The Great Depression,Franklin D. Roosevelt

and the New Deal 1933-1939

Causes of the Great Depression

• Long-lasting bull market convinces many Americans to invest heavily in stocks.

• Many investors begin buying stocks on margin.

• Buyers begin engaging in speculation.

• A bull market only lasts as long as new people put in money, but by late 1929, the market was running out of customers.

• The stock market crashes!

Bull market - long period of rising stock prices.

Margin - taking out a loan to buy stocks, usually 10%

Speculation - taking risks in the market.

Timeline of Depression

• October 24, 1929: Black Thursday– The market crash, which had begun the day

before, became even worse. Many bank accounts were wiped out.

• October 29, 1929: Black Tuesday– Prices take the steepest dive yet - stocks lost

from $10 billion to $15 billion in value.

• By mid-November, $30 billion had been lost. Ultimately, 3,000 banks would be forced to close.

Why were the banks forced to close? Think - How do banks make money? How were banks connected to the stock market?

Write in your notebooks! Class Participation

Other Causes

• Uneven distribution of income and overproduction of luxury goods– Most Americans did not earn enough to buy all of

the goods they were producing. • The top 5% of American families earned 30% of the

total income of the country.

– This leads to many Americans buying expensive goods on installment plans.

• When no more goods were needed, it led to a chain reaction in production, which led to loss of jobs.

• For example…– No one can buy radios.– Radios are made from… wood cabinets, copper wires,

glass tubes.– No one buying radios means that lumber workers, copper

miners, and glass manufacturers lose jobs.

Other Causes

• Loss of export sales– Depressions/Recessions in other countries

• A combination of high tariffs and low export sales meant that other countries did not want to spend the money to buy American goods.

• Mistakes by the Federal Reserve– The Federal Reserve Board did not raise interest rates

on bank loans.– This meant that there was easy to take out loans,

which many people/companies could not pay back after the crash.

– The Federal Reserve Board also did not have any sort of insurance system to make sure that banks could guarantee people could take their money out.

Hoover’s Response• President Hoover tried to help

boost the economy. • Hoover’s first step was to

increase public works.– These were government-financed

building projects, which provided many construction jobs.

• This replaced only a small percentage of the jobs people needed.

– The problem with public works projects is where to get the money - Hoover didn’t want to raise taxes or go into a deficit.

• Pumping money into the economy– Hoover also tried to get the Federal Reserve Board to put

more money in circulation, but the Board refused.– By 1932, Hoover realized that the only way to help the

economy recover was for the government to lend money to businesses, banks, railroads etc.

Hoover’s Response• Hoover also approved the Emergency Relief and

Construction Act• This provided a way for impoverished families to

get money directly from the government.– Hoover opposed this at first. He believed relief - money

that went directly to people who needed it, not to businesses or banks - should be provided by the states.

– However, Hoover ultimately realized that the government had to help these families in a more direct way.

Roosevelt is Elected• Although Hoover made some efforts to fix the

country’s economy, it was not enough.• Hoover lost his bid for re-election.• Many people blamed Hoover for the Depression.

– Impoverished people living in cardboard shacks (Hoover Hotels), and shantytowns (Hoovervilles) meant that Hoover’s name would always be associated with the Depression.

• Franklin Delano Roosevelt won the election of 1932, and was inaugurated March 4, 1933.– Roosevelt approved of deficit

spending. – He also had some new ideas to

boost the economy and create jobs. – Roosevelt’s New Deal would help

the country recover.

The First New Deal• Roosevelt’s solution for the economy became

known as the New Deal, but it was actually a series of Deals.

• Roosevelt asked many different groups of people for advice, but there were three main groups.– 1. “New Nationalism” supporters.

• Believed businesses and government should work together. They thought the government should help regulate wages, prices, and production. They thought this was a way to boost the economy.

– 2. A second group…• Distrusted big businesses, and wanted business owners to be

left out of the economic recovery. – 3. “New Freedom” group.

• This group blamed large trusts (groups of businesses) but thought the government should restore competition to the economy - by “trust busting”. This meant that competition would set wages prices and production levels.

The First New Deal• Roosevelt and his advisers came up with several programs to

help fix different aspects of the economy…• What were some of these groups? What were their goals?

CCC-Civilian Conservation Corps - Employed single men for conservation of natural resources

TVA-Tennessee Valley Authority - Built hydroelectric plants and dams. Creates industry in the south.

FERA-Federal Emergency Relief Agency - Grants government money to state and local govt’s that can be given to unemployed

NRA-National Recovery Administration - Controlled industrial production and prices. Created codes of ‘fair competition’

FDIC-Federal Deposit Insurance Corporation - guaranteed bank deposits up to $2,500

PWA (Public Works Administration) CWA (Civil Works Administration) provided jobs constructing airports, parks, schools, roads…

SEC-Securities and Exchange Commission - regulated stock market to avoid dishonesty

The First New Deal• After two years, the economy had only seen little

improvement. • 2 million new jobs had been created, but there

were still more that 10 million people out of work. – One critic stated, “Nobody seems to think any more that

[the New Deal] is going to work.”• Roosevelt received criticism from all sides.

– The right wing opposed deficit spending, and the growing national debt.

• Business leaders from both sides joined to create the American Liberty League which planned to organize opposition to the New Deal.

– The left wing believed Roosevelt had not gone far enough, and wanted the government to go even further. They wanted to shift wealth from the rich to the middle class.

Current Events Connection• Many people compare FDR’s actions in the wake of

the Great Depression to Obama’s following the 2008 Recession.

• Many conservatives (right wing) believe that Obama is trying to make too many changes, and that these changes are at the expense of those Americans who work hard for their money.

• Many liberals (left wing) believe that Obama and his cabinet need to do more. There are still not enough jobs, and the United States is in a lot of international debt.

Your assignment…Do some research on your own tonight (we will have time in class to discuss). You will end up writing your own article about FDR and Obama’s plans for economic recovery.

Current Events ConnectionTonight, find at least one article about Obama’s

plan(s) to aid the economy. Answer the following questions:

1. Summarize the main points of the article in a few sentences.

2. What is the source of this information? Who wrote it? How did they get their information?

3. Is there a bias? Do you think the article is balanced, or do you think there is an agenda that the writer is trying to convince the reader of?

4. Do you think this is a good source of information? Why or why not?

Print out the article if you can, and include the date it was written!

The Second New Deal• Roosevelt realized that, though he was popular, his

political support could be undermined by attacks from both political sides.

• He was also disturbed by thefailure of the First New Deal to help the economy to rapid recovery.– Though the First New Deal

created 2 million new jobs,there were still 10 million people out of work.

-> In 1935, Roosevelt launched what is now called the Second New Deal – a new series of programs that he hoped would speed up the nation’s recovery (and help him get re-elected)

The Second New Deal-> The first new program of the Second New Deal was the WPA – the Works Progress Administration•This was a new federal (government) agency designed to provide even more new jobs.•Over the next several years, the WPA spent $11 billion – constructing roads, public buildings, parks, airports, and bridges. It employed 8.5 million workers.-> Many of these workers also needed to be protected. The NLRB – National Labor Relations Board organized workers’ unions, and protected workers’ rights to organize.

The Second New Deal• Also protecting workers was a new bill…-> The Social Security Act was passed in August,

1935.• It was designed as an insurance bill – workers

earned the right to receive benefits because they paid premiums (they paid into the ‘system’).

-> This act provided for the workers when they retired (stopped working) at age 65, and guaranteed them a percentage of their former paycheck.

• The Social Security Act also provided unemployment insurance, and other needy people, such as those with disabilities, and families with young children.

The Last New Deal Reforms• Roosevelt faced some opposition to the Second

New Deal, but still won re-election in 1937.• During his second term, Roosevelt pushed ahead

with even more reform programs:• National Housing Act

– Helped provide low-income housing for people who could not afford a home loan.

• Farm Security Administration– Provided loans to tenants of farm land so they could

purchase farms.

• Fair Labor Standards Act– Provided more protection for workers, abolished child

labor, established a 40 hour workweek.

New Deal - Legacy-> In terms of ending the Depression, the New Deal was only a limited success.•The US economy didn’t fully return to normal until after WWII.-> However, the New Deal gave many Americans a sense of security and stability.-> The New Deal also established that the government could balance competing economic interests.

– The government now had more power to regulate the economy, and to mediate (make agreements) between competing groups or companies.

Two minute response… DO NOWWhy is it important that the government can regulate different parts of the economy?

New Deal - Legacy• The biggest change the New Deal brought was

the new public attitude toward government. • Roosevelt’s programs had succeeded in creating

a safety net for average Americans.• By the time the Roosevelt years were over,

Americans felt the government had a duty to manage this safety net, even though it required a larger, more expensive federal government.

• Critics say the New Deal made the government too powerful.

• This has led to a debate that still exists today:EXIT SLIP:

In your opinion, How much should the government intervene in the economy, or support the disadvantaged?

UPCOMING• UNIT TEST – 1920s, Great Depression, New Deal

– You will receive a review sheet next class.

• New Unit – America in WWII