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Ch. 25 AP Notes on Crash, Depression, and New Deal Walton “The only thing we have to fear is fear itself.” FDR ~ “There’s a vast bitterness welling up from the grass roots of every country club in America.” One of Roosevelt’s aides noting the strength of the anti-Roosevelt attitude of American business leaders – LOVE THIS QUOTE!!! Stock prices had risen steadily throughout much of the 20s – 1925 market value of all stocks =$27 billion, early Oct 1929 = $87 billion. 9 million Americans played the market – often on borrowed (on the margin) money. Frenzied speculation ensued, but it was built on shaky ground. Agriculture remained depressed, as did mining, textiles, etc. Auto production slowed in the 20s. July 1928 Federal Reserve Board tried to dampen speculation by increasing interest rates on Federal Reserve notes and warned member banks not to lend money for stock market speculation. The Fed tightened credit again in Sept. 1929. Black Thursday – Oct 24, 1929 – prices dropped suddenly, panicked trading, some stocks found no buyers at all and became worthless. New York bankers temporarily allayed the panic by buying some $30 million worth of stock, but prices plunged still lower early the next week. TUESDAY OCT 29, 2929 – climactic sell off that became the Great Crash. Onset of the Depression Underlying Causes – Structural factors 1. Increased productivity did not generate corresponding wage increases for workers but took the form of higher corporate profits. 40% of Americans at the lower end received only about 12% of the total national income in 1929. 2. Overproduction – automobile, housing, textile, tire, and other durable-goods industries were overextended and cutting back. 3. Decline in farm prices in 20s 4. RRs, steel, textiles, and mining – lagging technologically and could not attract the kind of investment needed to stimulate recovery Underlying Causes – Monetarist factors from Milton Friedman in Monetary History of the US 1963 1. Collapse of banking system in early 1930s – blamed on Federal Reserve System policies – the Fed failed to assure an adequate money supply that would have enabled the economy to bounce back from the shock of the crash. 2. Money supply shrank by 38% in the early 30s Underlying Causes – General 1. Global economic crisis – US depression was part of that larger crisis 2. European economies – enfeebled as a result of WWI 3. Massive debt payments 4. Heavy trade imbalance with the US 5. 1931 brought depression globally 6. Plummeting exports from America 7. Austria’s biggest bank failed in May 8. Germany imposed currency controls in July 9. Great Britain abandoned gold standard in Sept. 10. World economic crisis intensified fearful psychological climate that nurtured the crisis Impact on U.S. economy??? GNP dropped from $104 billion in 1929 to $59 billion in 1932; Farm prices fell by nearly 60%. Wheat, $1.04 a bushel in 1929 was $.51 in 1933. RR corp. fell into bankruptcy, banking system moved toward collapse. 1930-1933 5500 banks closed their doors. Unemployment rate rose from 3% in 1929 to 25% in 1933. 13 million jobless. Many Americans who still had jobs faced cuts in pay and hours. The Depression’s Human Toll Breadlines, hoboes, homeless, sellers of pencils or apples on the streets, etc. created a shattering effect. Not just the unemployed were affected – thousands of dependents were affected as well. Thousands lost their farms and homes. In 1933 over 5% of the nation’s farms underwent mortgage foreclosures or forced sales because of tax delinquency. Poor diet, inadequate medical and dental care created long-term problems. Malnutrition, rickets, pellagra, etc. rose. The school year was shortened as dwindling tax revenues hurt the system. Some schools were closed. 300,000 children were out of school. “Hoover Valley” – Central Park section where jobless men built makeshift housing of boxes, “Hoover Blanket” – layers of newspaper to keep warm, “Hoover Flag” – empty pocket linings. Suicide rate climbed nearly 30% between 1928 and 1932. Hoover’s Response Drew from Progressive Reforms and food administrator of WWI – but he was committed to localism and private initiative. He summoned business leaders to White House and pledged them to maintain wages and employment. Called on municipal and state governments to create public works projects. He set up Emergency committee for Employment to coordinate efforts of voluntary relief agencies. He persuaded the nation’s largest banks to set up a private lending agency – Nt. Credit Corp. – smaller banks could borrow funds to make business loans. But the crisis worsened. Midterm elections of 1930 gave Dem. Control of House of Rep. and eight Senate seats were lost by Rep. To the Democrats. Unemployment mounted, 1921 U.S. Steel/General Motors/etc announced major wage cuts. Private charities and local welfare agencies were swamped. Some cities suspended welfare checks. 1932 Hoover took some unprecedented steps to federal aid. Congress set up $2 billion for Reconstruction Finance Corp. – make loans to major economic institutions such as banks, insurance companies, RRs. RFC pumped $1.2 billion into economy. Glass-Steagall Act allocated $750 million of the government’s gold reserves for loans to private businesses. Hoover signed legislation authorizing the RFC to give $2 billion to state and local governments for job-creating public-works programs. He was grudging in authorizing these measures. He blamed the depression on global forces and argued that only international measures would help. He advocated a one-year moratorium on war-debt and reparations payments from European nations. In 1931, he called for a tax increase dreading an unbalanced budget. The tax increase alienated voters. Hoover grew sullen and withdrawn. His press secretary resigned, he was reluctant to communicate. He stubbornly continued to support prohibition long after its unpopularity had become obvious. Mounting discontent and Protest Midwestern farmers organized the Farmers’ Holiday Association – to force up prices by withholding grain and livestock from the market. Dairy farmers dumped thousands of gallons of milk in Iowa and Wisconsin. Some people were evicted from homes and apartments for nonpayment of rant. World War I Veterans were very vocal. In 1924 Congress had voted a veterans’ bonus in the form of 20 yr. endowment policies against which veterans might receive loans. In 1931 a Texas Democratic congressman introduced a bill to turn endowments into immediate cash payments. June 1932 – 10,000 veterans – many jobless – marched on Washington to lobby for its passage. Congress rejected the bill and most of the “bonus army” went home, but 2,000 stayed and built a makeshift section called Anacostia Flats. Gen. Douglas McArthur – decided to break up the settlement entirely. Hoover had urged containment to the Flats. 1,000 soldiers with tear gas, tanks, and machine guns drove the veterans from their encampment and burned it to the ground. Assisting in this was Dwight D. Eisenhower and George Patton. This symbolized for many Hoover’s insensitivity to the depression’s human plight. Election of 1932 Herbert Hoover – Republican nominee Democrats - Franklin Roosevelt – platform of end to prohibition, support for agricultural aid programs, balanced budget, and 25% cut in federal spending – they had been critical of Hoover’s spending!! Roosevelt pledged “a new deal for the American people.” FDR called for “bold persistent experimentation” and for more attention to “the forgotten man at the bottom of the economic pyramid.” He attacked Hoover’s “reckless spending” and insisted that “only as a last resort” should the federal government play a larger economic role!! FDR and his running mate – John Nance Garner won 23 million to 16 million and 472 electoral votes to 59. Both houses of Congress went Democratic by heavy margins. THE NEW DEAL TAKES SHAPE 3 essential components to attack the depression: 1. Industrial recovery through business-government cooperation and pump-priming through federal spending 2. Agricultural recovery through subsidized crop reduction 3. Short-term emergency relief for the jobless – funneled through state and local agencies when possible, but provided by the federal government if necessary. New Beginnings “The only thing we have to fear is fear itself,” said FDR in is 1 st inaugural address. Congress repealed the 18th Amendment a few days before the inaugural. This would stimulate recovery by producing local, state, and federal taxes on the sale of alcoholic beverages. Brain trust – group of advisers included Columbia University professors Raymond Moley and Rexford Tugwell and lawyer Adolph Berle. They rejected laissez-faire and advocated federal economic planning and corporate regulation. Eleanor Roosevelt played a role. She had done Progressive Era settlement-house work. She traveled 40,000 miles in 1933 alone and was a major aid to her husband. In 1935 she began a syndicated column called “My Day.” She and her husband found marital solace outside their marriage. FDR with his wife’s social secretary Lucy Mercer. FDR’s cabinet reflected diversity. First woman cabinet member – Sec. Of Labor – Frances Perkins. Interior Sec. Harold Ickes – Rep. Progressive from Chicago. Sec. Of Ag. Henry Wallace – excelled as agricultural economist, crop experimenter, and farm-policy theorist. Treasury Sec. Henry Morgenthau, Jr. – fiscal conservative but tolerated unbalanced budgets to finance New Deal. Newcomers including former progressive reformers, settlement-house workers, political scientists, economics professors, etc. The Hundred Days March 9 – June 16, 1933 – Congress enacted more than a dozen important measures. SEE ACCOMPANYING CHART 1. bank reform – bank holiday – Emergency Banking Act 2. Fireside chats 3. Federal Deposit Insurance Corp – FDIC – insure bank deposits 4. Cut federal workers’ salaries, slashed veterans’ pensions/benefits, etc. 5. Civilian Conservation Corp – reforestation, park maintenance, erosion control, ½ million young men - $35 a month + room and board 6. Home Owners Loan Corp – HOLC – helped needy citizens refinance homes 7. Farm Credit Administration – helped keep farms 8. Federal Emergency Relief Act (Administration) – appropriate $500 million to replenish coffers of state and local governments to then give money to jobless, homeless, etc. 9. Tennessee Valley Authority TVA – expanded Sen. George W. Norris’s idea of power for rural areas – built a hydroelectric network that supplied cheap power to the region while developing a flood-control system, recreational facilities, and a soil-conservation program. Controversial – displaced private landowners to build dams, reservoirs, and parks. Private power interests distrusted TVA and Pres. Dwight Eisenhower in the 50s called it “creeping socialism.” Environmentalists, advocates of energy conservation, and critics of nuclear power (which TVA later championed) all criticized it. 10. Agricultural Adjustment Act –to cut production – paid southern cotton planters and Midwestern farmers to take cotton out of production and to slaughter some 6 million piglets and pregnant sows. This caused controversy when people were starving. The AAA set up program whereby producers of hogs, wheat, corn, cotton, dairy, etc. received payments to cut production. A tax on food processors, such as mills, financed these subsidies. The nation’s consumers actually paid for it in higher food prices. Goal was parity – restoration of farmers’ purchasing power to what it had been in 1909 – 1914 – a time of prosperity. 11. National Recovery Act – set up NIRA – codes of “fair competition” set production limits, prescribed wages and working conditions, forbade price-cutting and unfair competitive practices. It was to break cycle of wage cuts, falling prices, and layoffs. The textile-industry code banned child labor. Section 7a /Wagner Act of the law boosted organized labor by forbidding employers to discriminate against union member and affirmed workers’ legal rights to organize and bargain collectively. The symbol of this was the blue eagle and the slogan “We Do Our Part.” This also appropriated #3.3 billion for public-works to employ the jobless and pump money into the economy. The Public Works Administration under Harold Ickes supported this. Spent more than 4$ billion of 34,000 public-works projects, including dams, bridges, and public buildings. Problem was the codes were voluntary. Most business leaders complied at first. The RFC (Hoover’s program) survived and it lent billions of dollars at favorable rates to banks, insurance companies, RRs, and even a large dept. store chain. It extended govt. loans for new business ventures. Some backlash against business. Senate investigation of 1929 crash. Conducted in 1932-34. Congress passed Federal Securities Act 1933 – regulated sale of stocks. Following year, Congress forbade buying stock on credit. Created new agency Securities Exchange Commission to oversee the stock market. Congress adjourned for the summer on June 16, 1933 and the Hundred Days ended. Spawned an array of “alphabet soup” agencies. The NRA Bogs Down Economy improved briefly in summer of 1933, but did not last. Corporate America grew restless with NRA. Charges of code violations. Small businesses objected that codes served the interests of large business who could more easily afford compliance. Some Rep. and jurists attacked the NRA as unconstitutional. The NRA became bogged down in drafting trivial codes. The shoulder-pad industry had its own code, so did the nation’s burlesque houses, etc. May 1935 the Supreme Court unanimously declared it unconstitutional. For two reasons: the act delegated to the pres. Regulatory powers that constitutionally belonged to the leg. Branch and the NRA was regulating commerce within individual states, violating the const. Provision limiting fed. Regulation to INTERSTATE commerce. Case was Schechter V. U.S. “sick chicken case.” Troubled Agriculture AAA generated controversy as well. Agricultural production declined and prices rose from 1933 to 1937. But the AAA did little to help landless farm laborers, migrant workers, tenant and sharecropping farmers of the cotton South. The AAA crop-reduction subsidies hurt tenants and sharecroppers, because the landowners often banked the subsidy checks, removed the acreage from production, and left the sharecroppers to fend for themselves. 1934 interracial Southern Tenant Farmers’ Union, led by the Socialist Party, emerged in Arkansas. The great drought of the Great Plains in the mid 1930s also hurt – “The Dust Bowl” – many poor farmers migrated to California and Arizona – “The Grapes of Wrath” by John Steinbeck – the “Okies” – chronicle this story. At first FDR was resistant to helping the poorest farmers. The AAA is going to be declared unconstitutional in the Supreme Court case of Butler vs. U.S. Controversy over Relief Strategy Aid to the unemployed caused conflict as well. Relief Administrator Harry Hopkins grew impatient with slow and inefficient state and local relief agencies. He advocated federal direct relief. FDR put Hopkins in charge of Civil Works Administration CWA - spent nearly a billion dollars on short-term work projects for jobless. But it only lasted in winter and was cut in spring. Ickes (Interior Sec.) and Hopkins had conflict over federal relief policy. Ickes was detail oriented and left billions in relief funds unspent. Hopkins sought to put people to work and get money circulating. Hopkins had more influence. The New Deal in Midstream: Popularity and Problems The Depression continued as 1934 drew to a close. Even with problems with NRA and also farm policy, the New Deal remained popular. Roosevelt’s personality drew people in. The midterm election of Nov. 1934 ratified the popular verdict on the New Deal. The incumbent Democrats increased their majorities (usually you loose votes) in both House and Senate. FDR urged a new surge of activism, rivaling that of the Hundred Days? What would happen???? THE NEW DEAL CHANGES COURSE 1935 brings changes to the New Deal. Roosevelt turns left. 1934 American Liberty League formed – dedicated to the proposition that the Roosevelt program restricted individual freedom and was leading to socialism and destructive of capitalism. Others offered a variety of suggestions to lower classes. Detroit Catholic Priest – Charles E. Coughlin – radio priest – anti-Semitic – organized the National Union of Social Justice – big critic of Roosevelt – Francis E. Townsend – proposed that the government pay $200 each month to all retired citizens over 60, required only that the money be spent within 30 days. Would have bankrupted the government. Older citizens liked the idea! Huey Long – Gov.and Senator from Louisiana – “Share Our Wealth” – 100% tax on all annual incomes over $1 million and appropriation of all fortunes in excess of $5 million. He proposed to give every American family a comfortable income, a house, a care, old-age benefits, and free educational opportunities. He looked like a good old country bumpkin, but he was highly intelligent. “Every Man a King” Long claimed. His nickname was “The Kingfish” and he had presidential aspirations. He was killed by an assassin in Sept. of 1935 on the steps of the capitol. Roosevelt still had many other problems. Unemployment was still up. The “Second New Deal” Contained 6 central elements: enlarged and reorganized federal program of relief for the jobless, assistance to the rural poor, support for organized labor, social-welfare benefits for older Americans and other disadvantaged groups, stricter business regulation, and heavier taxes on the wealthy. 1. April 1935 Emergency Relief Appropriation Act – granted him $5 billion to spend as he wished. He set up the Works Progress Administration WPA – Harry Hopkins was head – like the temporary Civil Works Adm. It was to provide relief assistance directly from the federal government to individuals. Lasted 8 years – employed 8 million – pumped $11 billion into economy, built 650,000 miles of roads, 124,000 bridges, 125,000 schools, hospitals, post offices, etc. Also assisted writers, artists, performers, musicians, etc. Federal Writers’ Project – Transcribed hundreds of handwritten legal documents from the Salem Witch Trials of 1692 and collected the reminiscences of aged ex-slaves. Federal Theater Project – Living Newspaper – dramatized social issues – Federal Arts Project – designed posters, taught painting in schools, created murals in federal buildings, etc. 2. National Youth Adm. – provided part-time work for more than 2 million high school and college youths. 3. Public Works Adm. - $4 billion spent, employed thousands, built Grand Coulee Dam and Lincoln Tunnel in NYC Brought big budget deficits. 1934 $3.6 billion, 1936 $4.4 billion, 1938 $1.2 billion. The govt. borrowed to cover the deficits. This would increase public works programs, increase purchasing power and stimulate recovery (Keynes). But the dollars that flowed into public works were withdrawn from the economy through taxation or government borrowing. The Second New Deal: Turning Leftward All this was a sharp turn to the left for Roosevelt. He offered a program geared to the poor, the disadvantaged, and the laboring. Looking to 1936 election, Roosevelt feared that Coughlin, Townsend, and Long could siphon off votes. Agricultural policy – helped sharecroppers, tenant farmers, migrants, poor farmers. Resettlement Administration – May 1935 – made loans to help small farmers buy their own farms and to enable sharecroppers and tenants till resettle in regions more fertile. Rural Electrification Adm. REA – made low interest loans to utility companies and farmers’ cooperatives to extend electricity to the 90% of rural America still lacking it. By 1941, 40% of American farms got electricity. Jan 1936 – Supreme Court declared AAA unconstitutional – processing tax to fund it was an illegal use of the government’s tax power. To replace it, Soil Conservation and Domestic Allotment Act – paid farmers to cut production of soil-depleting crops such as wheat and cotton – plant soil-conserving grasses and legumes instead. May 1935 Supreme Court ruled NIRA/NRA unconstitutional – but in July 1935 Congress lifted Section 7a from the NIRA and passed it as the National Labor Relations Act – guaranteed collective bargaining – permitted closed shops (all employees must join union as condition of employment), outlawed spying on unions and blacklisting labor agitators. Created National Labor Relations Board to supervise shop/union elections and deal with labor law violations. Called the Wagner Act. SOCIAL SECURITY 1935 – from example of social welfare programs in England and Germany. Mixed federal-state system of old-age pensions for workers; survivors’ benefits for victims of industrial accidents; unemployment insurance; and aid for dependent mothers and children, blind, crippled. Payroll-withholding system – contributed to sharp recession in 1937 as it withdrew money from circulation. Low benefit payments, excluded millions of farmers, domestic workers, and self-employed workers but established principal of federal responsibility for a social welfare. 1935 Banking Act – strengthened the Federal Reserve Board’s control over the nations’ banking system and money supply. 1935 Public Utilities Holding Company Act – regulated the interstate transmission of electricity – targeted big public utility empires – restricted gas and electric companies to one geographic region. 1935 Revenue Act – raised personal taxes at the higher income levels, increased corporate taxes, boosted the levies on gifts and estates. This law had a lot of loopholes – evidence of class-conscious spirit of the 2nd New Deal Election 1936: The New Deal at High Tide Roosevelt said there was one issue – whether you were for him or not. Republicans – Alfred Landon – Kansas – Democrats – FDR – won big!! Carried every state except Maine and Vermont. Democrats increased heavy majorities in Senate and House of Rep. – he even buried his minor-party critics – Socialist/Communist candidates only received a few thousand votes, and a coalition of Coughlinites, Townsendites, and Share Our Wealthers got only 9,000 votes. The New Democratic Coalition The Democrats, from 1860-1930, had counted on 3 bases of support: the white South, parts of the West, and big-city Democratic organizations like Tammany Hall. FDR retained these bases. BUT. . .he also adds farmers, urban immigrants, unionized industrial workers, northern blacks, and women. By 1936 all this helped produce a strong anti-New Deal mood among business, even though he had some support from officials of corporations that benefited from his programs. Racial elements? Was Roosevelt a friend to blacks? Only sort of – Roosevelt kept aloof from NAACP campaign to make lynching a federal crime. Lynchings increased in the 1930s. More on this is next chapter’s notes. Same for women. The New Deal and The Environment Roosevelt was committed to conservation. The Civilian Conservation Corp thinned forests, built hiking trails and fire lookout towers, and planted hundreds of thousands of trees. Soil conservation emerged as major priority. Dust storms on the Great Plains of 1933-35 were a result of drought and overgrazing and other unwise farming practices. The Dust Bowl was born. By the 1930s, 9 million acres of farmland had been lost to erosion, with another 80 million in jeopardy. Soil Conservation Service of the Department of Agriculture set up demonstration projects and research stations across the nation. Contour plowing, terracing, crop rotation, and planting soil-strengthening grasses were a part of this. The Taylor Grazing Act of 1934 – restricted the grazing on public lands. TVA also played a major roll in preventing soil erosion through flooding. The national park movement was furthered. Olympic National Park in Washington, Shenandoah National Park in Virginia, Kings Canyon National Park in California all date from the 1930s. Wildlife preservation also gained ground. Duck- breeding grounds were preserved. By 1940, the government had established some 160 new wildlife refuges of 7.5 million acres total. In 1935 the Wilderness Society lobbied for the wilderness movement. Said it was not “a luxury or a plaything” but “a human need.” 1936 The National Wildlife Federation, joined with Roosevelt to sponsor a major wildlife conference in Washington. Atmospheric pollution, dwindling fossil fuels, pesticide hazards, etc. were issues. The New Deal Draws to a Close FDR and The Supreme Court 1937 – Roosevelt went after the court. It had 9 elderly men, four of whom were archconservatives who abhorred the New Deal. FDR proposed an addition of 1 new justice for each one over the age of seventy, up to a total of six. He received sharp disapproval for this proposal. It was called the “court-packing” scheme. But. . .one of the most conservative justices retired, and others announced plans for retirement. The Court upheld the Wagner Act and some state minimum-wage laws. From 1937-39, FDR wound up appointing 4 new justices – Hugo Black, Stanley Reed, Felix Frankfurter, and William O. Douglas – laying the groundwork for a liberal majority that would outlive him and the New Deal. The Roosevelt Recession August 1937, the economy plunged again. Why? Federal policies that steeply reduced consumer income. New Social-Security payroll taxes –withheld from your paycheck. FDR had terminated the PWA and cut the WPA and other relief programs in anticipation of mounting deficits. A drastic contraction of the money supply also was put into place by the Fed. Hopkins convinced Roosevelt to again put into effect the WPA and the PWA. The End of the New Deal Bankhead-Jones Farm Tenancy Act of 1937 – created Farm Security Administration – low interest loans to tenant farmers and sharecroppers to buy family size farms of their own. Camps offering clean, sanitary shelter and medical services to migrant farm workers. Photographers such as Dorothea Lange hired to preserve lives of tenants, migrants, and dust bowl families. National Housing Act 1937 –appropriated $500 million for urban slum clearance and public housing projects. Fair Labor Standards Act 1938 – banned child labor and established a national minimum wage of $.40 an hour and maximum workweek of 40 hours. Agricultural Adjustment Act 1938 – adopted as surpluses and low prices set up procedures for limiting production of basic agricultural commodities such as cotton, wheat, corn, and tobacco. In years of big harvests and low prices, the govt. would make loans to farmers an store their surplus crops in govt. warehouses. – these payments came directly from federal treasury rather than processors’ tax. Big union membership in 1930s. But the New Deal lost momentum after 1935 – growing strength of anti-New Deal congressional coalition of Republicans and conservative Southern Democrats. The Court fight, and investigation of the NLRB, a cut of corporate taxes, the demise of the WPA Federal Theater Project, etc. hurt things. 1939 Hatch Act – forbade federal workers from participating in electoral campaigns. In 1938 midterm elections the Republicans gained heavily in the House and Senate and won a net of 13 governorships. Several Senators whom Roosevelt campaigned against won reelection – Walter George of GA, Ed Smith of SC, and Millard Tydings of MD. FDR began to focus on ominous foreign developments and spoke merely of preserving our reforms. The New Deal was over.
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