Unit 9 part I the great depression and the new deal
T
he
economic boom in the United States came to an end in 1929. That year
a depression set in, which lasted through the 1930s. The worst
economic collapse in American history, it hurt a great many
Americans. For this reason, it caused many people to change their
ideas about the government and the economy. Long after the 1930s, the
changes which took place during the depression still were influencing
the American people and the government. Because it affected the
country so much, the depression which started in 1929 is called the
“Great Depression”. At first Americans hoped that the depression
would last only a short time. But they found they were wrong, as
millions of people lost their jobs. The confidence and hope of the
1920s were replaced by worry and despair.
The Great Depression did not happen overnight. The problems which led to it began in the early 1920s. One problem had to do with American farmers. In the years after World War I farmers did not do well. They were producing more crops and other farm products than could be sold at high prices. So prices were low and farmers made little profit. Since they made little money, they could not afford to buy new farm machinery or other manufactured goods.
Another problem was that the greatest prosperity of the 1920s went to a small number of Americans who already were wealthy. The pay of industrial workers did not grow as much as they hoped. Like the farmers, these workers could not buy many new goods. Finally, low wages resulted in underconsumption. Factories were making more than could be sold. Some industries, like coal, railroads, construction, and textiles, were in distress long before 1929.
Because many people did not have enough cash to buy the big things they needed or wanted, they began to use the installment plan. They bought goods on credit and made payments each month. This helped to keep the economy going. At the same time, however, it helped hide some problems. People sometimes bought things only to find later that they could not afford to make the monthly payments.
Because they were so sure of the economy during the 1920s, many people bought stocks of different companies. Some of the buyers were speculators. Stockbrokers – people who sell stocks – encouraged this kind of buying by allowing people to buy stocks “on margin”. This meant that people could buy stocks without paying the full amount of the purchase price. They paid 10 percent of the price and thought of the rest as a loan to be paid off later. If the company did well, the price of the stock went up, and then the buyer could sell it at a profit and pay off the loan. More and more Americans were eager to get some of this easy money. By 1929 buying and selling stocks – “playing the market” – had become almost a national hobby, prices went up and up. Yet some people began to have doubts. By the autumn of 1929 the profits of many American companies had been decreasing for some time. If profits were falling, thought more cautious investors, then stock prices, too, would soon fall. Slowly people began to sell their stocks. Day by day their numbers grew and soon so many people were selling stocks that prices did start to fall. On Thursday, October 24, 1929 – Black Thursday – 13 million stocks were sold. On the following Tuesday, October, 29 – Terrifying Tuesday – 16.5 million were sold. The stock market had “crashed”. This collapse of American stock prices was known as the Wall Street Crash that marked the end of the prosperity of the 1920s.
What happened in the stock market had an effect on other areas of the economy. Banks that had invested in the stock market lost a great deal of money. With limited funds many banks could not make loans, which led to less available credit. Since most people no longer could get credit, they bought less than before. Because fewer goods were sold, industries began to produce less. It was also because Americans lost their foreign markets. In the 1920s American goods had sold well overseas, especially in Europe. But countries such as Britain and Germany had not prospered after the war and they had often paid for their purchases with money borrowed from American banks. After the Crash the banks wanted their money back. European buyers became short of cash and American overseas sales dried up almost completely. Goods piled up unsold in factory ware houses and companies reduced production. Before long fewer workers were needed, and people began to lose their jobs.
By the early 1930s the depression had become unlike anything Americans had ever known before. About 85 thousands of businesses and banks failed. In 1932 almost 13 million Americans – nearly 25 percent of the workforce – were without jobs. Thousands of others worked only a few hours each week. Millions of people found themselves facing debt and ruin. Unlike unemployed people in Europe, they received no government unemployment pay. Many were soon without homes or food and had to live on charity. Farmers who could not make their mortgage payments lost their farms.
By 1932 people were demanding that President Hoover take stronger action to deal with the Depression. President Hoover believed that he could do two things to end the Depression. The first was to “balance the budget” – that is, to make sure that the government’s spending did not exceed its income, the second was to make business stronger. Hoover held a meeting with business leaders to ask them not to cut workers’ pay and to keep people working. He also helped start private relief agencies and asked city and state governments to do the same.
But these measures were inadequate. Although President Hoover told people that recovery from the Depression was “just around the corner”, the factories remained closed and the breadlines grew longer. To masses of unemployed workers, Hoover seemed uncaring and unable to help them. In the election of 1932 he was defeated by Democrat Franklin D. Roosevelt, the governor of New York. Years earlier he had been stricken with polio and not longer could walk without braces or canes. Yet he remained very active in politics, and was able to inspire public confidence. “The only thing we have to fear is fear itself”, Roosevelt stated in his inauguration and he took prompt action to deal with the emergency. The program Roosevelt and his advisors finally decided upon is called the New Deal. Two of its chief aims were relief and recovery. Within three months – the historic “Hundred Days” – Roosevelt rushed through Congress a great number of laws to aid the recovery of the economy.
Many of the new laws set up government agencies to help the nation recover from the Depression. The Civilian Conservation Corps (CCC) put young men from 18 to 25 years old to work. Run in semi-military style, the CCC enrolled jobless young men in work camps across the country for about $30 a month. These people participated in different conservation projects, replanted forests, built dams and roads, etc. The Public Works Administration (PWA) gave work to people without jobs so they would be able to buy the products of farms and industries. It gave the money to state and local governments to hire workers to build highways, public buildings, and dams. The Agricultural Adjustment Administration (AAA) paid farmers to reduce production, thus raising crop prices. The money used to pay them came from a tax levied on industries that processed crops. The Tennessee Valley Authority (TVA) built a network of dams in the Tennessee River area, which took in parts of Tennessee, Kentucky, Alabama, Georgia, Mississippi, North Carolina, and Virginia, to generate electricity, control floods and make the land fertile again. TVA was the government’s first and largest attempt at regional planning. The National Recovery Administration (NRA) regulated “fair competition” among businesses and ensured bargaining rights and minimum wages for workers.
In its early years, the New Deal achieved significant increases in production and prices, but it did not bring an end to the Depression. So President Roosevelt backed the second New Deal − a new set of economic and social measures to fight poverty and unemployment and to provide a social safety net. The Work Progress Administration (WPA) was one the most effective measures, as it was an attempt to provide work rather than welfare. It created millions of jobs by undertaking the construction of roads, bridges, airports, hospitals, parks, and public buildings. It also set up projects for actors, writers and artists, who gave plays and concerts, produced guidebooks to states and cities, created sculptures, as well as pictures and murals on public buildings.
Another major New Deal reform was put into action in 1935, when the Social Security Act was passed. Social Security created a system of insurance for the aged, unemployed and disabled. The money to pay for these benefits came from special taxes paid by both workers and employers.
From the beginning not all Americans supported Roosevelt’s New Deal policies. Some liked them and felt they were doing a lot of good. Others thought the New Deal went against American principles. The strongest opposition came from business leaders who attacked the New Deal as socialism. Businessmen also complained bitterly of governmental overregulation and support of the unions. Some Americans said that the country could not afford the money Roosevelt was spending. Others said that much of the money was being wasted anyway. They feared that Roosevelt’s policies would make people idle and stop them from standing on their own feet. But such criticism made little difference to Roosevelt’s popularity with the voters. In 1936 he was reelected by the largest majority of votes in the country’s history. As one wit put it, “Everyone was against the New Deal but the voters.”
The New Deal did not end the Depression, but it gave millions of Americans some relief and hope. Some of the New Deal reforms such as social security worked so well that they are still a part of the American system. The New Deal also helped to change the role of labor unions in the American economic system. Most important of all is that for the first time millions of Americans began to look to the federal government for their well-being. The New Deal altered Americans’ ideas about the rightful work of their national government. Before the New Deal most thought of the government as a kind of policeman that was there just to keep order, while businessmen got on to make the country richer. The Depression weakened this belief. Because of this the government began to play a larger part than ever before in the economy.
DISCUSSION
What is the Great Depression? When did it start?
What were the difficulties American farmers faced after World War I? Why were they not able to buy new machinery and goods?
Did all American industries prosper when the Depression set in?
What problems in the operation of the stock market led to its crash in 1929?
How did the situation in Europe influence American industry and banks?
Were many Americans affected by the Depression during the 1930s?
What actions did President Hoover undertake to help the country recover?
Who won the presidential election of 1932?
What were the chief aims of Roosevelt’s New Deal policy?
What government agencies were established in the 1930s to help America
recover from the Depression?
Were the activities of the Work Progress Administration successful?
Who was helped by the Social Security Act?
Did all American people support Roosevelt’s New Deal policy?
Was Franklin D. Roosevelt popular as president?
How did the Great Depression and the New Deal change American values and beliefs?