The Great Depression and The New Deal

(notes from Chapters 7 and 8 of Who Built America? (1992) Freeman et al. New York, Pantheon Books)

Economic Catastrophe:

March- October 1929

Economic contraction follows five years of rapid industrial growth. Declining consumer spending results in reduced production and layoffs. From September to October the stock market declines and then collapses. A severe economic slump ensues.

People believed that the economic downturn was just a normal part of the business cycle, but by mid-1931 the economic slide had accelerated and by early 1933, fifteen million people, nearly one third of the work force, were unemployed.


  • GNP down 29%
  • Construction down 78%
  • Manufacturing down 54%
  • Investment down 98%

Cities went broke and could not provide social services. Breadlines and soup kitchens sprang up; malnutrition and disease set in.

What caused the Great Depression?

  • The boom psychology of the 1920's led to over production and over investment in capital improvements for many industries. Many companies carried huge debt.
  • The market for manufactured goods was saturated.
  • Speculation in the stock market had been financed on margins (10% of cost)
  • Under consumption was, in part, due to a huge and growing gap between rich and poor.
  • The spread of the depression around the world led to the imposition of import tariffs among the industrial powers.
  • In the agricultural sector of the economy, prices plummeted, farms failed, banks failed, and a public run on banks ensued. Disaster!

Deflation: Demand goes down, prices go down, and the consumer holds on to his or her money because its value is increasing. (Mild inflation is good for an economy because as prices go up, the consumer feels the urgency to buy now, and the economy is stimulated.)

Hard Times:

  • Joblessness at levels of 25-33% reached into the middle class, provoking malaise among the the people most invested in the American Dream.
  • Even those with jobs worked shorter hours and received lower pay.
  • Discrimination against women, Hispanics and blacks increased. (Scottsboro Case 1931)
  • Radical political ideologies (both left and right) found receptive audiences.
  • Farm incomes plummeted and banks foreclosed on loans and auction properties. At the same time, a terrible drought turned much of the Midwest into a dust bowl.

President Herbert Hoover's response:

  • Republican, pro-business, laissez-faire principles
  • Treasury Secretary Mellon urged the public to keep a 'stiff upper lip' and preached that the temporary downturn would promote discipline despite the belt tightening.
  • Hoover reassured people that the economy would rebound. He encouraged voluntary wage and price controls (which were ignored) and even considered some direct federal action to stimulate the economy: public works projects, bank credits and farm aid.
  • However, Hoover refused to allow the federal government to aid states whose social services had been overwhelmed (emergency financial relief, housing, medical care.)

Union and Community Activism:

  • Without government help, communities responded to the burden of caring for the poor, frequently organized by leftist activists.
  • Union dues were used to support the unemployed and homeless.
  • Unions also facilitated theft from companies.
  • Neighborhood groups organized rent parties and anti-eviction demonstrations.
  • Communist Party organizers created "Unemployed Councils" which led demonstrations, petition drives and hunger marches which demanded government aid for local relief and unemployment compensation legislation. They also organized disruptions of farm auctions.

1932 "Bonus March" on Washington: WWI veterans who had been promised bonuses for their military service took up residence in tents and shanties erected on the Mall in Washington. When the demonstrators were forcibly evicted by army troops, a national uproar ensued.

1932 Presidential Election:

  • Hoover vs. FDR
  • Business leaders, fearing the growth of leftist political movements, urgeed national economic reforms.
  • FDR carried all but six states promising a "New Deal" for the American people.
  • FDR took office at the lowest point of the Depression amid a new wave of bank failures.
  • Inaugural Address: "The only thing we have to fear is fear itself."
  • FDR regularly addressed the nation on radio in "Fireside Chats".

First 100 Days:

FDR pushes repeal of Prohibition and then repeals Veteran's benefits.

Special session of Congress passes a flood of legislation providing immediate relief, economic recovery programs, and new government regulation of the economy:

  • FERA (Federal Emergency Relief Administration): direct cash payments to the needy are now managed by the federal government, not local or private entities.
  • CCC (Civilian Conservation Corps): three million jobs in national parks
  • TVA (Tennessee Valley Authority): massive public works project of dams and hydroelectric plants to bring electricity to the rural South.
  • FDIC (Federal Deposit Insurance Corporation): insurance for savings accounts and federal regulation of the stock market.
  • AAA (Agricultural Adjustment Administration): federal government regulates prices and production by paying subsidies to farmers for not growing specific crops.
  • NIRA (National Industrial Recovery Act):
  • major public works (bridges, dams, roads) adminstered by the PWA (Public Works Administration) and CWA (Civil Works Administration).
  • codes designed to regulate business practices (eliminate over production, increase efficiency, raise prices and wages)
  • Section 7a: legalizes collective bargaining by allowing workers to organize and to select representatives to negotiate with management.

Organized Labor Revives:

  • United Mine Workers (UMW)
  • Movement to organize urban industrial workers (conflict with AFL, rise of CIO)
  • Major Strikes lead to National Organizations:
  • Toledo Auto Workers
  • Minneapolis Teamsters
  • San Francisco Longshoremen
  • Socialists and Communists defy conservative AFL leaders and take direct action.

Political Trouble:

  • Despite FDR's New Deal legislation, the economy did not revive.
  • FDR was criticized on the left by radicals demanding action to end the Depression.
  • FDR was criticized on the right by business leaders for going too far.
  • Populists like Huey Long organized national campaigns to direct redistribution of wealth.
  • The Supreme Court ruled the NIRA unconstitutional.

Second New Deal (1935)

  • WPA (Works Progress Administration)
  • Government financed production and employment on an unprecedented scale: building schools, libraries, airports, parks, playgrounds, waterworks, sewage plants, hospitals and roads.
  • Government also employs artists (painters, sculptors, writers, actors, singers, dancers) to bring the arts to new and broader audiences.
  • Social Security Act: creation of a partial welfare state by mandating contributions of employer and employee to old age pensions.
  • Wealth Tax Bill: inheritance taxes and capital gains taxes (stocks)
  • Wagner Act: grants workers the right to organize, bargain and strike. It also makes illegal unfair labor practices such as company unions, black listing, and spying. (1938 Fair Labor Standards Act prohibits child labor, sets minimum wage, and establishes forty hour work week.) (Both acts exclude agricultural and service workers as well as public employees.

1936 Presidential Election:

  • FDR vs. Alf Landon (Kansas)
  • FDR campaign stresses New Deal social welfare programs and union rights.
  • FDR carries all states except Maine and Vermont.
  • Democrats control 3/4ths of House and 4/5ths of the Senate.
  • New Democratic Coalition: based on labor, urban masses, immigrant families, blacks

1936 Organization of Steel Industry

  • UAW sitdown strike in Flint Michigan Ford Auto plant protesting layoffs, speed of assembly line and arbitrary actions against union organizers.
  • Strikers demand minimum wage, time and 1/2 overtime pay, slower assembly line.
  • Victory leads to creation of CIO: nationwide organization of the steel industry

WPA Arts Projects:

Artists create works which support New Deal policies, stoke working class patriotism.

Purposely multi-ethnic and markedly left wing ideological orientation.

Federal Theatre Project (1935)

Sinclair Lewis' It Can't Happen Here! (about an attempted fascist coup in US.)

Orson Welles' Macbeth (staged as if in African culture)

"living newspapers": social commentaries ripped from the headlines dramatizing political issues. Ex. One Third of a Nation about NYC housing crisis.

Writers and social historians fan out around the country to discover the nation's folk heritage: folk songs, oral histories (ex-slaves), local histories

Photojournalism: Farm Security Administration hires photographers like Dorothea Lange and Arthur Rothstein to create photo essays about the plight of farm workers in the Dust Bowl. Walker Evans' photo-essay about southern sharecroppers

Woody Guthrie's Folk Music

John Steinbeck's novels: Of Mice and Men and The Grapes of Wrath

Frank Capra's Films: Mr. Deeds Goes to Town and Mr. Smith Goes to Washington