The Crash

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Long term causes:

  • Overproduction in agriculture - driving prices down
  • Overproduction of consumer goods - driving prices down
  • Inequality - the rich were very rich while the poor were very poor
  • Foreign competition - reducing the demand for American goods

Short term causes:

  • Many people bought and sold shares to make quick profits instead of keeping their money invested for some time. They were speculators, not investors
  • Companies were forced by shareholders to pay out profits to shareholders to pay out profits to shareholders rather than re-investing them
  • Americans borrowed money on credit to but their shares

The Wall Street Crash : Tuesday 29th October 1929

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The effects of the Crash were diastrous:

  • Many individuals were bankrupt - they could not pay back the loans they used to but their (now worthless) shares
  • Some homeowners lost their homes because they could not pay their mortgages
  • Even some who had savings lost their money when banks collapsed
  • Many farmers suffered a similar fate as banks treid to get back their loans

The confidence of individuals was shattered. Many faced unemployment, and those in work faced reduced hours and wages. People stopped spending.

Big industries also suffered.

  • About 11,000 banks stopped trading between 1929 and 1933
  • At the same time, demand for goods of all types fell
  • As a result, production fell and so did wages and jobs
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Hoover's Reaction to the Crash

Most Americans blamed President Hoover for the Crash. This was not wholly fair since there were larger forces at work than Hoover's policies. However, people blamed Hoover partly because of his government's inactions in tackling the problem. Hoover insisted that the situation was not too serious, and that 'prosperity is just around the corner'. This upset many Americans.

In some ways, Hoover was unfairly criticised. He did take actions between 1929 and 1933.

  • He set up the Reconstruction Finance Corporation (RFC), which lent money to bank, industries and agriculture
  • He tried to encourage US exports (without much success)

Overall, however, Hoover still believed in 'rugged individualism' and showed little sympathy for the poor, starving Americans living in shanty towns called 'Hoovervilles'.

Hoover was decisively beaten by Franklin D. Roosevelt in the 1932 presidential election. Roosevelt was well educated and a talented, passionate politician. He had complete faith in his ideas for bringing USA out of the Depression. During the election campaign, his key phrase was his offer of a 'New Deal' for Americans.

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Bonus Army

The Bonus Army - 1932:

25,000 ex-soldiers from the First World War protested for a $500 bonus, they built a Hooverville just in front of the White House. They were due to be paid a bonus by 1945, but because of massive unemployment they were asking for it early.

They got denied by Hoover and the government, so the bonus army stayed. Hoover publically called them 'criminals' and sent in troops. Four companies if infantry, four mounted cavalry, a machine gun squad and six tanks attacked the unarmed protestors. They eventually faded away after some deaths.

It was a significant event as the situation showed that Hoover didn't care about these veterans.

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Roosevelt's first 'Hundred Days'

When Roosevelt took office in March 1933, the USA was facing deep economic crisis. Many of the country's banks were closed. Industrial production was down to 56 per cent of the 1929 level. Over 13 million people were unemployed. Roosevelt was determined to act quickly. From 9th March to 16th June 1933 (the 'Hundred Days'), he managed to get the US Congress to pass many laws. He set out his priorities as follows:

  • Getting Americans back to work
  • Protecting their savings and property
  • Providing relief for the sick, old and unemployed
  • Getting American industry and agriculture back on its feet

He had plans to spend public money to get people back to work. 

RELIEF - help for the old, sick, unemployed and homeless

RECOVERY - government schemes to provide jobs

REFORM - make America a better place for the future and ensure a depression could never happen again

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The Second New Deal

In later years, Roosevelt updated some laws and created further legislation where it was needed. The Hundred Days, or First New Deal, was about economic recovery. The Second New Deal was more about making the USA a fairer society for all.

  • In 1935, the Works Progress Administration replaced the Public Works Administration (PWA). It extended the range of work provided, from building work to the FEderal Theater Project that gave work to unemployed artists and writers
  • The National Labor Relations Acts, or Wagner Act (1925), forced employers to recognise trade unions after the National Recovery Administrations (NRA) was declared illegal by American courts. This law meant that workers kept the protection that the NRA had given them
  • The Social Security Act (1935) provided federal aid for the elderly and set up an unemployment insurance scheme. However, the provisions were still far less comprehensive than in Germany or Britain

To people at the time, the New Deal was extraordinary. No US Government had ever played such a role in the lives of ordinary Americans.

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Roosevelt and the Voters

The most obvious of Roosevelt's successes in this period was that he won re-election in 1936, 1940 and 1944 - the only President ever to serve four terms in office. Roosevelt was the first ever President to talk regularly to the people. His weekly 'fireside chats' on the radio were listened to by 60 million Americans. However most historians agree that the New Deal had mixed results.

By 1941, unemployment fell to only 6 million people, a small amount of their population, so the New Deal was successful in that aspect.

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Assessing the New Deal


  • When Roosevelt cut back hisprogrammes in 1937, unemployment rose dramatically
  • He reduced, but did not conquer, unemployment in the 1930s; unemployment was only solved by the USA's entry in 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 of the need to change the organisation of the Supreme Court to stop it opposing his reforms
  • African Americans gained relatively little from the New Deal
  • Unemployment remained high because the CCC only affected young white men
  • Roosevelt failed to pass laws against lynching and discriminating against African-Americans as he feared that Democrat senators in the southern states wouldn't support him
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Assessing the New Deal


  • In the USA, the Depression did not lead to extreme movements (for example, Communism or facism) taking hold
  • Many millions of jobs were created and vital relief (food, shelter, clothing) was supllied to the poor
  • Agriculture and industry benefited from efficient infrastructure (roads, services)

The New Deal restored faith of the American people, stabilised the banks and created millions of jobs.

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Key Terms and Laws

ISOLATIONISM - The idea that America should not get involved in other countris' affairs

NEUTRALITY - Taking neither side in a war or dispute

JOHNSON ACT - A law that banned American loans to any countries involved in wars

NEUTRALITY LAWS - The laws in 1935 and 1937 that were designed to keep America out of foreign wars

CASH AND CARR PLAN - A 1939 plan whereby Britain and France bought weapons and planes from America, as lon as they collected them in their own ships

LEND-LEASE - A 1941 arrangement whereby America lent military equipment to Britain

FACISM - A right-wing system of government generally led by a sinlge strong leader or dictator who uses physical force and intimidation to maintain control and power

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