The Great Depression; Causes & New Deal Legislation

external image the%20great%20depression%202.gif

- America was used to temporary economic crises (e.g.: the Panics of 1819, 1837, 1857, 1873, & 1893), but these were exactly that- temporary. She was used to a “business cycle,” a innate pulse to capitalism- bled dry banks would close and stock market prices would drop abruptly, causing an economic slump for a brief duration of time, followed quickly by recovery and eventual prosperity. Lasting far much longer, causing greater business failure and unemployment, and affecting more Americans in more classes than ever before, the depression of the 1930’s was vastly different.

Causes & Effects of the Great Depression- The Outstanding Collapse of the Biz Boom of the 1920’s (1929 – 1933)


~September 1929

"There is no cause to worry. The high tide of prosperity will continue." — Andrew W. Mellon, Secretary of the Treasury.

~October 14, 1929

"Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board." — New York Times

~December 5, 1929

"The Government's business is in sound condition." — Andrew W. Mellon, Secretary of the Treasury

~December 28, 1929

"Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression." — Associated Press dispatch.


Wall Street Crash

The boom of the 1920’s had kept stock prices rising for 18months (from March 1928 – September 1929, the Dow Jones Industrial Ave. came to an all-time high of 381), the average investor buying $1,000 worth of stocks more than doubling their money in a year. A great many Americans invested in the boom market - and those same millions lost all of that money in October of 1929 when the stock market crashed.

Black Thursday & Black Tuesday
Thursday October 24, 1929, a record volume of selling on Wall Street caused stock prices to plunge. The following day, bankers attempted to remedy the problem by buying millions of dollars of stocks (...this stabilized nothing). Monday brought a selling frenzy, and on "Black Tuesday" October 29, the “bottom fell out”- investors cried “sell” when there were no buyers to be found. By November, the Dow Jones index had fallen to 198; 3 years later, it dropped 41.

Causes of the Crash

Several factors acted as catalysts to the stock market crash of '29. Problems began developing in the early 1920’s, and they had a snow-balling effect. Unequal/stratified distribution of income meant an increase productivity & corporate benefits, and that wages would rise little. This just exacerbated the problems for those with whom economic success was already not shared (the poor got poorer, and the top 5 % of Americans received > 33% of all available income!). People enjoyed Speculation within the stock market: “playing the market,” and “buying on the margin” meant they could borrow the majority of the cost of stock, making incredibly low down payments. When stock prices increased, investors could then repay the loan. But stock prices indeed dropped and the market collapsed (people lost all they had both invested & borrowed...). Another issue was the excessive use of credit/increased installment buying due to the common idea that the boom would be everlasting. Overproduction of consumer goods meant the growth of business paired with greater productivity, and the use of credit created an abundance of goods for which workers with moribund wages could not continue to purchase. In America's weak farm economy, farmers suffered from overproduction, high debt, low prices, drought, and horrid weather. The governmental policy of CAPITALISM meant little government regulation of big business & high tariffs protecting U.S. industries (hurting the little guy and international trade)

external image great-depression-soup-line.jpg

The Worldwide Great Depression

Nations had grown very interdependent (due to international banking, trade, manufacturing, etc). US tariff policies greatly reduced sale of Euro goods in America, while the US all the while demanded that wartime loans to Euro countries be repaid. US Dawes Plan loans had provided some relief, but the Great Depression ended up suspending these loans.

external image 400px-Debt1929-50.jpg image Unemployment_300g15.gif

Effects- influence on American thinking & policies

chief indicators

- The U.S. Gross National Product (value of goods/services produced by nation/year) dropped from $104 billion to $56 billion in 4 years
- The nation’s income declined > 50%
- 20% of all banks closed-> 10 mill. savings accounts = wiped out
- In 1933, 13 mill. people (25%) of workforce (not including farmers) =

political front

Republican domination of government was over, and the federal government’s power grew as people began to accept changed policies

The Great Depression was felt by all classes. Farmers & African Americans (who hadn’t even felt the prosperity of the 20’s) had even greater difficulties than other Americans. America saw increased poverty & homelessness (due to mortgage foreclosures & eviction), and subsequent stress on families.

~January 13, 1930

"Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today." - News item. ~January 21, 1930

"Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction." - News dispatch from Washington.

~January 24, 1930

"Trade recovery now complete President told. Business survey conference reports industry has progressed by own power. No Stimulants Needed! Progress in all lines by the early spring forecast." - New York Herald Tribune.

~March 8, 1930

"President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days." - Washington Dispatch.

~May 1, 1930

"While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity." - President Hoover

~June 29, 1930

"The worst is over without a doubt." - James J. Davis, Secretary of Labor.

~August 29, 1930

"American labor may now look to the future with confidence." - James J. Davis, Secretary of Labor.

~September 12, 1930

"We have hit bottom and are on the upswing." - James J. Davis, Secretary of Labor.

~October 16, 1930

"Looking to the future I see in the further acceleration of science continuous jobs for our workers. Science will cure unemployment." - Charles M. Schwab.

~October 20, 1930

"President Hoover today designated Robert W. Lamont, Secretary of Commerce, as chairman of the President's special committee on unemployment." - Washington dispatch.

~October 21, 1930

"President Hoover has summoned Colonel Arthur Woods to help place 2,500,000 persons back to work this winter." - Washington Dispatch

~November 1930

"I see no reason why 1931 should not be an extremely good year." - Alfred P. Sloan, Jr., General Motors Co.

external image Herbert_Hoover.jpg

A Brief History of Hoover’s Unsuccessful Policies

Hoover was a firm believer that relief should come from state & local governments, and not the federal government. His ultimately ineffective responses to the Great Depression included: the Hawley-Smoot Tariff (1930; intended to satisfy US biz leaders who thought a higher tariff would protect markets from foreign contest; European countries retaliated with higher tariffs of their own on American goods, the ultimate effect becoming reduced trade for all nations; national & international economies went further into the depression), his Debt moratorium (suspension on the payment of international debts caused massive loan defaults- banks couldn’t meet depositor’s demands as they withdrew $), & finally, his many domestic programs (all “too little, too late;" including the federal farm board and the reconstruction finance corp. (RFC). The federal farm board was designed to help farmers stabilize prices by temporarily holding surpluses, but it was far too modest for the handling of continued overproduction. The RFC was meant to prop up financial institutions with federal funding, but Democrats saw this as a “trickle –down” measure, to only benefit the rich. Hoover really lost some public respect after the bonus march- he was seen as heartless after he had his men end a protest of unemployed & veterans with tanks & teargas. Hoover lost election of 1932 to Franklin D. Roosevelt.

II. FDR’s New Deal Legislation

external image newdeal.jpg


~January 20, 1931
"The country is not in good condition." - Calvin Coolidge.

~ June 9, 1931
"The depression has ended." - Dr. Julius Klein, Assistant Secretary of Commerce.


The Three r’s (New Deal Philosophy)

Franklin D. Roosevelt's New Deal pledged to help “the forgotten man at the bottom of the economic pyramid” through specific programs of relief for those out of work, recovery for biz/economy, & reform of economic institutions for the future.

1st New Deal

Roosevelt called for a Bank holiday, where all solvent banks were closed (March 6, 1933) and would be reopened after the government reorganized them soundly. He also repealed Prohibition with the Beer-Wine Revenue Act (legalized the sale of beer & wine; 21st amendment repealed 18th amendment bringing Prohibition to an end). Roosevelt was known for his "Fireside Chats" as well, on which he addressed the US via radio, announcing that banks reopened after the bank holiday, and they were ruled safe; the public eventually deposited money in the new banks which, as he had hoped, exceeded the money withdrawn. A big part of FDR's New Deal legislation included several financial recovery programs, including the Emergency Banking Relief Act, and the creations of the Federal Deposit Insurance Corporation, the Home Owners Loan Corporation, and the Farm Credit Administration. Part of FDR's programs for the relief of unemployed included the creation of the Federal Emergency Relief Administration, Public Works Administration, Civilian Conservation Corps, and the Tennessee Valley Authority. Roosevelt attempted to guarantee reasonable profits for business, and fair wages & hours for labor in his industrial recovery programs, including the Farm Production Control Program (he encouraged farmers to reduce production/boost prices by offering to pay gov subsidies for every acre plowed), the Civil Works Administration, the Securities & Exchange Commission, and the Federal Housing Administration.

external image 036-fdr-television-broadcast.jpg

Second New Deal
In the Second Phase of the New Deal, Roosevelt focused on the the r's relief & recovery. His accomplishments in the area of relief includ the Works Progress Administration and the Resettlement Administration, and his last reforms included the National Labor Relations/ Wagner Act - 1935, the establishment of the Rural Electrification Administration, the Social Security Act, & the Fair Labor Standards Act.

Last Phase of the New Deal- loss of momentum

Banks had been becoming stable- business earnings moved up, and unemployment had declined. But between 1937-1938, there was a recession caused by governmental policy (the new social security tax esp.). The issue was solved with Keynesian economics (deficit spending used to “prime the pump” to increase investment/create jobs), improved the economy again. But, alas, no boom followed, and so problems persisted. After this, neither the people or Congress followed F.D.R. directly any longer- 1938 brought a smaller Democratic majority to Congress; Republicans & conservative Democrats blocked further ND legislation. And, the fear of Nazi Germany turned attention toward foreign/away from domestic affairs.

all quotations = from :

information = from :
Newman, John J. United States History Preparing for the Advanced Placement Examination. Boston: Amsco School Pubns Inc, 2003.