CRASH DEPRESSION AND THE NEW DEAL 1920 s

CRASH, DEPRESSION, AND THE NEW DEAL

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

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

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

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 effect on the economy

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

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

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

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

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

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

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"

Isolated Protest Movements • Dairy farmers • frustrated w/low price of milk • refuse to sell (dump it) • WW 1 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

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

THE NEW DEAL • FDR’s program to fight the Depression • Revolution in 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

• 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)

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

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

The Annual Move by Otis Dozier, 1936

Construction of the Dam by William Gropper

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

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

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

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 WW 2

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

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

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

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

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…