The Great Depression

BeginsChapter 251929-1932

Brother can you spare a dime?

Definition

A worldwide economic downturn that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world, sparking fundamental changes in economic institutions, macroeconomic policy, and economic theory.

The Great DepressionOptimism thrived during the prosperity of the 1920’s, but it was a prosperity flawed by, among other things, overextension of credit and inadequate worker purchasing power. When economic well-being gave way to recession in 1929 and ultimately depression, the shock discredited constitutional government in those nations lacking a strong liberal tradition and already bedeviled by frustrated nationalists. Leaders complained in Germany, Italy, and Japan that their nations did not have fair access to raw materials, markets, and capital investment areas, all of which were necessary for their economic health. They argued that their nations were the victims of economic warfare—with its protective tariffs, managed currencies, and cutthroat competition—and that they had been left behind in the race for economic self-sufficiency and a favorable balance of trade. They made it plain that they would fight, if necessary, for a better economic status.

Because they felt that democracy had failed, the people of those countries looked with increasing favor on antidemocratic elements that glorified war as the means of national salvation. In Italy, Mussolini’s cries that Italians needed both colonies and glory struck a responsive chord. In Germany, Hitler’s National Socialists gained power in 1933. Meanwhile Japanese militarists won a preponderant influence in the inner circle of their government. America lost a lot of its freedoms to a socialist method of government and strong arm tactics to confiscate the nation’s gold and make it illegal to own it.

OBJ #1 - Describe the CAUSES and SPARK of the Great Depression. How did Overproduction affect both farmers and industry? What system collapsed and caused millions to lose their savings? Explain how “Buying on Margin” created the Spark. How did people lose money because of the spark?

I. OBJ #1- Cause & Spark of the Depression

A. Causes of the Depression

1. Overproduction, too much stuff (Factories and Farms)

a. Factory Workers begin to get laid-off

- Workers cannot buy goods, even more goods are overproduced

b. Farmers Can’t Survive

- -low prices (can’t pay loans / make a living)

c. Supply & Demand- Prices Drop

2. Bank Failures

a. Banks close and loose $$$

b. People default on loans (Can’t pay back)

c. Banks cannot cover their deposits, because it was lent out to bad creditors **5,000 banks close between 1929-1932**

d. People lose entire LIFE SAVINGS

The Government’s Portrayal of the Crash’s Problems

Factories making too much; Farms growing too much

Factories fire workers (They aren’t needed)

Farm prices fall (Farmers can’t make $$)

Farmers & Factory Workers can’t pay back loans to Banks:

DEFAULT!!

Banks close because they have no money: Loans have not been paid back, can’t give people their savings

BANKS have NO $$

PEOPLE LOST SAVINGS & JOBS

Economy has to reset through deflation or new markets have to be created

The government steps in to control

=+People Default on Loans

Banks have no money to give people

Banks Close

People Loose savings

OBJ #1- Cause & Sparks of Depression

B. SPARK!!! Of the Depression1. Stock Market Crash, Black Tuesday, 29 Oct 1929

a. Summer 1929, Investors begin to sell stocks

b. Supply & Demand– Massive Sell-Off and prices begin to tank

2. How???

a. Buying on Margin (Borrowing $$)

- Buy stock by just paying a small portion of what the stock is worth—sometimes as low as 10%

ex.- 100 shares at $10= $1000 only pay $300

still owe $700

- Problem: stocks crash, margins are called in, you loose your money and can’t payback your stock broker

- stock broker can’t pay back bank

- there is no such thing as a free lunch because the government was not going to print more money and devalue the purchasing power of the dollar

Hoover admn started to intervene

FDR admn started to intervene

1. OBJ. #2 – Affects of the Depression1. Jobless / Homeless

1. 1930-1932 – Unemployment goes from 4 to 12 million—25%

2. People are desperate!!!!

2. Blame for President Hoover1. Said it is NOT the government’s job to help the poor.

There was no such thing as government welfare until the government started meddling

1. Said churches, philanthropists, and other groups should help

2. PROBLEM: The Hoover administration started to help and prolonged the recession. Hoover’s programs were expanded by FDR and the recession turned into the Great Depression

2. People named poor places after Hoover1. Hooverville- Shanty towns

2. Hoovermobile- cars pulled by mule

3. Hobos- look for jobs traveling the rails

4. Hooverblankets- newspapers used as blankets by homeless

OBJ #2 -Describe how the Great Depression affected people. Who was the president when it started, and what did he do to help? Who tried to help the poor and what problems did they have? How did people try to escape the Great Depression?

OBJ #2- Affects of the Great Depression

1. Bonus Army1. WWI veterans who were promised a

monetary bonus in 19451. Veterans wanted it NOW (1932)

1. Veterans go to Washington and “camp out”

2. Hoover sends in the Army (Eisenhower, MacArthur), used tear gas, machine guns, and burned the camp down of our own war veterans.

OBJ #2- Affects of the Great Depression1. Escaping the Depression

1. Radio- Comedies, Soap Operas2. Movies- Shirley Temple, Child Actors

1. Snow White (first full-length animation)

2. Wizard of Oz1. Small girl escaping the Dust Bowl

3. Literature1. Steinbeck, Grapes of Wrath

1. About a family of ‘Okies’ escaping the Dust Bowl and how horribly they were treated

2.

Wizardof

OZ

OBJ #1- Cause & Sparks of Depression

QUICK REVIEW:

• Causes: • Overproduction• Over-speculation• Bank Closings

• Spark: • Stock Market Crash

• Results: • Unemployment• Life Savings Lost

Causes of the Great Depression Vocabulary Development

What are some affects?

Great Depression

What are some causes and sparks?

Definition

.

Causes of the Great Depression Quiz1. What countries said that they were in

economic warfare?

2. Give a cause of the Great depression and accompanying statistic?

3. Give an affect of the Great Depression

4. Who was blamed for the Great Depression?

5. What did the Bonus Army want?

Its not Football!The Dust Bowl is a popular name for the approximately 150,000- sq./mi. (388,500- sq./km) area that includes the Oklahoma and Texas panhandles and adjacent parts of Colorado, New Mexico, and Kansas. The area is characterized by light soil, a low annual rainfall of 15 in. (380 mm), and high winds.

The first white settlers used the region for livestock grazing. Early in the 20th century, however, farmers began to plow up the natural grass cover and planted winter wheat. The area suffered from severe drought between 1934 and 1937, and without the complex root system of the grasses to anchor it, much of the soil was picked up by the winds. The resulting dust storms and sandstorms were so severe that roads and houses were buried, and clouds from the storms were observed hundreds of miles away. More than half the population left the area. The federal government replanted grass, planted trees, and introduced scientific agricultural methods, and as a result farming became possible again. The Dust Bowl endured other, less severe droughts in the 1950s and ‘60s. The migration and hardships of the Dust Bowl farmers are described in John Steinbeck’s novel The Grapes of Wrath (1939).

OBJ #3 - Describe the natural disaster that affected the U.S. during the Great Depression. What was the disaster’s nick-name? What caused the disaster? Where did the people go to try and escape their troubles and how were they treated (nick-names for these people)?

1. Natural Disaster “The Dust Bowl”1. Great Plains suffers a huge drought (1931)

1. Causes1. Drought—no rain

2. New technology—tractors and steel plows tear-up the prairie grasses that was holding onto soil, drought turns open soil into a sand box

2. Huge dust storms cover ‘Great Plains’

2. Results1. Can’t pay banks—banks take farms

2. Many Great Plains farmers move to California1. Try to get jobs on large farms

2. Treated poorly in California1. ‘Oakies’ & ‘Arkies’ not wanted in the West

Great Depression Statistics(The Hoover Years- How did he do?) Real GNP fell by 30% between the years 1929 and 1933.

Unemployment at its worst was 25%

Corporate profits were negative in 1931, 1932, and 1933.

Hoover’s incessant meddling with the economy with government interventions turned the recession of 1929 into the Great Depression.

Hoover implored big business to keep wages high (which they did) while prices were falling causing mass unemployment.

Federal Farm Board subsidized farmers and bought their crops above world market prices to hold the crops off the market for prices to rise. Canada and Argentina filled the world void and America was stuck with the crops. There were too many farmers!

Smoot-Hawley Tariff increased the price of exports by 59% and foreign countries retaliated against us, especially the automobile industry.

Andrew Mellon, Secretary of the Treasury, did an about-face and championed a massive tax increase from 25% to 63%. Vast spending on public-works in 4 years out spent the previous 30 years.

Dust Bowl and Hoover’s Statistics Graphic Organizer

Dust Bowl Statistics

ExamplesExamples

Great Depressio

n

Dust Bowl and Hoover’s Statistics Quiz

1. What states does the Dust Bowl consist of?

2. How did the Dust Bowl occur?

3. What novel, later movie, was written about the Dust Bowl?

4. What was the highest unemployment percentage?

5. What did Secretary of Treasury Mellon do with the income tax rate?

Roosevelt and the New Deal

1933-1941

OBJ #1 - Describe Franklin Roosevelt’s approach to fixing the Great Depression. What problem did Roosevelt exacerbate first and how? What was Roosevelt’s plan called? Name the three major goals of his plan?

1. The New Deal1. President Roosevelt elected (1932)

2. NY Progressive (governor)1. Brain Trust—Used professors and government experts (some of whom

were socialists) to develop programs to fight the depression

2. Promised “New Deal” for Americans (based on his cousin’s Square Deal

3. Progressive experiment and change to fight Depression through Keynesian economics (spend your way out of debt)

1932 Electoral College Votes

OBJ #1- Fixing the Depression “New Deal”

A. Fixing Banks!!!

1. Declared a banking crisis

a. Closed ALL banks/ 4 day “Bank Holiday”

b. Emergency Banking Relief Act- Passed by Congress, allowed only sound banks to reopen, the rest remained closed

2. Fireside Chat- told Americans by radio that the good banks were safer than putting their savings in a mattress

(30 more ‘chats’ that Americans listened to during his presidency)

America Wants a New Deal

1. FDR mandates his landslide election as an end to prohibition and help to Americans at every facet of life and business.

1. The New Deal provided government relief (relief is the depression era term for “welfare”) for the unemployed through the Civilian Corps, which employed workers to do conservation work, through the Federal Emergency Relief Administration, which employed 4 million people in make-work jobs.

2. Homeowners benefited from the creation of the Home Owners Loan Corporation, which provided loans to people in danger of having their mortgages foreclosed, and the Federal Housing Administration, which provided funds for building and repairing houses.

3. The Agricultural Adjustment Act made direct payments to farmers to decrease production. Government paid farmers to do nothing.

4. Business was artificially strengthened by the National Recovery Act, which established industry codes to regulate policy on wages, prices, hours, and other items. The construction industry got a boost from the Public Works Administration.

5. Labor unions benefited from Section 7a of the National Industrial Recovery Act (NIRA), which guaranteed them the right to organize and bargain collectively.

America Wants a New Deal (cont’d)

1. General projects were undertaken in the name of conservation.

1. The Tennessee Valley Authority (TVA) was a New Deal program created to develop the Tennessee Valley through projects to control floods, improve navigation, irrigate land, and generate electricity.

2. The TVA built scores of dams that created a waterway between Knoxville, Tennessee and Paducah, Kentucky, improved land management, and brought electricity of millions of homes.

3. The TVA was criticized as a governmental interference in free enterprise.

4. Other New Deal conservation measures included the building of the Hoover, Bonneville, and Grand Coulee dams and the planting of trees to curb erosion in the Dust Bowl.

President Franklin D. Roosevelt signs the TVA Act on May 18, 1933. The president is surrounded by various members of Congress from the TVA region, and at his left shoulder is Senator George Norris of Nebraska, after whom Norris Dam is named.

Browns Ferry Nuclear Plant in Athens, Alabama, has three boiling reactors, each with a generating capacity of more than 1,100 megawatts. In the summer of 1999, TVA’s nuclear plants set new records for efficient operation and helped the corporation meet an all-time peak demand of 28,295 megawatts on 30 July.

OBJ #1- Prolonging the Depression “New Deal”

C. A NEW DEAL

1. People were skeptical, Roosevelt sends bills to Congress

2. NEW DEAL BEGINS- 3 Goals:

a. Relief for Unemployed

b. Plans for Recovery

c. Reforms to Prevent more Depressions

3. Major New Deal Programs

a. Unemployment

*CCC- Civilian Conservation Corp

*PWA- Public Works Administration

*TVA- Tennessee Valley Authority

b. Recovery Plans

*NRA- National Recovery Act

*AAA- Agricultural Adjustment Admin.

c. Prevention Reforms

*FDIC- Federal Deposit Insurance Corporation

*SEC- Securities and Exchange Commission

(Have you seen any of these today?)

Hundred DaysCivilian Conservation Corps (CCC)

Federal Emergency Relief Administration (FERA)

Civil Works Administration (CWA)

Federal Securities Act*- May 1933

Federal Trade Commission* (FTC)

Security & Exchange Commission (SEC)

Home Owner’s Loan Corporation (HOLC)

Federal Housing Administration* (FHA)

Agricultural Adjustment Act (AAA) National Recovery Administration (NRA) Public Works Administration (PWA)

Federal Deposit Insurance Corporation* (FDIC)

Tennessee Valley Authority* (TVA)

6,000 men employed to build a scenic boulevard in San Francisco, CA

Hundred Days (cont’d)SECOND NEW DEAL

Social Security Act*- Aug 1935

Emergency Relief Administration Act- Apr 1935 Works Progress Administration (WPA) National Youth Administration (NYA)- Jun 1935

Rural Electrification Administration (REA)

Resettlement Administration (RA)

National Labor Relations Act (Wagner Act)

Bituminous Coal Conservation Act

Farm Security Act- 1938

U.S. Housing Authority- 1937

Second Agricultural Adjustment Act- 1938

Fair Labor Standards Act- 1938

* These acts are still in existence today

Anti-relief protest sign, near Davenport, Iowa, 1940

OBJ #4- Fixing the Depression “New Deal”

D. Results- Did NOT end the Depression, prolonged it!

1. Most of the Supreme Court, businessmen,

Constitutionalists disliked New Deal

2. Gave country false confidence

a. Ended banking crisis (banking welfare)

b. Helped with public sector jobs

c. Infrastructure (buildings, schools, bridges, electricity, artwork)

These were the same measures the Nazis were using.

New Deal Graphic Organizer

Fixing Second New Deal ResultsProlonging

The New Deal Begins Quiz1. What kind of economics did the New Deal use?

2. What was the name of the group of professors and government officials Roosevelt used to create the New Deal?

3. What was the depression era term for “welfare?”

4. Name one of the many government agencies that the New Deal created and what it did.

5. What were the three goals of the New Deal?

The New Deal Continues and Draws Criticism

Most critics of the New Deal said that the government was giving away too much money. The New Deal was also criticized by such individuals as Senator Huey P. Long, Dr. Francis Townsend, and Father Charles Coughlin for not spending enough money to help the needy.

The Social Security Act established benefits for: Retired workers paid out of a fund to which both employers and employees would

contribute Health and child welfare program The unemployed from a payroll tax on employers Aid to widows, dependent children, blind people, and people with handicaps was funded

by equal federal and states grants

The WPA was established under the Emergency Relief Administration to provide immediate jobs to the unemployed. The National Youth Administration was established to provide jobs for high school and college students.

The National Recovery Act, the Agricultural Adjustment Act, and the Coal Conservation Act were declared unconstitutional by the Supreme Court.

OBJ #2 - Describe the reasons people opposed Roosevelt’s plan. Give two (2) examples of people who opposed Roosevelt. Why? What did the Supreme Court say about the early part of the New Deal? How did Roosevelt try and change their minds? What was the result?

V. OBJ. #5 - Critics of the New Deal

A. BIG BUSINESS!!!! (Gov’t doing too much!)

1. Gov’t can’t tell us what to do (unconstitutional)

B. FDR, not doing enough:

1. “Share Our Wealth”, Huey Long Gov. Louisiana

a. Heavy Tax on the wealthy

b. Give everyone- Home, Car, $$

c. Assassinated in 1935

2. Father Coughlin, “Radio Priest”

a. Mad at FDR for not being tough enough on big business

b. Hates communist, Unions, Jews (Hitler?)

3. Francis Townsend

a. Give pensions to anyone 60+, would get jobs to

younger people

Share Our WealthThe Long family of Louisiana dominated the political life of that state for more than 50 years. The founder of the political dynasty was Huey Pierce Long, Jr., b. Winnfield, LA, 30 Aug 1893, d. 10 Sep 1935. After studying law at Tulane University and gaining admission to the bar (1915), Long served on the state’s public service commission, making a reputation as a foe of corporate interests. A Democrat, he served as governor from 1928 to 1932. Long sponsored reforms that endeared him to the rural poor. He provided free textbooks for schoolchildren, built roads and bridges, and repealed the poll tax. Ruthless, cynical, and ambitious, Long ruled Louisiana in a dictatorial fashion and created a powerful political machine. In 1932, he left the governorship to serve in the U.S. Senate, where he gained a large following outside Louisiana by his advocacy of the “share-our-wealth” plan. By imposing high taxes on the rich, he promised to provide every family with a $5,000 homestead allowance and a guaranteed annual income of at least $2,000. By 1935, Long was a vitriolic critic of the New Deal and was considered a possible third-party candidate for the presidency in 1936. On 8 Sep 1935, however, he was shot by an assassin; he died two days later.

OBJ #2- Opponents of the New Deal (Against)

C. Supreme Court Reacts

1. 11 New Deal Plans ruled unconstitutional

2. Roosevelt Reacts: ‘Court Packing Scheme’

a. Wants Court raised from 9 to 15

-President chooses new judges

-New judges would favor New Deal

3. Friends & enemies very upset!!!

a. FDR wants TOOO much POWER

b. Congress with all friends won’t pass

law for FDR

4. FDR wins narrowly- By 1938 New Judges

a. 1 Justice switches, 1 Justice retires

The New Deal Draws to a Close1. Roosevelt had problems with the “Nine Old Men” of the Supreme

Court and his governmental reforms due to their constitutional interpretations.

1. Roosevelt devised a “court-packing plan” as a proposal that the President has the power to appoint a new Supreme Court justice for each one that did not retire at age seventy, up to a limit of fifteen. When the Paulist Catholic radio station of poor Father James Gillis in Chicago criticized the scheme, FDR directed the FCC to take their license away.

1. The plan was rejected by Congress and cost him public support.

2. FDR eventually replaced seven justices through resignations, retirements, and death throughout his unprecedented four terms.

2. The last of the New Deal1. New Deal measures passed in 1937 and 1938 included creation of the Farm

Security administration, creation of the United States Housing Authority, the second Agricultural Adjustment Act, and the Fair Labor Standards Act.

2. Wickard v. Filburn (1942) relegated home-grown personal use crops to federal regulation as interstate commerce.

3. The prelude to World War II and other world affairs began to take up more of the government’s attention. The war production was not geared to ordinary people’s needs. 40% of the labor force was military or war production. Tax monies from the 60% went to support the 40%, a great loss of material wealth. Unemployment was reduced through 11 million men drafted into the military.

Great Depression Statistics (The FDR Years) Rexford Tugwell, an important FDR New Deal figure, admitted, “We didn’t

admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”

Under FDR, the average unemployment was a staggering 18% from 1933 to 1940.

The National Industrial Recovery Act (NIRA) was a contradiction. It demanded high wages and minimum prices. Stimulating high unemployment and negating the rule of competition in a market economy and high prices.

While millions of Americans were hungry and destitute, FDR through the Soviet duped Secretary of Agriculture, Henry Wallace, ordered the slaughter of 6 million pigs and the destruction of 10 million acres of cotton. The Agricultural Adjustment Act (AAA) made food more expensive and paid farmers to produce nothing at all. If the market price is not high enough, the farmer sells to the government and the government stores massive surpluses waiting for prices to rise.

New Deal labor law and Social Security taxes added to the cost of wages and caused another 1.2 million unemployed in 1938. The Wagner Act of 1935 boosted unions and impoverished society. A study* in 2002 calculated labor

Bethlehem-Fairfield shipyards, Baltimore, Maryland. May 1943. “A drinking fountain.” [Sign: “White.”]

Great Depression Statistics (cont’d)(The FDR Years)

unions have cost us $50 trillion in lack of innovation and inefficiency in the past 50 years.

Public-sector (government) jobs “created with taxes” by the New Deal displaced or destroyed private sector jobs which would have created real income.

FDR’s public-works projects were rife with corruption. Distribution of projects around the country were unethical especially in the South where the poorest Americans resided and the least assistance from the WPA was received. Economic scholars found a correlation in FDR’s electoral needs and the spending of federal dollars. Western states received more because the South had given him 67% of their vote and was secure. WPA employees were pressured to vote, contribute a portion of their salary, and support FDR and his candidates through a Senate investigation committee.

*National Legal and Policy Center and the John M. Olin Institute for Employment Practice and Policy

Close and Criticism of the New Deal Semantic Map

Close and Criticism of New Deal

Culture

CapitalistEntrepreneu

rs

Opposing programs

Supreme Court

Statistics-Results

The Great Depression Quiz1. How many New Deal programs were ruled

unconstitutional?

2. What was the socialist program that Huey P. Long champion?

3. What was the government program started by FDR that prolonged the Great Depression?

4. Name some critics of the New Deal.

5. Did the New Deal end the Great Depression?