The Great Depression and the New Deal

1. The Great Depressionandthe New Deal

2. Causes • Economic downturn began in 1927 • Americans spent at a rate exceeding the growth in salary and wages • Consumers ran out of cash and credit • Spending declines • Housing construction slowed • Manufacturing inventories piled up • 1928: production cut back and workers lost jobs • Incomes reduced • Further contributed to economic slowdown

3. The Crash • Stock prices surged 40% in 1928-29 • Investors created speculative frenzy • Bubble burst • Black Thursday: 10/24/1929 • Black Tuesday: 10/29/1929 • Over 28 million shares change hands in panic trading • Almost over night, stock values fall from $87 billion to $55 billion

4. The Economic “Back Story” • Agricultural products selling at low prices • Average farmer annual salary ~1/3 other workers • Farmers = ¼ of nation’s workers • Low agricultural buying power pulled down rest of economy • Railroads fall on hard times • Advent of automobile and truck travel reduced rail revenues • Several railroad companies bankrupt

5. The Economic “Back Story”2 • Coal suffers, too • Over-expanded • Obsolete machinery • Bitter labor struggles • Sharp competition • Hydroelectric • Fuel oil • Natural gas

6. The Final Straw • Unequal distribution of wealth in 1929 • Top 5% American families received 30% of aggregate income • Bottom 50% of American families received ~ 20% • Most spent on food and housing • Once Depression began, majority of people didn’t have enough purchasing power to revive economy.

7. Massive Social Impact • Wiped out savings of thousands of investors • Severe blow to banks • Had invested heavily in corporate stocks • Had lent money to speculators • Hundreds of banks failed • Many banks were uninsured so depositors lost some if not all of their savings • “Run on the banks” • Frightened customers withdrew their savings from solvent banks which then shut their doors, making things worse

8. Source: America’s History (6th Ed), bedfordstmartins.com/henretta

9. Panic Becomes Depression • US gross domestic product fell by ~ ½ between 1929 and 1933 • Consumption dropped 18% • Construction dropped 78% • Private investment dropped 88% • ~9,000 banks failed or closed • ~100,000 businesses failed • Unemployment  from 3.2 % to 24.9% • 12 million unemployed • If worked, many took wage cuts • Economic stagnation solidified

10. Worldwide Depression • President Hoover later blamed severity of American Depression on international economy • In 1920s, international credit depended on American banks and corporations making loans and investments in European countries • Remember those reparations and war debts? • To buy American goods

11. First comes… • American production cuts, then… • American purchase of international raw materials and supplies, thus… • Reduced demand for • Argentine cattle • Brazilian coffee • Chinese silk • Mexican oil • Indonesian rubber • African minerals • Then comes worldwide depression

12. Herbert Hoover • 1928 presidential campaign • predicts “final triumph over poverty” • insisted economic downturn temporary • 1930: told group of businessmen that the Depression was OVER! • Called upon corporate leaders to maintain wages and production levels • Work with govt to rebuild Americans’ confidence in capitalist economic system

13. Government Programs • Cuts in federal taxes • Asked state & local govts to increase capital expenditures on public works • The Revenue Act of 1932 didn’t work • Increased taxes & lower interest rates • Discouraged consumption and investment • Refused to consider direct federal relief for unemployed Americans • Reliance on private charity as the “American Way” • Would create a permanent class of dependent citizens.

14. Reconstruction Finance Corp. • Hoover’s initiative • Approved by Congress in 1932 • Continued into New Deal • Modeled on War Finance Corp of WWI • Federal loans to railroads, financial institutions, banks, & insurance companies • “Pump priming”: “pump” money into economy thus increase production and increase jobs/consumer spending • Didn’t go far enough

15. Source: America’s History (6th Ed), bedfordstmartins.com/henretta

16. Hoovervilles Seattle, WA 1937 Source: www.washington.edu/.../Graphics/Hooverville.jpg

17. Protest during Hoover Years • Coal miners strike in Kentucky in 1931 • Over 10% salary reduction • Police violence • Crushed the union • Demonstration at Ford’s River Rouge plant in 1932 • 3 deaths • 50 serious injuries • 1932: Farm Holiday Association formed • Dumped food on the roads • Rather than reach market at below production costs

18. The Bonus Army • Summer 1932 • ~1,500 unemployed WWI Veterans • Hitch-hiked to DC to demand their bonuses for fighting in WWI • Due for payment in 1945 • “We were heroes in 1917, but we’re bums now.” • Lobbied Congress • Refused to vacate camp • Gen. MacArthur led Army troops at Hoover’s instruction to disperse marchers

19. Communist Party • Organized and participated in some protests • Remained a small organization of only 12,000 members

20. Election of 1932 Source: America’s History (6th Ed), bedfordstmartins.com/henretta

21. Photograph of President Herbert Hoover and President-elect Franklin Roosevelt enroute to Roosevelt's inauguration, March 4, 1933. Source: http://www.historynow.org/03_2009/historian3.html

22. Roosevelt’s Leadership • New Deal = FDR’s complex set of responses to the Great Depression • Unprecedented involvement by the federal govt in relieving suffering while also conserving country’s political and economic institutions • FDR’s ideology not all that different from Hoover’s but FDR willing to experiment with new programs • Programs that put people to work and instilled hope in the future.

23. Roosevelt’s Leadership, 2 • Responded to problems based on shifting political and social conditions NOT ideology. • Developed close rapport with American people • “The only thing to fear is fear itself.” • Fireside chats broadcast over the radio • FDR’s personal charisma contributed to his ability to create modern presidency and increase role of executive branch • Policy formulation through Cabinet and Brain Trust.

24. The Hundred Days • First 100 days in office • Declared a “bank holiday” and called Congress into special session • Emergency Banking Act • Banks could reopen after a Treasury Department inspection • First of 15 major pieces of legislation enacted by Congress during these 100 days. • First Fireside Chat assured people that banks were safe. • When banks reopened, people responded with more deposits than withdrawals.

25. The First New Deal, 1933-1935 • The “Alphabet Agencies” • Homeowners Loan Corporation to refinance home mortgages • Glass-Steagall Act to cut speculation • Federal Deposit Insurance Corporation to insure deposits up to $2500 • Civilian Conservation Corps • 250,000 young men to work in reforestation and conservation work • Tennessee Valley Authority • Regional development and public energy

26. The First New Deal, 1933-1935,2 • Full repeal of Prohibition in December 1933 • Agricultural Adjustment Act • Seven major commodities: wheat, cotton, corn, hogs, rice, tobacco, dairy products • Cash subsidies to farmers who cut production to encourage price increases • Unintended consequences: • Migration of farmers in South & Midwest to northern cities and California • Consolidation of political influence of larger landholders

27. The First New Deal, 1933-1935,3 • National Industrial Recovery Act • National Recovery Administration • System of industrial self-government to handle problems of over-production, cutthroat competition and price instability • Established price and production quotas • Set minimum wages and maximum hours • Outlawed child labor • Gave workers union rights (Section 7a) • Unintended consequences: code-drafting process dominated by large businesses at expense of small businesses.

28. The First New Deal, 1933-1935,4 • Federal Emergency Relief Admin. • May 1933; headed by Harry Hopkins • Federal money to states for relief programs • Designed to keep people from starving until other recovery measures took hold • Program existed 2 years • Spent $1 billion • Whenever possible, promoted work relief over cash handouts • Favored jobs not in competition with private sector

29. The First New Deal, 1933-1935,5 • Public Works Administration • Headed by Harold L. Ickes • 1933: $$3.3 billion appropriations • Ickes too cautious in initiating public works so very limited effectiveness • Civil Works Administration • November 1933 • Put 2.6 million men & women to work • At peak, as many as 4 million in public work jobs • Ended following spring after all funds were spent.

30. The First New Deal, 1933-1935,6 • April 1933: abandoned international gold standard • Federal Reserve System set value of dollar based on changing economic conditions • Securities & Exchange Commission • Established 1934 • Regulate stock market and prevent abuses • Banking Act of 1935 • Control of money-market policies at federal level instead of regional banks • Encouraged centralization of nation’s banking system

31. New Deal Under Attack • Liberty League • 1934 • Business leaders and conservative Democrats • Lobbied against the New Deal with its “reckless spending” and “socialist” reforms • Schechterv.United States • US Supreme Court • National Industrial Recovery Act was unconstitutional • Delegation of legislative power to the executive branch

32. New Deal Under Attack,2 • Francis Townsend • New Deal not going far enough • Proposed the Old Age Revolving Pension Plan • Started as a letter to the editor • Townsend Clubs formed all over the US

33. New Deal Under Attack,3 • Father Charles Coughlin • Organized National Union for Social Justice • Demanded nationalization of banking system and expansion of money supply • Started out broadcasting weekly sermons • 1930s, shifted broadcast to politics • Originally supported FDR then challenged FDR • Promoted “social justice” http://www.socialsecurity.gov/history/cough.html

34. New Deal Under Attack,4 • Senator Huey “Kingfish” Long of Louisiana • 1934: broke with Democrats and founded “Share Our Wealth Society” • “Every man a king.” • Guarantee annual income of $5000/year • Old age pension if over 60 http://www.pbs.org/kenburns/hueylong/film/ http://www.ssa.gov/history/hlong1.html

35. The Second New Deal • Frances Perkins • Secretary of Labor 1933-1945 • First woman cabinet member • Wagner Act of 1935 • National Labor Relations Act • Upheld right of labor to join a union • Established nonpartisan National Labor Relations Board to protect workers’ rights http://www.ssa.gov/history/fperkins.html

36. The Second New Deal,2 • Social Security Act of 1935 • Pensions for most workers in private sector to be financed by federal tax paid by both employers and employees • Established joint federal-state system of unemployment compensation • Milestone in creating modern welfare state • Mandated categorical assistance for the blind, deaf, disabled, and dependent children

37. The Second New Deal,3 • Works Progress Administration • Harry Hopkins (Brain Trust) • Main federal relief agency for remainder of Depression • Relief workers directly on federal payroll • 1935-1943: employed 8.5 million Americans and spent $10.5 billion. • Federal Arts Project • Provide art works for non-federal public buildings • Provide work for unemployed artists on relief rolls

38. Federal Arts Project Art in Arlington Apple Harvest An Old Fashioned Picnic at Great Falls Early Indian Life on Analostan Island Arlington Polo Players at Fort Myer

39. Federal Arts Project Art in Arlington, 2 Captain John Smith Meets the Massawomeck Indians Tobacco Picking in the Late Colonial EraRobert E. Lee Accepting Command of the Armies of Virginia Paintings by Auriel Bessemer, a New Deal Era artist. Paintings funded by the FAP and on display at the Post Office in Clarendon. http://www.arlingtonarts.org/specialevents.htm#mural

40. The Second New Deal,4 • Revenue Act of 1935 • Increased corporate and estate taxes • Higher personal income tax rates in top brackets • “Soak the Rich” Law • Further alienated wealthy conservatives • Provided political “mileage” against potential opponents like Huey Long.

41. Election of 1936 • New voters joined Democratic Party • Coalition of organized labor, Midwestern farmers, white ethnic groups, northern African-Americans, and middle-class families • Also supported by intellectuals, many Jewish voters, and progressive Republicans • Held on to traditional support of Southern Democrats

42. Election of 1936, 2 • Republicans run Alfred M. Landon, Governor of Kansas • Did not oppose New Deal directly • Accepted “legitimacy” of New Deal programs • Attacked these programs’ inefficiencies and expense • Hinted that FDR harbored similar dictatorial ambitions as Mussolini and Hitler • FDR wins in landslide with 60.8% popular vote • Lost only Maine and Vermont

43. We now interrupt this broadcast to bring you a message about some key terms.

44. “Social Welfare’ Liberalism • The liberal ideology implemented in the US during the New Deal of the 1930s (and later during the Great Society of the 1960s). • Uses financial and bureaucratic resources of state and federal governments to provide economic and social security to individual citizens, interest groups, and corporate enterprises. • Include pensions, unemployment compensation, subsidies to farmers, tax breaks for corporations, etc.

45. Classical Liberalism • Political ideology in England and US during 19th Century. • Celebrated individual liberty, private property, competitive market economy, free trade, and limited government. • Late 20th Century has seen many economic and social conservatives embracing the principles of classical liberalism in contrast with “social welfare” liberalism.

46. Deficit Spending • Government spending in excess of tax revenues. • Why should governments be any different from individuals? ;-)

47. Keynesian Economics • British economist John Maynard Keynes • Late 1930s • Government should be prepared to go into debt (i.e., deficit spending) to stimulate a stagnant economy. • Purposeful government intervention in the economy (raising/lowering taxes, interest rates, government spending) can affect the level of overall economic activity and thus prevent severe depressions and runaway inflation. • Theory subscribed to by FDR’s administration

48. Cultural Pluralism • Term coined in 1924 • Diversity, especially religious and ethnic, can be a source of strength in a democratic nation. • Cultural differences should be respected and valued

49. We now return to our regular programming.

50. Packing the Court • FDR is mad at the Supreme Court for deciding against New Deal legislation • FDR is impatient because Supreme Court Justices serve for life and it might be a long time before he could change the “nature” of the court. • Proposed adding a new judge for every judge over 70. Would have increased number of judges from 9 to 15. • Doesn’t make it through Congress.