Depression and the New Deal

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  • Created on: 07-06-13 20:22

Import and Export

Tariff war worsened the Depression. It 'froze out' American firms from their usual export markets.

The gold standard linked the exchange rate of a country with the amount of gold in that country. This made exhange rates in USA really high. Most countries came off it and let currency fall to 'natural' value, but America stayed on it and the prices of exports rose.


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Collapse of business

US exports fell from $10 billion to $3 billion, 1929-32.

Mor than 100,000 businesses shut down, industrial production fell 40% and a 1/3 farmers lost their farms.

Sales in American shops fell 50% and wages fell 60%.

10,000 banks went bankrupt between 1929-33. Unmployment went from 1.6 million in 1929 to 12.1 million in 1932.

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Human effects of Depression

By 1933 unemployment reached 25%. Rate was even higher in the north because it was more industrial. In Chicago, neary half of labour force unemployed in 1933. Black people - in Charleston, 1931, 70% of them were unemployed.

When people became unemployed, they couldn't pay mortgage or pay back loans to banks, so they became homeless. In 1932, a quarter of a million Americans lost their homes. They built shanty towns with scrap metal and old wood, called Hoovervilles, named after the 'do nothing' President Herbert Hoover.

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The Bonus Army

At the end of WW1, war veterans were promised a pension to be received in 1945. Due to the Depression, they demanded the pension it earlier. 20,000 veterans went to Washington in 1932 to protest and set up a Hooverville opposite the White House.

Congress voted against paying them, but they still stayed in Washington. Hoover called the army to clear the Bonus Army out with tanks and tear gas. Two veterans were killed, and neary a thousand injured. The Bonus Army were defeated, and Hoover became even more unpopular.

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USA didn't have any social security programs or unemployment benefit, so towns and cities set up their own relief programmes giving food, clothes, temporary homes and even jobs for the unemployed. Charities such as Salvation Army were set up, even Al Capone provided food in Chicago.

The charities set up soup and bread kitchens and cheap food centres to feed the hungry. The long lines of Americans queuing for food became a common sight.

Many Americans were begging because they were so desperate, a popular song of the time sums up the mood; 'Buddy, Can You Spare A Dime?'

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The Dust Bowll

In the south-western states, the farm land was being overfarmed and the soil was damaged. This combined with a drought and strong winds crated a dust bowl around 1930. The top soil turned to dust and the land became a desert.

Thouands of farmers were ruined and had to abandon their farms, many went to Calfiornia to work on fruit farms.

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Limits to the Depression

Empire State Building opened in 1931. Hoover Dam in 1936. Golden Gate Bridge in 1937. New industries began to develop, like electrical goods, 'nylons' which were first sold in 1938, on-stick pans and fibreglass.

First televison channels establshed in 1939. In 1928, American airlines carried 48,000 passengers, and in 1938 they carried more than 1.1 million.

Entertainment continued to develop. Bingo and sales of beer boomed, with newly introduced beer cans. Millions still went to the cinema or lavish stage musicals.

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Hoover and the Depression

Republicans believed in 'rugged individualism' - people should sort out their own problems. But Hoover did try to help the Depression. He cut taxes in 1930 to increase spending power.

He pumped $4,000 million into construction to create jobs, in 1931 work began on building the Hoover Dam on the Colorado River. The Emergency Relief Act (1932) gave $300 million to the states to help unemployed. Also in 1932, the Reconstruction Finance Corporation gave loans of $1,500 million to businesses. But all of this wasn't enough.

The Smoot-Hawley Tariff was passed in June 1930, which raised American tariffs to their highest level ever. It was done to protect American industry but it destroyed US trade and worsened the Depression.

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1932 election

Hoover was blamed for the Depression, Americans said 'In Hoover we trusted, now we are busted'. There was 'Hoover leather' (cardboard soles for shoes), 'Hoover blankets' (newspapers people slept in).

In the 1932 election, Hoover only offered the hope that they'd 'turn a corner' back towards prosperity. However, Franklin D Roosevelt, Democrat candidate,offered the 'New Deal' which promsed to provide relief and jobs and resolve the banking crisis.

Roosevelt won in 42 out of 48 states, biggest victory ever in an American presidential election.

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Hundred Days

During the 'lame duck months' - December 1932 to taking office in March 1933, Roosevelt adopted the theories of J.M Keynes, British economist to kickstart a new cycle of prosperity.

Roosevelt granted 'emergncy powers' because New Deal required massive state involvement. During his first hundred days, Alphabet Agencies set up. Roosevelt felt he needed to explain what he was doing to the American peeople, and used the radio to reach large audiences of people. in these 'fireside chats' he explained why the USA had fallen into a depression. They were very popular - especially the first one which dealt with the banking crisis.

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Banking crisis

Poeple had lost confidence in banks. In March 1933 the Emergency Banking Act was introduced. All banks closed for four days and inspected by government officials. The ones that were properly managed were allowed to reopen, supported by government loans. After the four day 'holiday', people began putting their money back into banks, the banking crisis was over.

In June 1933, the Glass-Steagall Act was passed which stopped speculation of banks. Savings banks could no longer be investment banks. The right to set interest rates was also forbidden.

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Alphabet Agencies

Agricultural Adjustment Administration (May 1933) - subsidised farmers to produce so prices of crops increased and therefore increase incomes. Wasn't very successful because many farmers evicted because no work to do.

National Recovery Administration (1933) - Employers invited to follow codes to fix fair prices for goods sold. Fair conditions of work, minimum wage, and maximum hours agreed to. Blue Eagle put on their good - government encourages public to but Blue Eagle goods.

Federal Emergency Relief Administration (1933) - provide relief for homeless. $500 million spent on soup kitchens, clothing and employment schemes.

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Alphabet Agencies cont.

Civil Works Administration (winter of 1933-34) - Four million jobs created on building roads, schools, airports. Jobs even scaring pidgeons away and sweeping eaves in the park. After that winter, the CWA ended, and so did the jobs it created.

Public Works Administration (1933) - Jobs for skilled workers, building airports, dams and bridges and improving the sewage system.

Works Progress Administration (1935) - smaller-scale schemes building roads, hospitals Also gave work to artists and writers. Became country's biggest employer - gave work to 2 million Americans each year.

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Alphabet Agencies cont.

Civilian Conservation Corps (CCC) - gave jobs to unemployed, single, age 18 to 25 men for six months. Lived in camps where they planted trees, digged holes and cleared land. Received pocket money of $1 a day. Got food, shelterand clothes. Over 2 million served in CCC by 1938.

Tennessee Valley Authority (TVA) - Tennessee river flooded in the spring, suffered from dust bowl in the summer. The Tennessee Valley people lived in poverty. Forests panted to stop soil eroison, 21 dams built to prevent flooding. Power stations built at dams to provide cheap electricity. The dam created lakes where water sports could be done. Thousands of jobs created and quality of life improved for the people there.

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Opposition to the New Deal

Republicans thought it was a waste of money and that Roosevelt was acting like a dictator. Supreme Court also opposed New Deal, because they felt it ran against the US Constitution becasue the federal government had taken powers which belonged to separate states.

NRA withdrawn in 1935 because SC ruled that government had no right to impose rules of fair competition. In 1936 AAA declared unconstitutional because SC said it was 'oppressive coercion' to subsidise farmers only if they reduced production. Roosevelt was furious and after 1936 election he tried to create a 'Democrat majority' on Supreme Court. This made him unpopular so he backed down, and so did the SC.  

Huey Long - Senator of Louisiana brought 'Share our Wealth' movement. All fortunes over $3 million confiscated and shared so everyone had between $4000 and $5000. Was popular, but after assissination in 1935, support for movement stopped. Dr. Fracis Townsend campagined for an old-age pension of $200 a month.  

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Second New Deal

Replaced banned NRA with National Labour Relations Act (1935, sometimes called Wagner Act), proteted workers right to join a trade union. Also set up National Labour Relations Board (NLRB) o stop employers victimising workers.

Soil Conservation Act (1935) passed in anticipation of the Supreme Courts decision against AAA, it allowed the government to continue subsidising farmers. The Social Security Act (1935) set up national system of old-age pensions and unemployment insurace. Also gave help to children in need and people with physical disabilities.

In 1936 election Roosevelt won 46/48 states, the American people definitely had confidence in him. The National Housing Act (1937) reduced excessive rents and made loans avaiable so people could buy houses. the Fair Labour Standards Act (1938) fixed hours, conditions of work and a minimum wage.  

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Success of New Deal

Black people benefitted less - in 1935 a 1/3 of them on relief payments. Roosevelt let Federal Reserve set high interest rates, which prevented economic recovery. Also, the exchange rate continued to make trade difficult for American firms. First phase (1933-36) - unemployment went from 14 million to 19 million. But when spending was reduced in 1937, businesses began to collapse again.

WW2 helped the economy. In March 1941, the Lend-Lease Act was passed by FDR which meant if Britain passed its overseas naval base to USA, America would supply Britain and USSR with weapons to be paid for afer the war. American industry employed more people in the army and making weapons when they entered the war in December 1941. The war lifted the US out of depression.

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