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Notes on the New Deal
Major factors contributing to the Great Depression:
· pro-business stance of administrations prior to the collapse, little government oversight of business practices and artificially low government-manipulated interest rates
· rise of consumerism and the advertising age coupled with easy credit and the loss of stigma attached to debt accumulation (an increase in "buying on time")
· large accumulation of wealth that was based on debt and credit, looked good on paper only
· wealth concentrated in the hands of a few
· people, searching for quick wealth, pulled money from savings and borrowed heavily to invest in the unregulated stock market
· unskilled labor being displaced by mechanization, unemployment growing
· crippling reparation payments from the losers of WWI to the winners and general devastation from the "Great War" cause European investors to withdraw money from US investments
· this withdrawal of money begins a domino effect--US companies call in money owed to them, stockholders sold stock to pay the money they owed, this created a wave of selling panic and lowered the price of stocks. This vicious cycle of stock sales and devaluation culminated in Black Thursday, October 24, 1929, which was followed by the more infamous Black Tuesday which we now call the stock market "crash" and the vanishing of nearly all paper wealth in the country
· banks closed because they had loaned too much and no one could meet their payments. Since banks closed they could no longer make loans to businesses and homebuilders or consumers. Since these groups could not get loans, they couldn't buy things. Since no one was buying things, factories didn't need to make things and factories didn't need their employees. Since employees were losing their jobs, they had no money to spend on things, which cost more jobs, and the economy continued its downward spiral. At its peak, the unemployment rate was between 25% and 50%
What was so great about the Great Depression?
This depression was "great" in the same way the recent world war had been "great;" it was worldwide, lasted for a long time, and affected almost everyone on the planet. There was a general collapse of the world economy. There had been a lot of economic downturns in US history before this. They used to be called "panics." Until 1929, they had been considered a natural part of the business cycle and self-correcting. Agricultural, rural societies had an easier time recovering from panics. Now the US was an industrial giant, up to its eyeballs in debt. Even in 1929, the truly wealthy, those who owned real estate and other real assets like gold and oil, were largely unaffected by the Depression and had an unrealistic view of how it was affecting the rest of the world. Henry Ford, the automobile tycoon even thought that homelessness was a good excuse for young people to get out and see the country.
So what did the president do to end the depression?
In October of 1929, Herbert Hoover had only been president for a few months and certainly had nothing to do with the worldwide economic collapse, yet people blamed him for causing the depression. His reputation probably wouldn't have suffered so much if he could have quickly ended the depression, but he was unable to accomplish that. His failure was partly due to a lack of trying. As the wisdom of the day dictated, Hoover at first did nothing about the economic downturn. It was believed that the problems would correct themselves and the business community would be healthier without the "weak" elements that went out of business during the downturn. Hoover and many in the Republican party, held to three basic ideals which governed their actions: "rugged individualism," laissez faire economics, and "trickle down" economics. Hoover had been a self-made man, an orphan who became a millionaire through hard work and education. He believed anyone could do the same, that "rugged individualism" had worked for him and it would work for anyone who was willing to work hard enough. Laissez faire economics had been the practice of administrations before his for generations. This was simply the practice of leaving the economy alone and letting it work out its own problems, leaving it better and stronger. When Hoover finally did start to intervene in the economy, he, like presidents Reagan, Bush and George W. after him, believed in "trickle down" economics. The concept is that if the government helps businesses and their owners, big investors, the effect will be that those business owners will then hire more people, who will make money and pay more taxes and buy more things. This cycle, it was hoped, would stimulate the economy and end the economic downturn. The actual effect left a lot to be desired. One of Hoover's other interventions was to make speeches about how local communities, not the federal government were responsible for helping the poor and unemployed. This did not help him in the opinion polls and only resulted in his having shantytowns named "Hoovervilles." The Hawley-Smoot Tariff was also enacted to try and protect American business, but it only slowed the economy more. Finally Hoover got more actively involved and began public works programs such as construction of the Boulder Dam to try and give people jobs. He is not so kind to the WWI veterans known as the Bonus Army who came to ask for their bonus early. Patton, Eisenhower, and MacArthur are called on to bring their troops and run the veterans out of town. Unfortunately for Hoover, 1932 was an election year.
What's the big deal about the Election of 1932?
Around the world, as a result of the depression, there was lots of turmoil and in many nations, the citizens turned to dictators who promised to fix all their problems. Mussolini came to power in Italy, Franco, in Spain, the military in Japan, and Stalin in the Soviet Union. The same year the US had a presidential election, in Germany they elected a man named Adolf Hitler to lead their nation. Like the men who campaigned for president in the US, Hitler promised to end the Great Depression and make his nation great again. In the US, the Republican candidate was Herbert Hoover. He was challenged by a man who promised to end Prohibition and help the masses of Americans left homeless, jobless, and hopeless by the depression, a Democrat named Franklin Roosevelt. FDR was elected overwhelmingly. Hoover even got hate mail encouraging the president to vote for FDR and "make it unanimous." Roosevelt revolutionized and reinvented government. For good or for ill, America hasn't been the same since Roosevelt offered Americans a New Deal.
The "First Hundred Days" and Beyond:
Beginning with his inaugural address, where he tells Americans they "have nothing to fear, but fear itself," FDR begins to rebuild the nation's confidence. He holds his fireside chats to bypass the press and communicate directly with the American people. He institutes "bank holidays" which give auditors time to determine which banks are sound, allowing only those to reopen. In these first 100 days, FDR institutes 15 major programs, props up capitalism, begins government interventions to end the boom and bust cycles of the American economy and tries to help the common citizen. His whole method was to try something and see if it worked. If it didn't, try something else, but keep trying. These new programs collectively came to be known as the New Deal and had three goals: "relief, recovery, and reform." The major outcomes of these programs were: welfare, TVA, social security, collective bargaining, the NLRB and other pro-labor policies, and banking and business reforms such as the SEC and the FDIC.
Who was for FDR and who was against him?
Roosevelt's wife, Eleanor was very important to his administration. Though she had no official cabinet post, she was his unofficial minister on domestic policy. Eleanor traveled the world, especially across the US, meeting with masses of people and pushing FDR's programs. She was also his eyes and ears on America. She often left him notes about what she thought he ought to do and he listened to much of her advice. She re-created the job of the First Lady. She wrote a daily column called, "My Day," and was active in women's rights, civil rights, and workers' rights. The president even sent her to deal with the Bonus Army when they returned to town. She greeted them with tea, coffee, and a listening ear. They sang songs with her and left peacefully, supporting their new president and his programs. She helped make Roosevelt popular with minorities, women, and the poor. One group that did not look so kindly on this Democratic president's programs was the Supreme Court. Though the Democrats controlled the Congress and Roosevelt's programs passed easily into law, they were almost as soon rendered null and void by the conservative Supreme Court's declaring them unconstitutional. Tired of this process, FDR attempted to appoint 6 additional justices to the court, but was stopped by Congress. Other groups such as many Republicans, business owners, and the wealthy, disagreed with the New Deal programs and the resulting growth of government, some refusing to speak "that man's" name in their homes. But the harshest critics were those who felt Roosevelt did not go far enough in helping the downtrodden. Critics such as Father Couglin, Dr. Francis Townsend, and Senator Huey Long felt that the income of the wealthy should be redistributed to the poorest of Americans through taxation, a more socialistic approach. Roosevelt enjoyed more successes than defeats and was handily re-elected in 1936. Only two states failed to award their electoral votes to FDR. He joked that maybe we ought to sell those two states to Canada to finance more New Deal programs. In 1940 and 1944, he became the only man elected to a third and fourth term. Though FDR was possibly the most popular president since Washington, he was unable to break the grip of the Depression until WWII began.
President Hoover's Philosophies
Hoover believed that the depression was caused by problems than the U.S. economy, and that these problems were beyond U.S. control. He also believed that the key to recovery was confidence in the economy. Factories and businesses tried to maintain confidence, and even as they shut down, Hoover continued to insist that recovery was on its way.
Hoover believed that keeping high and steady wages for workers would bring recovery. He called together many business leaders and got their promise on keeping workers wages reasonable and steady. They held their part of the agreement for a few months, but they soon started to drop wages. Many Americans blamed Hoover s passive attitude for the Great Depression.
Feeling the pressure, Hoover finally began to act. The government, in an effort to create more jobs, built new public buildings, roads, parks, and dams. A Presidents Emergency Committee on Employment advised local relief programs. The Hawley-Smoot tariff was passed by Congress in 1930 to protect domestic industries from foreign competitors. However, these tariffs backfired European nations countered the tariffs by increasing their tariffs on American goods. In 1932, Hoover set up the Reconstruction Finance Corporation (RFC), which gave government credit to banks so that they could extend loans to clients. Many people felt that this measure did more to bring prosperity to the bankers rather than to the ordinary citizens.
Hoovers efforts were not effective enough. He wanted the state and local governments to handle recovery, but unfortunately, their programs never had enough money. Hoover believed that direct federal intervention would create a large bureaucracy. After much disapproval from the American public, Hoover finally budged. He allowed state funds to provide relief for the unemployed. But this effort came too late.
President Roosevelt's Philosophies
FDR was ready to experiment, unlike Hoover. Because of his own illness and the giant gap between the wealthy and the poor, FDR had compassion for the ordinary citizens of America. FDR knew that Americans were searching for a change and that s exactly what he gave them.
FDR communicated with the public by radio every week and assured them that recovery was near, thus, increasing their confidence. During the first one hundred days of President Franklin D. Roosevelt’s term of office, he feverishly pushed program after program through Congress to provide relief, create jobs, and stimulate economic recovery. These programs were based on federal agencies that had controlled the economy during WWI or on programs started by Hoover or by state governors. FDR s new programs were known as the "New Deal." [refer to Successes and failures of Roosevelt's "New Deal" programs for more information] |
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