The Great Depression
Herbert Hoover won the presidency in 1928 as a Republican who was more liberal than Coolidge and Harding. Hoover liked big business and sought its cooperation. He opposed trust-busting and unions.
Economic misfortune then greeted him. In 1929, the stock market suddenly crashed. The era of prosperity was over. The Great Depression had begun. Historians blame this partly on speculators driving up stock prices to ridiculously high levels, but no one really knows what the real cause of the Great Depression was, and people still debate it to this day. Unemployment increased until it exceeded 20% in 1933, meaning that one out of every five families was out of work and likely without money too.
Many historians blame tariffs as a greater cause of the Great Depression than the stock market crash was. In 1930, Congress passed the Hawley-Smoot Tariff to increase tariffs, setting off a worldwide round of tariff increases in 1931, which worsened the worldwide Depression. Historians also blame the Great Depression on the gold standard, a concentration of wealth among the relatively few, and unregulated speculation in the financial markets. There is probably a political motivation (bias) in those claims about the causes of the Great Depression.
Debate: What do you think caused the Great Depression?
Hoover's reaction to the Great Depression was to seek voluntary wage and price controls. He opposed new federal programs sought by the Democrats.
In 1932, Hoover did create the Reconstruction Finance Corporation, which was a federal agency that lent money to banks, and later lent money to businesses also.
Hoover had to face a pathetic march in D.C. by poor soldiers from World War I, who demanded a bonus. Called the "Bonus March," this ended in riots and was a political disaster for Hoover. Future generals George Patton, Dwight Eisenhower and Douglas MacArthur put down the riots using tanks and troops, fearing that the nation was on the verge of a communist revolution.[2] Today troops are almost never used to deal with domestic violence, because it leads to such hurtful emotions and turns Americans against fellow Americans.
The Great Depression caused many voters to switch to the Democratic Party, which took control of the Presidency (through FDR) and Congress in 1932. After winning control of Congress and the White House, the Democrats ended Prohibition by passing a constitutional amendment to repeal it. They began enacting many new laws and programs supposedly to try to generate jobs.
Debate: Do you think we are entering another depression now?
Fdr, the New Deal, and Preparing for War
We have learned that failures in the economy often determine the outcome in the presidential election, as in 2008. The presidential election in 1932 was no different: the Great Depression resulted in a transfer from the Republican Party to the Democratic Party, and Democratic Party candidate Franklin Delano Roosevelt won the election. The Democratic Party also won a huge number of seats in Congress: 90 seats in the House and 13 seats in the Senate (which ws smaller then). FDR took his victory as a "mandate" to enact sweeping new legislation, ostensibly to try to lift the country out of the depression. In a nutshell, President Roosevelt (who is often called simply "FDR") started massive federal works and relief programs, and refused to retire from the presidency after two terms as every other president had done since George Washington.
President Roosevelt had been previously paralyzed as an adult by contracting polio (probably while swimming), but his physical handicap was hidden from the public. The media heavily promoted President Roosevelt and boosted his popularity above what it would have been otherwise during the hard times. The media also praised FDR's liberal wife, Eleanor Roosevelt, who played an aggressive political role much as Hillary Clinton did when her husband Bill Clinton was president in the 1990s.
FDR's aggressive legislative program became known as the "New Deal," which meant expanded government programs supposedly to help the economy and the unemployed. The New Deal consisted of passing many new laws (legislation) and creating new government jobs for people. Critics of the New Deal point out that if the jobs were really needed, then free enterprise (private companies) would be doing it already.
President Roosevelt seized the initiative by trying to pass as much as possible through Congress in his first 100 days in office in 1933, when public support for change was the highest. This is known as the "Hundred Days," when FDR ended the gold standard (and thereby caused inflation) and called for a nationwide banking holiday (to stop the withdrawal of money from banks).
Other programs pushed through quickly by FDR in 1933 included the:
Emergency Banking Act, which allowed inspection of bank records, established a "bank holiday," and infused money into banks with Reconstruction Finance Corp.
Civilian Conservation Corps, which provided jobs to men between 17 and 25 for the conservation of natural resources
Agricultural Adjustment Act, which tried to raise prices and limit farm production by paying farmers not to farm land; this was later declared unconstitutional
Federal Emergency Relief Act, which provided work on projects such as building roads, airports, schools, playgrounds and parks
Tennessee Valley Act, which bought, built and operated dams, generated & sold electric power, provided flood control, and withdrew bad land from farming
Tennessee Valley Authority (TVA) set up by the Tennessee Valley Act, which regulated the rates charged by power companies
Farm-Credit Act, which provided funding for farm mortgages
Glass-Steagall Banking Act, which established the Federal Deposit Insurance Corp. (FDIC) to insure deposits in banks in order to stabilize the banking system
National Industrial Recovery Act, which created the public works administration and defined fair business practices; this was held unconstitutional in Schecter Poultry v. U.S.
The above series of laws constituted the most sweeping change in the nature of government in America since the passage of the Constitution. President Roosevelt quickly gave the federal (national) government vast new powers, and established an "administrative" form of government that continues to rule many industries to this day. Gone forever with this legislation was the free enterprise of the "Era of Good Feelings," the Gilded Age, and the "Roaring Twenties."
As you can see above, the U.S. Supreme Court invalidated a few key aspects of the New Deal, and this infuriated President Roosevelt. We'll mention this again later. Conservatives opposed the New Deal, and many others were vocal critics of it. Charismatic Louisiana Governor Huey Long, also known as "Kingfish", supported FDR in 1932 but began opposing him in 1933 as a U.S. Senator, and planned to run for president himself until he was assassinated in 1935 at the peak of his popularity.
More big things happened in 1933. The Democrats quickly ratified the 21st Amendment in order to repeal Prohibition and return to the States the power to regulate, allow or prohibit alcohol. This amendment was the only one to use ratifying conventions (rather than votes by the State legislatures) in each State after Congress passed the proposed amendment, in order to obtain the necessary 3/4 number of States for it to become part of the Constitution. Note that this process is different from holding a national constitutional convention to amend the Constitution, which has never occurred and would likely rewrite the Constitution in an undesirable manner, and is also different from state conventions proposing constitutional amendments.
President Roosevelt changed foreign policy towards Latin America. In 1933 he implemented the "Good Neighbor Policy," which was more permissive towards Latin America and was in contrast with Teddy Roosevelt's "Big Stick" and Taft's "Dollar Diplomacy." Instead, FDR reduced the United States' involvement in Latin America.
The New Deal continued to expand the federal government in 1934, again with the stated goal of trying to end the Great Depression. In 1934, Congress and FDR passed the National Housing Act, which set up the Federal Housing Authority (FHA). This new federal agency encouraged banks and building and loan associations to make loans for building homes, small business establishments, and farm buildings. The FHA provided low-cost, long-term loans for modernizing old buildings and constructing new ones.
Also in 1934, the Gold Reserve Act passed, which nationalized the ownership of all gold. The U.S. treasury took title to all gold, and stored most of it at Fort Knox, Kentucky.
To regulate the financial markets, Congress passed the Securities and Exchange Act in 1934. This established the Securities Exchange Commission to regulate stock exchanges.
The Trade Agreements Act became law in 1934. It amended the Tariff Act of 1930 (Smoot-Hawley Tariff Act) to give authority to negotiate mutual tariff reductions. Many felt that high tariffs were interfering with attempts to recover economically from the Great Depression.
Historically, the president's own political party almost always loses seats in Congress in the "midterm" election two years after the presidential election. This is because the public grows tired and disgruntled with the performance of the president, and the voters express their discontent by voting for the opposite party. But in 1934, thanks to glowing media support, FDR's Democratic Party was a rare exception in that it gained seats in Congress: 9 in the House and 9 in the Senate.[3]
The midterm election victory by FDR and the Democrats encouraged them to continue their New Deal in 1935. They established the Works Progress Administration, which employed 8.5 million persons between 1935 and 1943, building public works. They also passed the Wagner Act in 1935. It gave unions greater rights and promoted their growth. The Wagner Act also prohibited employer efforts to prevent unionization. It established the National Labor Relations Board to handle disputes between unions and employers.
At the same time, a fiery labor organizer named John Lewis started the Congress of Industrial Organizations (CIO), which focused on combining garment trade unions (workers unions) and later included auto and steelworkers. Eventually it merged with the AFL in order to become the "AFL-CIO" that is often heard today.
In 1935, the biggest social program of all passed: the Social Security Act. It provided (and still provides) payments to the elderly by taxing the wages on young workers and employers. It has become a huge liability today, as there are many old people and relatively few young workers, and the government has repeatedly increased the amount of the tax in order to pay for this "Social Security." Millions of retired Americans await their Social Security checks each month.
The New Deal did not help lift the nation out of the Great Depression. The economy improved a little from 1933 to 1940, but the depression never really ended. FDR became furious with the Supreme Court's invalidation of his New Deal programs (e.g., in Schecter Poultry v. U.S. (1935), the Supreme Court declared the National Industrial Recovery Act unconstitutional because it delegated too much power to an administrative agency). By 1937 FDR was so angry at the Supreme Court that he proposed a "court-packing" scheme to appoint new Justices to the Supreme Court who would be favorable to him. This shocked even FDR's own Democratic Party, which then opposed FDR's flagrant violation of the checks and balances in the Constitution, and as a result FDR lost much of his credibility. He weakened himself with this proposal, which never passed, and FDR himself could not persuade Congress to pass much more of his program.
The final piece of New Deal-style legislation to pass in 1938 was the Fair Labor Standards Act, which abolished child labor and set the national minimum wage at $.40 per hour, and established the 40-hour work week.
The only real end to the Great Depression came when we entered into a new war: World War II.