Unit 7 Causes of the Great Depression

 After the problems of World War I, many Americans wanted to avoid involvement in other countries, so American adopted an isolationist foreign policy  President Harding called for the nations of the world to disarm, or voluntarily give up their weapons

 in 1923, scandal struck the Harding Presidency  the extent of the scandal wasn’t fully known until after Harding’s unexpected death in August of 1923  in the Teapot Dome Scandal, Harding’s Secretary of the Interior Albert B. Fall secretly gave oil-drilling rights on government oil fields in California and Teapot Dome, Wyoming to 2 private oil companies  in exchange, Fall got over $300,000 in illegal payments  there is no evidence that Harding or his VP Calvin Coolidge knew about the scandals

 Coolidge believed in laissez faire and he believed in leaving business alone to let it grow  The Kellogg-Briand Pact was passed in 1927 – 15 nations vowed not use the threat of war when dealing with each other  Coolidge chose not to run again and Herbert Hoover was elected President in 1928

 After World War I ended, most industries, including railroads, textiles, steel, mining and lumbering, saw a decline  Farmers were perhaps the worst off of everyone – prices rose and international demand for crops weakened  Many farmers had taken out loans for land and equipment – as prices rose, farmers couldn’t repay their loans and many were foreclosed on  Life for farmers and workers did not improve – they still struggled to survive and could not afford the new consumer goods or to invest in the stock market

 By the end of the 1920s, Americans were buying less because prices were rising and wages weren’t  Americans will be swayed by advertising and will buy things they can’t afford like electric appliances and Model T’s on credit as a part of the new consumer economy  As a result, many Americans became mired in debt  It didn’t take long for the market to become saturated with more goods than people wanted or needed  Companies overproduced consumer goods that they weren’t selling (underconsumption)  During the 1920s, the rich got richer and the poor got poorer

 Stocks rose sharply throughout 1928 and 1929, causing people to sink more and more money into the market  In an effort to “get rich quick,” many investors engaged in speculation, the practice of making high risk investments in hopes of making a huge profit  The large increase caused investors to sell their stocks when they fell the slightest bit  This lead to a mass sale and on October 29, 1929 (known as Black Tuesday), the Stock Market crashed  The Great Crash initially only affected the small number of investors, but it soon rippled to affect the entire country

 The crash of the stock market resulted in the following problems:  1. banks made risky loans to businesses who weren’t able to repay them  2. the banks called in the loans they had made to consumers who were unable to repay them  3. people rushed to withdraw their money from the banks, the banks recalled the loans they had made, and failed when people weren’t able to repay them  4. savings accounts vanished – people lost all the money they had in the banks  5. businesses couldn’t borrow money so they had to cut their production  6. unemployment rose as businesses laid off workers due to the cuts in production – the problem only worsened with time

 This lead to the Great Depression which soon spread around the world  By 1932, over 12 million people in the United States were unemployed

 In the mid-1930s, the Supreme Court struck down two New Deal programs:  the NIRA (National Industrial Recovery Act) which provided money to states to create jobs in the construction of schools and other community buildings  the AAA (Agricultural Adjustment Act) which sought to raise crop prices by lowering production, essentially the government would pay farmers to leave a certain amount of their land unseeded  Fearing the Supreme Court might undo the New Deal, FDR proposed in Feb that Congress enact a court reform bill that would allow him to appoint six new Supreme Court justices, raising the total number to 15  This “Court-packing bill” brought about a storm of protest in Congress and the press – many people believed that the president was violating principles of judicial independence and the separation of powers  The “Court-packing bill” was never passed, but Roosevelt got his way anyway – he was able to appoint seven new justices during his administration

 Many Republicans knew that something had to be done about the Depression, but they disapproved of the socialist elements of the programs – they thought it went too far  The New Deal’s most outspoken critic was Louisiana Senator Huey Long who was initially a supporter of the New Deal but turned against it  Long wanted the Presidency for himself and proposed a nationwide social program called Share-Our-Wealth, a rival program to the New Deal  This program was extremely popular, but Long was assassinated in 1935

 Other critics argued that the New Deal did not go far enough - for example, minimum wage was still low, women were often left out, many programs in the south reinforced racial segregation  Modern critics argue that the New Deal didn’t allow the market to work and disapproved of how the markets were controlled (for example, farmers were paid not to plant)  Critics also disapproved of deficit spending – paying out more money from the Federal Budget than it was bringing in  Despite the efforts of the New Deal, the economy collapsed again in 1937 and the nation entered a period of recession (slow business activity) – the deficit continued to rise

 Many bridges, dams, tunnels, public buildings, and hospitals that were built during the Depression are still in use today  Bank deposits are insured, the stock market is monitored, and the Social Security Administration is still in effect  Women will play a role in Roosevelt’s administration – he was the first president to appoint a woman to his cabinet – Frances Perkins who became Secretary of Labor

 Franklin and Eleanor Roosevelt provided hope for the nation during a desperate time in US History  FDR’s wife Eleanor helped him by traveling to drum up support for the New Deal – the President’s disability made it hard for him to do it himself  She took on a new, active role for First Ladies  Recovery would not come until the 1940s when a war would speed recovery