XX.

The Great Depression

In 1929, Hoover’s first year as president, the prosperity of the 1920s capsized. Stock prices climbed to unprecedented heights, as investors speculated in the stock market. The speculative binge, in which people bought and sold stocks for higher and higher prices, was fueled by easy credit, which allowed purchasers to buy stock “on margin.” If the price of the stock increased, the purchaser made money; if the price fell, the purchaser had to find the money elsewhere to pay off the loan. More and more investors poured money into stocks. Unrestrained buying and selling fed an upward spiral that ended on October 29, 1929, when the stock market collapsed. The great crash shattered the economy. Fortunes vanished in days. Consumers stopped buying, businesses retrenched, banks cut off credit, and a downward spiral began. The Great Depression that began in 1929 would last through the 1930s.

A.

Causes of the Depression

The stock market crash of 1929 did not cause the Great Depression, but rather signaled its onset. The crash and the depression sprang from the same cause: the weaknesses of the 1920s economy. An unequal distribution of income meant that working people and farmers lacked money to buy durable goods. Crisis prevailed in the agricultural sector, where farmers produced more than they could sell, and prices fell. Easy credit, meanwhile, left a debt burden that remained unpayable.

The crisis also crossed the Atlantic. The economies of European nations collapsed because they were weakened by war debts and by trade imbalances; most spent more on importing goods from the United States than they earned by exporting. European nations amassed debts to the United States that they were unable to repay. The prosperity of the 1920s rested on a weak foundation.

B.

Effects of the Depression

After the crash, the economy raced downhill. Unemployment, which affected 3 percent of the labor force in 1929, reached 25 percent in 1933. With one out of four Americans out of work, people stopped spending money. Demand for durable goods—housing, cars, appliances—and luxuries declined, and production faltered. By 1932 the gross national product had been cut by almost one-third. By 1933 over 5,000 banks had failed, and more than 85,000 businesses had gone under.

The effects of the Great Depression were devastating. People with jobs had to accept pay cuts, and they were lucky to have work. In cities, the destitute slept in shanties that sprang up in parks or on the outskirts of town, wrapped up in “Hoover blankets” (newspapers) and displaying “Hoover flags” (empty pockets). On the Great Plains, exhausted land combined with drought to ravage farms, destroy crops, and turn agricultural families into migrant workers. An area encompassing parts of Kansas, Oklahoma, Texas, New Mexico, and Colorado became known as the Dust Bowl. Family life changed drastically. Marriage and birth rates fell, and divorce rates rose. Unemployed breadwinners grew depressed; housewives struggled to make ends meet; young adults relinquished career plans and took whatever work they could get.

C.

Relief Efforts

Modest local welfare resources and charities barely made a dent in the misery. In African American communities, unemployment was disproportionately severe. In Chicago in 1931, 43.5 percent of black men and 58.5 percent of black women were out of work, compared with 29.7 percent of white men and 19.1 percent of white women. As jobs vanished in the Southwest, the federal government urged Mexican Americans to return to Mexico; some 300,000 left or were deported.

On some occasions, the depression called up a spirit of unity and cooperation. Families shared their resources with relatives, and voluntary agencies offered what aid they could. Invariably, the experience of living through the depression changed attitudes for life. “There was one major goal in my life,” one woman recalled, “and that was never to be poor again.”

President Hoover, known as a progressive and humanitarian, responded to the calamity with modest remedies. At first, he proposed voluntary agreements by businesses to maintain production and employment; he also started small public works programs. Hoover feared that if the government handed out welfare to people in need, it would weaken the moral fiber of America.

Hoover finally sponsored a measure to help businesses in the hope that benefits would “trickle down” to others. With his support, Congress created the Reconstruction Finance Corporation in 1932 that gave generous loans to banks, insurance companies, and railroads. But the downward spiral of price decline and job loss continued. Hoover’s measures were too few, too limited, and too late.

Hoover’s reputation suffered further when war veterans marched on Washington to demand that Congress pay the bonuses it owed them (see Bonus March). When legislators refused, much of the Bonus Army dispersed, but a segment camped out near the Capitol and refused to leave. Hoover ordered the army under General Douglas MacArthur to evict the marchers and burn their settlement. This harsh response to veterans injured Hoover in the landmark election of 1932, where he faced Democrat Franklin Delano Roosevelt. Roosevelt was New York’s governor and a consummate politician. He defeated Hoover, winning 57 percent of the popular vote; the Democrats also took control of both houses of Congress. Voters gave Roosevelt a mandate for action.

D.

The New Deal

Roosevelt was a progressive who had been a supporter of Woodrow Wilson. He believed in active government and experimentation. His approach to the Great Depression changed the role of the U.S. government by increasing its power in unprecedented ways.

Roosevelt gathered a “brain trust”—professors, lawyers, business leaders, and social welfare proponents—to advise him, especially on economic issues. He was also influenced by his cabinet, which included Secretary of the Interior Harold Ickes, Secretary of State Cordell Hull, Secretary of Agriculture Henry Wallace, and Labor Secretary Frances Perkins, the first woman cabinet member. A final influence on Roosevelt was his wife, Eleanor, whose activist philosophy had been shaped by the women’s movement. With Eleanor Roosevelt in the White House, the disadvantaged gained an advocate. Federal officials sought her attention, pressure groups pursued her, journalists followed her, and constituents admired her.

D.1.

The First New Deal

Unlike Hoover, Roosevelt took strong steps immediately to battle the depression and stimulate the U.S. economy. When he assumed office in 1933, a banking crisis was in progress. More than 5,000 banks had failed, and many governors had curtailed banking operations. Roosevelt closed the banks, and Congress passed an Emergency Banking Act, which saved banks in sounder financial shape. After the “bank holiday,” people gradually regained confidence in banks. The United States also abandoned the gold standard and put more money into circulation.

Next, in what was known as the First Hundred Days, Roosevelt and the Democratic Congress enacted a slew of measures to combat the depression and prevent its recurrence. The measures of 1933 included: the Agricultural Adjustment Act, which paid farmers to curtail their production (later upset by the Supreme Court); the National Industrial Recovery Act (NIRA), which established codes of fair competition to regulate industry and guaranteed labor’s right to collective bargaining (again, the law was overturned in 1935); and the Public Works Administration, which constructed roads, dams, and public buildings. Other acts of the First Hundred Days created the Federal Deposit Insurance Corporation, which insured deposits in banks in case banks failed, and the Tennessee Valley Authority (TVA), which provided electric power to areas of the southeast. The government also set up work camps for the unemployed, refinanced mortgages, provided emergency relief, and regulated the stock market through the Securities and Exchange Commission.

The emergency measures raised employment, but the New Deal evoked angry criticism. On the right, conservative business leaders and politicians assailed New Deal programs. In popular radio sermons, Father Charles Coughlin, once a supporter of Roosevelt, denounced the administration’s policies and revealed nativist, anti-Semitic views. The Supreme Court, appointed mainly by Republicans, was another staunch foe; it struck down many pieces of New Deal legislation, such as the NIRA, farm mortgage relief, and the minimum wage.

On the left, critics believed that Roosevelt had not done enough and endorsed stronger measures. In California, senior citizens rallied behind the Townsend Plan, which urged that everyone over the age of 65 receive $200 a month from the government, provided that each recipient spend the entire amount to boost the economy. The plan’s popularity mobilized support for old-age pensions. In Louisiana, Democratic governor Huey Long campaigned for “soak the rich” tax schemes that would outlaw large incomes and inheritances, and for social programs that would “Share Our Wealth” among all people. The growing Communist Party, finally, urged people to repudiate capitalism and to allow the government to take over the means of production.

D.2.

The Second New Deal

In 1935 the New Deal veered left with further efforts to promote social welfare and exert federal control over business enterprise. The Securities and Exchange Commission Act of 1934 enforced honesty in issuing corporate securities. The Wagner Act of 1935 recognized employees’ bargaining rights and established a National Labor Relations Board to oversee relations between employers and employees. Finally, the Work Projects Administration put unemployed people to work on short-term public projects.

New Dealers also enacted a series of measures to regulate utilities, to increase taxes on corporations and citizens with high incomes, and to empower the Federal Reserve Board to regulate the economy. Finally, the administration proposed the Social Security Act of 1935, which established a system of unemployment insurance, old-age pensions, and federal grants to the states to aid the aged, the handicapped, and families with dependent children. Largely an insurance program, Social Security was the keystone of welfare policy for decades to come.

In the election of 1936, Roosevelt defeated his Republican opponent, Alf Landon, in a landslide and carried every state but Maine and Vermont. The election confirmed that many Americans accepted and supported the New Deal. It also showed that the constituency of the Democratic Party had changed. The vast Democratic majority reflected an amalgam of groups called the New Deal coalition, which included organized labor, farmers, new immigrants, city dwellers, African Americans (who switched their allegiance from the party of Lincoln), and, finally, white Southern Democrats.

At the start of Roosevelt’s second term in 1937, some progress had been made against the depression; the gross output of goods and services reached their 1929 level. But there were difficulties in store for the New Deal. Republicans resented the administration’s efforts to control the economy. Unemployment was still high, and per capita income was less than in 1929. The economy plunged again in the so-called Roosevelt recession of 1937, caused by reduced government spending and the new social security taxes. To battle the recession and to stimulate the economy, Roosevelt initiated a spending program. In 1938 New Dealers passed a Second Agricultural Adjustment Act to replace the first one that the Supreme Court had overturned and the Wagner Housing Act, which funded construction of low-cost housing.

Meanwhile, the president battled the Supreme Court, which had upset several New Deal measures and was ready to dismantle more. Roosevelt attacked indirectly; he asked Congress for power to appoint an additional justice for each sitting justice over the age of 70. The proposal threatened the Court’s conservative majority. In a blow to Roosevelt, Congress rejected the so-called court-packing bill. But the Supreme Court changed its stance and began to approve some New Deal measures, such as the minimum wage in 1937.

During Roosevelt’s second term, the labor movement made gains. Industrial unionism (unions that welcomed all the workers in an industry) now challenged the older brand of craft unionism (skilled workers in a particular trade), represented by the American Federation of Labor (AFL). In 1936 John L. Lewis, head of the United Mine Workers of America (UMWA), left the AFL to organize a labor federation based on industrial unionism. He founded the Committee for Industrial Organizations, later known as the Congress of Industrial Organizations (CIO). Industrial unionism spurred a major sit-down strike in the auto industry in 1937. Next, violence erupted at a steelworkers’ strike in Chicago, where police killed ten strikers. The auto and steel industries, however, agreed to bargain collectively with workers, and these labor victories led to a surge in union membership.

Finally, in 1938 Congress passed another landmark law, the Fair Labor Standards Act (FLSA). It established federal standards for maximum hours and minimum wages for workers in industries involved in interstate commerce. At first the law affected only a minority of workers, but gradually Congress extended it so that by 1970 it covered most employees. In the 1930s, however, many New Deal measures, such as labor laws, had a limited impact. African Americans, for instance, failed to benefit from FLSA because they were engaged mainly in nonindustrial jobs, such as agricultural or domestic work, which were not covered by the law. New Deal relief programs also sometimes discriminated by race.

The New Deal never ended the Great Depression, which continued until the United States’ entry into World War II revived the economy. As late as 1940, 15 percent of the labor force was unemployed. Nor did the New Deal redistribute wealth or challenge capitalism. But in the short run, the New Deal averted disaster and alleviated misery, and its long-term effects were profound.

One long-term effect was an activist state that extended the powers of government in unprecedented ways, particularly in the economy. The state now moderated wild swings of the business cycle, stood between the citizen and sudden destitution, and recognized a level of subsistence beneath which citizens should not fall.

The New Deal also realigned political loyalties. A major legacy was the Democratic coalition, the diverse groups of voters, including African Americans, union members, farmers, and immigrants, who backed Roosevelt and continued to vote Democratic.

The New Deal’s most important legacy was a new political philosophy, liberalism, to which many Americans remained attached for decades to come. By the end of the 1930s, World War II had broken out in Europe, and the country began to shift its focus from domestic reform to foreign policy and defense.