RECAP The Thin Prosperity of the 1920s Leads to The Great Depression (starting in 1929)

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1 RECAP The Thin Prsperity f the 1920s Leads t The Great Depressin (starting in 1929) After WW1 ( ), the U.S. became very prsperus. [Fr the mst part, this prsperity was due t American industries that ramped up prductin and sld t the Eurpean Allies (Britain and France) the war machines (planes, tanks, ambulances, etc.), guns, heavy artillery, bmbs, and ammunitin that they used in the war. The U.S. laned the Allies the mney t buy these gds. The U.S. jined the Allies in fighting fr the last year f the war ( ). When the war was ver, the U.S. was the biggest industrial cuntry n earth and the richest. Hwever, the prsperity that the U.S. enjyed in the 1920s was what ecnmists call a thin prsperity, meaning nly the tp rung f sciety gt mst f the real wealth. Mre than 50% f the U.S. ppulatin still made lw wrkers wages r struggled t make a living by farming r ranching. In the cities, the wealthy enjyed the Raring 20s nightclubs, speakeasies, flappers, jazz clubs, mdern art, etc. In mre rural areas, farmers and mre traditinal small twns saw little ecnmic grwth. Uneven distributin f incme (what we nw call incme inequality ) was a recipe fr truble but few saw the signs. Ecnmically, this thin prsperity f the 1920s was fragile. Signs f truble included industries laying ff wrkers (because after the war, there was nt the same demand fr the kinds f gds used t fight it. Industries started switching ver t making cnsumer gds, but because mre than 50% f the American public didn t have the mney t buy these industrial gds, there was insufficient demand fr them s the industries started winding dwn and laying ff wrkers.) The laid-ff wrkers were resentful and afraid f freign wrkers (new immigrants) cming in and taking their jbs, since the newcmers wuld ften wrk fr lwer wages. This resentment resulted in a revival f the KKK (this time targeting freigners and peple f ther religins -- Jews and Cathlics, especially, but als especially in the Suth renewed persecutin f black peple.) T escape persecutin and t seek jbs, there was a Great Migratin f black peple frm the Suth t cities in the Nrth (like New Yrk, Chicag, Detrit, Pittsburgh, etc.) In these cities there was a burst f artistic creativity amng these black newcmers, ntably in black music (jazz, the blues, etc.), art, and petry. Anther sign f ecnmic truble was that the warehuses were filling up with manufactured gds (t expensive fr the average cnsumer t buy). Husing starts were dwn (meaning that average peple culdn t affrd t brrw mney and build a hme). The rich had invested in the stck market, and many in the middle class had brrwed mney t invest in the stck market, then paid nly 10% dwn fr the stcks they bught. (This represented a huge amunt f unleveraged debt meaning debt withut the backing f assets r cllateral. This left these middle-class brrwers and the banks that had laned them mney at risk if the value f the stck market decreased, because then the brrwers wuld have t pay fr the value that their stcks decreased. Mst brrwers assumed that if they lst value n sme stcks, they culd sell ff sme f their ther stcks t make up the difference that they wed.) American Histry ntes in timeline and presidential rder 156

2 Finally, in Octber f 1929, the bubble burst. The stck market didn t just decrease in value, it cmpletely crashed. This meant that thse wh had brrwed t buy stcks culdn t sell ff any f their stcks t pay their debts. N ne was buying. These peple were ver the curse f that ne day ( Black Tuesday ) bankrupted. Nt nly the middle class, but als many wealthy peple lst mst f their mney that they had invested in the stck market. President Herbert Hver, a Republican President, was reluctant t have the gvernment d anything t help the great majrity f the peple. (Admittedly, there were n real mechanisms at that time fr the gvernment t d this but Hver staunchly refused t change that in rder t help peple in ecnmic distress.) Hver tried t restre cnfidence, saying that financial ups and dwns were nrmal in the business cycle. He firmly believed in rugged individualism, and said that if the gvernment helped the peple cpe with their prblems, it wuld make them dependent and weaken them. Big Change Cmes in the 1932 Electin FDR and the New Deal In the 1932 electins, the cuntry elected Franklin Delan Rsevelt (cmmnly abbreviated as FDR), wh prmised a New Deal. FDR was a Demcratic President, and the vters als prvided him with a Demcratic-majrity Huse f Representatives, and a Demcratic-majrity Senate s that he had the pwer t make changes and pass prgrams. During FDR s first 100 days, Cngress passed and signed an amazing 76 new laws. [FDR famusly recruited experts frm many fields, called his brain trust, whm he cnsulted fr ideas abut what culd be dne t rescue the U.S. ecnmy.] FDR als began a series f direct talks t the peple ver the radi, called Fireside Chats, in which he explained what he planned t d, why he was ding that, and what wuld happen next. This direct cmmunicatin helped restre peples trust. [See New Deal chart n p. 683] First, FDR refrmed the banking system. In the Emergency Banking Relief Act, FDR declared a bank hliday (clsing the banks temprarily). Federal examiners then checked the banks and allwed thse that were sund t repen quickly. Thse that had prblems either clsed permanently r were helped t straighten ut their prblems befre re-pening. The gvernment changed a number f bank practices and plicies. In his first Fireside Chat, FDR explained the bank hliday, the new guarantees n peples savings, and asked them t depsit their mney in the banks when they re-pened. The peple respnded and within tw weeks returned mst f their savings t the banks. The Glass-Stegall Act impsed regulatins n the banking industry that guided it fr ver fifty years (until it was repealed in 1999). This law separated cmmercial frm investment banking, frced banks t get ut f the business f financial investment, and banned the use f bank depsits in speculatin. This law als created the Federal Depsit Insurance Cmmissin, r FDIC. backed all bank depsits up t $2500, meaning that mst bank custmers n lnger had t wrry that a bank failure wuld wipe ut their life savings. The FDIC cntinues t insure American bank depsits tday. The effect f the law was t give greater stability t the banking system. American Histry ntes in timeline and presidential rder 157

3 Next, FDR stabilized the stck market. In the Federal Securities Act, a series f measures regulated the stck markets (a prelude t the creatin f the Securities and Exchange Cmmissin in 1934, which still regulates U.S. stck markets). Then FDR instituted a number f prgrams t try t get American wrkers and American businesses back n their feet. Agricultural Adjustment Act: In May f 1933, the Agricultural Adjustment Administratin (AAA) was created in rder t raise crp prices in respnse t the rural ecnmic crisis. The administratin helped t cntrl the falling prices by setting qutas t reduce farm prductin. Beynd price adjustment, the act helped farmers t mdernize and implement innvative farming methds. In extreme cases the agency helped farmers with their mrtgages and prvided direct payment fr farmers wh wuld agree t sign acreage reductin cntracts. (Many f these prgrams are still in place which has raised cntrversy.] The Natinal Industry Recvery Act was an attempt at ecnmic recvery frm the severe deflatin caused by the Great Depressin. The act cnsisted f tw sectins, the first f which prmted industrial recvery and the secnd f which established the Public Wrks Administratin (PWA), basically prviding gvernment financing t build infrastructure, such as rads and bridges, fr the states. This demand fr cnstructin created new jbs, which achieved FDR's main pririty. The Natinal Recvery Act als imprved wrking cnditins and utlawed child labr. Wages increased, s wrkers were able t earn and spend mre. Civilian Cnservatin Crps: T reduce unemplyment, this bill put 250,000 yung men t wrk in rural cnservatin prjects, mstly in natinal parks and frests. The Tennessee Valley Authrity was established t build dams n the Tennessee River. These dams were designed t stimulate farming in the area t end pverty while creating hydrelectricity, as well as prevent flding and defrestatin. The hydrelectric pwer was used effectively t prvide electricity fr nearby hmes. [The TVA marked the first time the federal gvernment cmpeted against private cmpanies in the business f selling electricity. Federal Emergency Relief Administratin (FERA): While FDR's main gal was t increase emplyment, he als recgnized the need fr a supprt system fr the pr. The Federal Emergency Relief Administratin, started in 1933, addressed the urgent needs f the pr. It spent $500 millin n sup kitchens, blankets, emplyment prgrams, and nursery schls. The Federal Emergency Relief Administratin was shut dwn in 1935 and its wrk was taken ver by tw cmpletely new federal agencies, the Wrks Prgress Administratin and the Scial Security Administratin. FERA was invlved with a brad range f prjects, including cnstructin, prjects fr prfessinals (e.g., writers, artists, actrs, and musicians), and prductin f cnsumer gds. They als fcused n giving fd t the pr, educating wrkers, and prviding nearly 500,000 jbs fr wmen. When it seemed that things culdn t get any wrse, the Dust Bwl hit. (Drught in the Great Plains regins f Oklahma and Texas, especially, resulted in huge dust strms, stripping ff the tpsil frm farms and creating American Histry ntes in timeline and presidential rder 158

4 hrrible waves f dust cluds acrss this area. It ruined farms and bankrupted farmers. FDR instituted a number f prgrams t try t help restre the land and t help the farm families find wrk. [These prgrams generally wrked well t restre the land within a cuple f years and mre r less kept the hmeless farmers frm starving.] Critics f the New Deal Many peple, especially Republicans and big businesses, did nt supprt the New Deal. Their main cmplaints were (1) that it cst t much and (2) that it expanded the gvernment's prgrams and its invlvement r versight f businesses, banks, and ther peratins. While it's true that the gvernment had never befre attempted prjects n the scale f the New Deal, Rsevelt's innvatins have persisted since then and similar scial prgrams are cnsidered by many peple t be ne f the mst imprtant functins f mdern gvernment. [The mdern scial demcracies f Eurpe adpted almst all f the scial safety net prgrams frm FDR s New Deal. They think it s really weird that we dn t have the same kind f healthcare prgrams, etc.] Sme detractrs f the New Deal criticized the TVA fr its cmpetitin with private businesses. They said the TVA was like cmmunism n the grunds that this gvernment-run enterprise wuld stifle ther cmpanies' ability t cmpete. Similarly, the TVA was criticized fr disadvantaging thse wh wrked all their lives t be successful, nly t have the gvernment make their success unsustainable. [They were referring t small, private electric cmpanies.] As the effects f the Depressin lessened, the Republicans launched a series f attacks n FDR. [Frankly, they ve never stpped.] Effects f the New Deal Mst particularly, FDR s New Deal created a remarkable turnarund in the public's cnfidence. The public recgnized the implicit guarantee that the gvernment wuld help them. As a result, the peple believed that the repened banks wuld be safe, as the President explained in his first Fireside Chat. (Within tw weeks peple returned mre than half f the cash they had been harding, and the first stck-trading day after the bank hliday marked the largest-ever ne-day percentage price increase.) Many ecnmists, nw, agree that the New Deal itself didn t really end the Great Depressin. (The mney spent by Eurpe buying war materiel fr WW2 finally did that.) Hwever, the measures taken by FDR insured that peple culd get by, that they had ways t cpe with the Depressin, that they felt that everyne was in this tgether and wrking as a team, that the gvernment cared abut them, and that the gvernment wuld try t help them. [In many ways, it was this we re in this tgether attitude that helped the U.S. be s effective in fighting Nazi Germany in WW2.] Varius grups benefited labr unins, African Americans, American Indians, Mexican Americans, and wmen in general. American Histry ntes in timeline and presidential rder 159

5 The Rad t War in WW2 The Hungry Natins Germany, Italy, and Japan After WW1 ( ), there were sme natins that felt they were being shut ut f the prsperity they felt they deserved. All f these natins had a prblem with 20 th Century industrial supplies meaning they had little access t petrleum and ther raw materials, whereas the ther natins (including thse wh had wn in WW1 and carved up the Middle Eastern il states t suit themselves (i.e., Britain and France) had il r access t il. In each f these cuntries, militant strngmen (r in the case f Japan, the army in general) began t push fr mre pwer. They als pushed fr mre access t lands where they culd get their industrial raw materials. They all were ruled by strng dictatrial leaders and began t push ther natins t try t get mre territry and a military advantage. Italy was actually first t make a mve. Benit Musslini tk cntrl in He called his pwer plitics fascism (referring back t the fasces, r rds f pwer, carried by ancient Rman fficials and indicating that they had the pwer f life r death ver rdinary peple). Japan made a mve next. The Japanese gvernment (especially the emperr, Hirhit) was cntrlled by the Japanese army. They attacked Manchuria and tk cntrl in Then Hitler rse t pwer in Germany. [It wasn t a straight sht. He tried, in the beer-hall putsch t cause a cup, but was jailed fr a year during which time he wrte his bk, Mein Kampf (r My Struggle). Hitler basically used the scial Darwinist idea, cmbined with the German natinalist mythlgy f a master race superir t all thers, t craft his prpaganda prgram. Then Hitler tk the lead f the Natinal Scialist German Wrkers Party. [In German, the first tw wrds were Natinalische Scialistih, which was abbreviated t the nickname Nazi.] Hitler had a cadre f tugh guys (the brwn shirts ) wh intimidated peple wh ppsed the Nazis. At first, Hitler s main targets were the cmmunists. Hitler s Nazi party gained many seats in the Natinal electin in The German Chancellr, vn Hindenburg paved the way t dictatrship and war by issuing the Reichstag Fire Decree after an arsn burned the German Reichstag (and was blamed n the cmmunists). This decree nullified civil liberties (the same as declaring martial law). Hindenburg died in 1934 and Hitler became Chancellr f Germany. Under the martial law cde, he sn ablished the ffice and became dictatr f Germany. Wrld War II started in 1939 in Eurpe, when Germany invaded Pland (blaming this invasin n Plish brder attacks (a lie)). The tw main sides were (1) the Axis Pwers Germany (and Austria-Hungary), Italy, and Japan against (2) the Allies Britain (including the whle British Empire India, Australia, Canada, New Zealand, etc.), France, and the United States. The United States gt int the war fficially after the Japanese air frce attack n the U.S. Naval Base at Pearl Harbr, Hawaii n Dec. 7, 1941, whereupn (the next day) the U.S. declared war n Japan. Hitler then declared war n the U.S. in supprt f its ally, Japan. American Histry ntes in timeline and presidential rder 160