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The Great Depression and the New Deal

The Market Crashes

On Thursday, October 24, 1929, an unprecedented wave of sell orders shook the New York Stock
Exchange. Stock priced tumbled, falling $2, $5, and even $10 between trades. As prices fell,
brokers required investors who had bought stock on margin to put up money to cover their loans.
To raise money, many investors dumped stocks for whatever price they could fetch. During the
first three hours of trading, stock values plunged by $11 billion.

At noon, a group of prominent bankers met at the offices of J.P. Morgan and Co. to stop the
hemorrhaging of stock prices. The bankers' pool agreed to buy stocks well above the market. At
1:30 p.m., they put their plan into action. Within an hour, U.S. Steel was up $15 a share; AT&T
up $22; General Electric up $21; Montgomery Ward up $23.

Even though the market recovered its morning losses, public confidence was badly shaken.
Rumors spread that eleven stock speculators had killed themselves and that government troops
were surrounding the exchange to protect traders from an angry mob. President Hoover sought to
reassure the public by declaring that the "fundamental business of the on a sound and
prosperous basis."

Prices held steady on Friday, and then slipped on Saturday. Monday, however, brought fresh
disaster. Eastman Kodak plunged $41 a share; AT&T plunged $24; New York Central Railroad
plunged $22. The worst was yet to come. It occurred on Black Tuesday, October 29, the day the
stock market experienced the greatest crash in its history.

As soon as the stock exchange's gong sounded, a mad rush to sell began. Trading volume soared
to an unprecedented 16,410,030 shares and the average price of a share fell 12 percent. Stocks
were sold for whatever price they would bring. White Sewing Machine had reached a high of
$48 a share. One purchaser--reportedly a messenger boy--bought a block of the stock for $1 a

The bull market of the late 1920s was over. By 1932, the index of stock prices had fallen from a
1929 high of 210 to a low of 30. Stocks were valued at just 12 percent of what they had been
worth in September 1929. Altogether, between September 1929 and June 1932, the nation's stock
exchanges lost $179 billion in value.

The great stock market crash of October 1929 brought the economic prosperity of the 1920s to a
symbolic end. For the next ten years, the United States was mired in a deep economic
depression. By 1933, unemployment had soared to 25 percent, up from just 3.2 percent in 1929.
Industrial production declined by 50 percent. In 1929 before the crash, investment in the U.S.
economy totaled $16 billion. By 1933, the figure had fallen to $340 million--a decrease of 98

President Hoover
When President Herbert Hoover took office, the unemployment rate was 4.4 percent. When he
left office, it was 23.6 percent.

The Great Depression and the New Deal 1

The Great Depression and the New Deal
Hoovers efforts in providing relief during and after World War I saved millions of Europeans,
including Germans and Russians, from starvation and made him an international hero. Yet little
more than a decade later, many of his own countrymen regarded him as a heartless brute who
would provide federal aid for banks but not for hungry Americans.

Hoover was a proponent of "rugged individualism." But he also said, "The trouble with
capitalism is capitalists; they're too damn greedy."

Born into a hardworking Quaker family in Iowa, Hoover was orphaned before he was ten years
old and was sent west to live with relatives. He was admitted to the first class at Stanford
University, mainly because the new institution needed students. He rose quickly from mine
worker to engineer and entrepreneur. He was worth $4 million by the age of 40, and then devoted
himself to public service. He was elected president at the age of 54.

In the speech that closed his successful 1928 presidential campaign, Hoover, a self-made
millionaire, expressed his view that the American system was based on "rugged individualism"
and "self-reliance." Government, which had assumed unprecedented economic powers during
World War I, should, in his view, shrink back to its prewar size and avoid intervening with

During the early days of the Great Depression, Hoover launched the largest public works
projects. Yet, he continued to believe that problems of poverty and unemployment were best left
to "voluntary organization and community service." He feared that federal relief programs would
undermine individual character by making recipients dependent on the government. He did not
recognize that the sheer size of the nation's economic problems had made the concept of "rugged
individualism" meaningless.

The president appealed to industry to keep wages high in order to maintain consumer purchasing
power. Nevertheless, while businesses did maintain wages for skilled workers, it cut hours and
wages for unskilled workers and installed restrictive hiring practices that made it more difficult
for under qualified younger and older workers to get a job. By April 1, 1933, U.S. Steel did not
have a single full-time employee.

Many Republicans believed that a protective tariff would rescue the economy by keeping out
foreign goods. The Smoot-Hawley tariff, signed by Hoover in 1930, raised rates but provoked
retaliation from Britain, Canada, France, Germany, and other traditional trading partners. The
United States found it much more difficult to export its products overseas.

Hoover persuaded local and state governments to sharply increase public works spending.
However, the practical effect was to exhaust state and local financial reserves, which led
government, by 1933, to slash unemployment relief programs and to impose sales taxes to cover
their deficits.

Hoover quickly developed a reputation as uncaring. He cut unemployment figures that reached
his desk, eliminating those he thought were only temporarily jobless and not seriously looking
for work. In June 1930, a delegation came to see him to request a federal public works program.

The Great Depression and the New Deal 2

The Great Depression and the New Deal
Hoover responded to them by saying, "Gentlemen, you have come sixty days too late. The
Depression is over." He insisted that "nobody is actually starving" and that "the hoboes...are
better fed than they have ever been." He claimed that the vendors selling apples on street corners
had "left their jobs for the more profitable one of selling apples."

By 1932, comedians told the story of Hoover asking the treasury secretary for a nickel so he
could call a friend. Mellon replies, "Here, take a dime and call all your friends."

Hoover was a stubborn man who found it difficult to respond to the problems posed by the
Depression. "There are some principles that cannot be compromised," Hoover remarked in 1936.
"Either we shall have a society based upon ordered liberty and the initiative of the individual, or
we shall have a planned society that means dictation no matter what you call it.... There is no
half-way ground." He was convinced that the economy would fix itself.

Only toward the end of his term in office did he recognize that the Depression called for
unprecedented governmental action. In 1932, he created the Reconstruction Finance Corporation
(RFC) to help save the banking and railroad systems. Loans offered under the program funded
public works projects and the first federally-supported housing projects. Originally intended to
combat the Depression, the RFC lasted 21 years and was authorized to finance public works
projects, provide loans to farmers and victims of natural disasters, and assist school districts.
When it was abolished in 1953, it had dispersed $40.6 billion. Its functions were taken over by
the Small Business Administration, the Commodity Credit Corporation, and other housing,
community development, and agricultural assistance programs.

Herbert Hoover was not an insensitive man. He was the first president since Theodore Roosevelt
to invite African American dinner guests to the White House. He said that the use of atomic
bombs against Japan "revolts my soul." He played a key role in launching the United Nation's
Children's Emergency Fund (UNICEF) and CARE. Despite his staunch anti-communism stand,
he opposed U.S. involvement in Korea and Vietnam.

Nevertheless, his reputation was forever clouded by the Depression. A dam that was to carry
Hoover's name was rechristened Boulder Dam. Washington's airfield, which was to be named for
Hoover, was renamed National Airport.

The Bonus Army

The Bonus Army incident that took place in the summer of 1932 virtually assured Roosevelt's
election. By then, the unemployment rate had reached 23.6 percent. Over 12 million were jobless
(out of a labor force of 51 million).

Some 20,000 World War I veterans and their families marched on Washington. Their purpose
was to pressure Congress into voting for immediate payment of a veterans bonus earmarked for
1945. The proposal was to pay veterans $1 for each day served in the United States and $1.25 for
every day overseas. The Democratic-controlled House approved the measure, but the Republican
Senate refused. Meanwhile, thousands of veterans jammed the Capitol grounds.

The Great Depression and the New Deal 3

The Great Depression and the New Deal
On June 7, as 100,000 watched, some 8,000 veterans marched down Pennsylvania Avenue. By
mid-July, the White House was "guarded from veterans" by "the greatest massing of policemen
seen in Washington since the race riot after the World War."

District of Columbia officials, under White House pressure, ordered the Bonus Army's camps
evacuated. A skirmish turned into a riot; two police officers and two veterans were killed.
President Hoover called on the Army to "put an end to rioting and defiance of authority."

The Third Cavalry advanced on the veterans, followed by infantry with fixed bayonets, a
machine gun detachment, troops with tear gas canisters, and six midget tanks. The camps were
burned. The flames and smoke from the torched shack burned near the Capitol dome. Chief of
Staff Douglas MacArthur claimed the "mob" had been "animated by the essence of revolution."

Although Hoover was appalled by what happened, he publicly accepted the responsibility and
endorsed MacArthur's charge that the bonus marchers included dangerous radicals who wanted
to overthrow the government. Most Americans felt outraged by the government's harsh treatment
of the Bonus Army, and Hoover encountered resentment everywhere he campaigned.

Upon learning of the Bonus Army incident, Franklin D. Roosevelt remarked: "Well, this will
elect me." Roosevelt was correct; he buried Hoover in November, winning 22,809,638 votes to
Hoover's 15,758,901 votes, and 472 to 59 electoral votes. In addition, the Democrats won
commanding majorities in both houses of Congress.

In June 1932, Franklin D. Roosevelt received the Democratic presidential nomination. At first
glance, he did not look like a man who could relate to other peoples' suffering--Roosevelt had
spent his entire life in the lap of luxury. No fewer than 16 of his ancestors had come over on the
Mayflower. A fifth cousin of Teddy Roosevelt, he was born in 1882 to one of New York's
wealthiest families. Roosevelt enjoyed a privileged youth. He attended Groton, an exclusive
private school, and then went to Harvard University and Columbia Law School. After three years
in the New York state senate, Roosevelt was tapped by President Wilson to serve as assistant
secretary of the Navy in 1913. His status as the rising star of the Democratic Party was
confirmed when James Cox chose Roosevelt as his running mate in the presidential election of

The Election of 1932

Handsome and outgoing, Roosevelt seemed to have a bright political future. Then disaster struck.
In 1921, he was stricken with polio. The disease left him paralyzed from the waist down and
confined to a wheelchair for the rest of his life. Instead of retiring, however, Roosevelt labored
diligently to return to public life. "If you had spent two years in bed trying to wiggle your toe,"
he later declared, "after that anything would seem easy."

Buoyed by an exuberant optimism and devoted political allies, Roosevelt won the governorship
of New York in 1928--one of the few Democrats to survive the Republican landslide.
Surrounding himself with able advisors, Roosevelt labored to convert New York into a laboratory

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The Great Depression and the New Deal
for reform, involving conservation, old-age pensions, public works projects, and unemployment

In his acceptance speech before the Democratic convention in Chicago, Roosevelt promised "a
New Deal for the American people." Although his speech contained few concrete proposals,
Roosevelt radiated confidence, giving many desperate voters hope. He even managed during the
campaign to turn his lack of a blueprint into an asset, offering instead a policy of
experimentation. "It is common sense to take a method and try it," he declared, "if it fails, admit
it frankly and try another."

The First 100 Days

The nation's plight on March 4, 1933, the day Franklin Roosevelt assumed the presidency, was
desperate. A quarter of the nation's workforce was jobless. A quarter million families had
defaulted on their mortgages the previous year. During the winter of 1932 and 1933, some 1.2
million Americans were homeless. Scores of shantytowns (called Hoovervilles) sprouted up.

Since 1929, about 9,000 banks, holding the savings of 27 million families, had failed. Of those
bank failings, 1,456 folded in 1932 alone. Farm foreclosures were averaging 20,000 a month.
The public was desperate for action. Hamilton Fish, a conservative Republican congressman,
promised the president that Congress would "give you any power that you need."

A month before taking office, Giuseppe Zangara, a mentally ill bricklayer, tried to assassinate the
president-elect in Miami. Chicago's mayor was killed, but Roosevelt miraculously escaped
injury. In his inaugural address, Roosevelt expressed confidence that his administration could
end the Depression. "The only thing we have to fear," he declared, "is fear itself."

In Roosevelts first hundred days in office, he pushed 15 major bills through Congress. The bills
would reshape every aspect of the economy, from banking and industry to agriculture and social
welfare. The president promised decisive action. He called Congress into special session and
demanded "broad executive power to wage a war against the emergency, as great as the power
that would be given me if we were in fact invaded by a foreign foe."

Roosevelt attacked the bank crisis first. He declared a national bank holiday, which closed all
banks. In just four days, his aides drafted the Emergency Banking Relief Act, which permitted
solvent banks to reopen under government supervision, and allowed the RFC to buy the stock of
troubled banks and to keep them open until they could be reorganized. The law also gave the
president broad powers over the Federal Reserve System. The law radically reshaped the nation's
banking system; Congress passed the law in just eight hours.

Roosevelt appealed directly to the people to generate support for his program. On March 12, he
conducted the first of many radio "fireside chats." Using the radio in the way later presidents
exploited television, he explained what he had done in plain, simple terms and told the public to
have "confidence and courage." When the banks reopened the following day, people
demonstrated their faith by making more deposits than withdrawals. One of Roosevelt's key
advisors did not exaggerate when he later boasted, "Capitalism was saved in eight days."

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The Great Depression and the New Deal
The president quickly pushed ahead on other fronts. The Federal Emergency Relief Act pumped
$500 million into state-run welfare programs. The Homeowners Loan Act provided the first
federal mortgage financing and loan guarantees. By the end of Roosevelt's first term, the
Homeowners Loan Act provided more than 1 million loans totaling $3 billion. The Glass-
Steagall Act provided a federal guarantee of all bank deposits under $5,000, separated
commercial and investment banking, and strengthened the Federal Reserve's ability to stabilize
the economy.

In addition, Roosevelt took the nation off the gold standard, devalued the dollar, and ordered the
Federal Reserve System to ease credit. Other important laws passed during the 100 days included
the Agricultural Adjustment Act--the nation's first system of agricultural price and production
supports; the National Industrial Recovery Act--the first major attempt to plan and regulate the
economy; and the Tennessee Valley Authority Act--the first direct government involvement in
energy production.

New Dealers
Franklin Roosevelt brought a new breed of government officials to Washington. Previously, most
government administrators were wealthy patricians, businessmen, or political loyalists.
Roosevelt, however, looked to new sources of talent, bringing to Washington a team of Ivy
League intellectuals and New York State social workers. Known as the "brain trust," these
advisors provided Roosevelt with economic ideas and oratorical ammunition.

The New Dealers were strongly influenced by the Progressive reformers of the early 20th
century, who believed that government had not only a right but a duty to intervene in all aspects
of economic life in order to improve the quality of American life. In one significant respect,
however, the New Dealers differed decisively from the Progressives. Progressive reform had a
strong moral dimension; many reformers wanted to curb drinking, eliminate what they
considered immoral sexual behavior, and reshape human character. In comparison, the New
Dealers were much more pragmatic--an attitude vividly illustrated by an incident that took place
during World War I. One of the most intense policy debates during the war was whether to
provide American troops with condoms. The Secretary of the Navy Josephus Daniels rejected the
idea, fearing that it would corrupt the troops' morals:

It is wicked to seem to encourage and approve placing in the hands of the men an appliance
which will lead them to think they may indulge in practices which are not sanctioned by
While Daniels was on vacation, however, Franklin Roosevelt authorized prophylactics for
sailors. Pragmatism, not moral reform, would be a key New Deal theme.

Apart from their commitment to pragmatism, the New Dealers were unified in their rejection of
laissez-faire orthodoxy--the idea that federal government's responsibilities were confined to
balancing the federal budgets and providing for the nation's defense. The New Dealers did,
however, disagree profoundly about the best way to end the Depression. They offered three
alternative prescriptions for rescuing the nation's economy. The "trust-busters," led by Thurman
Arnold, called for vigorous enforcement of anti-trust laws to break-up concentrated business
power. The "associationalists" wanted to encourage cooperation between business, labor, and

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The Great Depression and the New Deal
government by establishing associations and codes supported by the three parties. The
"economic planners," led by Rexford Tugwell, Adolph Berle, and Gardiner Means, wanted to
create a system of centralized national planning.

Roosevelt never aligned himself with any of these factions. He summed up his pragmatic
attitude: "Take a method and try it," he said, "if it fails admit it frankly and try another. But above
all try something."

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