Chapter 30: The Causes of the Great Depression

What caused the most severe economic crisis in

American history?

Black Tuesday

• October 29, 1929• The U.S. Stock

Market lost 90% of its value.

• When the stock market crashed, it triggered the economic collapse

The Causes of the Great Depression

1. A Speculative Boom Leads to a Spectacular Crash– A “bull market” versus a “bear market”

• A rise in stock prices versus a drop in stock prices• The 1920’s could be characterized as a bull market

– The ability to buy on margin• $1000.00 buys $10,000.00 worth of stock• Price goes up, sell the stock, pay the broker, the rest is

profit• IF the price goes up…

• Speculation – a risky investment to get rich quick– Stock prices were not accurately reflecting the real

value of the companies

The Causes of the Great Depression

2. A Banking Crisis Wipes Out People’s Savings–Where do you think

the money was coming from that brokers were lending?

– Bank runs fueled the panic

– Banks were not safe anymore

The Causes of the Great Depression3. Overproduction Puts Too Many Goods in

Stores– Assembly line and mass production increases

output with decreasing demand– Not enough consumers to buy all the products

4. A widening Wealth Gap Leads to Rising Debt– Profits for business owners did NOT lead to

increasing wages– An estimated 40% of Americans lived in poverty

5. High Tariffs Hurt Foreign Sales‒ Limited U.S. market and now a limited

international market

The Causes of the Great Depression

6. Farmers Were the First to Experience the Pain of Underconsumption– When the war

ended, their markets disappeared

– Farmers lost everything as banks seized their property for payment of debts

As industry declined, companies

laid off workers.

Workers who lost their jobs could

not pay their debt and reduced

consumption.

Industries produced less

since people were buying less.

Government Actions Make a Bad Situation Worse

• The Role of the Fed (The Federal Reserve)–Manages the nation’s money supply

• Discount Rate = the rate of interest the Fed charges banks to borrow money

– Low interest rates make borrowing easy (the story throughout the 1920’s)

– 1931 the Fed raises the discount rate, raising interest, decreasing the money in circulation, depriving businesses of the capital they needed

• The Hawley-Smoot tariff sets record high rates to protect American industry but destroys international trade– Farmers and businesses lose overseas markets

• The Great Depression was a global event

A Bad Situation Gets Worse

Chapter 31: The Response to the

Economic CollapseHow did the federal

government respond to the economic collapse that

began in 1929?

The Story of the Bonus Army• May, 1932: veterans flocked to

Washington D.C. for payment of a bonus due in 1945 (they needed the money now)– By summer, 12,000 WWI vets were

there

• President Herbert Hoover believed in self-reliance, rugged individualism and hard work, not handouts

• He ignored the veterans at first then with tear gas, tanks and armed soldiers, he cleared out the Bonus Army

• The nation was stunned

How To Respond: Three Perspectives

• The Conservative Response: Let the economy stabilize–Maintain the status quo– Opposed to large scale government

interference– The economy will

stabilize if left alone– It is all part of the

business cycle– Any government

intervention should only be at the local level

How To Respond: Three Perspectives

• The Liberal Response: The government must help– Government is needed to protect individuals

from dangerous working conditions, monopolies, unsafe food or economic catastrophe/hardships

– Called for the funding of public works = government funded construction projects

– New taxes to raise money for social welfare– The government needs to take an active role

in the capitalist system to help by working closely with businesses

http://www.recovery.gov/Transparency/MapGallery/Pages/LightsOn.aspx

How To Respond: Three Perspectives

• The Radical Response: Capitalism must go– Radicals desire sweeping social, political or

economic change (could be through democratic means or via revolution)

– Communism would allow government planners to distribute wealth according to people’s needs

– The working class would rise up against the “greedy capitalists”

Hoover’s Conservative Response• Local communities, churches and

private charities could take care of their own

• Hoovervilles were on the rise• A liberal response was needed when

his conservative response was failing– RFC to issue government

loans to banks, railroadsand other big businesses

– A “trickle down” theory

• Hoover (R) vs. Franklin D. Roosevelt (D)• FDR promised America a “New Deal”

•New Deal—relief for needy, economic recovery, financial reform•With “Brain Trust,” FDR formulates policies to alleviate problems

The Election of 1932

The 100 Days• Passes over 15 major New Deal laws • Emergency Banking Relief Act permits Treasury Dept. to inspect banks and decide which are insolvent, sound, or need loans–Public confidence in banks revived

• Federal Securities Act—companies must give all information on stocks–Securities and Exchange Commission created to

regulate stock market

• FDR gets law allowing production of some alcoholic beverages–21st Amendment repeals prohibition by end of 1933

• Tennessee Valley Authority creates jobs renovating, building dams

The 100 Days•NIRA establishes codes of fair practice for industries–Creates National Recovery Administration (NRA)–NRA sets standards, prices, limits production–Creates the Public Works Administration

• Federal Emergency Relief Administration—aid to states to provide direct relief to the needy• The Agricultural Adjustment Act sets prices on farm crops while trying to reduce overproduction• CCC provides jobs for 250,000 single men 18-25 years old working in forests, parks, etc

Chapter 32: The Human Impact of the Great Depression

How did ordinary Americans endure the hardships of the Great

Depression?

The Country in Economic Distress• Unemployment– From 1929 - 1933 almost 1 in 7

businesses failed– 1929: 3.1% unemployment / 1933: 25% – The unemployed had little to spend,

businesses lost customers, so they closed = increasing unemployment

• Farms lost half their value– Foreclosure (lose the farm, the $, the

home, the livelihood)– Tenant farmers and sharecroppers in the

South fared even worse • Mississippi annual income fell from $239.00 in

1929 to $117.00 in 1933

Financial Stress Affects Families• Financial stress leads to

psychological stress as adults lose their jobs, status, authority and self-respect

• Marriage and birth rates declined• Divorce rates declined– Couldn’t afford to live separately– Couldn’t afford the legal fees

• Families lost their homes = eviction• Teenagers left home in search of

work

Financial Stress Affects Families• Hoovervilles spring up• Estimated that 1 in 5 New York children

were malnourished and a lack of proper nutrition made people vulnerable to disease– Couldn’t afford medical care– Soup kitchens and breadlines multiplied

The Dust Bowl: Natural Disasters

Intensify the Suffering

• The drought of 1931 lasted for several years, and

millions of people had fled the area by the time it

lifted.

• Agricultural practices in the 1930s left the area

vulnerable to droughts creating desertification• Overfarming

• Increased grazing

• Land once covered with protective grasses was now bare,

with no vegetation to hold the soil in place.

• When wind storms came, they stripped the rich topsoil

and blew it hundreds of miles. The dust sometimes flew

as far as the Atlantic Coast.

• Dust mounds choked crops and buried farm equipment,

and dust blew into windows and under doors.

Like the Joads in the Steinbeck novel, The

Grapes of Wrath, families head to

California to escape the Dust Bowl

While droughts continued in the West, floods plagued the East and indicated a need for federal

action

Struggling to Get By• 80,000 students drop out of college between 1932 –

1933• Took any jobs available simply to keep a paycheck

coming (better than receiving a government handout)• Those who were still employed worked fewer hours

for less pay• Americans responded

favorably– Charitable giving

increased– Even Al Capone

financed a soup kitchen

• Public assistance though, was running out

Chapter 33: The New Deal and Its Legacy

How did the expansion of government during the

New Deal affect the nation?

The “First” New Deal• Shoring up the Financial Sector– Emergency Banking Act, FDIC, SEC

• Shoring up Free Enterprise– NIRA creates the NRA• An increase in government

regulation and economic planning• Helps business with price controls

to limit competition• Unions get minimum wages and

collective bargaining• The unemployed get more public

works projects

• To help farmers– AAA to reduce production and raise prices

• To promote economic development– TVA to “electrify” the Tennessee Valley and

provide flood and erosion control

• To help homeowners– Home Owners’ Loan Corp. to

help meet mortgage payments– FHA to insure loans

• To help the “forgotten man”– CCC for jobs – FERA for direct relief

New Deal Critics• From the Right (conservatives)– Too radical, too much, unconstitutional

• From the Left (liberals)– Not enough action, not enough help• Dr. Francis Townsend proposes a $200.00

monthly payment for everyone over the age of 60• Charles Coughlin (a “radio” priest) claims

FDR has out-Hoovered Hoover and wasn’t doing enough• Huey Long, a Louisiana senator, launches a

“Share our Wealth” campaign for guaranteed jobs and guaranteed incomes

The Second New Deal• Beginning in 1935: more legislation–When is the next election going to

occur?

• WPA hires musicians, writers, artists, construction workers– Eventually the WPA hires 7% of the

American workforce

The Supreme Court Attacks the New Deal

• Strikes down the N.I.R.A.– No presidential power to

issue “codes of fair competition”

• Strikes down the A.A.A.– “beyond the powers

delegated to the federal government”

• FDR tries to add additional justices to “pack” the Court in his favor– Bad idea, much public anger over

the scheme

…And Even More• Wagner Act (National Labor Relations

Act)– The Bill of Rights for organized labor– Union membership climbs to 28% of the

total labor force

• Social Security– Retirement and disability

The Impact(s) of the New Deal• A good deal for workers

– Secured the right to form unions– Secured the right to bargain collectively

• A mixed deal for women– The influence of FDR’s wife Eleanor was huge– An unprecedented number of female workers

were hired by FDR’s administration– Not all women fared well as society was slow to

change

• A disappointing deal for African-Americans– Oppression didn’t change– Even New Deal agencies practiced segregation

The Impact(s) of the New Deal

• A better deal for American Indians– Commissioner of Indian Affairs, John Collier,

reversed some harmful policies of previous administrations

• A tough deal for Mexican Americans– The AAA didn’t help migrant Mexican farm

workers–Mexican laborers were not citizens and not

entitled to any New Deal relief

• A New Deal Coalition for Democrats–Women + minorities + industrial workers +

immigrants + southern whites + city dwellers

Foundation for the modern welfare state (government responsibility) and

deficit spending becomes the norm