aice us history: great depression

• Economic conditions in the U.S. before the stock market crash

  • Domestic consumption of new consumer products fueled by credit and installment buying, which was unsustainable
  • Agricultural sector suffered with dropping farm prices and farmers going into debt to finance mechanization
• By 1925, growth of car manufacturing and residential construction slowed
• By 1929, commercial bankers were loaning more money for stock market and real estate investments than for commercial ventures
• Cause of the Great Depression

  America's weak banking system
• What happened when there was a bank panic

  1. Depositors rushed to withdraw money, banks went under if they didn't have enough reserves

  2. Banks called in loans and sold assets, leading to a credit freeze and deflation
• World War I set the stage for the global economic disaster of the Great Depression through the web of debts and reparations it created
• When American credit dried up, the economies of Germany, France, and Britain also fell off a cliff
• The Hawley Smoot tariff, which raised tariffs to their highest levels ever, was a bad policy that reduced global trade
• Central bankers in Europe and America refused to let go of the gold standard, which would have allowed governments to devalue their currency and pump money into their economies
• Hoover proposed a moratorium on intergovernmental debt payments and he actually got Congress to go along with it, but it wasn't enough, mainly because the central bankers in Europe and America refused to let go of the gold standard
• When Britain abandoned the gold standard in 1931 and stopped payments in gold, the U.S. did not follow suit, which meant that world financial markets froze up even further
• The Fed raised its discount rate, making credit even harder to come by
• By the end of 1931, 2,294 American banks had failed, double the number that had gone under in 1930
• When Hoover was president, orthodox political and economic theory counseled in favor of doing nothing
• Hoover believed that the best course of action was to "use the powers of government to cushion the situation"
• Hoover nearly doubled the federal public works expenditures between 1929 and 1931, but it just wasn't nearly enough
• Hoover hiked taxes as part of a plan to stabilize the banks by balancing the federal budget, providing confidence for foreign creditors, and stopping them from buying American gold
• In January 1932 Hoover and Congress created the Reconstruction Finance Corporation, which was basically a federal bailout program that borrowed money to provide emergency loans to banks, building-and-loan societies, railroads, and agricultural corporations
• Hoover's response was to try to encourage private charity through the unfortunately acronymed President's Organization on Unemployment Relief
• Unemployment was 25% and this could be literally any of those people
• There were shantytowns for the homeless called Hoovervilles, and there were protests, like the Bonus March on Washington by veterans seeking an early payment of a bonus due to them in 1945
• The New Deal redefined the role of the federal government for most Americans and it led to a re-alignment of the constituents in the Democratic Party, the so-called New Deal coalition
• New Deal


  A set of government programs intended to fix the depression and prevent future depressions
• Three R's of the New Deal

  • Relief programs
  • Recovery programs
  • Reform programs
• The bank holiday and the Emergency Banking Act of March 1933 created the FDIC, which insures individual deposits against future banking disasters
• Phases of the New Deal

  • First New Deal (before 1935)
  • Second New Deal (after 1935)
• First New Deal Acts

  1. Civilian Conservation Corps

  2. Agricultural Adjustment Act

  3. Glass Stegall act

  4. National Industrial Recovery Act
• National Recovery Administration (NRA)

  Government planners and business leaders working together to coordinate industry standards for production, prices, and working conditions
• First New Deal programs

  1. Federal Emergency Relief Administration

  2. Public Works Administration

  3. Civil Works Administration

  4. Tennessee Valley Authority
• The Agricultural Adjustment Act was controversial because it paid farmers to plant less food while many Americans were hungry
• The Supreme Court struck down the AAA and the NIRA as unconstitutional
• FDR proposed a law to allow him to appoint new Supreme Court justices if sitting justices reached the age of 70 and failed to retire
• The Supreme Court began upholding the New Deal laws, starting a new era of Supreme Court jurisprudence in which the government regulation of the economy was allowed under a very broad reading of the commerce clause
• Second New Deal Acts

  1. National Labor Relations Act (Wagner Act)

  2. Social Security Act
• Government regulation of the economy was allowed under a very broad reading of the commerce clause
• The Second New Deal shifted focus away from recovery and towards economic security
• National Labor Relations Act (Wagner Act)

  Guaranteed workers the right to unionize and created a National Labor Relations Board to hear disputes over unfair labor practices
• In 1934 alone there were more than 2,000 strikes, including one that involved 400,000 textile workers
• The most important union during the 1930s was the Congress of Industrial Organizations, which set out to unionize entire industries like steel manufacturing and automobile workers
• In 1936 the United Auto Workers launched a new tactic called the sit-down strike. Workers at the Fisher Body Plant in Flint, Michigan simply stopped working, sat down, and occupied the plant. Eventually GM agreed to negotiate, and the UAW won