Chapter 33 continued
I. Dealing with the problems in the economy
Causes (Problems) that led to the great depression—explain how these causes led to the
economic depression of the 1930’s.
1. overproduction and deflation
2. easy credit and speculation
3. global recession triggered by economic protectionism (Hawley Smoot Tariff)
Massive unemployment (25-29%; one out of every five workers were unemployed)
Financial crisis (bank failures, Stock market crash, October 1929)
Mortgages/debt could not be paid; foreclosures on businesses, factories and homes
Producers (steel & coal producers, manufacturers, farmers, etc.) caught in a cycle of
overproduction, falling prices and increasing debt
II. What should the government do? “New Deal” & the changing role of the government
**Key Concept: Roosevelt tackled the problems brought on by the Great Depression by
changing the role of government in society. Instead of protecting citizens from a powerful
government, he increased the power of the government to protect citizens from the
devastation caused by the depression. By extending the power and scope of the federal
government, he redefined the American idea of “liberalism”.
Traditional “Liberalism” (Laissez-faire, small New Deal “Liberalism” (federal government
government, “rugged individual” self-reliance) intervenes politically and economically to
Should it be “hands-off” in regards to the Should it regulate the economy? Intervene?
economy? How much? In what circumstance?
(should it be a referee? Coach? Player?)
Should it be pro-business? Should it be anti-business or pro business?
Should it provide money to those who can help Should it provide relief to those who cannot
themselves (ie. subsidies to businesses)? help themselves, (money directly to the
unemployed and impoverished?)
Should it be committed to individualism, Should it protect individuals from ruthless
competition and self-determination in society? competition by creating a more even playing
field & providing welfare, healthcare,
education and security to average citizens?
Roosevelt’s “solutions” : Relief, Recovery and Reform
In regards to “relief”, keep track of how the following federal legislation affected millions of
unemployed workers, women, African-Americans, homeless, consumers and farmers.
Unemployed Federal Emergency Relief Act (FERA, 1933)
workers CCC (Civilian Conservation Corps, 1933)
PWA (Public Works Administration, 1933)
WPA (Works Progress Act, 1935)
Significance: All of these agencies (except social security) provided jobs in
the public sector in return for relief. These agencies provided a precedent for
the type of acceptable “welfare” Americans were willing to accept in society
(“work for welfare” instead of receiving dole). The government did provide
funds to state agencies that gave out welfare “dole” to the unemployed. But
most of the time, the federal government created public sector jobs (paving
roads, building large public projects such as the Grand Culee Dam, creating
trails in national parks, etc.) so that the unemployed could find a way to make
Women, Social security: disability check, old age pensions and unemployment
disabled, Significance: Social security is by far the most important legislation that
Unemployed outlasted the Great Depression because it was designed to protect people from
future depressions by providing a “safety-net”. It also segregated the
“deserving poor” from the “undeserving poor”, providing money to those who
could not help themselves. **pro: safety-net; insurance against poverty in old
age or when disabled **con: it burdens the workers who are currently
contributing to the economy
Homeless Frazier-Lemke Farm Bankruptcy, 1934: suspension of mortgage foreclosures
Resettlement Administration: helped remove farmers to better land
Home Owners’ Loan Corporation
National Housing Act & the Federal Housing Administration (FHA)
**Significance: The US government wanted to insure that people had a place
to live. How? By providing immediate relief to those who could not make
their mortgage payments and were losing their homes/farms or granting small
loans to those who wanted to build new homes or improve existing ones.
Recovery and Reform
Roosevelt’s “experiment” focused on three of the largest sectors of the US economy—
Industries, Agriculture and Finance. As you read about the various legislation passed under
the “New Deal”, think about how these sectors of the economy were affected.
Industry (manufacturers and workers)
Industry: Purpose: introduce order, harmony and coordination to US industries.
The National How: NRA: each industry would run like a cartel/monopoly, in which businessmen would
Recovery meet to set production quotas, minimum price of goods, workers’ hours and wages, number
Act (NRA) of workers employed, etc. Yet, it was not like a cartel because the government intervened
and allowed for all interests, labor unions, small and large businesses and government
agencies to be involved. They collectively determined “fair competition” codes that set rules
on everything from business codes, hours, wages, and factors that etc.
Significance: NRA promoted government-business cooperation similar to the War
Industries Board of 1918. Roosevelt believed that cooperation and coordination in industries
would bring about positive change for the economy.
Result: Failed. Why did the NRA fail?
1. Too many strong interest groups made cooperation impossible. Labor and
management could not agree; Large companies would often control and set “fair
competition” codes that were “unfair” to small companies or workers. NRA codes
often led to lower production and higher prices when the exact opposite was needed
to generate consumer demand.
2. Supreme Court declared the NRA unconstitutional in the Schecter v. US (Sick
Chicken) case because the federal government could not regulate local commerce,
only interstate commerce; also, the president could not make laws.
Agriculture: Purpose: introduce order, harmony and coordination to US farming sector
Agricultural How: Farmers (including large and small acreage farmers or even tenant farmers and
Adjustment sharecroppers) would collectively set production quotas, receive money not to farm, be able
Act (AAA) to sell their crops at an equitable price or “parity” price.
Significance: AAA allowed the government to protect farmers’ interests by giving them
subsidies not to farm (prevent overproduction) and paying them “equitable” prices for food
Result: Success (even though the Supreme Court shut down the AAA, it was revived again
in 1938). Why? Large farming businesses were strong enough to override objections by
small-time farmers, tenant farmers, etc. Farmers wanted help from the govt-they couldn’t
make it without government subsidies.
Finance: Purpose: measure provided greater government regulation over the banking industry. The
Glass- government insured individual deposits, prevent bank runs and bank failures
Steagall Significance: Greater government interference/regulation in the economy
Banking Result: successful. Made a lasting impact on the financial industry.
Reform: How did the New Deal affect particular social groups?
Workers Fair Labor Standards Act (Wages and Hours Bill)
Industries had to set up minimum wage and maximum hour levels (ie. Forty cents/hour and forty-
Wagner Act and the National Labor Relations Board
Recognized labor unions’ right to organize workers and bargain collectively through
representations of their own choice (ended “yellow dog” contracts)
Led to the organization of unskilled workers, minority workers, and women under the leadership
of John Lewis & the Congress of Industrial Organizations (CIO)
Social Security Act: provided disability & unemployment insurance as well as old-age pensions
to all citizens
African- Fair Labor Standards Act (Wages and Hours Bill) excluded agriculture, service, and domestic
Americans workers, meaning that blacks, Mexican Americans, and women could not benefit from the
restrictions set by this act.
Mary McLeod Bethune, dir. Of Office of Minority Affairs in the National Youth
Administration made sure that New Deal Programs benefited African Americans.
Women Frances Perkins, 1st woman cabinet member, secretary of labor
Social Security was provided to head of household (male); women did not qualify for relief
unless she was a widow or single mother.
American Indian Reorganization Act, 1934: Reversed the Dawes Severalty Act, 1887, by encouraging
Indians tribes to establish local self-government and preserve their native traditions.
Children Wagner Act made child labor illegal
Second New Deal (1935-1939)
Works Progress This act, passed in 1935, created useful jobs for the unemployed giving
Administration states money to create jobs. State agencies employed workers in public
(WPA) projects such as building bridges, public buildings, roads, etc. Even actors,
writers, musicians were employed under this act. Result: 9 million people
were given jobs.
Significance: Government spent money to stimulate the economy by
providing jobs (“Keynesian economics”) and shows a significant departure
from laissez faire economic policies
Social Security Purpose: This act passed in 1935 provided disability & unemployment
Act insurance as well as old-age pensions to all citizens
Significance: Provided a government sponsored economic and social safety
net for all US citizens; this act demonstrated
1) the American citizens’ willingness to depend on the government for
future security and
2) the change in the government’s role in assuming responsibility for
the welfare of its citizens
Federal Housing FHA provided small loans to home owners to build new homes or improve
Administration existing ones.
(1934) Significance: the government helped start the building industry and assist
United States home owners
(USHA) USHA was the agency created in 1937 that extended FHA goals by lending
money to states or communities for low cost housing
Wagner Act Purpose: This act created in 1935 allowed workers to form unions and
(1935) bargain with business managers regarding their working conditions &
Significance: a milestone legislation in business-labor movement; it led to
creation of the Congress of Industrial Organization (CIO), a union for
mostly unskilled workers and minority workers shut out from AFL
National Labor This agency arbitrated business-labor disputes and helped administrate the
Relations Board Wagner Act; significance: a government agency was formed to actively
arbitrate labor disputes and championed workers’ causes against business
Fair Labor This act passed in 1938, also known as the Wages and Hours Bill, set
Standards Act minimum wage and restricted working hours to 40 hours a week.
(1938) Significance: this law boosted the power of workers against the abuses of
businesses and corporations exploiting its workers
Federal Securities Otherwise known as “Truth in Securities Act”, this act was passed in 1934
Act and the to protect stock market investors from fraud, deception and insider
Securities and manipulation of stocks. This act created a government agency that ensures
Exchange investors are provided with adequate and accurate information.
Commission Significance: This act created lasting government regulation (and reform) of
(SEC) the stock market, preventing gross violations of insider trading & fraud
Public Utility This act prevented public utility holding companies from being able to
Holding Company dominate and monopolize the public utility industry (power, gas and water
Act to consumers) Significance: this act worked as an anti-trust legislation
preventing monopolies from being able to exercise tremendous power over
national resources, such as electricity, gas and water (public resources not in
Resettlement This act helped displaced farmers, especially hard hit from the dust storms
Administration that ravaged Oklahoma, Kansas, Arkansas, move to better farm land
Significance: the government actively intervened and provided relief to
suffering individuals—changing the scope of government’s affairs
Second This act, a revision of the first, paid farmers not to farm.
Agricultural How: Farmers (including large and small acreage farmers or even tenant
Administration farmers and sharecroppers) would collectively set production quotas,
Act (AAA) receive money not to farm, be able to sell their crops at an equitable price or
Significance: AAA allowed the government to protect farmers’ interests by
giving them subsidies not to farm (prevent overproduction) and paying
them “equitable” prices for food they produced.
Frazier-Lemke This act, created in 1934, released farmers facing foreclosure from their
Farm Bankruptcy debt (“moratorium on debt”) for three years
Act Significance: the government provided active relief to farmers who could
not face their debt; this is a significant advancement of farmers’ cause
(compared to 1893 when farmers voiced their discontent through the
Populist Party to get help from the Cleveland administration)
TVA This authority produces and distributes electricity. This authority was
controversial because the government was not only regulating and
participating in the industry.