In the 1920's America was the richest and most powerful country in the world and its industry was booming. However in 1929 disaster struck. The Wall Street Crash plunged America into deep depression, and the rest of the world followed suit.

The USA – The New Deal

Ruth Fitzpatrick 11S

In the 1920’s America was the richest and most powerful country in the world and its industry was booming. However in 1929 disaster struck. The Wall Street Crash plunged America into deep depression, and the rest of the world followed suit.

The 1920s were known as the ‘boom years’ or the ‘roaring twenties’. The twenties saw American people, having a great time and enjoying the highest living standards the world had ever known.

One factor resulting in the boom was that the USA is a massive country with affluent natural resources. This meant that it did not need to import raw materials and did not need to export all its goods. Other countries were not relied upon, as the home market was rich and growing. In addition, the Americans had provided aid for many European countries during the war. They had also been main suppliers of arms, and munitions. This long lasting one-way trade gave American industry a real boost. In addition to this, while the European powers fought, America took over their trade around the world. American exports to Europe increased dramatically. The making of cars also provided many more jobs directly, for example sales people. It also gave factories more work as many different materials were used during manufacture. In turn this meant roads had to be built. This industry alone was the single biggest employer in the 1920s.

The Republican Party ruled during the boom years. From 1920 through to 1932, all the American presidents were Republican and they dominated the Congress. As Republicans the government policy was to interfere as little as possible with the everyday lives of the people. Therefore businessmen were left alone to run their businesses how they wished with out any strict government laws. As more people made money from business; more people bought goods from others. That was where the wealth stemmed from. However the wealth did not trickle down to the poorest people. Despite the prosperity, there were still many poor Americans. In the big industrial cities in the north, such as Pittsburgh and Chicago, immigrants laboured for long hours and very little money, in sweat shops, steel mills and slaughterhouses. In the south it was the agricultural business that was suppressed. Thousands of poor farmers, black and white worked from sunrise to sunset and earned hardly enough to scrape a living. One of the reasons why farm income had dropped from $22 billion in 1919 to just $13 billion in 1928 was that before the war Europe had been the biggest market but due to the large repayments it had to make to America and the costs of war, it could not afford the importation of such goods. The wealth, which was said, ‘would trickle down to everybody’, never reached these kinds of people.

One of the main reasons for this was employers could pay workers as little money as they wished, and make them work as long as they wished. This was due to the fact that there were always immigrants looking for work so there would always be someone else to take your place if you did not comply with the employer’s demands. There was no such thing as trade unions to stand up for them, and there was no social security. However all this was going to change, due to the problems the depression caused and the introduction of the New Deal.

The main reason that Roosevelt introduced the New Deal was the depression. Primarily the cause of this depression was the Wall Street Crash in 1929. In the spring of 1929 the stockbrokers in Wall Street were happy. Business was soaring. The Republican Party’s Herbert Hoover had just been elected President. Hoover was a strong supporter of businessmen, as he believed that it was their hard work and knowledge that had made America so prosperous in the last few years. Hoover claimed that soon all poverty would be wiped out and that everyone would be rich. Many people believed him, but it was not to be.

By 1929 buying shares had become so popular that many people borrowed large amounts of money from the banks, so they could buy shares for a fairly low price and then, as profits rose, sell them at one much higher. In 1920 there had been only 4 million shareholders but in 1929 there were 20million. Buying shares was a sort of fever that had gripped the Nation.

However by the autumn of 1929 some people were beginning to harbour doubts about this new hobby. There were so many shareholders and profits had slowly begun to slow down, until eventually they begun to fall. On Thursday 24th October 1929 – Black Thursday – 13 million shares were sold at a fraction of the price they had been bought. Then on the following Tuesday –Terrifying Tuesday – a further 16.5 million were sold. By the end of the year 1929 the value of all shares had dropped by a massive $40,000 million. Thousands of shareholders, especially those that who had borrowed large amounts of money from the bank, were facing debt and ruin. Many people were so desperate they committed suicide. Thus ended the boom years and Americas prosperity. Throughout the next three years American industry sank deeper and deeper into depression.

Many people thought up their own individual reasons as to why this disaster had happened. Some blamed the blindness of the government, whilst others said it was the greed of industries and stockbrokers. These factors probably did contribute to the Wall Street Crash, but in actual fact there was a more underlying cause. Basically American industries were producing more goods than could be sold. The people who could afford goods such as cars and radios had already purchased them. The working class people could not afford them, because their wages were still not high enough, and until they were paid more, industry would not continue to rise.

The Wall Street Crash had made people very uncertain about the financial situation in future. Even those people with enough money for cars and radios, saved their money. Overseas sales dried up completely. During the boom America had lent money to European countries such as Britain. Now America was facing the Great Depression the American government wanted the money they had loaned back. This meant these countries had no extra money, as they had not boomed during the 1920s. Therefore America could not export its goods to Europe, as they too could not afford the high prices that America demanded.

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People began to lose confidence in banks. Many banks had given loans out for people to buy shares, but now that these people were bankrupt they could not repay the banks. Many banks actually had to close down themselves, as they too became bankrupt. In the banking crisis of 1929, 659 banks had failed. As they failed people stopped trusting them, withdrew their savings and closed their accounts. During 1930, things did not pick up and a further 1352 banks befell to bankruptcy. In 1932, European countries were also having problems with their banks. This had a disastrous knock on effect within the USA and panic set in. A billion dollars was withdrawn from banks all over the country. People either kept their money at home or in safe deposit boxes. Many Americans believed their only security was the currency, consequently a further 2294 banks closed in 1931.

Unsold goods piled up in factory warehouses. This forced factory owners to lay off many workers, and cut back its production. Employers also dramatically reduced the wages of those who still worked for them. By 1931 eight million Americans were unemployed, and received no unemployment money from the government. Many were forced to live on charity and lost homes and money to buy food. People would spend hours queuing for bread or soup that was donated by the people who could afford it. These places were commonly known as ‘breadlines’.

Unfortunately in 1932 things were still not improving; 12 million people were now unemployed. In many places as many as four in ten people were out of work. Between 1928 and 1933 industrial and farm production decreased by a massive 40 per cent, and the average wage fell by over 60 per cent. As people lost their jobs or had reduced wages, they bought less and industry suffered. By 1932 America was trapped in a vicious circle and was engulfed in the most serious economic depression the world had ever seen.

Farmers were also hit terribly during the depression. The 1920s had not been kind to them anyway. Farmers could no longer sell their produce, whether if be potatoes, wheat, milk or beef. With the growing number of people out of work and the low wages, the farmers previous customers in the city, could no longer afford these goods. If they could they were bought at only a fraction of the price. The same was true with overseas customers. When farmers could not pay their mortgages and other debts many were thrown off their land. Some grew so desperate that they would get a group of farmers together, gather their shotguns and make hanging nooses, to drive away the men whose job it was to take away their farms.

Obviously America was trapped in a terrible situation. Something needed to be done. The government had to intervene, but Hoover would not do so as he believed handing out money would not encourage people to be independent. Nonetheless most American people were so desperate that they did not listen to Hoover’s pessimistic views.

Franklin D. Roosevelt had been the Governor of New York. He was a democrat, and in 1932 the Democratic Party elected him to run against President Hoover in that years Presidential Election. Roosevelt visited towns and cities all over the country, promising a New Deal, to help get America out of the depression. He soon became the clear favourite and replaced Hoover as US president on March 4th 1933. Hoover, a conservative had believed in self-help, and unlike Roosevelt, accepted no responsibility for the welfare of the state. Roosevelt’s New Deal changed the philosophy of America, and its previous foundations. During his election campaign Roosevelt, promised the American people a New Deal. Essentially it was to get the American economy back on its feet. Roosevelt’s aims were apparent from the very start. He was going to use the full power of the US government in an attempt to end the depression, and subsequently end unemployment. Although the idea of the New Deal was a total change in American philosophy Roosevelt felt that this sort of radical action was necessary to lift America out of the depth of despair. He drew up four main points. The first was to get the American people back to work. When the New Deal began 24.9% of the entire labour force were unemployed. This figure was the highest it had been for years and the highest it would be for years to come. His second point was to protect the American people’s savings. Roosevelt did not want a repeat of the Wall Street Crash, when entire savings, became worthless. He wanted to set up social security for his workers. This was to provide relief for the sick, disabled, ill and the unemployed, and his fourth and final aim was to get the American industry back on its feet, and to end the oppression for the agricultural business.

In his first hundred days in presidency Roosevelt worked around the clock with his advisers. From his very first day Roosevelt moved straight into action. Many ordinary people had lost faith in banks; so on the day following his inauguration Roosevelt closed all the banks, and ordered them to remain closed until government officials had checked them. After a few days 5000 trustworthy banks were granted permission to re-open, and were even funded by the government when necessary. Whilst this was going on Roosevelt’s advisers were devising some rules and regulations that the banks had to follow. They were to ensure that the reckless speculation that had caused the Wall Street Crash would never occur again. The two measures put in place were named, the Emergency Banking Act, and the Securities Exchange Commission. These first two measures gave the American people a taste of what was going to come with this New Deal.

During the whole Hundred Days Congress, people were not really aware of what was happening, but they were aware that something was going on. During these first hundred days, Roosevelt sent fifteen new proposals to congress, and all fifteen passed. This gives people an idea of how many serious changes were made.

There was an urgent need for some kind of relief for the poorest American People. The Federal Emergency Relief Administration quickly set up soup kitchens, blankets, employment schemes and nursery schools. For this project a sum of 500million dollars was spent.

Roosevelt believed the most urgent matter was to get people back to work. He was particularly concerned about jobless teenagers. Young men and sometimes girls would steal rides on freight trains, so that they could travel round the country and look for jobs. In attempt to help these young people Roosevelt set up an organisation known as the Civilian Conservation Corps – CCC for short.

Roosevelt created jobs for the CCC workers cutting fire-lanes through forests, strengthening riverbanks against flooding, and planting trees. The workers lived in special camps, where they were provided with food, shelter, and a wage of dollar a week, from the government. Most young people sent the money home to their families, who also needed all the help they could get. Young people would sign on for periods of six months, and then if they could still not find work it would be renewed.

By August 1933 it was really beginning to work and thousands of teenagers had found work all over the country. The scheme ended in the early 1940’s. By this time 2.5 million young men had served in the CCC.

As historians we can compare Roosevelt to the likes of Hitler. Many of their policies were alike, and involved similar principles. Hitler set up the Hitler Youth. This was similar to the CCC in many respects. In Germany between the ages of 18 – 25 young people lived in Labour Camps and worked for a small wage food and shelter. It was part of the Hitler Youth campaign. The men were trained as soldiers and everyone had to support Hitler. Unlike the Hitler Youth in the CCC young people were free to leave when they wanted and it was not compulsory.

Following the almost immediate success of the CCC Roosevelt set up many similar schemes to help reduce unemployment. The American people knew these New Deal organisations by their initials, and they were soon commonly known as the ‘alphabet agencies’.

The Agricultural Adjustment Administration aimed to take a long-term view, on reducing the problems farmers were facing. It set quotas, which reduced farm productions. These meant prices gradually rose. The AAA also encouraged farmers to learn more modern skills that would conserve and help protect their soil. Some of the poorest farmers were also offered support with mortgages. Although the AAA was a great help to farmers, unfortunately with all the modernised techniques, less farm hands were required and many were put out of work.

During 1935 Roosevelt set up the Works Progress Administration (WPA). Like the CCC it aimed to reduce unemployment and offered jobs that would be useful to the community. By the year 1937 the WPA had built thousands of schools and public buildings. They also work on building new roads and such like. The WPA even found work for those with talents such as art and the ability to write. The writers would put together guidebooks for nearby towns and cities whilst the artist would paint pictures on the walls of post offices, schools and other similar public buildings. From the start of this organisation in 1935, through to its end in 1942, the WPA alone had found work for eight million men and women.

Another successful alphabet agency was the Public Works Association or the PWA. These workers concentrated on the heavier construction work such as building dams, and bridges. They also helped clear out large areas of city slums through constructing proper housing, in its place.

Again Hitler in Germany used the same kind of system Roosevelt employed to get people back to work. Hitler and the Nazis rescued millions of Germans from economic disaster and political chaos. However in return for work and other benefits German citizens surrendered their political freedom. At first many Germans thought it was worth the loss, especially the six million people who were previously unemployed. Hitler set up the National Labour Service. This worked on sending men on public works and conservation programmes. Just like Roosevelt Hitler got the people who could not otherwise find jobs building things like roads and autobahns, which would benefit the community. Indubitably this kind of programme could not provide work for everyone. Many others joined the armed forces. Conscription was introduced so this also helped tackle at least another million unemployed. The new soldiers also required uniforms, weapons and the necessary equipment. This set the steel mills, coalmines and factories back into production. The German air force also went into construction so this created even more jobs for fitters, engineers and designers.

The CCC, WPA, PWA and similar government bodies created jobs for millions of people. The money these workers earned helped re-establish trade and bring back life to American business. As more people were earning a wage the shops got busier and as more Americans were beginning to buy again, shopkeepers, farmers and manufacturers also benefited. So the money the government was supplying to aid the unemployed had a knock on effect to many others. Roosevelt described this process as ‘priming the pump’. By this he meant that the money the government was supplying was like giving fuel to the American economic machinery and therefore getting it working again.

One final example of the alphabet agencies was the Tennessee Valley Authority. The Tennessee Valley was a huge area, which cut across seven states. It had huge physical problems, during the wet season the Tennessee River would flood and throughout the dry season it was reduced to a mere trickle. The surrounding land was used for farming, but had turned into a dust bowl. The soil was eroding and converting the land into desert. The majority of people in the Tennessee Valley lived in poverty and had no electricity. The problem was too big for one state alone to deal with, and the states were not co-operating well with one another. Roosevelt realised this and got the government to intervene. He set up an independent organisation known as the Tennessee Valley Authority or the TVA. It cut across the powers of the individual states. The main aims of the TVA were to stop floods provide electricity and make the land fertile once again. The major focal point of the TVA was to build a series of dams along the river. The dams made it possible to irrigate dried out soil. They also prevented flooding, as the extra water would flow into man-made lakes. Electricity was also manufactured by running the same water through turbines, and above all the operation provided thousands of jobs, in an area that had been hit badly by the depression.

Roosevelt set up Trade Unions as part of the New Deal. The Unions fought for the workers who joined to get them a decent wage and working conditions. However some employers would not allow their workers to join. They threatened them with the sack or even had them beaten up. In an attempt to end this trouble Roosevelt introduced the Wagner Act in 1935. This gave every worker the right to join a union. The government set up a body called the National Labour Board to enable their workers to obtain their rights. This again was something new and Trade Union membership grew quickly in the latter stages of the 1930s.

In 1935 some Americans still lived in fear that their jobs might disappear and that they would be left in poverty once again. Roosevelt reassured them that this would not happen, and to show he meant business the Social Security Act was introduced. This was a combination of laws. First it meant people could claim government pensions, workers received a pension when they became too old to work. Another law was the introduction of unemployment insurance. Workers received sickness benefit if they became too ill to work. The aim was to give help where it was needed, so blind people, handicapped children and many other needy groups benefited. The money to cover such benefits came from workers and employers. At first the scheme did not cover all workers but in later years more and more were protected by it. This was another legacy of Roosevelt’s.

In 1938 minimum wage and maximum hours were also introduced for many jobs. This came under the Fair Labor Standards Act.

At the time the New Deal had some influential critics and therefore cannot be seen as a ‘complete success’. I have outlined four groups of people that opposed Roosevelt and their reasons for doing so. The first was the Supreme Court Judges. In 1936 the judges of the Supreme Court declared that one of the laws Roosevelt was trying to introduce was illegal. Roosevelt was not happy with this decision and felt he may no longer be able to trust the Supreme Court to back his policies. Therefore he attempted to replace a number of the judges with ones he could trust to support him. People were extremely critical of this and accused Roosevelt of wanting to become a dictator. Although he denied such accusations people did point out that Hitler had begun his campaign to destroy German democracy by tampering with law courts and the rules of government. I believe that the Supreme Court made Roosevelt more cautious from then on, because the judges did have a lot of influence.

A second opposing group was the Republicans. They did not want the American foundations changed. The Republicans believed that the government interfering with the welfare of the state would change the American philosophy. Most Republicans were rich so they had to pay high taxes and many were businessmen. They were alarmed at the vast sums of money Roosevelt was spending on the unemployed and did not believe the country could afford it. They feared that Roosevelt’s policies would make the poorer people idle. The Republicans were not really a threat to Roosevelt. At the time the democrats had far more supporters than the Republicans.

The third group were the businessmen. They opposed Roosevelt because he had interfered with the way they ran their businesses and how they should treat their workers. Roosevelt had introduced trade unions, and forced them to except it. This meant employers had to pay out more money to ensure working conditions were regulatory. They also had to increase wages due to the minimum wage. Workers were only permitted to work a maximum amount of hours by their unions; so many workers were receiving more for working for a smaller period of time. They were also angry that they had to contribute to their workers Social Security and pay higher taxes. The government had never told businessmen how to operate before so many were outraged. They believed they had created the business so it was theirs to run as they wished.

Finally a few Democrats opposed Roosevelt’s policies, as they did not feel they were extreme enough. One of these people was Huey Long. He wanted more wealth from the rich given to the poor. There was no threat from these people as they were such a minority.

As Historians we have to look at what the final effect the New Deal and below I have outlined some of the criticisms the New Deal. Throughout the 1930s unemployment still remained fairly high. In 1938, just before war broke out, it was as high as 19% of the total labour force. In addition, although Roosevelt did try to challenge big businessmen, they were still extremely powerful and often undermined his policies. For example, threatening workers who wished to join unions.

Roosevelt was inconsistent. He kept changing his mind on policies.

The New Deal was not very helpful to blacks. Although it did help some to survive the depression, it did not attempt to put an end to racial injustice. However given the embedded racism of earlier centuries Roosevelt was not entirely to blame. The programmes Roosevelt introduced served blacks as well as whites, But in many places, especially the south, blacks were paid only half the sum of what whites were paid. Overall surveys suggest that the New Deal provided assistance to 40% of blacks throughout America, but what about the other 60%? Roosevelt encouraged farmers to take land out of production, but this meant not as many farm hands were required. In actual fact this resulted in 200,000 blacks becoming unemployed. The wage code allowed blacks to be paid less than whites, and house clearance schemes often meant clearing out blacks.

The New Deal did little for the poorest in America for example, unskilled workers, farm labourers and migrant workers. Such people did not benefit from Roosevelt’s Social Security Act. In fact, some of the money the Social Security Act distributed was so pitifully, that it was hardly worth it. For example the old age pensions were very small; it was hard to live on just $10 when the average wage was $80. The payments to disabled people were also tiny. One blind person in New York received just $5 a week in 1937. Finally, the New Deal failed to restore the confidence of the 1920s. By 1937 Americans were still only spending and investing about 75% of what they had done in 1929.

Despite these criticisms we are all too aware that the New Deal had many successes. I have summarised them below.

Firstly it stopped the depression from getting any worse. If Roosevelt had just let it continue like Hoover it could have been a far bigger disaster.

It enabled many farmers and homeowners to stay in their properties, through government funding and introduction of many more jobs.

The Alphabet Agencies dramatically reduced unemployment and provided many people with working opportunities. Between them they offered relief and built buildings and roads that would benefit the community. It also introduced better Social Security for many citizens. This ensured that the needy were getting at least some of the help they needed. If the government had not intervened it is possible that many would have died.

The New Deal projects provided a strong foundation for future prosperity. Many more schools roads and dams were built. One of the major successes was the Tennessee Valley, where building the dams helped with employment, made electricity, made soil fertile and ended the regular floods. Factories were built and ran on the electricity from the turbines. These factories made aluminium, paper, chemicals and cheap fertilisers for the farmers. Millions of trees were planted, as were crops like grass and clover. As they grew, the Tennessee Valley became green again. The living conditions of those in the area improved tremendously, and so did their lives. This, in my opinion, was one of Roosevelt’s greatest successes.

The TVA also revolutionised relationships between the local and central governments. The project showed how both can work together to improve areas in need.

Roosevelt did more to aid the black Americans than any President had since Lincoln, and although many would argue that it was not enough, it is true that the New Deal gave hope and confidence to the American people when it was most needed. It also saved American Democracy.

In my opinion the New Deal was successful. I do think it contained some faults but with the situation Roosevelt had to face being so tough, I think that is inevitable. I personally think he did remarkably well with the situation he was presented with. He reduced unemployment, which had risen dramatically prior to Roosevelt’s appointment. Gave people money when it was most needed, and provided ordinary people with rights, such as the minimum wage and being able to join a union.

The other argument is whether it was the New Deal that ended the Great Depression or whether it was the war. After all Roosevelt’s hard work in attempting to lift America out of depression, things really had improved. Unemployment had decreased dramatically and many of Roosevelt’s organisations had proved a success, but many people would argue that although Roosevelt did a lot, it was the Second World War that almost wiped out unemployment and really got the economy back to how it was previously. Although this is a paradox war did create jobs for people making munitions and providing aid for European countries. After America entered the war in 1941 unemployment was almost non-existent. Many Americans went and fought in Europe so there were jobs for them and also jobs where they had previously worked.

In conclusion, no one other than Hoover and Roosevelt has ever experienced the situation that they were presented with. As Historians we do not doubt that Roosevelt handled the situation much better than Hoover, but the question is did his New Deal actually succeed. In my opinion the New Deal was a success, but the Second World War really helped it along. I think the New Deal lifted the country when it needed it and in America’s case, the war provided many things to help. It was both these things coupled together that finally got America back on its feet and ended the Great Depression.