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The Great Depression and New Deal

From Affluence to Disaster

The 1920s marked a period of great prosperity. In many ways the prosperity was an illusion. The US emerged after World War I as an economic powerhouse and world leader. The 1920s not only saw the US expand its influence abroad. Under President Harding, the US hosted an arms-limitations talk. Since Germany had taken full responsibility for World War I, they had to pay reparations to England and France who both seriously needed that income.

When they proved unable/unwilling to really pay their debt, France invaded. In 1923 the French invasion of a small German industrial sector caused the world powers to panic. In order to convince France to leave and not restart the Great War all over again, the US took on the responsibility of giving large loans to Germany. Germany could then pay France and England who could then pay back their debt to the US for materials they bought during the war. The entire system of world credit from 1923-1929 rested solely on the US.

The reason the Great Depression is so “great”, is because this recession did not stay within the borders of the US. Every place on the globe felt its impact in some way. Any country who conducted trade with the US would feel it. Any colony controlled by a country who traded with the US would feel it as well. When the US economy went down in 1929, Germany got no more loans. England and France received no more reparations. The situation quickly spiraled downward.

In the US things were already unsteady. Farmers had suffered a recession starting in 1921. The entire agricultural economy of the US had been in a decline long before 1929. The system of credit that operated in the US was unstable as well. Wall Street lost their regulations under President Wilson before the 1920s and had a good decade to set up incredibly unstable relationships with investors willing to take huge risks. When the market crashed that day in 1929, the scene was set for economic disaster.

Spiraling Downward

Several factors contributed to the Great Depression. The initial response by the government was to bail out wealthy businesses so they wouldn’t go under and fire people. Some businesses were already suffering though. The sale of durable goods had dropped as a generation had bought their refrigerators and clothes washers and wouldn’t need to buy new ones for 10-20 years or so.

All those workers who built them during the big demand were no longer necessary. When those workers lost their jobs, they lost their ability to purchase other items, smaller items. As sales went down in other areas, people lost their jobs creating those smaller items. Then more people lost their “purchasing power”.

In an effort by the government to protect American businesses, they drafted new tariff laws making foreign goods more expensive, but in the process cutting the US from trade with many other nations. We isolated ourselves, meaning that we intentionally shrank our markets. Other European countries did the same. Before long unemployment was 25% and 100,000 or more people were losing their jobs in a single week.

A New Hope

Americans needed someone to do something. President Hoover had been slow to act. He took a very conservative approach and addressed the top first. He also made some key political blunders. In 1932 he ordered MacArthur to go out and forcibly remove the Bonus Army. The Bonus Army were World War I veterans who had been promised bonuses in 1945 if they stayed just a little longer in World War I in 1918. They needed that money in 1932 though and had marched to Washington to wait as Congress debated a bill to give them part of their money then. Hoover had vetoed the bill, however.

They demanded he come out and address them and their families. Hoover refused and sent MacArthur who sent in the current standing army with tanks and tear gas. To be clear, the depression started in 1929 and had lasted 3 years with no real changes when the president, now in an election year, decided to send the military out to attack veteran war heroes. Not the best strategy to get reelected.

FDR represented a new hope. He ran on the Democratic ticket and said openly that Americans needed a New Deal. During the campaign he never really clarified what “new deal” it was the Americans would get, but he did say he planned to do something. Americans wanted something. He won in a landslide and then surrounded himself with experts to help him deal everything, including economists and social workers. He also used the new medium of the radio to reach out and talk to Americans every week and explain what he was doing for them in his “fireside chats”.

The first lady also took on a new role. Elanor Roosevelt forever changed the role of first lady. She had almost always been politically active, long before FDR’s bid for the White House. Now she would speak out on political issues and remind the nation, that women needed to know what was going on as much as men did. The relationship between FDR and Elanor was often a strained one. They were not the greatest example of a love story. They were distantly related, a common tactic among the wealthy to keep money within the family. He had numerous affairs and she had her own as well. They both seemed eager to work to end the depression.

Elanor became FDR’s eyes and ears as she could travel and he could not. She in turn became the face to the administration for so many Americans. She joined the NAACP, spoke out on the topic of lynching pushing for laws against it, and resigned from the Daughters of the Revolution when they refused to rent Lincoln Center to her so an African American singer could entertain during a concert she was organizing.

The New Deal

FDR got started right away trying to end the depression. The overall strategy could best be described as pragmatic. He would try a host of different things until something worked. These programs he created would need funds, which meant that the federal budget was about to be in deficit.

Without the creation of government work programs, he could not turn the economic spiral upward. He wanted people to have purchasing power so they could buy things and then causes businesses to hire more people to produce more giving more people purchasing power. While doing this, people could work to build roads, schools, hospitals, and airports. Several of these make work programs included the CWA (Civil Works Administration) and the PWA (Public Works Administration). They began building. Most of the time it was productive, but it didn’t always have to be.

The underlying concept behind these programs, all of them, was that one must work in order to get paid, even if that work was not productive. While the CWA and PWA built things, they were also found to hire a group of men to dig a ditch one day and the next to hire men to fill that ditch in. The AAA (Agricultural Adjustment Act) was designed to help farmers by raising the cost of their produce. In order to do that, one must limit supply. How to you convince people who are paid per pound to produce less? You pay them as if they had grown those crops and raised that cattle. So the government needed to lower supply and people must work.

Therefore the government paid farmers in 1933 to kill 5 million hogs and bury the bodies and mow down 10 million acres of cotton. You must understand that to many Americans, this act by the government seemed immoral in addition to just plain wrong. The CCC (Civilian Conservation Corps) was popular though. This work program targeted younger people, 16-24.

Men first and later women could work for the CCC building roads, bridges, and infrastructure through national parks. They received $30 a month, $5 of which they got to keep, the rest sent home to their families. The CCC camps were run by the military and organized that way. Workers had food and shelter and $5 every month to spend. My grandfather earned this in a CCC camp in Mississippi. He spent his $5 going to a basketball game where his drill sergeant’s baby sister was playing in high school.

The drill sergeant’s baby sister later became my grandmother. Other programs included the TVA (Tennessee Valley Authority) and NIRA (National Industrial Recovery Act). The TVA took an old dam used by the government during WWI in the Tennessee River valley of Alabama and was converted to generate electricity to local residents on a much cheaper basis. The NIRA was designed to help industry but was truly significant for being the first time the US government recognized labor’s right to organize.

By 1935 there was a shift in focus for the government to programs that were deemed “socially useful”. These included the WPA (Works Progress Administration). They built more infrastructure, but also hired musicians and artists to create socially useful projects. The WPA built part of the San Antonio Riverwalk and a memorial can be found downtown to attest to this. The greatest of all of these programs, and the most enduring was the Social Security Act.

The Social Security Act created our current welfare program. While incomplete at the time, it did provide relief to some. The nation began to recognize a need to care for our most vulnerable citizens. Keep in mind that the entire time FDR was in the White House from 1933-1945, he and Elanor received letters from all over the country describing the extreme depravation.

They read letters from Kindergarten teachers about children being fed at home only one day a week because the family had 7 kids. They read of men/fathers committing suicide. Mothers taking on as many extra jobs as they could to attempt to make ends meet. They knew Chicago police had to escort dump truck s until the city decided to open the garbage dump one day a week for people to rummage through garbage just to try to survive.

The new deal programs did help, but only some and none of these programs ended the Great Depression. World War II with massive government spending and employment opportunities ended the Great Depression. The generation that would survive the Great Depression spent their money more cautiously. Many feared placing their money in banks again, even with the FDIC (Federal Deposit Insurance Corporation), that would insure it against another bank closure and covered more than most Americans could ever hope to even have in their bank account.

As a result however, the prosperity of the 1950s was much more stable and enduring. Some of the programs created in the New Deal remained and forever changed our perceptions of government’s responsibility toward the welfare of its citizens.

The Great Depression and New Deal: Discussion Question

The US and its citizens survived the worst economic recession in our history in the 1930s. Former recessions had been bad, but none could equal this.

No one thought such a downturn was possible. After the party that was the 1920s ended, Americans were sent reeling. It shocked them. They demanded more from their government and the government responded. Many programs were put in place to ensure that we will never reach that low again.

What do you think were the most successful programs?

To what degree to feel they have kept us out of another depression?

Do you think we could reach a comparable low again?

Americans also changed what they demanded of their government in terms of social welfare.

Do you agree with them? Have we gone too far? Have we not gone far enough?

Also see: The Depression in the US

Last Updated on December 11, 2021

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