NCWW - The Great Depression (Lesson)
The Great Depression
The Perfect Storm: The Convergence of Overproduction and Under-consumption
During the 1920s, the wealthy grew wealthier due in large measure to government fiscal policies that allowed them to keep more of their money and reduced business regulations. These reduced regulations and low corporate taxes increased the profits of corporations and made their stocks more valuable. At the same time, the poor and working classes lost the ability to buy products because their wages stayed the same while prices rose. This reduction in consumer consumption resulted in business overproduction and eventually caused business profits to decline. These factors were an important cause of the Great Depression.
New methods of buying products, including the installment plan and buying on credit, became popular during the 1920s. These methods encouraged consumers to buy more than they could afford and to go into debt. Worst of all, banks loaned people money to buy stock with very little money down. The stocks themselves became the collateral for the loan. This was called buying on margin. Rising stock prices and the ability of ordinary people to buy stock on credit increased investment in the stock market and inflated the price of stocks above their actual value. Then, by October 1929, the U.S. economy was beginning to show signs of slowing down. Stockholders feared the economy was ending a period of prosperity and entering a period of recession. This caused some investors to panic and sell their stocks. As more people sold their stock, other people panicked and sold their stock as well, driving down their prices and causing a stock market crash.
In turn, the stock market crash triggered other economic weaknesses and plunged the United States into the Great Depression - a severe economic recession in the 1930s that affected all the world's industrialized nations and the countries that exported raw materials to them. Industry, trade, construction, mining, logging, and farming decreased sharply. Business profits, tax revenues, and personal incomes did, too.
Widespread Unemployment
As profits fell and it became clear consumers would need to reduce spending, workers began to lose their jobs. By 1932 the unemployment rate in the United States had reached 25%. Unemployed workers who had no savings could not pay their debts, and many lost their homes. Homeless and unemployed people settled in camps of shacks and tents in rundown areas.
These camps became known as Hoovervilles, named after Herbert Hoover, the U.S. president when the Depression started, as a way of taking a jab at Hoover’s lack of action to mitigate the severity of the economic depression.
Hooverville residents slept in packing crates if they were lucky; if not, they slept on the ground. These same people used folded newspapers for blankets to keep war---and they called them “Hoover blankets.”
They begged for food from people who still had jobs and housing. People in urban areas flocked to soup kitchens to keep from starving, and in a way, people in rural areas were more fortunate than city dwellers because at least people in rural areas could grow their own food.
View the presentation on the Great Depression below.
The Dust Bowl
New machinery and improved farming techniques had made U.S. farmers very productive through the last half of the 19th century and the early years of the 20th century.
By producing more food each year, farmers thought they could earn more money. Instead, this overproduction helped drive down the prices of their products and made it harder for them to make a profit. In response, farmers tried producing even more food by taking out more loans to buy more land and farm equipment. As a result, most farmers were very vulnerable to economic and environmental disasters when banks started foreclosing on farms owned by farmers unable to repay their loans.
Additionally, farmers had been encouraged to cultivate increasingly large areas of land to feed Europeans and troops during World War I---this large-scale cultivation required the removal of centuries of growth of prairie grasses on the Great Plains. And then there was a drought and no root systems to hold the topsoil in place when the winds came.
To make matters worse, the Great Plains states were experiencing a severe drought. When a series of severe dust storms hit the prairies, they picked up the dirt loosened by the drought and the poor farming practices that had eroded the soil.
This ecological disaster was called the Dust Bowl. Dry conditions and high winds made farming impossible. Tenant farmers and sharecroppers were among the hardest hit as their landlords evicted them and sold the land. Over 500,000 Americans were left homeless. Many farmers from Oklahoma, Texas, and the surrounding Dust Bowl states migrated to California in search of work. (These migrant workers were known as “Okies” since many of them hailed from Oklahoma.)
Look through the photographs of The Great Depression using the arrows at the bottom of the presentations below.
In the 1930s, photographer Dorothea Lange ventured to Oklahoma and took pictures of Americans living in the Dust Bowl. The resulting images are a visual story of life during the Great Depression. Use the arrows below to scroll through the images.
The New Deal (The First New Deal-1933-1935)
Putting People to Work
In 1932 Franklin D. Roosevelt (FDR) was elected to the Presidency. Once he took office in 1933, FDR began an ambitious program to combat the Great Depression known as the New Deal. One of Roosevelt's major New Deal programs was the Tennessee Valley Authority (TVA). This was established in 1933 to build dams and power plants along the Tennessee River and its tributaries. Tennessee Valley itself runs through seven states, so the project was very large. The TVA built dozens of dams to control the environment by preventing disastrous floods. Each dam had its own power plants, parks, and navigation aids, and their construction created hundreds of jobs for unemployed workers. View this chart that summarizes major New Deal programs. Links to an external site.
Second New Deal (1935-1939)
The Second New Deal refers to the programs President Roosevelt instituted after his original New Deal failed to completely fix the American economy. The National Labor Relations Act, better known as the Wagner Act, was one of the first reforms of Roosevelt's Second New Deal. This law established collective bargaining rights for workers and prohibited such unfair labor practices as intimidating workers, attempting to keep workers from organizing unions, and firing union members. The law also set up a government agency where workers could testify about unfair labor practices and hold elections to decide whether or not to unionize.
After the passage of the Wagner Act, industrial workers began to unionize. The American Federation of Labor (AFL) was hesitant to organize industrial unionism because it was committed to craft-based workers such as carpenters and railroad engineers. As a consequence, the Congress of Industrial Organizations (CIO) was created to represent industrial workers who felt they were not being represented by the AFL. The AFL and CIO clashed on and off before merging in 1955 to become the AFL-CIO that exists today.
One of the most important actions of the Second New Deal was the Social Security Act, which was passed in 1935. This law consisted of three programs:
- Old-age insurance for retirees aged 65 or older and their spouses, paid half by the employee and half by the employer.
- Unemployment compensation paid by a federal tax on employers and administered by the states.
- Aid for the disabled and for families with dependent children paid by the federal government and administered by the states.
Another key program of the Second New Deal was the Works Progress Administration (WPA). The WPA provided work projects for both blue-collar and white-collar workers. View the presentation on the WPA below.
Learn more about New Deal programs in the activity below.
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