Depression and the new deal
Following the Wall Street crash in October 1929, the USA experienced a huge economic depression. Many businesses went bankrupt, millions became unemployed, and many more lost their homes as they could not afford mortgage payments. President Hoover was unsuccessful in solving the problems and was replaced by Franklin Roosevelt in 1933. he introduced what he called a new deal, which helped the USA to start an economic recovery. However, even in the late 1930s the country still faced major problems. It was the outbreak of the Second World War that led to huge demands on industry and manpower.
The effects of the Wall Street crash
- Over 100000 companies went bankrupt by 1933.
- Many banks ceased to exist as they could not pay back investors.
- By 1933, there were 14 million unemployed. Some industries and businesses were hit worse than others – for example, car production was reduced by 80%. Industrial workers and African Americans usually suffered most.
- For those in work, wages were often reduced – for example, in the manufacturing industries wages were cut by an average of 20%.
The effects of the Wall Street crash (part 2)
- Farmers suffered badly. Incomes dropped by more than half between 1929 and 1933 and many were forced to sell their land.
- Many farm workers who did not own any land lost their jobs and were forced to travel around looking for work.
- Unemployment often led to failure to pay mortgages and banks repossessing homes. Many homeless people wandered the streets and slept on park benches. Unplanned camps were set up on the edge of towns and cities, which came to be known as ‘Hooverville’.
- Soup kitchens were set up in cities such as New York.
- Local relief programmes could not cope with demand.
Hoover’s attempts to deal with the depression
Most Americans blamed president Hoover for the crash. Hoover insisted that the situation was not too serious, and that ‘prosperity is just around the corner’. This unfounded optimism upset many Americans.
In some ways, Hoover was criticised unfairly. He did take action between 1929 and 1933. For example he:
- Set up the reconstruction finance corporation, which lent money to banks, industries and agriculture.
- Tried to encourage American exports.
- Started to build the Hoover dam on the Colorado River, which created jobs.
- Cut taxes so that people had more to spend.
- Provided $300 million in 1932 to individual states to help unemployed people.
Overall, however, he still believed in rugged individualism and showed little real sympathy for the poor. By the time of the 1932 presidential election campaign, the US economy was showing no real signs of recovery.
The unpopularity of Hoover
Hoover had become very unpopular with many Americans by 1932. This was partly unfair. There had never been a similar crisis on this scale, and Hoover’s government was ill-prepared to deal with it. Many American businessmen at the time believed that balancing the budget was the most important thing; borrowing a lot would be reckless. Therefore, they believed, Hoover, the unemployed, the poverty-stricken, the hungry and the homeless were not interested in eventual recovery. They wanted action with immediate results.
The unpopularity of Hoover (part 2)
The episode of the bonus marchers in 1931 made Hoover’s reputation worse.
· Soldiers who had fought in the first would war and suffered disabilities were being paid an annual pension.
· In addition, it had been agreed that they should be paid an extra sum – a bonus – in 1945. With the depression hitting many of them badly, 20000 of these soldiers and their families marched to Washington and demanded their bonus payments to be paid immediately.
· They squatted outside the white house. The president feared that there would be violence, and the army forcibly removed them.
· There were many injuries and two babies died from the effects of the tear has that was used to disperse them.
Roosevelt’s election campaign
Franklin D. Roosevelt was very different in character from president Hoover. He had been born into a wealthy family, was well-educated, became a lawyer and then a senator. However, in the early 1920s he contracted polio, which left him with weak legs. For much of the time he had to be in a wheelchair. In spite of this, he was determined to re-enter politics. He became governor of New York State in 1928. As state governor during the depression, he gained a reputation for action.
During the presidential election in 1932, he promised:
- Government schemes to provide more jobs
- Action to help industry and agriculture
- Help for the poor and unemployed
- The end of prohibition.
He was a good speaker and impressed many people with his outgoing character and determination, especially as he was coping with the effects of polio. People tended not to notice that there was very little detail provided in his promises.
Roosevelt wins the election, November 1932
Roosevelt won the election by a large margin, winning in 42 of the 48 states. However, many people voted for Hoover, who still had the support of many powerful people and interest groups who wanted to see a return to life as it had been for the rich in the 1920s.
Roosevelt’s fireside chats
On the day that Roosevelt became president in March 1933, he spoke boldly to the American people:
‘so first of all let me assert my firm belief that the only thing we have to fear is fear itself – nameless, unreasoning, unjustified terror, which paralyses needed efforts to convert retreat into advance… Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously.’
Eight days later, he gave the first of what became known as his ‘fireside chats’ – radio broadcasts to the American people. He spoke in a simple and friendly way, and gained enthusiastic support from many Americans who were not used to this direct approach. It was particularly important to gain public confidence at this time because of the banking crisis, which had to be solved before anything else could be achieved.
Later in the same month, Roosevelt brought prohibition to an end. The brewing of beer and the manufacture of other alcoholic drinks was legal again. This was seen as an important indication that there was a change of direction in government.
The banking crisis
Americans had little confidence in the banks. Many Americans had withdrawn their savings, leading to many banks going out of business. If more Americans tried to withdraw their money, the whole banking system would collapse.
The government declared a ‘bank holiday’ and closed all banks. It officially backed 5000 banks and reassured the American people that their money was safe, restoring confidence in the banking system when these approved banks responded a few days later.
The new deal
Roosevelt promised action – though he did not have a clear idea of exactly what should be done. He employed a panel of experts who became known as the brains trust. These people put together a programme of ideas. This was called the new deal. The new deal programme had 3 main aims:
- Relief – relieving extreme poverty, feeding the starving, and providing shelter for the homeless
- Recovery – reviving the economy by getting industry going and people working
- Reform – increasing the responsibilities of government by helping those in need in society such us the sick, disabled and old.
The first ‘hundred days’
The economy was in such a bad state that congress as willing to pass a lot of laws quickly. This period is known as the first ‘hundred days’ when thirteen major new laws were passed. The main ones are summarised below:
Federal emergency relief administration (FERA)
Poverty and unemployment
500 million dollars allocate3d to help relieve suffering of poor (food, clothing, etc.); seed and equipment for farmers; schemes to create jobs.
The first ‘hundred days’ (part 2)
Civilian conservation corps (CCC)
Unemployment among young men
Men ages 18-25 given six months’ work. Had to send most of their pay home to parents/wives. About 300000 joined in 1933; by 1940, there were 2 million.
Public works administration (PWA)
Paid for public works projects (for example, schools, roads, hospitals) and used unemployed workers.
The first ‘hundred days’ (part 3)
Agricultural adjustment administration (AAA)
Rural poverty, unemployment and low crop prices
Advised farmers on marketing and farming techniques and helped solve problem of overproduction by government buying up produce. Farmers became more organised but wealthy farmers gained most.
The first ‘hundred days’ (part 4)
National industrial recovery act (NIRA)
General economic condition of the USA
Set up national recover administration (NRA), which set standards on working practices (hours, child labour). This helped create more jobs. Employers in the scheme displayed the eagle symbol of government approval an the government encouraged people to use these firms. Over 2 million employers joined the scheme.
The first ‘hundred days’ (part 5)
Tennessee valley authority (TVA)
Agricultural overproduction and regular flooding had ruined livelihoods of farm workers in Tennessee valley. No alternative jobs in industry. Area covered parts of six states and was too big for any one state to deal with.
Huge public projects: dams, irrigation, canals and water transport. Hydroelectric power created thousands of jobs. Farmers given loans and training in soil conservation. New housing built.
Other new deal legislation
More laws continued to be passed in the next few years. Some were updating existing laws; some were entirely new.
Civilian works administration (CWA)
This provided temporary work for 4 million people during Roosevelt’s first winter as president (1933-34). This was a lifesaver for many.
National recovery administration (NRA)
This set out to improve working conditions in industry by setting out fair wages and establishing workers’ rights to join a trade union. Industries were encouraged to set up a code of fair practice – and many did. However, in 1935, the supreme court declared the NRA to be unlawful. The Wagner act of 1935 re-established some of what had been lost.
Other new deal legislation (part 2)
Home owners loan corporation (HOLC)
This gave out loans to homebuyers with low mortgages. The aim was to encourage home ownership and avoid owners having to surrender their home because they were behind with mortgage payments.
Work progress administration (WPA)
This replaced the PWA. It extended the range of employment provided, from building work to the federal theatre project, which gave work to unemployed artists and writers.
Social security act
This provided federal aid for the elderly and set up an unemployment insurance scheme. However, the provisions were far less comprehensive than in Germany or Britain. The pension payments were not due to start until 1940, and the unemployment benefit was only a small amount for a maximum of sixteen weeks.
To people at the time, the new deal was extraordinary. No government had ever played such a large role in the lives of ordinary Americans.
The second new deal
Between 1933 and 1935 there was a great deal of activity, with many laws being passed. Roosevelt was keen to keep the momentum going, and some of his later laws, from 1935 onwards, have been called the ‘second new deal’. These were often passed in response to criticism he was receiving and, increasingly, they were concerned with working and living conditions and reforming society.
However, the extent of recovery was always limited, because as soon as government spending slackened in 1937 unemployment shot up again.
How effective was the new deal in achieving its ai
On a personal level, Roosevelt was hugely successful. He was elected four times as president. In 1936, he won by a huge landslide – winning all but two of the 48 states and gaining over 27 million votes, the highest number ever received up to that time. He managed to appeal to people’s sense of belonging as American citizens, and made them feel that he understood their problems.
Criticisms and opposition to the new deal
The result of the 1936 election showed that the majority of people supported Roosevelt. However, over 16 million people had voted against him. Many people, for a variety of reasons, criticised his policies.
They were unhappy about various aspects of the new deal:
- Regulations on working conditions
- The growth of trade unions and their increasing power
- The huge cost of the welfare programmes (which came form taxes paid by Americans).
Some states were concerned about the new deal because:
- Measures like the TVA cut right across the rights of individual states
- They feared that the federal government was becoming too powerful
Criticisms and opposition to the new deal (part 2)
Some politicians opposed the new deal.
- Republicans (not surprisingly) bitterly opposed the democrat Roosevelt. They thought he was making the government too powerful and quashing the traditional reliance on self-help.
- Even some conservative democrats opposed him.
- Some radicals in the USA, like Huey Long, believed the new deal did not go far enough. Another critic, father Coughlin, a catholic priest, broadcast his ideas on Sunday evening radio to over 40 million people. He criticised Roosevelt for not doing enough to help the poor.
Criticisms and opposition to the new deal (part 3)
The Supreme Court
The Supreme Court clashed with Roosevelt.
- It judges (mainly old and republican) ruled that several of the new deal measures were illegal. For example, they argued that the constitution did not allow a president to control business. They said that the rights of individual states were being lost to the increasing power of federal government.
- Matters came to a head in 1937 when Roosevelt wanted to appoint six new judges to alter the political balance of the court in favour of the democrats. This plan failed but afterwards Supreme Court opposition lessened.
How effective was the new deal in achieving its ai
- When Roosevelt cut back his programmes in 1937, unemployment shot up.
- He never fully conquered unemployment in the 1930s; it was only solved by the USA’s entry into the Second World War in 1941.
- The USA’s trade (and the world’s trade) did not recover.
- He failed to convince even his own supporters to change the organisation of the Supreme Court to stop it opposing his reforms.
- African Americans gained relatively little from the new deal
- In the USA, the depression did not lead to extreme movements like communism or Nazism taking hold. Roosevelt restored Americans’ faith in democracy.
- Many millions of jobs were created and vital relief (food, shelter, and clothing) was supplied to the poor.
The impact of the second world war on American eco
The USA officially remained neutral from September 1939 to December 1941, but Roosevelt’s government was increasingly drawn into the war.
- In 1940, congress allowed Britain and other countries to buy weapons and other goods on a ‘cash and carry’ basis.
- In March 1941, congress agreed to a lend ease programme, which allowed the USA to ship large quantities of material to Britain.
As a result of these measures, in these years the US economy quickly recovered. This was even more pronounced when the USA declared war in December 1941 after the bombing of pearl harbour. The US economy doubled in production levels between 1938 and 1944. Unemployment disappeared with millions of men and women employed in industries and millions more in the armed forces.
The depression was a thing of the past. The new deal had started the recovery of the economy, and the USA’s involvement in the Second World War completed the process. It also marked the emergence of the USA as a fully involved world power, keen to play a major role in world affairs.