.     * This global economic failure allowed fascism to flourish in Europe and Japan to take a belligerent course, eventually leading to World War II.
• Social and Cultural Impact:     * Hoovervilles: Communities of tents and shacks inhabited by homeless people.     * Itinerant Workers: As depicted in John Steinbeck’s novels like Of Mice and Men and The Grapes of Wrath, workers roved from town to town looking for menial jobs, often moving toward California.     * The Dust Bowl: The topsoil of a large portion of middle America was blown away, exacerbating the agricultural crisis.     * The Gangster Era: Figures who robbed banks (as seen in the movie Public Enemies) were sometimes viewed as heroes because banks were seen as unregulated and responsible for the crisis.
• Ideological Shifts: The Soviet Union appeared successful in the $1930s$, with high employment and the construction of metro systems in Moscow and Leningrad. This led some Americans to believe socialism might be a more stable system than the American "boom-bust" model.

The Response of the Hoover Government

• The Republican Administrations: Following Woodrow Wilson, three Republican presidents—Harding, Coolidge, and Hoover—led business-centric administrations.
• Ideological Conflict: Hoover was committed to Laissez-faire principles but eventually attempted some interventionist projects.
• Major Projects: The construction of the Hoover Dam (providing power to Las Vegas) was a significant public works project, though it was insufficient to solve the national crisis.
• Lack of Safety Nets: During the Hoover era, there was no FDIC, no Social Security, and no lender of last resort to underpin the financial system.
• Stock Market Collapse: The Dow Jones Industrial Average plunged in October and November of $1929$. It did not return to its all-time high for decades.

Roosevelt’s New Deal Strategies

• Shift in Economic Philosophy: Franklin Delano Roosevelt (FDR) implemented Keynesian Economics—the practice of the government creating and pumping money into the economy.
• The First $100$ Days: A period of intense legislative activity.
• Banking Reform:     * Bank Holidays: FDR shut down all banks to determine which were financially solvent.     * Fireside Chats: Radio broadcasts where FDR explained how banking worked (e.g., that banks only keep a small percentage of deposits in liquid assets).     * FDIC (Federal Deposit Insurance Corporation): This drisked the system by insuring deposits. Today, the insurance covers up to $250,000$.
• Distinction Between the New Deals:     * First New Deal: Focused on stabilizing the economy and cleaning up the banking sector.     * Second New Deal: Focused on recovery, reform, and getting people back to work through the public sector.

Key Alphabet Agencies and Legislative Acts

• WPA (Works Progress Administration): Created public works jobs, notable for building infrastructure and producing murals and art that still exist today.
• Wagner Act: Focused on collective bargaining and the right of workers to form unions and demand better conditions.
• Social Security Act: The most popular program, establishing a pension scheme where workers pay a tax during their working life to collect interest and payments in old age.
• Tennessee Valley Authority (TVA): Provided electricity to remote parts of Appalachia around Tennessee, a project private companies avoided because it was not profitable.
• SEC (Securities and Exchange Commission): Created to report to FDR and regulate the stock market.

The New Deal Coalition (Political Strategy)

• Labor Unions: Supported FDR due to the Wagner Act and job creation.
• Urban Ethnic Groups: Irish, Polish, and Jewish immigrants supported the Democrats because the party was more inclusive and focused on the working class.
• African-American Voters: Historically Republican since Abraham Lincoln, this group shifted to the Democratic party due to New Deal benefits.
• Farmers: FDR bought agricultural surpluses to stabilize prices and provided credit to small farmers.
• Southern Whites: Benefited from regional projects like the TVA.
• Intellectuals and Academics: Supported the administration’s scientific, Keynesian approach to economics.

The Roosevelt Recession ($1937$–$1938$)

• Cutbacks: Reductions in New Deal programs (like men paid to sweep leaves) led to a downturn.
• Taxation: The introduction of payroll taxes to fund Social Security reduced the ability of businesses to hire employees.
• Monetary Policy: Banks were required to raise capital requirements to prove solvency, which resulted in banks lending less money.
• Inventory Recession: A paradox where the economy suffered from a "problem of plenty" despite having available workers.
• Labor Relations: Business confidence was low due to frequent strikes following the empowerment of workers by the Wagner Act.

Opposition to the New Deal

• Opposition from the Left:     * Liberal critics felt the New Deal did not go far enough.     * Huey Long (The Kingfish): The Governor of Louisiana was a populist opponent. FDR called him the "most dangerous man in America." Long was undemocratic, ignored federal law, and had a secret police force before his assassination.
• Opposition from the Right:     * Big business and Republicans viewed the New Deal as "creeping socialism."     * Roosevelt was nicknamed "The Sphinx" because critics felt he was acting beyond his mandate.
• The Supreme Court:     * Controlled by conservatives, the court struck down several agencies, including the National Industrial Recovery Act (NIRA) and the Agricultural Adjustment Act (AAA), as unconstitutional.     * Court Packing Plan: FDR proposed adding more judges (beyond the standard $9$) to ensure his legislation would pass. While it did not happen, it was a serious proposal from the executive branch.

Final Conclusions and the End of the Depression

• Duration: The U.S. remained in a state of depression throughout the entire $1930s$.
• The Ultimate Solution: Modern historians generally agree that the Great Depression was not ended by the New Deal but by the U.S. entry into World War II.
• Legacy: FDR served from $1933$ to $1945$. His long tenure eventually led to the Constitutional Amendment limiting presidents to two terms.
• Succession of Goals: Relief came first (First New Deal), followed by long-term recovery (Second New Deal).