Prosperity, Depression and the New Deal

(1919-1941)

The Great Depression

Figure 1 Hooverville. Image. Britannica LaunchPacks, Encyclopedia Britannica, 8 Feb. 2020.

Content Statement #19

The Great Depression was caused, in part, by the federal government’s monetary policies, stock market speculation, and increasing consumer debt. The role of the federal government expanded as a result of the Great Depression.

Content Elaborations

1. One factor leading to the Great Depression in the United States was the excessive amount of lending by banks. This increased the easy access to and fueled the use of consumer credit.

2. The Federal Reserve attempted to curb these practices by constricting the money supply. This action worsened economic conditions by making it more difficult for people to repay debts. It was also difficult for businesses and banks to continue operations.

3. Another factor leading to the Depression was stock market speculation. Many investors were buying on margin with the hope of making huge profits. However, the collapse of the stock market led many to lose their investments and fortunes. The closing of many businesses led to the rise of consumer debt as workers lost needed income.

4. During the 1930s, the role of the federal government was greatly expanded through New Deal legislation, policies, and agencies which included:

• the Social Security Act;

• the National Recovery Administration;

• the Securities and Exchange Commission (SEC);

• the Federal Deposit Insurance Corporation (FDIC); and

• Public Works Programs (e.g., Works Progress Administration, Tennessee Valley Authority, Civilian Conservation Corps).

Let’s Practice: Key Terms

Section A: The Great Depression

During the 1930s, much of the world faced harsh economic conditions. Many people were out of work, hungry, or homeless. This period is called the Great Depression. It started in the United States, but it quickly spread throughout the world. The depression caused drastic declines in economic production and severe unemployment in almost every country.

Section B: Causes of the Great Depression

The Great Depression was the worst economic downturn in US history. It began in 1929 and did not abate until the end of the 1930s. The stock market crash of October 1929 signaled the beginning of the Great Depression. By 1933, unemployment was at 25 percent, and more than 5,000 banks had gone out of business. Although President Herbert Hoover attempted to spark growth in the economy through measures like the Reconstruction Finance Corporation, these measures did little to solve the crisis.

Ø Post-World War I Business

o “Laissez-faire” à government does not regulate, oversee business

Ø Stock Market Speculation

o “get rich quick” mentality à invest, then sell quickly

Ø Buying on Credit

o Increase in consumer goods à installment plans à job and income loss

Ø Overproduction of Consumer Goods

o Goods not everyone could afford to purchaseà 20% of goods went unsold

Ø Weak Farm Sector

o No general prosperity à post-war overproduction à low prices

Ø Worldwide Economic Depression

o Europe was devastated much earlier than the United States

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Section C: Effects of the Great Depression

As the effects of the Great Depression cascaded across the US economy, millions of people lost their jobs. By 1930 there were 4.3 million unemployed; by 1931, 8 million, and in 1932, the number had risen to 12 million. By early 1933, almost 13 million were out of work, and the unemployment rate stood at an astonishing 25 percent. Those who managed to retain their jobs often took pay cuts of a third or more.

Ø Increase in homelessness

Ø Urban families crowded into small apartments

Ø Men feel a sense of failure

Ø Farmers lost their farms; many moved west

Ø Competition for work caused racial tensions

Ø Children suffered effects of poor diet and hygiene

Figure 2: Photographer Dorothea Lange captured many photographs of migrant families during the Great Depression.

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Causes and Effects of the Great Depression

Section D: FDR and the New Deal

The New Deal was a set of domestic policies enacted under President Franklin D. Roosevelt that dramatically expanded the federal government’s role in the economy in response to the Great Depression.

The New Deal created a broad range of federal government programs that sought to offer economic relief to the suffering, regulate the private industry, and grow the economy. The New Deal is often summed up by the “Three Rs”:

• relief à for the unemployed
• recovery à of the economy through federal spending and job creation
• reform à of capitalism, utilizing regulatory legislation and the creation of new social welfare programs

The New Deal
Relief	Immediate action for most devastating effects	Civilian Conservation Corps (CCC) · jobs for young, unmarried males · 9 million men	Civil Works Administration (CWA) · Construction jobs	Works Progress Administration (WPA) · Included artistic projects · Hired women and minorities
Recovery	Restart consumer demand, restore economic confidence	Tennessee Valley Authority (TVA) · Decrease flooding, provide electricity	Federal Housing Authority (FHA) · Loans for new homes	National Recovery Administration (NRA) · Quotas and codes Agricultural Adjustment Act (AAA) · Farmers paid NOT to grow crops to raise prices NRA and AAA were struck down by U.S. Supreme Court
Reform	Eliminate things that helped cause the Great Depression	Federal Deposit Insurance Corporation (FDIC) · Insured bank deposits	Securities and Exchange Commission (SEC) · Regulates the stock market	Social Security Act (SSA) · Benefits to older citizens · Employee and employer contributions

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