10. The Great Depression (1929-1939)

THE GREAT DEPRESSION BEGINS, 1929–1932

An aura of optimism surrounded the nation as President Herbert Hoover took office in 1928. As industrial production flooded markets, stock prices reached new highs. Many investors confidently purchased stocks on margin and engaged in speculative trading. Optimism disappeared, however, when on October 21, 1929, sliding stock prices triggered a massive sell-off, and the stock market crashed. Banks that had loaned to speculators and invested depositors’ funds lost their cash reserves. Bank failures caused Americans to not only lose their bank savings, but also their faith in the banking system. Several factors added to the nation’s economic troubles. An uneven distribution of income left most families with little expendable income. When Americans cut back on spending, manufacturing slowed production, which in turn led to lower wages and unemployment. As high tariffs restricted foreign demand for American goods and the Fed tightened available credit, the economy spiraled downward.

By 1933 more than 12 million workers were unemployed - about one-fourth of the nation’s workforce. Families often went hungry, and many lost their homes. Some of the homeless constructed makeshift shacks in shantytowns called Hoovervilles, while others simply wandered about the country, riding the rail lines. The economic troubles that farmers had experienced in the 1920s worsened with the drought of the 1930s. Drought transformed the unplanted fields of the Great Plains into a vast “Dust Bowl”. Many farmers who couldn’t pay their mortgages lost their land. Some headed west looking for migrant work in California, but their living conditions only seemed to worsen. While movies and radio programs offered Americans a temporary escape from despair, Depression-era writers and artists focused on revealing families’ real suffering.

In the months following the stock market crash, President Hoover kept an optimistic outlook. He hoped that the voluntary actions of business leaders and labor and government officials would provide relief, but his programs proved inadequate against deepening economic troubles. Hoover was unwilling to use deficit spending to fund relief efforts, and he strongly opposed federal participation in direct relief. However, the programs he created failed to impact the growing financial crisis. In 1932, despite Hoover’s protests, Congress provided federal funds for public works and loans to the states for direct relief. By then it was too late to reverse the economy’s accelerating collapse. Frustrated Americans participated in hunger marches, while farmers destroyed crops in a desperate attempt to raise crop prices. When World War I veterans asking for their bonus met with violence in Washington, Hoover’s chances of reelection looked slim.

ROOSEVELT AND THE NEW DEAL, 1933–1939

With the country deep in the Depression, Americans looked for a president who would lift them out of economic despair. They voted in the confident Democratic candidate Franklin D. Roosevelt and his promise of a New Deal. Roosevelt had gained experience as a New York State senator, as assistant secretary to the navy, and as governor before winning the nation’s top post. His reputation as a progressive reformer who was willing to use government to ease economic hardship won citizens’ votes, while his brave battle against the effects of polio won their respect. With his wife Eleanor by his side, Roosevelt’s energy and optimism gave Americans hope for the future. The future did indeed look bleak as bank runs closed most of the nation’s banks, unemployment rose, and the economy seemed paralyzed.

During his first three months in office, a period called the Hundred Days, Roosevelt delivered his First New Deal to the American public. His first priority was to reform the banking industry and restore Americans’ faith in the banking system. The Roosevelt administration placed new regulations on banks, brokers, and the stock market, while a slate of programs controlled industrial production and prices, reduced agricultural surplus and raised farm prices, and granted federal money to relief efforts. Millions of workers went back to work thanks to a series of programs that created jobs in construction and conservation. Roosevelt’s programs were not enough to restore the nation’s prosperity, but the New Deal had begun to restore the people’s faith in the nation.

After two years of Roosevelt’s recovery programs, the economy had only slightly improved, and millions of people were still unemployed. Critics of the New Deal complained that either the government wasn’t doing enough or that it was interfering too much. Roosevelt, undeterred even when the Supreme Court overturned key New Deal legislation, launched his Second New Deal. The Works Progress Administration put 8.5 million unemployed people back to work. New labor legislation stimulated a burst of labor activity, and unions gained strength and acceptance. The Social Security Act, an important piece of American legislation, provided financial security for the elderly and for unemployed workers. Roosevelt was confident that these programs would speed up recovery, provide economic security to every American, and ensure his re-election in 1936.

During Roosevelt’s first term, African Americans and women gained some political recognition. With new support among African Americans and the continued popularity of the New Deal, Roosevelt won reelection by a landslide. Roosevelt still found opposition, however, in the Supreme Court. A court-packing scheme, deficit spending, and a recession in 1937 weakened Roosevelt politically and limited his second-term successes. The last of the New Deal programs subsidized housing for the poor, gave loans to tenant farmers, and established pro-labor regulations. While the New Deal had limited success in ending the Depression, it set the precedent that government should be responsible for the financial welfare of the nation’s citizens. During the New Deal years, the federal government expanded its influence, took on a new role, and increased its power over the economy.