Great Depression (1929-1941)

The economy goes through good and bad times. This is called the business cycle. The very bad
times are called depressions, characterized by business failures, high unemployment, and falling
prices. The Great Depression was the worst in our nation’s history.

Causes of the Great Depression

1. Overproduction was the main cause of the Great Depression. Manufacturers produced more
goods than they could sell. This lowered consumer price and company profit. Also, it caused a
surplus of goods which led to workers losing their jobs and purchasing powers.
2. Overspeculation- In the 1920s, companies offered more shares of stock to generate more
money to invest back into their companies.
This led to an increase in stock market investments. Confident that stock value would increase
and allow them to make quick profits to repay their debts, Americans borrowed money to buy
stocks. This is called buying stock on margin (credit). Too many bought stock on margin
(credit) in hopes of getting rich. In 1929, Americans began selling their stocks to pay off their
margins (loans) because the Federal Reserve raised interest rates. Seeing stock prices go down,
huge institutional investors (companies that buy lots of stock) rushed to sell their stocks too,
causing stock prices to decline even more. At this point, nobody wanted to buy stocks which
made them worthless. The economy collapsed, and millions of people became unemployed. The
official beginning of the Great Depression was the stock market crash of October 29, 1929
(Black Tuesday). This made 1929 significant in American History because it marked the
beginning of the Great Depression.
3. Frail banks made bad investments in the stock market and loans. Banks went bankrupt, leaving
people without their deposits and savings. Bank failures led to economic decline.
4. High tariffs (taxes on imported goods) slowed international trade and kept countries from
paying their war debts. The U.S. passed the high Smoot-Hawley Tariff which made it more
expensive for other countries to sell products in the U.S. In retaliation, other countries passed
high tariffs on U.S. goods which made it difficult for the U.S. to sell products in overseas
markets.
5. Agriculture- There was a decline in agricultural prices because farmers overproduced. When
prices fell, farmers couldn’t pay their mortgages (loans using properties as collateral) causing
foreclosures (taking properties for the non-payment of loans).
6. The Federal Reserve should have put more money into circulation. It didn’t.

Results of the Great Depression

The crash started a chain reaction.
1. Corporations could no longer raise funds to run their businesses.
2. People who lost their money in the stock market or bank failures couldn’t pay loans or rents.
This caused more banks to fail.
3. Businesses and banks failed. When a majority of stock investors and brokers who borrowed
money from banks couldn’t pay back their loans, bank accounts were wiped out and banks
failed. Bank failures accelerated the economic decline of the 1930s.
4. High unemployment rate (25%)
5. Drop in production
6. Low prices- Even with low prices, most people couldn’t afford to make purchases.
7. America’s standard of living (the financial health of a population) went down.
8 Loss of homes and farms- A direct result of the Great Depression was the growth of
Hoovervilles or communities of homeless people living in makeshift shelters.
9. Private charities didn’t have enough resources to help all the people.

Dust Bowl
lack of soil conservation, drought (little rain), crop failures, foreclosures, and the migration of
the Okies were all a part of the Dust Bowl. The Midwest (Great Plains) became known as the
Dust Bowl because drought and poor agricultural practices resulted in winds blowing away the
topsoil, causing dust storms, and making the land unproductive. Okies were farmers on the Great
Plains who left their farms and migrated to California in the 1930s because drought and dust
storms destroyed their crops. John Steinbeck wrote about these Okies (Midwest farmers) in his
book, The Grapes of Wrath. Dorothea Lange’s photographs showing the desperation of migrant
workers during the Great Depression caused the government to increase aid to migrant workers.

Mexican Repatriation Act

The Immigration Acts of the 1920s didn’t set quotas for people living in the Americas.
Therefore, Mexicans freely entered the U.S. after passing a medical exam, taking a literacy test
(in Spanish), and paying a small tax. Mexicans were willing to accept back-breaking work for
low wages. Most of them were migrant farm workers. Many lived in Mexican neighborhoods
called barrios in California, Texas, and the Southwest where they faced discrimination. During
the Great Depression, American farmers needed jobs. The government made it difficult for
Mexicans to come into the U.S. in the 1930s. The Mexican Repatriation Act was passed to send
over 500,000 Mexicans back to Mexico.

President Hoover’s Philosophy

Hoover believed that “prosperity was right around the corner.” He believed in laissez-faire and
decided to let the economy recover on its own. Hoover believed when prices fell low enough,
people would resume purchasing. However, unemployed Americans didn’t have the money to
buy goods no matter how low prices dropped. Hoover didn’t believe in direct relief (money
handouts) to the unemployed or the needy because it would reduce their incentive (motivation) to
work. According to Hoover, direct relief (money handouts) was not the job of the federal
government.

Hoover Finally Responds to the Great Depression

Hoover cut taxes to let people keep more of their money, increased federal spending to create
programs and jobs for the public, and bought surplus farm crops to help farmers. The
Reconstruction Finance Corporation was created to give emergency loans to banks and
businesses. Many were homeless. Shanty towns of shacks for the homeless and unemployed
were called “Hoovervilles.”

Election of 1932
Hoover lost to the Democratic candidate, Franklin Roosevelt, who promised the people
government action and programs to help end the Great Depression. These programs were called
The New Deal. New Deal programs would target relief (short term actions to help people until
the economy recovered) , recovery (increase incentives for production and rebuild purchasing
power), and reforms (solving the problems in the structure of our economy so this could not
happen again).

Leadership Style of Franklin Roosevelt

Franklin Roosevelt was stricken and paralyzed by polio. Many believe that his battle against
polio made him sympathetic to the suffering of others and gave him the patience to overcome
difficulties. These two traits were beneficial to Roosevelt as he fought the Great Depression.
Roosevelt was optimistic, and an excellent communicator (especially on his radio addresses
called fireside chats). Roosevelt assembled a group of advisors from leading universities, with
differing opinions, to be his “Brain Trust.” His wife Eleanor was his eyes and ears as she
traveled around the country promoting New Deal programs. Eleanor was an advocate (supporter)
of women’s rights, minorities, peace, and the poor. Because of Eleanor and the New Deal,
African Americans and women started voting for candidates of the Democratic Party. Roosevelt
appointed the first woman cabinet member, Frances Perkins, as his Secretary of Labor. In his
first inaugural address, Roosevelt said, “the only thing we have to fear is fear itself.” In his First
Hundred Days, Congress enacted all of the important bills he submitted.

New Deal
The economic hardships of the Great Depression led the American voters to look to the federal
government for solutions to their economic problems. In 1932, President Franklin Roosevelt was
elected and his New Deal Programs began. FDR wanted to expand the government’s role in
dealing with the Great Depression. The New Deal was Roosevelt’s attempt to combat the effects
of the Great Depression, end the Great Depression, and restore a sound economy. The New Deal
did not end the Great Depression, but it slowed it down.

Timeline for the Great Depression: The U.S. stock market crashed.---25% of Americans were
unemployed.---President Hoover was defeated in the election of 1932.---Congress responded to
the economic crisis by passing New Deal legislation.

New Deal Programs

Relief (short term actions to help people until the economy recovered)
1. Roosevelt took the U.S. off of the gold standard so he could print more money.
2. The purpose of the Bank Holiday was to stop bank runs where a large number of depositors
took their money out of banks causing banks to collapse. The government closed all banks until
it was decided which ones were strong enough to reopen.
3. The federal government gave low interest loans to homeowners and farmers who were about
to lose their properties.
4. Public works programs, funded by the federal government, provided jobs to build things for
the government.
*The Civilian Conservation Corps planted trees, fought forest fires, cleaned forests, and built
reservoirs.
*The Public Works Administration built schools, roads, courthouses, post offices, and
bridges.
*The Works Progress Administration created jobs hiring artists to paint murals, writers to
produce plays,
actors to perform in plays, and musicians to participate in concerts.
5. The Federal Emergency Relief Act funded state and local relief programs and public works
projects.

Recovery (increase incentives for production and rebuild purchasing power)

1.“Priming the Pump” was Roosevelt’s belief that pouring money into the economy would get it
working again. By putting government money into consumers’ hands, they would spend more,
increasing the demand for products which would lead to the creation of more jobs, more
purchasing power, and an even higher demand for products.
2. The National Recovery Administration asked businesses to follow codes of fair competition,
which set prices, wages, and production limits. In Schechter Poultry v. U.S., the Supreme Court
ruled this unconstitutional because the federal government had no power under the U.S.
Constitution to interfere with business activities within states.
3. The Agricultural Adjustment Act tried to help farmers by paying them to plant less to increase
farm prices. After the Supreme Court ruled this unconstitutional, a second Agricultural
Adjustment Act was passed giving the government power to purchase farm surpluses and store
them until prices went up.

Reform (addressing the problems in the structure of our economy so depression could not
happen in the future)
Many reforms were based upon the belief that government should protect individuals against
risks they could not handle on their own.
1. The Federal Deposit Insurance Corporation (FDIC) insures bank deposits to protect people’s
savings and to stabilize financial institutions in the United States. It is designed to protect people
who put their money into financial institutions from losing their savings in personal accounts.
(still in effect today)
2. The Securities and Exchange Commission regulates the stock market by setting rules to
prevent abuses and another stock market crash. Companies must give accurate information about
their businesses.(still in effect today)
3. The Social Security Act was the most important measure of the New Deal. It provided workers
with unemployment insurance, old age pensions, and insurance for early deaths. This act is
funded by contributions from workers and employers. (still in effect today)
4. The Tennessee Valley Authority built government owned dams and government owned
electrical power plants for flood control and power in this rural area. Some believed the TVA
was a form of socialism. (still in effect today)
5. The National Labor Relations Act (or Wagner Act) gave workers the right to form unions, to
bargain collectively (as a group), and to submit grievances (complaints) to the National Labor
Relations Board. (still in effect today)

Franklin Roosevelt and His Battle Against the Supreme Court

Fearing that the Supreme Court might declare other New Deal legislation unconstitutional,
Franklin Roosevelt proposed a plan to take control of the Supreme Court by adding a new
appointment to the Supreme Court for each Justice over 70 ½ years old. This attempt to pack the
Supreme Court with justices that approved of his programs was called court-packing. It was a
violation of the constitutional principle of separation of powers. It hurt his reputation. Because
he had so much power over the years, the U.S. passed the 22nd Amendment limiting a president
to two four year terms in office.
Impact of the New Deal
Under Roosevelt’s New Deal, the power of the federal government increased dramatically. It
became the federal government’s responsibility to make sure the national economy ran smoothly
and efficiently. Government agencies could now control its citizens’ private actions. Taxes rose
dramatically to fund these new government programs. The state governments’ involvement in
the lives of their citizens also dramatically increased. The New Deal slowed the Great
Depression. World War II ended the Great Depression because a need was created for war
production which created jobs and high wages.