Hoover, Roosevelt and the Great Depression

The Harding Administration

• In 1920, when Warren G. Harding ran for president, most Americans wanted to return to simpler times. His campaign slogan to return to normalcy, or a "normal" life after the war, made him very popular and he won the presidency.

• Most of Harding’s appointments were given to friends. His old poker-playing friends became known as the Ohio Gang. They used their government positions to sell jobs, pardons, and immunity from prosecution. Before most of the scandals became public knowledge, Harding fell ill and died in 1923.

• Harding's secretary of the interior, Albert B. Fall, secretly allowed private interests to lease lands containing U.S. Navy oil reserves at Teapot Dome, Wyoming.

• He received bribes totaling over $300,000. The Teapot Dome scandal ended with Fall being the first cabinet officer in history to be sent to prison.

• Attorney General Harry Daugherty refused to turn over files and bank records for a German-owned American company.

• Bribe money ended up in a bank account controlled by Daugherty.

• He refused to testify under oath, claiming immunity, or freedom from prosecution, on the grounds that he had confidential dealings with the president.

• The new president, Calvin Coolidge, demanded Daugherty's resignation.

The Coolidge Administration

• Vice President Calvin Coolidge became president after Harding's death. Coolidge distanced himself from the Harding administration. His focus was on prosperity through business leadership with little government intervention. He easily won the Republican Party's nomination for president in 1924.

The Rise of New Industries

• During the 1920s, Americans enjoyed a new standard of living. Wages increased and work hours decreased.

• Mass production, or large-scale product manufacturing usually done by machinery, increased the supply of goods and decreased costs.

Rise of Radio

• In Nov. 1920, Westinghouse broadcast the news of Harding’s landslide victory for president from station KDKA in Pittsburgh.

• The success persuaded Westinghouse to open other stations.

• In 1926 the National Broadcasting Company (NBC) established a permanent network of radio stations to distribute daily programming.

• In 1928 the Columbia Broadcasting System (CBS) set up coast-to-coast stations to compete with NBC.

Aviation

• Aviation did not experience the same post-war boom as automobiles because most Americans thought of planes as dangerous novelties.

• This began to change after the post office began using privately owned aircraft after the passage of the Kelly Act.

• By 1919 the Post Office had expanded airmail service across the continent with the help of the railroad.

• In 1927 Charles Lindbergh took a transatlantic solo flight, which gained support in the United States for the commercial flight.

• By the end of 1928, 48 airlines were serving 355 American cities.

The Consumer Society

• Higher wages and shorter workdays led to an economic boom as Americans traded thrift for their new role as consumers.

• American attitudes about debt shifted, as they became confident that they could pay back what they owed at a later time.

• By the early 1920s, many businesses hired professional managers and engineers. The large number of managers expanded the size of the middle class.

• In the 1920s, unions lost influence and membership.

• Employers promoted an open shop, a workplace where employees were not required to join a union.

• Welfare capitalism, where employees were able to purchase stock, participate in profit sharing, and receive benefits, made unions seem unnecessary.

The Farm Crisis Returns

• During wartime, the U.S. government had encouraged farmers to produce more for food supplies needed in Europe.

• Farmers prospered during the war. After the war, Europeans had little money to buy American farm products.

• After Congress raised tariffs, farmers could no longer sell products overseas, and prices fell.

• The farmers had technological advances that enabled them to increase production, but because there was no increase in demand, they were forced to lower prices.

Fordney-McCumber Act

• The act raised tariffs in an effort to protect American industry from foreign competition.

• It dampened the American market for foreign goods and turned foreign markets against American agricultural goods.

McNary-Haugen Bill

• The McNary-Haugen Bill called for the federal government to purchase surplus crops and sell them abroad while protection the American market with a high tariff.

• Coolidge vetoes the bill both times the bill passes Congress arguing that farmers would be encouraged to produce even more and the government would be unable to sell it overseas.

Promoting Prosperity

• After Election Day 1920, President-elect Harding began searching for qualified Americans for his Cabinet. One of the most important would be secretary of the treasury.

• The nation faced a large national debt, and many worried that the country would not easily pull out of its postwar recession.

• Andrew Mellon, named secretary of treasury by President Harding, reduced government spending and cut the federal budget. The federal debt was reduced by $7 billion between 1921 and 1929.

Dawes Plan

• War Reparations crippled the German economy.

• As a result, Charles G. Dawes, an American diplomat and banker, negotiated an agreement—the Dawes Plan—with France, Britain, and Germany by which American banks would make loans to Germany so they could meet their reparation payments.

• France and Britain agreed to accept less reparations and pay more on their war debts.

• Although well intended the Dawes Plan did little to ease Europe’s economic problems.

Hoover’s Cooperative Individualism

• This idea involved encouraging manufactures and distributors to form trade associations which would voluntarily share information with the federal government.

• Hoover believed this system would reduce costs and promote economic efficiency.

The Election of 1928 (Ch. 17)

• The 1928 election placed former head of the Food Administration and secretary of commerce, Herbert Hoover, on the Republican ticket against Democratic candidate, Alfred E. Smith, a four-time governor of New York and the first Roman Catholic to be nominated for president.

• The issue of Prohibition played a major role in the campaign. Hoover favored a ban on liquor sales. Smith opposed the ban.

• Religious differences between the candidates had a major effect on the campaign. The Catholic issue led to a smear campaign against Smith.

• The Republicans took full credit for the prosperity of the 1920s, and Herbert Hoover easily won the 1928 election by a landslide.

The Roots of the Great Depression

• The uneven distribution of wealth in the United States added to the country's economic problems.

• In 1929 the top 5 percent of American households earned 30 percent of the country's income.

• More than two-thirds of the nation's families earned less than $2,500 a year.

• Low consumption added to the economic problems.

• Worker's wages did not increase fast enough to keep up with the quick production of goods.

• As sales decreased, workers were laid off, resulting in a chain reaction that further hurt the economy.

• The Hawley-Smoot Tariff intensified the Depression by raising the tax on imports.

• Americans purchased less from abroad because of the high cost.

• In return, foreign countries raised their own tariffs against American products, which caused fewer products to be sold overseas.

The Federal Reserve Board helped to cause the Depression by:• Lowering the interest rate instead of raising it,

which helped cause the Depression in two ways. • First, it encouraged banks to make risky loans.• Second, it made it appear as if the economy was

still thriving, which caused businesses to borrow money to further expand their production.

The Crash

• The stock market was established as a system for buying and selling shares of companies. A long period of rising stock prices is known as a bull market. As the bull market continued to go up, many investors bought stocks on margin, making a small cash down payment.

• This was considered safe as long as stock prices continued to rise. If the stock began to fall, the broker could issue a margin call demanding that the investor repay the loan immediately.

• In the late 1920s, new investors bid prices up without looking at a company's earnings and profits. Speculation occurred when investors bet on the market climbing and sold whatever stock they had in an effort to make a quick profit.

• By late 1929, a lack of new investors in the stock market caused stock prices to drop and the bull market to end.

• As stockbrokers advised their customers of margin calls, customers responded by placing their stocks up for sale, causing the stock market to plummet further.

• On October 29, 1929, stock prices fell drastically on Black Tuesday, resulting in a $10 to $15 billion loss in value.

• While this did not cause the Great Depression, it did undermine the economy's ability to hold out against its other weaknesses.

• The stock market crash weakened the nation's banks.

• Banks lost money on their investments, and speculators defaulted on loans.

• Because the government did not insure bank deposits, customers lost their money if a bank closed.

• Bank runs resulted as many bank customers withdrew their money at the same time, causing the bank to collapse.

The Depression Worsens

• Many of the homeless built shacks in shantytowns, which they referred to as "Hoovervilles" because they blamed the president for their financial trouble.

• Hobos, or homeless Americans who wandered around hitching rides on railroad cars, searched for work and a better life.

• As crop prices dropped in the 1920s, many American farmers left their fields uncultivated. A terrible drought in the Great Plains, beginning in 1932, caused the region to become a "Dust Bowl."

• Many Midwestern farmers and Great Plains farmers lost their farms. Many families moved west to California hoping to find a better life, but most still faced poverty and homelessness.

Promoting Recovery

• Hoover increased public works—government-financed building projects.

• Hoover asked the nation's governors and mayors to increase public works spending.

• At the same time, however, Hoover refused to increase government spending or taxes.

• He feared that deficit spending would actually delay an economic recovery.

Pumping Money Into the Economy

• President Hoover tried to persuade the Federal Reserve Board to put more currency into circulation, but the Board refused.

• Hoover set up the National Credit Corporation (NCC), which created a pool of money to rescue banks, but it was not enough to help.

• By 1932 Hoover felt the government had to provide funding for borrowers.

• He asked Congress to set up the Reconstruction Finance Corporation (RFC) to make loans to banks, railroads, and agricultural institutions.

• The economy continued to decline when the RFC was too cautious in its loan amounts.

• Hoover opposed the federal government's participation in relief—money that went directly to very poor families. He felt relief was the responsibility of state and local governments.

• In July 1932, Congress passed the Emergency Relief and Construction Act to get money for public works and for loans to the states for direct relief.

In an Angry Mood

• In 1924 Congress had enacted a $1,000 bonus to be paid to veterans in 1945.

• In 1931 Congress introduced legislation that would authorize veterans to receive their bonuses early.

• In 1932 the "Bonus Army" marched to Washington, D.C., to lobby Congress to pass the legislation.

• After Hoover refused to meet with the Bonus Army, and the Senate voted the new bonus bill down, some of the marchers left.

• Some marchers stayed, moving into deserted buildings in Washington, D.C.

• When Hoover ordered the buildings cleared, disputes between the remaining people and the police (and later the army) resulted in several deaths.

Roosevelt's Rise to Power

• Roosevelt's political career began in 1910, with a seat in the New York State Senate where he supported progressive reform and opposed party bosses.

• He was appointed assistant secretary of the navy by Woodrow Wilson. In 1920 he caught polio, a paralyzing disease with no cure.

• Roosevelt did not give in to the crippling disease. He relied on his wife, Eleanor, to keep his name prominent in politics.

• Roosevelt narrowly won the race for New York governor. During his term as governor, Roosevelt used government power to help people deal with the economic challenges of the time.

• His struggle with polio made people feel he could somehow understand their hardships. His popularity in New York paved the way for his run for president.

• Franklin Roosevelt won the November 1932 presidential election, but his inauguration would not occur until March 1933.

• During this time, unemployment continued to rise, bank runs increased, and people began converting their money into gold.

• People began taking gold and currency out of banks, resulting in over 4,000 banks collapsing by March 1933.

• Many governors declared bank holidays, which closed the remaining banks before bank runs could put them out of business.

The Hundred Days Begins

• Between March 9 and June 16, 1933, referred to as the Hundred Days, Roosevelt sent many bills to Congress.

• Congress passed 15 major acts to help the economic crisis. These programs made up the First New Deal.

• Roosevelt's advisers were divided into three main groups.

• The first group supported the "New Nationalism" of Theodore Roosevelt and believed government and business should work together to manage the economy.

• The second group distrusted big business and wanted government planners to run key parts of the economy.

• The third group supported the "New Freedom" of Woodrow Wilson and felt it was the government's responsibility to restore competition to the economy.

Fixing the Banks and the Stock Market

• When Roosevelt took office, he knew the first thing he needed to do was to restore confidence in the banking system.

• He called a national bank holiday and called Congress into special session.

• Congress passed the Emergency Banking Relief Act, which required federal examiners to survey the nation's banks and issue Treasury Department licenses to financially sound banks.

• In Roosevelt's first "fireside chat," where he spoke on the radio directly to the people, he assured Americans that the banks were now secure.

• The following day deposits in every city outweighed withdrawals, ending the banking crisis.

• New regulations for banks and the stock market were implemented with the Securities Act of 1933 and the Glass-Steagall Banking Act. Under the Securities Act of 1933, companies that sold stocks and bonds had to provide complete and truthful information to investors.

• The Securities and Exchange Commission (SEC) was created to regulate the stock market and prevent fraud.

• The Glass-Steagall Act separated commercial banking from investment banking. (Repealed in 1995 by President Bill Clinton)

The Glass-Steagall Act

• It no longer allowed depositors' money to be risked by speculating on the stock market.

• The act created the Federal Deposit Insurance Corporation (FDIC) that provided government insurance for bank deposits up to a certain amount.

Managing Farms and Industry

• Roosevelt asked Congress to pass the Agricultural Adjustment Act—a plan that paid farmers not to raise certain crops to lower crop production. The act was administered by the Agricultural Adjustment Administration (AAA).

AAA

• While the plan reduced production, increased prices, and helped some farmers, thousands of tenant farmers were unemployed and homeless.

• Large commercial farmers who raised one crop profited more than small farmers who raised several products.

• The National Industrial Recovery Act (NIRA) suspended antitrust laws and allowed business, labor, and government to cooperate in setting up voluntary rules, known as codes of fair competition, for each industry.

• The program was run by the National Recovery Administration (NRA), and it urged consumers to buy only from companies who signed agreements with the NRA.

• The Home Owners' Loan Corporation (HOLC) bought the mortgages of homeowners behind on payments and restructured them with longer terms of repayment and lower interest rates.

• The HOLC gave loans only to those employed.

• The Civilian Conservation Corps (CCC) gave unemployed men aged 18 to 25 the opportunity to work with the national forestry service planting trees, fighting forest fires, and building reservoirs.

• By the time it closed in 1942, the CCC had employed three million men.

Challenges to the New Deal

• Support of Roosevelt and his New Deal began to fade in 1935. The effectiveness of the New Deal was questioned by right and left wing politicians.

• Left-wing Democratic senator Huey Long proposed taking property from the rich and dividing it up amongst the poor.

Launching the Second New Deal

• In the Supreme Court case Schechter v. United States, the court struck down the National Industrial Recovery Act.

• The Court ruled that the Constitution did not allow Congress to delegate its powers to the executive branch. It ruled the NIRA codes unconstitutional.

• Roosevelt feared that the Court would strike down the New Deal.

• He ordered Congress to remain in session until his new bills were passed.

• This was nicknamed the "second hundred days" by the press.

• In 1935 the Committee for Industrial Organization (CIO) was formed to organize industrial unions.

The Social Security Act

• The Social Security Act became law in 1935, providing security for the elderly, unemployed workers, and other needy people.

• The bill would provide a monthly retirement pension and unemployment insurance.

• Workers earned the right to receive the benefits by paying premiums.

Roosevelt's Second Term

• Millions of voters owed their jobs, homes, and bank accounts to the New Deal.

• By the election of 1936, Democratic Party membership shifted from mainly white Southerners to include farmers, laborers, African Americans, new immigrants, ethnic minorities, women, progressives, and intellectuals.

Taking on the Supreme Court

• The Supreme Court did not support the president's New Deal programs. In January 1936, the Court declared the Agricultural Adjustment Act unconstitutional.

• After the election, Roosevelt attempted to change the political balance of the Supreme Court with the court-packing plan.

• Roosevelt sent Congress a bill to increase the number of justices on the Supreme Court.

• It was a political mistake and split the Democratic Party.

• Americans felt it would give the president too much power.