The Depression and the New Deal

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  • Created by: KJ
  • Created on: 11-02-14 19:18

Causes of the Depression

  • As early as 1926, there were signs that the boom was under threat – through the collapse of land prices in Florida.
  • Over production and little demand.
  • Farmers had produced too much food in the 1920s, so prices for their produce became steadily lower. Over production caused low prices.
  • There were too many small banks - these banks did not have enough funds to cope with the sudden rush to take out savings, which happened in the autumn of 1929.
  • Too much speculation on the stock market - the middle class had a lot to lose and they had spent a lot on what amounted to pieces of paper.
  • The Wall Street Crash of October 1929 was a massive psychological blow.
  • America had lent huge sums of money to European countries. When the stock market collapsed, they suddenly recalled those loans.
    -This had a devastating impact on the European economy.
  • The collapse of European banks caused a general world financial crisis
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Effects of the Depression

  • Unemployment - 13 million people were out of work.
  • Industrial production dropped by 45 per cent between 1929-1932.
  • The entire American banking system reached the brink of collapse.
  • 1929-1932, 5,000 banks went out of business.
  • Starvation probably caused deaths through illnesses due to lack of nutrition

The Presidential election campaign of November 1932 took place during the most severe economic depression in American history.
- President Herbert Hoover was personally blamed for failing to deal with the consequences of the Wall Street Crash of October 1929, the Democratic candidate, Franklin D Roosevelt promised, "A new deal for the American people."

Following a landslide election victory, Roosevelt faced the enormous task of restoring confidence in a shattered economy.

He was from a privileged background so may have found it difficult to understand problems faced with those that were unemployed or poverty stricken. But polio left him crippled; this ongoing battle enhanced his ability to relate to ordinary Americans.

Roosevelt's personal solution, the New Deal was the largest, most expensive government programme in the history of the American presidency. 

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Psychological support

1.    Roosevelt skilfully used his inaugural address (opening speech) to reassure the American people that "the only thing we have to fear is fear itself - nameless, unreasoning, unjustified terror".

2.    Fireside chats - in March 1933, about 60 million Americans gathered around their radios to be told in a warm tone - ""I can assure you that it is safer to keep your money in a reopened bank than under the mattress"".

3.    Stabilised the banking system - with the banking system in crisis, the president declared a nationwide bank holiday to allow time for people to regain their nerve.
The Emergency Banking Relief Bill brought all banks under federal control.
All banks considered solvent were allowed to reopen under licence. Roosevelt had given the banking system much needed time and space to avoid panic.

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Practical support

1.    The Tennessee Valley Authority (TVA) - responsible for flood control, building dams and constructing new towns.

2.    The National Recovery Administration - this agency negotiated with the major industries to create fair prices, wages and working hours.

3.    The Agricultural Adjustment Act (AAA) - aimed at reducing farm production and boosting farm prices.

4.    The Civilian Conservation Corps (CCC) - offered short-term work to young men on conservation projects.

5.    The Public Works Administration (PWA) - constructed schools, hospitals and other public buildings.

Some historians have said that failing to deal with unemployment was the biggest weakness of the New Deal. Criticism of Roosevelt emerged from several directions.

With the 1936 presidential election on the horizon, the New Deal began to change direction. Some historians have interpreted the change by saying there were two New Deals - the first dealing with the immediate emergency of 1933-34 and the second, which emerged in 1935-1936, offering more radical, reforming policies:

·         The Works Progress Administration - this agency employed people to build schools, hospitals and other public buildings.

·         The Rural Electrification Administration - this agency aimed to bring electricity to America's farms.

·         The National Labor Relations Act (Wagner Act) - this act aimed to improve relations between workers and employers, especially as 1934 had seen a series of violent industrial disputes.

Some historians say that, where the first New Deal aimed to save America and its capitalist economic system, the second New Deal aimed to change America. 

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Critics of the New Deal

1.    Conservative opponents said Roosevelt had spent too much government money.

2.    The wealthy businessmen behind the American Liberty League argued that by increasing taxation and encouraging the development of the trade union movement, Roosevelt had betrayed his own class (Roosevelt was from a very wealthy family).

3.    Many ordinary people began writing letters asking why multi-millionaires care for the masses of the people?".

4.    Huey Long - the Governor of Louisiana, known as The Kingfish, launched the Share our Wealth campaign in which personal fortunes of more than $3 million would be redistributed to ordinary citizens.

5.    Father Charles Coughlin - a Canadian priest - broadcast popular sermons on the CBS network, promising to nationalise the banks.

 

6.    Dr Francis Townsend planned to boost the economy by raising pensions for the over 60s - in return, they would spend $200 a month to increase demand for consumer goods.

 

Successes

1.    Roosevelt restored confidence in the American people.

2.    Millions of people were given work in government projects.

3.    A lot of valuable work was carried out – schools, roads and hospitals built

4.    Roosevelt rescued the banking system and saved Capitalism

Failures

1. The ‘Roosevelt recession’ began in 1937
2. Unemployment was not conquered by the New Deal
3. Many of the jobs created by the New Deal were temporary
4. The New Deal was the most expensive government programme in American History – some of its projects could be accused of wasting money

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