The Great Depression and The New Deal

In this unit, we will cover what happened in the United States during the 1930s. After a booming economy in the Roaring 20s, Americans faced unemployment, high prices, hunger and despair.

When so many people are needy, who should help? Should government provide assistance?

We will answer these questions in our study of the Great Depression & New Deal!

Roaring20s: Many people investing in Stock Market

1929 Stock Market Crash

1932 Bank runs cause panic

1933 FDR sworn in & New Deal begins

1928 Hoover elected President

1931 16% unemployment

1932: Unemployment reaches 25%; Hoover loses to Roosevelt (FDR)

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Roaring 20s: America BEFORE the Great Depression

The Go-Go Stock Market During the 1920s, stock prices rose greatly. So many people started to invest their money in the Stock Market. These people were speculating and buying on margin. To speculate is when you buy stocks and bonds hoping to quickly make a profit. Since prices kept going up & up, many people bought more & more stockseven when they didnt have the money to pay for them! Buying on margin is when people can only afford to pay a small percentage of a stocks price so they have to borrow the rest of the money in order to buy the stock.

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Consumerism Businesses grew even bigger during the 1920s. They produced more & more products, often faster than consumers could buy them! In fact, because companies overproduced products, they would later lay off workers in the early 1930s.

A piano bought on an installment plan

Even worse, many of these consumer items were being purchased on credit which meant that they would purchase an item and pay for it later. Many people simply did not have the cash to purchase larger more expensive items, such as a car, a washing machine, or a stove. So people even bought second homes in faraway places like Florida on credit! When people would lose their jobs later, they could not pay their debts and banks or stores would go out of business!

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Get-Rich Schemes

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Hard-Hit 30s: America DURING the Great Depression

Definition of the Great Depression The Great Depression was the worldwide economic downturn that began in 1929 and lasted until World War II. The Depression began in the United States, but spread to the rest of the world. An economic depression is really a deep, long-term recession in which production, prices & trade drop dramatically & unemployment skyrockets! See the chart below:

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Causes of the Great Depression There were many factors that led to the Great Depression. Five of the main factors were 1. Easy access to credit 2. A decline in overall spending 3. Stock Market crash of 1929 4. A crisis in the farming industry 5. Bank runs

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The Stock Market Crash The Stock Market peaked in September of 1929. After that, prices dropped, sometimes in small amounts, and sometimes in huge drops.

On October 29, 1929, the stock market crashed. On that day, known as Black Tuesday, 16.4 million stocks were sold, causing prices to plummet! Many people who bought stocks on margin were now in debt because their stocks were worth less than what they had paid for them. In fact in the next few months investors lost $30 billion (the amount the nation spent on fighting WWI).

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The Banking Crisis The stock market crash also hurt banks, causing a a crisis that unfolded over the next three years, peaking in 1932. After the crash, people panicked and went to banks to withdraw (take out) their money. This was known as the bank run. This was a problem because banks do not keep all of their money in their vaults. Each bank only had to keep a small portion of the money, allowing banks to loan out money to other customers. Example: A person deposits $100 in the bank. The bank only has to keep $10 in its vault. It can loan out the other $90 in hopes of making money by investing or charging interest on loans.

Men trying to withdraw money from their bank accounts

A bank run

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Banking Crisis (Continued)

So what happened when many panicked people withdrew their money at the same time, and the banks did not have enough money in the vault to cover withdraws? Many banks went out of business and had to close. Nearly 400 banks failed in 1931 and 1932. By 1933, over 20% of the banks that were in business in 1930 had gone out of business, taking the savings of millions of people with them!

As news of bank failures spread, worried depositors rushed to local banks like this one in hopes of getting their money out before it was too late. Bank failures were part of the general economic collapse brought by the stock market crash, falling farm prices & the decline of industry.

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The Unemployment Crisis With stocks down people started to spend less. Prices started to drop with this less demand and huge supplies caused by overproduction. Businesses went bankrupt and workers lost their jobs. From 19291933, almost 1 in 7 businesses failed. By 1933, approximately 13 million people were unemployed. That means 25% of Americans, or 1in 4 Americans, were out of work. Today, in a very bad economy, there is only 8% unemployment.

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Life During the Great Depression Without a job or a good-paying job, millions of people were homeless & hungry. People were forced to live wherever they could, including in parks, cars, and shantytowns. Shantytowns were small groups of shacks. Some shacks were made with crates while others were built out of wood boards and tar paper.

Over time, Americans called these Hoovervilles as a way to criticize President Hoover.

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The Dust Bowl During the 1920s, Great Plains farmers over-planted their fields, using up the nutrients in the ground. In the 1930s, a drought struck the Midwest and Southwest regions of the United States. Because there was very little grass and trees to hold down the soil, large gusts of wind were able to pick up millions of tons of dust and carrying it to the East coast.

Thousands of farmers affected by these Dust Bowl moved from the Plains to the Pacific Coast (California, Oregon, and Washington).

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Dust Bowl Ditties The great singer Woody Guthrie was a Dust Bowl refugee from Oklahoma. (Thats why he was called an Okie.) To find out what it was like to be a poor rural farmer during
the Depression analyze his lyrics for the song My Oklahoma Home.

When they opened up the strip I was young and full of zip I wanted some place to call my home And so I made the race and I staked me out a place And settled down along the Cimarron It blowed away (blown away), it blowed away (blown away) My Oklahoma home, it blown away Well it looked so green and fair when I built my shanty there My Oklahoma home, it blown away Well I planted wheats and oats, got some chickens and some shoats Aimed to have some ham and eggs to feed my face Got a mule to pull the plow, I got an old red muley cow And I also got a fancy mortgage on this place Well it blowed away (blown away), it blowed away (blown away) All the crops that I've planted blown away Well you can't grow any grain if you ain't got any rain Everything except my mortgage blown away Well it looked so green and fair when I built my shanty there I figured I was all set for life I put on my Sunday best with my fancy scalloped vest Then I went to town to pick me out a wife She blowed away (blown away), she blowed away (blown away) My Oklahoma woman blown away Mr as I bent to kiss her, she was picked up by a twister My Oklahoma woman blown away Chasin' that dust cloud up ahead My Oklahoma farm is over head Come on! p. 13 http://viewpure.com/kyHYHrm_oE

Who should help? Charitable organizations and public agencies gave out free and low-cost food at soup kitchens and on breadlines.

Soup Kitchen line

Read the Breadline source on textbook p 508

Breadline near the Brooklyn Bridge

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Should the Government help? President Hoover did not believe that the government should provide direct relief to citizens. He felt that businesses and charitable organizations should work together to help people. People began to blame President Hoover for the struggles they were having. They felt that he was not working to make their lives better. However, President Hoover did have a plan to create jobs for the unemployed. His plan was to build a dam on the Colorado River. It would border both Nevada and Arizona.

Construction of the Boulder Dam (now called the Hoover Dam)

PBS: American Experience also has a documentary about the construction of the dam. http://www.pbs.org/wgbh/americanexperience/films/hoover/

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The Election of 1932 The Republican Party re-nominated President Hoover as the candidate for the presidential election. The Democratic Party nominated Franklin Delano Roosevelt (FDR), the governor of New York. People felt that he was a confident man who was willing to work hard to improve the economy. FDR won the election by a large margin and was sworn in as President in March of 1933.

Herbert Hoover

Franklin Delano Roosevelt

Does confidence REALLY matter? http://www.pbs.org/wgbh/americanexperience/features/bonus-video/presidents-enemy-fdr/

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FDRs First New Deal FDR and his Brain Trust developed the New Deal, a plan to correct the problems of the Great Depression. The Brain Trust was a group of professors, lawyers, and journalists whom FDR picked to help him develop his plan and to create the policies by which he would run his administration.

During FDRs first 100 days, known simply as The Hundred Days, Congress passed more important laws than any previous president. (Currently, people still judge a president by how many laws Congress passes in that presidents first 100 days in office.) FDR & his Brain Trust believed that government should intervene and help those in need. To learn more watch this video: How Should Presidents Handle a Crisis?
http://www.pbs.org/wgbh/americanexperience/features/bonus-video/presidents-crisis-fdr/

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New Deals Relief, Recovery & Reform President Roosevelt and Congress created many new agencies with the United States government. These agencies would be nicknamed the Alphabet Soup agencies because people often used abbreviations for each agencys name. The three goals of the New Deal were relief, recovery, and reform. RELIEF ACTS In order to help farmers, Congress passed the Agricultural Adjustment Act (AAA-1933) to raise the price of crops by lowering the supply of the crops. The government paid farmers to not grow on parts of their farms. The Civilian Conservation Corps (CCC-1933) provided jobs for young men aged 18 to 25. The men built roads and bridges, created parks, planted trees, and worked on projects that dealt with flood control and soil erosion (that would prevent another Dust Bowl). The CCC built the lake in High Point, NJ

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Recovery The Tennessee Valley Authority (TVA-1933) provided men with construction jobs. Workers repaired older dams and built new dams. These dams and hydroelectric power stimulated economic growth.

The National Industrial Recovery Act (NIRA-1933) gave money to states so that the states could build schools and community buildings.

A Post Office in Alabama built during the 1930s

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Reform To save the banking industry, FDR passed the Emergency Banking Act that stopped bank runs by issuing bank holidays. The Federal Deposit Insurance Corporation (FDIC-1933) The FDIC originally provided up to $5000 of federal insurance for individual bank accounts. (Currently, each account is federally insured up to $250,000.) The Federal Securities Act was created to protect investors. So, people could feel confident to put their money back in the banks because the government promised to protect the account, even if the bank went bankrupt! FDR also reformed the stock market. The Securities & Exchange Act established the Securities and Exchange Commission (SEC-1934) to regulate Wall Street, stock brokers, and investment banks.

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FDRs Friends & Foes Not everyone agreed with FDRs New Deal approach. Senator Huey Long, from Louisiana, strongly disagreed with President Roosevelts New Deal. Longs plan was known as Share-OurWealth. He wanted wanted a limit on how much money a person could have, so everyone would have the same amount of money. Senator Huey Long

FDRs wife was more than a friend; she was his New Deal partner. Eleanor Roosevelt was a social reformer who combined her political skills with her desire to help others.
How influential was she? http://www.pbs.org/wgbh/americanexperience/features/bonus-video/presidents-firstlady-fdr/

The first lady traveled the nation, seeing the conditions in which people lived, and then reported her observations to her husband, President Roosevelt. She pushed her husband into more reforms, including the Second New Deal.
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The 2nd New Deal: Relief & Stability The Second New Deal is also known as the Second Hundred Days. During this time, President Roosevelt pushed for more extensive relief for farmers and workers. President Roosevelts wife, Eleanor, encourage him to do this. Still concerned with unemployment, FDR pushed for the Works Progress Administration (WPA-1935) to create as many jobs as possible, as fast as possible. Workers built airports and public buildings, in addition to building new and repairing old roads. In fact, Briarcliff Middle School was a WPA project!!

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The 2nd New Deal: Relief & Stability The Social Security Act created the social security system. The law had three main parts: 1. It provided old-age insurance (a retirement plan) for retired people who were at least 65 years old. 2. It gave unemployment benefits to people out of work. 3. It provided aid to families with dependent children or disabled family members.

A social security card. Each person has his or her own unique number.

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New Deal Legacy The New Deal did not completely END the Depression. However, FDRs policies did help millions of Americans who were facing hunger & unemployment. Here are the legacies of the New Deal: 1. Americans expect a larger role by our government in our everyday life. 2. Many American want government to intervene financially in order to relieve an economic crisis

When the economy struggled in 2008, Americans were about to elect a new President. According to this cover, the writer believed President Obama would act like FDR and have the government greatly involved.

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Two Economic Theories 1. Keynesian Theory John Maynard Keynes was an economist who promoted the idea of deficit spending. Deficit spending is when a government spends more money than it has received in revenues (income/ profit). Keynes believed that deficit spending could stimulate the economy to improve.

F.A. Hayek 2. Austrian Theory

John Maynard Keynes

F.A. Hayek was an economist who promoted the idea of the business cycle. He said that economies have ups and downs. Hayek believed that economists need to study the impact that human behavior has on all economic activity. If economists understand this, they can work to correct past economic mistakes and predict future economic behavior.

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