Transcript The Great Depression and the New Deal, 1929

Prosperity, Depression, and
the New Deal
1920s Economy and Advertising
 “Mass production is only possible where there
is mass demand. Mass demand has been
created almost entirely through the
development of advertising. …”
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President Calvin Coolidge, 1926
1920s Economic Prosperity
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Industry
*Percentage Increase, 1922-28
Industrial Production: 70%
Gross National Product (value of total goods and services produced): 40%
Output per factory man hour: 75%
Corporate Profits: 62% (1923-1929)
Standard of Living
* Percentage Increase, 1923 – 1929
Homes with Electricity: 30%
Telephone Ownership and Use: 54%
Home Ownership: 25%
Automobile Ownership: 150%
Workers
*Percentage Increase, 1923-29
Worker's Incomes: 11%
Average Work Week: -4%
In what general ways did the economy change in the 1920's?
What changes in the average worker's wage, output, and work day length do you
notice?
What effects did this have on the average American?
1920s Economic Prosperity
 Unemployment
remained low and
prices for consumer
goods remained stable
 people had $ to
spend on affordable
goods
 Availability of electric
power
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Telephones, radios,
and electric appliances
Henry Ford and the Automobile
Industry
 Mass production and
moving assembly line
affordable car for the
masses, the Model T
 $290 in 1927 ($2900
today)
 Ford paid workers $5 a
day  workers could
afford to buy cars
themselves increased
demand for cars
1903: Ford made 1700 cars in 3 different styles
1914: Ford made 286,770 cars in ONE style
1925: Ford made 1 car every 10 seconds!!
1924 Advertisement for a Ford Model T – “available in any color so
long as it is black”
The Automobile Industry
 The automobile industry drove the 1920s economy
 Road construction, gasoline/service stations, oil, and
motel industries all profited
 Job creation
 Led the way in installment plan buying – “buy now
and pay later”
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Encouraged consumer spending and increased
consumer debt  created artificial demand
Superficial and temporary prosperity
The Politics of Prosperity
 Republican Party dominated the 1920s and
encouraged business growth
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Cut taxes on wealthy  unequal distribution of wealth
Opposed labor unions  wages remained low
Cut federal spending; believed in a balanced budget
Laissez-faire approach
High protective tariffs  promote American businesses
over foreign competition
Undid many Progressive Era Reforms
The Politics of Prosperity
President Warren G. Harding, 1920 - 1923
President Calvin Coolidge, 1923 - 1928
“The chief business of the American people is business…The man who
builds a factory builds a temple.”
President Coolidge
The “Bull” Market, 1920 – 1929
 What is “stock?”
 Why would someone buy stock? Are there
risks?
 How/why are stocks valuable?
 What determines the prices of stocks and
direction of the stock market?
 What is the “stock market?”
Stock Prices, Round #1
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
80
80
120
110
70
120
120
150
Stock Prices, Round #2
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
100
110
150
120
60
140
130
160
Stock Prices, Round #3
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
150
130
190
130
50
150
140
200
Stock Prices, Round #4
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
140
180
40
140
90
110
100
210
Stock Prices, Round #5
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
160
190
30
160
100
170
110
210
Stock Prices, Round #6
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
150
220
60
150
110
180
90
230
Stock Prices, Round #7
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
180
270
100
200
180
90
180
270
Stock Prices, Round #8
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
160
280
150
180
210
60
100
170
Stock Prices, Round #9
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
80
50
30
150
50
10
20
80
Causes of the Great Depression
 Agricultural Weaknesses – 1920s
 Falling demand after WWI  decreased farm income
 Overproduction worsened the situation
 Increased debts, loss of farms and homes
 Uneven Distribution of Wealth by 1929
 Low wages  workers can’t afford all of the products
they produce
 70% of American families lived in poverty; 80% had no
savings
Causes of the Great Depression
 Struggling Industries
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Housing, automobile, steel, and RR’s
Overuse of credit  consumers cut back on spending by
late 1920s
 Low demand for goods  less production 
unemployment  no $ to spend  less demand
 Poor Fiscal Policies by the Federal Government
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Not enough $ in circulation  no $ to spend
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High interest rates  difficult to borrow $
Republicans tried to balance the budget by raising income
taxes  people have less $ to spend
Causes of the Great Depression
 International Problems
 WWI  economic devastation and huge debts in
Europe
 High tariffs worldwide (Hawley Smoot Tariff) contracted
trade and decreased international demand by 70%
 Weaknesses in the Stock Market
 Inflated stock prices reflected demand and confidence,
not actual business value
 Speculation – “risky business”
 Buying on margin – works as long as prices go up
 No laws/regulations
The Great Depression Begins
 SM crash on Tuesday, October 29, 1929 – marked
the beginning of the GD
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16.4 million shares sold; $30 billion lost by November
 Bank Failures
 Investors default on loans  bank reserves fall and
savings lost
 Federal Reserve failed to loan $ to banks
 “Runs on banks”
 9,000 out of 25,000 banks in nation close by 1933
 Unemployment = 25% by 1933
Run on NYC Bank – American Union Bank closed on June 30, 1931
The Dust Bowl: Nature’s Cruel Blow
President Herbert Hoover, 1929 - 1933
 Quaker upbringing in
Iowa and Oregon,
orphaned at age 10
 Stanford educated –
successful mining
engineer who worked
internationally (China,
London)
 Humanitarian hero of
World War I (Belgium,
Soviet Union, US)
Hoover’s Philosophies
 Traditionally Republican = limited role for the
government in the economy
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1920s prosperity would return if the economy was left
alone (laissez-faire)
 Did not support direct government aid to the
American people
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Feared they would become dependent on the
government; “rugged individualism”
 Encouraged volunteer efforts to combat the GD
 Voluntary wage freezes by businesses
 Private charities to fight homelessness and other
needs
Hoover’s Actions
 Public Works Projects
 Roads, dams, etc (Boulder Dam)
 Use government $ to fund private companies
 Provide jobs, but workers not paid by the government
 Reconstruction Finance Corporation
 Government loans for banks, RR’s, big businesses to
keep them going and encourage expansion
 “Trickle-down” method  higher wages and jobs
 Ultimately failed b/c states and businesses were
unwilling to borrow $
Hoover’s Actions
 From bad to worse… The
Bonus Army (1932)
 WWI vets marched to
Washington DC to demand
early payments of promised
bonus ($500) Congress
refused in June
 Hoover initially supported their
presence, but then sent the US
Army to forcefully evict
protestors with guns and tear
gas
 100 veterans injured and
Hoover’s reputation destroyed
Hoover’s Assessment
 Despite failures, Hoover actually did more
than any previous president
 Faced an unprecedented economic crisis
 Too principled and idealistic? When, if ever,
should politicians compromise their
principles?
 How much blame should be assigned to
Hoover for the GD?
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“Hoovervilles”, “Hoover flags”, “Hoover
blankets”
Franklin and Eleanor Roosevelt
A Political Power Couple
Franklin and Eleanor Roosevelt
Married in 1905 and had 6 children
Franklin Roosevelt
Early political career:
NY State Senator, 1911 – 1913
Assistant Secretary of Navy, 1913 – 1919
NY Governor, 1928 – 1932
Contracted polio in 1921 – at age 39
The Election of 1932
 Competing visions for the nation and the role of the federal
government in the economy
 Republican Herbert Hoover
 Limited federal intervention; stressed individual liberty
 Americans frustrated with lack of action
 Unemployment, bank and business failures at all time high
 Democrat Franklin D. Roosevelt
 Actions as governor of NY  willingness to act on behalf of
the people
 “Take a method and try it. If it fails, try another. Just do
something!”
 Promised the American people a “New Deal”
 “Happy Days Are Here Again”  Hope!!
The Election of 1932
Roosevelt’s First “Hundred Days”
March 9 – June 16, 1933
 Reassure the American people
 “The only thing we have to fear is fear itself.”
 Began series of “fireside chats” on March 12
 Address the Banking Crisis
 “Bank Holiday” for 4 days  prevent more
withdrawals
 Emergency Banking Relief Act
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Treasury Dept. inspected all banks
Reopened banks that were sound
Gave government loans to banks in need
Roosevelt’s New Deal
 Key Principles
 Deficit spending: spending more $ than the
government takes in  increasing debt
 Keynesian Economics: Increase the demand for
goods and the economy will grow
 Key Goals
 Relief – give the people what they need NOW
 Recovery – put the economy on track for permanent
improvement
 Reform – prevent another GD
 Key Question
 Was the New Deal working to radically change the
current system OR was it working to save the current
system?
The New Deal - Relief
 FERA : direct relief payments (the “dole”)
 CCC, CWA, PWA: Employment programs in
the 1st New Deal
 WPA and NYA: Employment programs in the
2nd New Deal
 HOLC: mortgage interest relief
The New Deal - Recovery
 AAA
 Reduce overproduction  stabilize prices
 NRA
 Gov. regulations on wages, prices, & production levels
 stabilize business through national economic
planning and price fixing
 Ruled unconstitutional in 1935
 TVA and REA
 Raised standard of living for many rural Americans
 Government regulated utilities  criticized as socialism
The New Deal - Reform
 Banking Reform: FDIC and SEC
 Deposit insurance
 Stock market oversight; no insider trading or
buying on margin
 Labor Reform: Wagner Act and Fair Labor
Standards Act
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Labor Union Rights
Max work hours = 44/week
Minimum wage = 25 cents/hour
Restricted child labor under age 16
The New Deal – Social Security Act