WHATDUNIT? The Great Depression Mystery. THE AMERICAN ECONOMY WENT FROM UNPRECENTED PROSPERITY IN THE 1920s TO UNPRECIDENTED MISERY IN THE 1930s WHY?

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2 WHATDUNIT? The Great Depression Mystery THE AMERICAN ECONOMY WENT FROM UNPRECENTED PROSPERITY IN THE 1920s TO UNPRECIDENTED MISERY IN THE 1930s WHY?

3 The Roaring 20 s The new concept of credit People were buying: Automobiles Appliances Clothes Fun times reigned Dancing Flappers Drinking

4 Laissez Faire Economic Policy Prior to the Great Depression the US. Government ignored the business cycles of the US economy. The Government until FDR believed that the American Economy could fix itself.

5 I Signs of Economic Trouble Seven months after Herbert Hoover s inauguration in 1929, the stock market crashed. It was the beginning of the worst economic depression in United States history. How did it happen? A. Early signs of trouble 1. Many Americans had not shared in the prosperity of the 1920s textile workers and coal miners, for example. 2. Farmers faced hard times. Over-production kept farm prices low. 3. In the mid-1920s, the economy began to slow down, but no one noticed because at that time the government did not keep detailed statistics.

6 UNEVEN DISTIBUTION OF WEALTH * Many Poor and Very Few Rich! * Workers earn so little they can t buy the products they produce! * Wages were as little as cents per hour! * Even the best employer Ford Motor Company paid only $5.00/Day for a 6AM- 6PM shift!*

7 B. The Crash 1. By August 1929, some investors worried that the boom might end, 2. Other investors noticed the sell-off and began to sell their stocks, too. Stock prices began to fall. 3. Many investors had bought stocks on margin, that is, they had put down only part of the cost of the stock when they bought it and borrowed the rest from their stockbrokers. With prices falling, brokers asked investors to pay what they owed. Those who could not pay had to sell their stock to get money. Panic set in as desperate investors tried to sell millions of shares. Stock prices fell further. 4. When the stock market opened on Tuesday, October 29, a wild stampede of selling took place. Stock prices plunged. Stocks that had been valuable were now suddenly worthless. The day came to be known as Black Tuesday.

8 OVERSPECULATION GET RICH QUICK SYNDROME MARGIN BUYING LACK OF GOVT. REGULATION PANIC SELLING 29 MARKET CRASH

9 II Signs of Economic Trouble The period of economic hard times that followed the crash is known as the Great Depression. It lasted from 1929 to The stock market crash did not cause the Great Depression, but it did shake people s confidence in the economy. What had happened to the prosperity of the 1920s? A. Overproduction 1. Farms and factories produced vast amounts of goods in the 1920s, but wages did not keep up with prices. Thus, workers could not afford to buy many goods. As orders slowed, factories closed or laid off workers. B. Weakness in the banking system 2. In the 1920s, banks made unwise loans. For example, they lent money to people to buy stocks. When the stock market crashed, borrowers could not repay loans. Without money from the loans, banks could not give depositors their money back if they asked for it. 3. Between 1929 and 1932, more than 5,000 banks closed.

10 AGRICULTURAL OVERPRODUCTION INCREASED TECHNOLOGY GOOD GROWING CONDITIONS SUPPLY GREATER THAN DEMAND

11 This drought was caused by years of overgrazing, plowing, lack of rain, and wind erosion. The result was the Dust Bowl. The Dust Bowl hurt farmers of Oklahoma and Arkansas the most. In the 1930s, states from Texas to North Dakota had severe drought. They headed West along Route 66 looking for the land of milk and honey. Along the way and even at their final destination they were met with harsh resentment. Click on to the Photographs of the Great Depression Site to view a variety of pictures that depict the terrible conditions of this era.

12 INDUSTRIAL OVERPRODUCTION WAGES NOT KEEPING UP WITH INFLATION SUPPLY GREATER THAN DEMAND

13 C. Each economic disaster led to others 1. The stock market crash ruined many investors. Without money from investors, businesses could not grow and expand. 2. Businesses could not borrow from banks because banks were in trouble. 3. As factories cut back on production, they cut wages and laid off workers. Unemployed workers had little money to spend, so demand for factory goods fell further. Many businesses went bankrupt they were unable to pay their debts so even more people lost jobs. 4. The Great Depression led to worldwide economic crisis. American banks had loaned money worldwide. When they stopped making loans and demanded repayment of loans, banks in other countries began to fail

14 Why was this bad? Credit system People didn t really have the money they were spending WWI The U.S. was a major credit loaner to other nations in need Many of these nations could not pay us back

15 HIGH TARIFFS WE TAXED FOREIGN IMPORTS TO PROTECT OUR PRODUCTS UNDER HOOVER THE HAWLEY SMOOT TARIFF IS PASSED THE HIGHEST PROTECTIVE TARIFF IN US. HISTORY!!! FOREIGN NATIONS TAXED IMPORTS FROM THE U.S. IN RETALIATION HIGHER PRICES FED UNDERCONSUMPTION NATIONS STOPPED PAYING WWI DEBTS TO THE U.S.

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17 THE BUSINESS CYCLE BOOM/PROSPERITY/PEAK HIGH DEMAND DESIRE FOR MORE PROFITS = GREATER INVESTMENT = MORE PRODUCTION = HIGHER EMPLOYMENT = MORE DEMAND = HIGHER PRICES (INFLATION)

18 THE BUSINESS CYLCLE CONTRACTION/SLOWDOWN INFLATION/OVERPRODUCTION LESS PRODUCTION = LAY OFFS = LESS SPENDING = LOWER CONFIDENCE = LESS INVESTMENT = HIGHER UNEMPLOYMENT UNTIL SURPLUSES ARE USED UP

19 DEPRESSION = UNEMPLOYMENT GREATER THAN 12% BUSINESS CYCLE TROUGHS RECESSION = TWO SUCCESSIVE 1/4 s (3 MONTH PERIODS) OF DECLINING GDP (Is the market value of all officially recognized goods and services produced within a country in a given period of time. Indicates a countries standard of living)

20 THE BUSINESS CYCLE EXPANSION/RECOVERY HIGHER DEMAND SURPLUS REDUCTION = MORE PRODUCTION = RECALL OF WORKERS = MORE PURCHASING= INCREASED INVESTMENTS = ECONOMIC GROWTH

21 Bread Lines Bank Closings

22 Hard Times Unemployment

23 III Hard Times A. In the 1930s, many Americans no longer lived on farms. Millions lived in cities and worked in factories. When factories closed, the jobless had no money for food and no land on which to grow it. B. As the depression spread, unemployment soared. By the early 1930s, one in every four workers was jobless. Others worked short hours or took pay cuts. 1. On city streets, people sold apples and pencils, shined shoes, begged for money, and picked through garbage dumps. 2. Marriage and birthrates dropped. 3. Some families split up. Fathers, and even children as young as 13 or 14 years old, left home. Jobless men and women drifted from town to town looking for work. Some rode the rails, living in railroad cars. 4. People shared what they had. Some families doubled up, taking in relatives. 5. Jobless people suffered from the feeling that they had failed.

24 These marks where sometimes left on fences as one of many signs hobos traditionally used to alert each other to houses where they could get a handout, what approach might work best, and what houses were best avoided.

25 New York City Central Park Hooverville, winter early 1930s. Seattle s Hoovertown, early 1930s.

26 Every City Had this Problem

27 IV President Hoover Responses A President Hoover was concerned about the suffering, but he believed that the government should not become directly involved in ending the crisis, or it might become too powerful. He thought it was up to businesses to end the downslide. 1. At first, Hoover opposed government relief programs programs to help the needy. He called on business leaders to provide jobs, instead. 2. Hoover also called on private charities to help. Churches set up soup kitchens, places where the hungry could get a free meal. 3. As conditions grew worse, Hoover set up public works programs to provide jobs. Public works are projects built by the government for public use, such as schools, dams, and highways. 4. Hoover asked Congress to approve the Reconstruction Finance Corporation (RFC), which loaned money to banks, railroads, and insurance companies. Hoover hoped that saving these businesses would save jobs.

28 Herbert Hoover was president at the start Philosophy: We ll make it! What He Did: Nothing The poor were looking for help and no ideas on how to

29 5. Many people blamed the President for doing too little. They gave the name Hoovervilles to the shacks of the homeless. 6. Hoover did more to reverse hard times than any previous President, still his efforts were too little too late. 7. After the war, Congress had voted to give veterans a bonus, or sum of money on top of their wages, to be paid in In 1932, more than 20,000 jobless veterans marched to Washington to demand the bonus right away. This Bonus Army camped in a tent city along the Potomac River. 9.After the Senate rejected a bill that called for paying the bonuses immediately, local police tried to force the veterans to leave. Four people were killed. Finally the army moved into the camp and burned it to the ground. After the attack on the Bonus Army, Hoover lost what little public support he had left.

30 Thousands of World War I veterans camped along the Anacostia River in Washington, D.C., 1932 Chow Line: Bonus Army vets lining up for food distribution at the camp in Anacostia, U.S. Army led by General Douglas MacArthur burns the Hooverville encampment put up by the Bonus Army on the Anacostia flats, Washington, DC, U.S. Capitol building is in the background

31 V Franklin Delanor Roosevelt A. Who was Franklin D. Roosevelt? 1. Franklin Roosevelt, known as FDR, came from a wealthy family. In 1905, he married Anna Eleanor Roosevelt. 2.During World War I, FDR had served as assistant secretary of the navy. He later became governor of New York. 3. In 1921, Roosevelt was stricken with a severe case of polio, a disease caused by a virus. His legs were totally paralyzed. 4. In 1932, the Democrats made him their presidential candidate. B. What did Roosevelt say he would do as President? 1. Roosevelt declared: I pledge myself to a new deal for the American people. He did not spell out what he meant, but he struck a hopeful note. 2. In campaign speeches, he promised to help the jobless, poor farmers, and the elderly. 3. Voters responded to his confident manner and personal charm. 4. On his inauguration day, he spoke with optimism. Then, he issued a call to action. People welcomed his energetic approach.

32 C. The Hundrd Days 1. The new President moved forward on many fronts. He urged his staff to take a method and try it. If it fails, admit it and try another. But above all try something. 2. The President sent many bills to Congress during his first three months in office. Between March 9 and June 16, 1933, Congress passed 15 major new laws. This period is called the Hundred Days. D. Roosevelt s first challenge was the nation s crumbling banking system. 1. On his second day in office, he declared a bank holiday. He closed every bank in the country for four days. 2. He then asked Congress to pass the Emergency Banking Relief Act. Under this act, only banks with enough funds to meet depositors demands could reopen. The others had to stay closed. 3. Then, he spoke to Americans by radio. The President told the people, it is safer to keep your money in a reopened bank than under your mattress. People began to return their money to banks.

33 4. Altogether, Roosevelt made 30 radio speeches while in office. He called them fireside chats because he spoke from a chair near a fireplace in the White House. 5. Roosevelt s program for economic recovery was called the New Deal. New Deal programs had three main goals: relief for the jobless, plans for economic recovery, and reforms to prevent another depression. 6. The President s New Deal programs changed the relationship between government and the economy. From then on the federal government took an active role in managing the American Economy.

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37 E. New Deal Programs to Provide Relief 1. Civilian Conservation Corps (CCC) 2. Federal Emergency Relief Administration (FERA) a. The CCC hired unemployed single men between the ages of 18 and 25. They planted trees, built bridges, worked on floodcontrol, and developed new parks. b. The CCC served a double purpose: it conserved natural resources, and it gave jobs to young people. a. FERA gave federal money to state and local agencies. These agencies then distributed the money to the unemployed. 3. Works Progress Administration (WPA) a. The WPA put the jobless to work making clothes and building hospitals, schools, parks, and airports. b. Part of the WPA was the Federal Theatre, which put on new plays for adults and children, as well as classics. c. WPA writers collected information about American life. One group of writers interviewed African Americans who had lived under slavery.

38 FHA - Federal Housing Administration HOLC - Home Owner's Loan Corporation The Federal Housing Administration was a government agency created to combat the housing crisis of the Great Depression. The large number of unemployed workers combined with the banking crisis created a situation in which banks recalled loans. The FHA was designed to regulate mortgages and housing conditions. The Home Owner's Loan Corporation was created in 1933 to assist in the refinancing of homes. The housing crisis created a great many foreclosures, and Franklin Roosevelt hoped this new agency would stem the tide. In fact, between 1933 and 1935 one million people received long term loans through the agency that saved their homes from foreclosure.

39 F. New Deal Programs to Promote Recovery 1. National Recovery Administration (NRA) a. Congress passed the National Industrial Recovery Act (NIRA), which created the NRA. b. Under this law, each industry wrote a code for production, wages, prices, and working conditions. The NIRA tried to end price cutting and worker layoffs. c. The government encouraged people to do business with companies that displayed the NRA eagle. d. Many companies ignored the codes, however. Also, small businesses felt the codes favored the biggest firms. 2. Public Works Administration (PWA) a. The NIRA also set up the PWA. b. The PWA hired workers for thousands of public works projects, including Grand Coulee Dam, public schools in Los Angeles, two aircraft carriers, and a deep-water port in Brownsville, Texas.

40 3. Agricultural Adjustment Act (AAA) a. Under the AAA, in order to discourage overproduction, the government paid farmers not to grow certain crops. b. The government also paid farmers to plow surplus crops under the soil and to destroy surplus cows and pigs. 4. Rural Electrification Administration (REA) a. The REA was created to help people in rural areas get the same electrical service as people in urban areas. The number of farms with electricity rose from 10 percent to 25 percent. b. Electricity saved many farms from ruin. For example, it brought refrigeration to dairy farmers.

41 5. Tennessee Valley Authority (TVA) a. TVA was perhaps the boldest program of the Hundred Days. b. The TVA was a daring experiment in regional planning. c. To control flooding, TVA engineers built 49 dams in seven states. The dams also provided electric power. d. The TVA deepened river channels for shipping. e. It planted new forests to conserve soil and developed new fertilizers to improve farmland. f. It set up schools and health centers. g. Critics said that the government had no right to take business away from private companies in the region. h. Supporters said that the TVA showed how the government could use its resources to help private enterprise. i. TVA transformed a desperately poor region into a prosperous and productive area.

42 The Tennessee Valley Authority

43 G. New Deal Reforms to Prevent Another Depression 1. Truth-in- Securities Act a. This act was designed to end the risky buying and selling of stocks in hopes of making a quick profit. Led to the Securities and Exchange Commission 2. Federal Deposit Insurance Corporation (FDIC) b. The FDIC insured savings accounts in banks approved by the government. If a bank insured by the FDIC failed, the government would make sure depositors received their money. 3. Social Security Act c. Set up a system for pensions for the elderly, unemployed, and people with disabilities.

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50 Many Artists portrayed the hardships of the depression life. In his 1939 novel The Grapes of Wrath, John Steinbeck told of the heartbreaking story of the Okies streaming over the mountains trying to find new homes in California. Grant Wood painted an Iowa farmer and his daughter who look determined enough to survive any hardship. The Grapes of Wrath John Steinbeck Grant Wood American Gothic (1930) 50

51 Americans found radio in the 1930 s. It was a great way to escape the hardships of the Great Depression. George Burns and Gracie Allen made people forget their troubles with their radio shows. Orson Wells presented a newscast in 1938 called The War of the Worlds. In his report Wells reported the landing of invaders from another planet. Walt Disney release his first animated film called Snow White and the Seven Dwarfs. Judy Garland won American hearts in the movie the Wizard of Oz. The most expensive film created in the 1930 s was called Gone With the Wind. The War of the Worlds Snow White and the Seven Dwarfs Wizard of Oz 51

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53 H. FDR and the Supreme Court 1. In 1935, the Supreme Court ruled that the National Industrial Recovery Act was unconstitutional. a. The Court said it gave too much power to the President. b. The AAA violated Interstate Commerce Act c. The NRA violated The Sherman Anti-Trust Act/ Price controls d. Then, the Court overturned eight other New Deal laws. 2. Roosevelt s plan for the Court a. After his inauguration in January 1937, Roosevelt put forth a plan to enlarge the federal courts. b. He called for raising the number of Supreme Court Justices from 9 to 15. c. This would make it possible for him to appoint six new Justices who supported his programs. 3. Reaction to Roosevelt s plan a. Both supporters and critics of the New Deal accused him of trying to pack the Court with Justices who supported his views. b. They said his move threatened the principle of separation of powers. c. Roosevelt fought for his plan for six months. Finally, he withdrew his proposal.

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55 I Labor Reforms 1. FDR supported programs to help workers. In 1935, Congress passed the National Labor Relations Act, or Wagner Act. Senator Robert Wagner of New York had sponsored the act. a. The Wagner Act protected workers from unfair management practices, such as firing a worker for joining a union. b. The act also guaranteed workers the right to collective bargaining, the process by which a union negotiates with management on behalf of a group of workers. The Wagner Act helped union membership grow. c. Union membership got a further boost when John L. Lewis set up the Congress of Industrial Organizations (CIO), which represented workers in whole industries, such as steel, automobiles, and textiles. d. Despite the Wagner Act, employers tried to stop workers from joining unions. Violence often resulted. Then workers tried a new strategy. At the Goodyear Tire Factory in Akron, Ohio, workers staged a sit-down strike. They stopped all machines and refused to leave the factory until Goodyear recognized their union.

56 J. Social Security 1. The President also sought to help the elderly. In the 1930s, the United States was the only major industrial nation that did not have a formal pension program. Roosevelt and Secretary of Labor Frances Perkins pushed to enact an old-age pension. a. The new law the Social Security Act had three parts. It set up a system of pensions for older people. Payments from employers and employees supported the system. b. The new act set up the nations first system of unemployment. c. The act gave states money to support dependent children and people with disabilities. d. Some liberals criticized Social Security because it did not include farm workers, domestic servants, or the self employed. e. Some conservatives criticized Social Security as another way for the government to take money away from working people.

57 Effects of the New Deal Short-Term Effects Social Security payments enable people to retire with pensions Union membership and power grow Farmers benefit from agricultural price supports The FDIC insures bank deposits The Securities and Exchange Commission oversees the stock market Long-Term Effects Social Security protects millions of Americans but may not be able to pay full benefits in the future High-wage and low-wage earners continue to have different kinds of protection and benefits Americans have economic safeguards provided by the government A split between liberals and conservatives still affects public life

58 The New Deal Balance Sheet Arguments Against the New Deal The federal government grew in size and power. Many people complained that the government was intruding in people s lives, threatening individual freedoms and private property. These critics called for a return to the policy of laissez faire the idea that government should play as small a role as possible in the economy. Critics were alarmed because the government was spending more than it took in. This practice of deficit spending was creating a huge increase in the national debt, or the total sum of money the government owes. Other critics said that the New Deal had not achieved its major goal of ending the depression. Full recovery did not come until 1941, when the United States was about to fight World War II.

59 The New Deal Balance Sheet Arguments for the New Deal Supporters noted that FDR had steered the nation through the worst days of the depression Supporters also argued that the government had a responsibility to use its power to help all of its citizens, not just businesses and the wealthy. Most important, supporters argued that the New Deal had saved the nation s democratic system. Elsewhere in the world, people turned to dictators to lead them out of hard times. Roosevelt restored the nation s economic health while preserving its liberties.