CRASH, DEPRESSION, AND THE NEW DEAL

1. CRASH, DEPRESSION, AND THE NEW DEAL

2. 1920's • Good economic times • Tues. Oct. 29th, 1929 – • NYC Stock market crashed • depression that would last until 1942

3. Stock Market • Invest in cos. by purchasing stocks • expect a profit • Booming 1920's economy, • $ were plentiful • banks were quick to make loans to investors • BUYING ON MARGIN • Investors only paid 10% of stock's actual value at time of purchase • balance paid at a later date

4. STOCK SPECULATION • Buy and sell stocks quickly • Make a quick buck • stock value increased • (Ex: G.E stock $130  $396/share) • Quick turnover didn't aid cos. • needed long term investments to pay bills • Unscrupulous traders • buy and sell shares to inflate stock value • False sense of security/confidence in the American market

5. Oct. 1929 • investors’ confidence dropped • market collapse • Panic Selling • Everyone sell at once • bottom fell out of market • many bankruptcies as banks called in loans • Even though a tiny minority traded stocks • they possessed vast wealth • crash had a ripple effecton the economy

6. Poor Americans • Mass consumption already low • Poor could afford to buy little • Unemployment rose • No gov't assistance at first • Economic Cycle • productivity cut back • further unemp. • purchasing power declined again • reduced productivity yet again Unemployment Purchasing PowerProductivity

7. PRODUCTIVITY AND UNEMPLOYMENT • 1920's • U.S. Eco. was based on Economic Cycle • Production of goods • demand had to be there • resulted in high employment and a healthy economy • 1924-27 Overproduction • productive capacity doubled • technological innovation • no new jobs were added • more consumer goods but not enough people to buy them

8. Uneven Distribution of Wealth • 0.1% at top owned as much as bottom 42% of American families • 42% below poverty line • Middle Class • 58% above the poverty line • not wealthy • had jobs from industrialization & consumerization • lost jobs when productivity declined • Low savings • cut back on purchases • Decline in consumption

9. President Hoover • Govt shouldn’t play active role • VOLUNTARY NON - COERCIVE COOPERATION • bankers/business • gave tax breaks in return for private sector economic investment • Organized some private relief agencies for the unemployed • HOOVER MORATORIUM • put a temporary stop to European WWI debt & reparations payments • Euro. countries were to purchase American goods instead to stimulate American economy

10. Early 1931 • These measures appeared successful, but then...... • TARIFF WARS • Smoot Hawley • high tariff to protect U.S. industry • hoped to stimulate purchasing of U.S. goods • fatal error... • Congress didn’t understand we’d become • GLOBAL ECONOMY • In retaliation • other countries passed high tariffs • no foreign markets purchased American goods • U.S. productivity decreased again

11. 1931 Continued • Soviets flooded world market with cheap wheat • 1/2 U.S. price • attempt to get money to pay Austrian banks • price was too low so couldn't • BANKERS’ PANIC • Austrian banks borrowed from German banks • appealed to the BANK OF INT'L SETTLEMENT • Austrian and German banks went bankrupt • German banks had borrowed from Americans, • U.S. banks began to go bankrupt • wiped out thousands of Americans’ life savings

12. AMERICANS REACT TO HOOVER • Increasingly unpopular • Persuaded Congress to establish • RECONSTRUCTION FINANCE CORPORATION • power to make emergency loans to banks • too little too late… • Wouldn't allow programs of direct gov'tal aid to individuals • didn't want to erode sense of "RUGGED INDIVIDUALISM"

13. Isolated Protest Movements • Dairy farmers • frustrated w/low price of milk • refuse to sell (dump it) • WW1 veterans • pensions discontinued by congress • march on Washington = BONUS MARCH (by BONUS ARMY) • reached Washington • set up shantytowns = HOOVERVILLES • food scraps = HOOVER-MEALS • hitchhiking journeys = HOOVER RIDES • After one year • forcibly dispersed by the Army

14. 1932 ELECTION • 1 out of 4 unemployed… • Nat'l income • 50% of 1929 • Hoover nominated • no hope • FRANKLIN DELANO ROOSEVELT • Dem - N.Y. Gov. • Won by landslide

15. THE NEW DEAL • FDR’s program to fight the Depression • Revolutionin American society • changed way gov't functions • First phase • eco. reform • FDR believed gov't involvement was crucial • Step 1- BANKING HOLIDAY • banks shut down • subject to gov't inspection • allowed to open when "healthy“ • people's confidence returned • they redeposited, allowing banks to invest in the economy

16. Step 2 - stock market reform • Security Exchange Commission • police the NYSE • first chmn. was Joseph P. Kennedy • practice of buying on margin regulated • Step 3 - put more $ in circulation • FDR went off the GOLD STANDARD • gov't could print more $ than Fort Knox gold reserves would allow • wages and prices increased • Inflation • dollar value lower • gave gov't spending power (Keynesian economics)

17. SPECIFIC PIECES OF LEGISLATION “Alphabet Soup” • National Industrial Recovery Act(NIRA) National Recovery Admin (NRA) • end animosity btwn labor and business • redirected to industrial growth • Fair labor codes • business challenged NRAwages • no child labor • shortened work hours • claimed communist • LIBERTY LEAGUE • Supreme Ct. overturned the NIRA & NRA • fed. gov't was exceeding its authority

18. TENNESSEE VALLEY AUTHORITY (TVA) • Promote hydroelectric power • Control flooding • Lower rates • Private industry • manufacturing fertilizer • fed. gov't. took ownership • nationalization v. privatization

21. The Annual Moveby Otis Dozier, 1936

22. Construction of the Damby William Gropper

23. 1933 - AGRUCULTURAL ADJUSTMENT ACT (AAA) • Aid Farmers • restore farmers' purchasing power • restore family farm • farmers cut back on crop production • pay them equivalent SUBSIDIES • Bad side: • food production down when millions starving • white landowners paid not to farm • got rid of Black tenant formers

24. 1935 - AAA declared unconstitutional • Too much control over individual states • Revised and introduced as new legislation • Food Stamp Act of 1939 • gave away surplus food to poor • guaranteed (small) farmers a market

25. UNEMPLOYMENT • Still a major problem • FDR • wary of gov't handouts • wanted people to earn their keep • gov't agencies were created – temporarily • CIVILIAN CONSERVATION CORPS (CCC) • 1933 • establish work for young men (18-25) • soil conservation • flood control • road construction • Blacks not permitted to enroll

26. Other Agencies • NATIONAL YOUTH ADMIN. (NYA) • jobs for young in urban areas • FED. EMERGENCY RELIEF ACT (FERA) • aimed at older workers • Worked well, but… • unemp. was still at 6 million in 1941 • solution for this would be the ind. boom of WW2

27. SOCIAL REFORM • after 1935 • New Deal turned to Social Welfare • more legislation • National Labour Relations Act (Wagner Act) • legitimized unions • collective bargaining • collective action (strikes, etc...) • outlawed blacklists & anti-union practices

28. Social Security Act (1935) • Feared by opponents • "creeping socialism“ • WELFARE STATE • unemployment insurance • old age pensions • Took some $ out of circulation • payroll deductions • purchasing power already low • only covered unemployed • 1936 - "Soak The Rich" tax

29. ELECTION OF 1936 • FDR won easily • v Repub. Alf Landon - Kansas governor • Victory gave FDR mandate to continue New Deal policies • First objective • reorganize Supreme Court • they disallowed some New Deal legislation • # of judges changed from 9 15 • "pack the court” • Judges retired • FDR appointed new ones • support New Deal

30. Late 1930's • FDR concerned w/int'l issues • Proposed no new major domestic reforms • ELECTION OF 1940 • FDR broke with tradition • ran a 3rd time • Both parties approved of (most) New Deal legislation • Wanted an isolationist foreign policy • FDR won in 1940 (and again in 1944)

31. IMPACT OF THE NEW DEAL • Third revolution in U.S. culture and politics • more gov't involvement • in context of traditional U.S. democracy (not socialist…) • Helped stimulate economy • only WWII would solve any lingering problems • Expansion of U.S. gov't in : 1) eco. = constant gov't intervention/deficit spending 2) social reform = welfare state - gov't was expected to play a role in any economic crisis • Fundamentally reformed (not transformed) American society…