Most of all, US farmers were over-producing food. As a result, the prices they got were low.
Although profits rose by 80%, wages rose by only 8%.
Wages were low in old industries facing world competition, like coal and textiles. Mechanisation often replaced workers, especially skilled workers.
There were never less than 2 million people unemployed throughout the 1920s. The Wall Street crash lead to a mass number of unemployment it was a result from the boom of the 1920s was based on selling more and more goods. But by 1929 US industry was running out of customers. Better off Americans could not go on spending forever, there was a limit to how many cars and fridges people would buy. At least half of all Americans (farmers, black Americans, unemployed, low wage-earners, new immigrants), did not take part in the boom at all because they were too poor. US industry could not sell abroad because other countries had put up tariffs in retaliation to the USA. By 1929 there was a growing surplus of manufactured goods and large numbers of car workers were unemployed.
Speculation in the shares as US industry boomed, so did company shares on the stock market. Prices of shares went up, year after year. This was based on confidence that the boom would last. Speculators bought shares, hoping to make easy money. Some people borrowed money to buy shares; others bought ‘on the margin’ that is, only paying 10% of their value, hoping to make enough money to pay the full price later. There were almost no controls on the buying and selling of shares or on the setting up of companies. Some companies did not actually manufacture anything, just bought and sold shares. While there was confidence, the boom would last.
The US government pursued a policy of non-intervention. Presidents Harding and Coolidge believed that business were left alone on the own accord be better if it was allowed to run its own affairs. As Coolidge put it: 'the business of America is business'. By 1929 some shrewd investors realised that the over-production crisis was nearing and sold their shares. Confidence dipped and no one would buy shares, in October this led to the crash.
Herbert Hoover was elected President just before the Wall Street Crash. He claimed ‘that the boom would go on forever and that poverty would be removed.’ These words rebounded on him.He believed that government should not interfere in business and that business would right itself sooner or later. He therefore did nothing.
During 1930 and 1931 he made repeated speeches in which he claimed that the Depression would only be short-lived.
In a magazine interview Hoover claimed that nobody was actually starving, which many people took to be a sign that he did not really care.
He believed that cities and local authorities should help their own unemployed. It was not the government’s responsibility.
Hoover did take some action. He reduced taxes and passed the Hawley-Smoot Tariff. This was intended to stop foreign goods coming into the USA and force people to buy American goods. In fact it only made the situation worse because US exports dropped even further.
Only until 1932 did Hoover set up the Reconstruction Finance Corporation, which could make grants and loans to state governments.
When 20,000 ex-soldiers went to Washington in August 1932 to ask for immediate payment of their 'bonus'. This was money that they were due to receive in 1945.
Many bonus Marchers camped outside the White House, but Hoover refused to meet them and sent troops, including tanks, to clear them away this resulted in a havoc and caused people to dislike Hover.
As a result, Hoover was deeply unpopular. In the 1932 presidential election, the Democrat candidate was Franklin Delano Roosevelt.
Roosevelt came from a rich family, had suffered from polio and, as Governor of New York, had tried to help those suffering in the Great Depression. In the campaign he promised a ‘New Deal’ for the American people and was elected.
The impact of the Depression on people’s lives throughout US society many were ruined. They had borrowed more than they could pay back. There were several suicides.
Banks began to fail as they lent money, which was not going to be paid back, so this is the main cause why banks went broke. This hit those who were not speculators and pulled down even more people.
The banks failed, the was a rise in the unemployed as a result lost many people lost confidence in the USA; no one spent money so demand for goods fell. This resulted in the industry declining.
With no new investment and falling demand, workers were laid off. Unemployment reached 14 million by 1933. Americans believed in 'rugged individualism' – everyone should look after himself or herself. There was therefore no dole, no state welfare. People were in dire poverty. Many lost their homes. Many became ashamed and depressed; they were made to feel it was their own fault. People begged, or sold possessions on street-corners. They slept on park-benches or cardboard shacks. They called these groups of cardboard shacks 'Hoovervilles' after President Hoover. 'Hoboes' travelled around looking for work, often riding illegally in railway freight cars. People queued for charity soup or bread. Farmers were already in an over-production crisis. The Depression lowered the prices they could get for their goods even further. Some went broke and had to leave. Some farmers even forced banks at gunpoint not to put their farms up for sale. In the Mid-West USA over-cropping led to a 'dust-bowl' as the soil simply blew away. Poor farmers from Oklahoma (‘Okies’) left to try to find work-picking fruit in California.
The schemes that were set up forming the new deal were as follows below;
The Emergency Banking Relief Act closed all banks for four days to quieten things down. Government official investigated them and they re-opened if they had enough funds to operate. Banks were banned from investing in the stock market. This restored confidence in banks.
The FERA, Federal Emergency Relief Agency provided $500 million for immediate relief of the poorest victims of the depression
The CCC, Civilian Conservation Corps, gave work to 2,000,000 young Americans (only 8,000 women) in the countryside, clearing forests, replanting trees, mending fences etc. Young people worked for 6 months to get used to work. They were paid but had to send most of it home. Although many young people took part, they often moved from one camp to another and rarely found permanent work.
The AAA, the Agricultural Adjustment Act, tried to help farmers. They were encouraged to switch to new crops and paid to stop overproducing others. Farm incomes rose again. Farmers had to reduce the amount of land under the plough and kill animals. This was widely criticised for wasting food at a time when millions were starving.
The TVA, Tennessee Valley Authority, built a whole series of dams to control the flood waters of the Tennessee River. This meant that the land could be irrigated and farmed and it also provided electricity. This attracted industry such as aluminium smelting and paper-making. There were jobs in building the dams and in these industries A previously poor and backward area of the USA was revived. This was the most successful part of the New Deal.
The NRA, National Recovery Administration. This had two parts:
The PWA, Public Works Administration, began major building schemes, which provided jobs.
The Blue Eagle. These were a series of agreements between employers and workers setting decent wages and working conditions. Goods produced under these rules displayed a ‘Blue Eagle’ badge. This led to opposition to Roosevelt from business.
The Second New Deal
Wagner Act 1935 this gave all workers the right to join a trade union
Social Security Act, 1935 set up a basic system of welfare including old age pensions, unemployment and sick pay.
WPA, Works Progress Administration provided government money for many improvement schemes all over the USA: bridges, hospitals, schools, airports, parks. Even writers and artists were hired to write local guides and paint murals.
His scheme was not well organised and consequently did not work out as well as he had planned which was to completely eliminate unemployment. (Compare him with Hitler, Stalin, for example). Thus some of his plans were inconsistent, putting up food prices to help farmers hit poor workers, for example. But he did bring energy, enthusiasm and a belief that things could be done.
His main aim and idea was to use government money to set up recovery. Even if it was money the government did not have now, it would get it back when recovery took place. This is called deficit funding. The money was used to put people to work, in jobs, which were useful, rather than just giving them handouts. This way the country would benefit, people would feel worthwhile again, and they would spend their wages, helping to get the economy moving again. On the whole he was very popular. He could communicate with ordinary Americans through 'Fireside Chats' on the radio. He restored confidence. He was re-elected President in 1936, 1940 and 1944 – the only President to be elected for four terms.
The opponents who were pessimistic about the new deal were mostly Republicans, who repeatedly complained about deficit spending, saying the New Deal was spending money they did not have. They said the New Deal was only dealing with unemployment by turning millions of people into government employees.
FDR tried to meet their criticisms in 1937 by cutting government spending. Unemployment immediately rose again. Republicans also complained that the New Deal extended federal government power.
Business attacked Roosevelt because he was giving too much power to trade union. In 1937 and 1938 there was a wave of strikes.
The Supreme Court agreed with these views and declared that the NRA was illegal in 1935, and the AAA in 1936. In 1937 Roosevelt tried to increase the size of the Court from 9 to 15 judges, intending to appoint six new ones who would support his policies. He was forced to back down by public opinion.
Some people complained that he did not go far enough. The Wall Street Crash had shown that the system was rotten and the New Deal was just propping it up.
In 1935 Senator Huey Long of Louisiana started the ‘Share our Wealth’ campaign, and planned to tax the rich to give every family an income of $5,000. He intended to stand against Roosevelt in the 1936 presidential election, but was murdered earlier in the year.
The success of the new deal was that the unemployment in America had fallen by about 40% since 1933 1940. Blacks were given access to CCCs, although they had separate camps. Black leaders voted strongly for Roosevelt as a result. Roosevelt gave people hope and restored their confidence in the government and the financial system. The Fireside Chats and the replies to letters to the White House convinced many Americans that the USA would pull through.
It was the Second World War, which really made the difference. When America joined the war in December 1941, unemployment fell to almost nothing.
The main reason why the Recovery was failure in 1937 was because the industry was still only working at 75% of its 1929 level. Many of the schemes that Roosevelt started only lasted for a few months. The CCC provided work for six to nine months only.
Some men went on a whole series of CCC camps, as they were called, and still could not find a job at the end.
Roosevelt's wife, Eleanor, constantly criticised him for not doing more for blacks and women.
When Roosevelt tried to reduce spending in 1937 unemployment rose again to 10,000,000. More spending was needed to bring unemployment down again. By 1941 it stood at 8,000,000.
