NEW DEAL AMERICA1929-1939

Chapter 23

HISTORICAL CONTEXT

Republican Resurgence & Decline

Harding and the Ohio Gang

Andrew Mellon and Trickle Down Economics

Mellon’s Treasury Policies

■ Mellon: Secretary of the Treasury (1920-1932-Harding, Coolege and Hoover administrations; 3rd richest man in U.S.)

– 1920’s Reduced government spending

– Lowered taxes (from 65% before 1921 to 20% in 1926

– Repealed the wartime excess profits tax

– Revenue Act of 1926

■ Lowered estate taxes

■ Repealed the gift tax

Harding-Mellon Domestic Policies

■ High Tarriffs on imported goods

– Fordney-McCumber Tariff of 1922 increased rates on chemical and metal products to prevent revival of German chemical and steel industries

– Increased tariffs on imported agricultural products

■ Regulatory reform

– Appointed industry insiders to regulatory agencies to ensure regulatory policies friendly to business

■ Lax Regulation and excess investment speculation by the rich and banking institutions led to the financial collapse that resulted in the Great Depression

■ Anti-lynching bill

– Defeated in Senate

Supply Side Economics

■ Macroeconomic Theory: Economic growth most effectively created by lowering barriers for people to produce (supply) goods and services.

– Policy: lower taxes and less regulation

■ Theory: a state of general equilibrium exists in the economy: because the needs of consumers are always greater than the capacity of the producers to satisfy those needs, everything that is produced will eventually be consumed once the appropriate price is found for it.

■ individuals produce so that they can either consume what they have manufactured or sell their output so that they can buy someone else's output.

Keynesian Economics

■ a greater awareness of structural inadequacies:

– unemployment, is not a result of moral deficiencies like laziness, but from imbalances in demand or whether the economy was expanding or contracting.

– because there was no guarantee that the goods that individuals produce would be met with demand, unemployment was a natural consequence especially in the instance of an economy undergoing contraction.

– government spending can be used to increase aggregate demand, thus increasing economic activity, reducing unemployment and deflation.

Isolationism in Foreign Affairs

■ War Debts and Reparations

– Repayment of war loans from U.S. to allies were contingent on reparations from Germany to the allies.

– Germany could not afford the reparations.

– U.S. began making loans to Germany to pay reparations to the allies

– Paradoxical Foreign & Domestic Policies

■ Payment of war debt from allies

■ Allies can’t pay war debt by selling goods to U.S. because of high tariff on imports

Isolationism in Foreign Affairs

■ The World Court

– 15 international judges to arbitrate disputes between nations

– U.S. refused to join the World Court

■ Improving Relations in Latin America

– Reversal of Wilsonian diplomacy

■ Recognized the government in power, regardless of how it got there

The Harding Scandals

■ Administrative Corruption

– Tea Pot Dome scandal

■ Government owned oil deposit administered by the Interior Department

■ Secretary of the Interior Albert Fall let private companies exploit the oil in exchange for bribes

– Harding died in office August 2, 1923

■ “Silent Cal”

– Calvin Coolidge

■ Presidency should return to post-imperialistic ways introduced by Teddy Roosevelt, “speak softly & carry a big stick.”

The Coolidge Conservatism

■ Pro-Business Conservatism

– Coolidge, “The chief business of the American people is business.” Businesses =best entities to regulate business

■ The Election of 1924

– Calvin Coolidge (R) vs. John W. Davis (D) and Robert La Follett (P)

The New Era

■ Stabilizing the Economy

– Herbert Hoover led the Commerce Department, the most active agency in the Federal Government.

– Encouraged trade associations to stabilize the market by promoting voluntary cooperation in sharing information and promote standardization and efficiency

■ The Business of Farming

– Agriculture- weakest section of economy in 1920’s

– Wartime boom: 1914-1920 sales of agricultural products abroad.

– Speculation in farmland and increased debt to acquire new land

Farming Bubble Bursts

■ 1920: Commodity prices collapsed as European agriculture returned to pre-war levels

■ Overproduction=lower crop prices

■ 18 months:

– wheat $2.50/bushel to less than $1/bushel

– Cotton $0.35/pound to $0.13/pound

– 1926 bumper cotton crop caused collapse of prices (South tasted Great Depression)

– Paradox of efficiency, technology and crop prices

■ McNary-Haugen bill

– “equality for agriculture in benefits of protective tariff”

– Surplus American crops to be sold on world market

– passed twice in Congress—vetoed twice by Coolidge

Charles McNary (R, Oregon )Gilbert Haugen (R, Iowa)

Hoover, Coolidge and Moral Hazard

■ Hoover opposed McNary Haugen Bill it in favor of Hoover Plan

– Efficiency, electricity, diversity, production reduction and cooperative associations

– Keep tariff on imports high

■ Basis for Opposition to McNary-Haugen Bill

– Big business leaders opposed it

– Involved government regulation in business of farming

– Cause farmers to become dependent on government regulation and destroyed self reliance

The New Era

■ Setbacks for Unions

– Unions weakened by Red Scare

– In 1929 membership dropped by 1.5 million

– The American Plan

– “Yellow Dog” contracts

– “Welfare Capitalism” profit sharing, bonuses, pensions, health programs

Coolidge decides not to run in 1928

■ Summer 1927: while vacationing in the Black Hills of South Dakota, Calvin Coolidge announced, “I do not choose to run for President in 1928. If I take another term I will be in the White House until 1933…10 years in Washington is longer than any man has had it—too long!”

Republican Convention of 1928

■ Coolidge chose not to endorse a candidate.

– Regarding Hoover: “For six years that man has given me unsolicited advice—all of it bad”

– Nomination of Dawes as Vice President would be “a personal affront”

■ Herbert Hoover won the nomination for Republicans

Election of 1928

Herbert C. Hoover (R) 444 21,391,381Alfred E. Smith (D) 87 15,016,443

Hoover Acceptance Speech

■ We in America today are nearer to the final triumph over poverty than ever before in the history of this land... We shall soon with the help of God be in sight of the day when poverty will be banished from this land.”

October 29, 1929

The Great Depression

Smoot –Hawley Tariff

■ Passed in 1930

■ Authored by Republican protectionist advocates in Congress, Representatives, Willis C. Hawley and Reed Owen Smoot

– Initially intended to protect farmers by reducing farm imports from overseas

– Corporate lobbyists convinced Congress to add hundreds of items

– Hawley-Smoot Tariff actually raised prices on most raw materials and consumer products

– Other countries retaliated against goods from the U.S. causing exports to plummet

– Depression deepened

Smoot and Hawley in 1929

Smoot-Hawley Tariff

• May 1930: 1,200 economists signed a petition against the tariff

• Henry Ford went to the White House to beg Hoover to veto the tariff

• J.P. Morgan CEO “I almost went down on my knees to beg Hoover to veto the ‘asinine’ tariff.”

• Tariff taxed 3,200 products at a rate of 60%

U.S. Imports decreased 66% from 4.4 billion in 1929 to 1.9 billion in 1933.Steep reduction in imports had a negative effect on banks already weakened by the stock market crash.

Structural Problems with the Stock Market

■ Speculation in stocks had replaced speculation in real estate prior to 1929

■ Buying stock “On Margin”

■ Banks and Brokers

– Margin calls and stock value

– Domino effect on banks when stock speculators could not pay margin calls

Structural Flaws in Broader Economy

■ High prices, low wages and mounting consumer debt

■ Mellon’s financial policies did not trickle down to consumers

■ 1/3 of personal income was held by the top 5% of the population

■ Profits invested in business expansion and speculation while wages did not rise

■ Consumer spending declined

■ Investment in new factories and businesses plummeted

■ Small businesses and consumers increased borrowing

■ Result was weakened businesses, weakened consumers and weak banks

Gold Standard

■ Value of paper currency tagged to size of national gold reserves

– Money supply shrinks or falls depending on amount of gold in a national treasury

– When economic output, prices and savings began to fall in 1929, Hoover administration and Mellon tightened the money supply

– Mellon, “purge the rottenness out of the system”

■ From 1929 to 1933, 40% of American banks disappeared and millions of Americans lost their entire savings (FDIC did not yet exist).

■ Defaults and bank failures fed deflation

■ Nation’s money supply shrank by 1/3

■ 1936 U.S. along with 36 other nations abandoned the gold standard

– Money supply expanded, leading to economic growth

President Hoover, the Engineer

■ The Human Toll of the Depression

– By 1933, 13 million people were out of work

– People with jobs worked fewer hours

– Soup Kitchens run by local charities depended on donations

■ Hoover’s Efforts at Recovery

– Too little too late

– Government funds for construction projects to local governments who had no tax revenue

– Local and state agencies cut back on employees

Global Concerns

■ Japan Invades China

– 1931 explosion destroyed a section of railway in Manchuria

– Japanese investors demanded recourse by Japanese government

– Japan invaded Manchuria to protect its investment

■ Japanese invasion rendered the post WWI treaties moot.

– Neither the League of Nations nor the United States responded to China’s please for assistance.

– Japan withdrew from the League of Nations in response to a resolution condemning Japan’s invasion.

■ Stresses and Strains at home mean Japan’s invasion of Manchuria is not an issue for American people.

Presidential Election of 1932

Roosevelt/ Garner (D) E.C. 472, Popular Vote: 22,818,740 57.4; 57.4Hoover/Curtis (R) E.C. 59, Popular Vote : 1 15,760,425 39.6; % 39.6

1932 Inaugural Address

https://www.youtube.com/watch?v=TvRDf0XhmCc

Questions

■ What is the biggest issue to conquer?

■ How does Roosevelt describe “fear”

■ Why would “fear” be a topic of a Presidential inaugural address?

■ What does the President suggest America needs?

■ Who or what does the President blame for the depression?

■ What action does he urge Americans to take?

The Galloping Snail, Detroit News, March, 1933

New Deal America

■ Relief Measures

– Hoover opposed any direct federal assistance to individual Americans in need.

– Roosevelt bypassed states to directly aid individual Americans.

■ Civilian Conservation Corps: jobs for unmarried men 18-25

■ Plant trees, construction projects

■ Work = pay; directed by army officers; semi-military discipline

■ Like Hoover, he hoped to avoid creating a generation on the “dole”

Regulatory Efforts

■ Agricultural Assistance

– Agricultural Adjustment Act of 1933

■ Sought to raise prices by paying farmers and ranchers to reduce production

■ Reviving Industrial Growth

– National Industrial Recovery Act

■ Public Works Administration built buildings, roads and flood control systems, greatly improving infrastructure

■ National Recovery Administration: standardize wages and prices

Regulatory Efforts

■ Regional Planning

– Tennessee Valley Authority

■ Electrical power and jobs

■ Dams/cheap electricity/electric power lines to rural homesteads

The Dust Bowl

Causes of the Dust Bowl

■ Irresponsible use of technology

– Technological advances in farm equipment sold to farmers to increase acreage and yield

– Between 1925 and 1930 more than 5 million acres of previously unused farmland was plowed

■ Failure to recognize the natural ecology of the land

– Tall prairie grasses necessary to combat erosion

– As grasses were destroyed to make way for wheat fields, natural balance of the land was also destroyed

– Wheat and cleared fields enabled erosion of topsoil as drought increased

■ War & Market failures

– Wheat was overproduced by American farmers to make up for underproduction in Europe

– As wheat prices plummeted during the early years of the Great Depression farmers planted more wheat hoping that quantity would compensate for low prices

■ Climate Change

– Increased temperatures

– Drought

– Dust Storms increased from 14 in 1932 to 40 in 1933

http://town.hall.org/radio/HarperAudio/021694_harp_ITH.html

Minorities and the New Deal

– African Americans

– FDR’s New Deal did not address longstanding patterns of racism and segregation in the South

■ FDR feared that to do so would alienate Southern Democratic congressmen

– Agricultural Adjustment Act

■ African American tenant farmers hurt when AAA required farmland to go fallow because white landowners targeted farmland leased by African Americans to be plowed under first.

– FHA refused to guarantee mortgages purchased by African Americans in white neighborhoods

– Mexican immigrants & Hispanic Americans

■ CA, NM, CO, TX, AZ and many Midwestern states

■ Hispanic people required to prove citizenship and denied New Deal benefits when they could not do so

■ Hispanics deported: 500,000 Mexican parents and American-born children deported by 1935 (Texas: 250,000)

– Native Americans

■ Indian Reorganization Act

– Permitted Native American tribes to revise constitutions

– Restored some land lost in the Dawes Act

– Women could vote and hold office

Court Cases and Civil Rights Laws

■ Grovey v. Townsend (1935) upheld the Texas Democrats white primaries

■ “Scottsboro Boys” trials (1931 – 1937)

– Last defendant left Alabama in 1943

– “Let justice be done, though the heavens may fall."

– Effective assistance of counsel

– Questions of “white” only juries

– Who should be tried as an adult

– Right to a speedy trial

– Questioning victims of rape

Culture in the Thirties

■ Literature and the Depression

– The Grapes of Wrath

■ Popular Culture

– Mass communication

■ Roosevelt’s fireside chats

■ Newsreels

– Movies

■ Westerns

■ Shirley Temple

■ Marx Brothers

■ Musicals

The Second New Deal

■ Supreme Court Opposition

– Many New Deal programs ruled unconstitutional

– “Nine Old Men”

– “Packing” the Court

■ The Second New Deal (1935–1936)

– Works Progress Administration replaced Federal Emergency Relief Administration

– Wagner Act (Fair Labor Standards Act)

– Social Security

Wagner Act

■ Prohibited employers from interfering with union activities

■ Workers permitted to bargain through Union chosen by workers

■ Required a minimum wage

Social Security Act of 1935■ Stipend paid to aged, disabled, widows

■ Payroll tax on employees and a matching payroll tax on employers

Revenue Act of 1935

■ Wealth Tax

– Raised income taxes on persons making more than $50,000 ($50,000 in today’s dollars would be $847, 457.63

– Progressive tax could tax up to 75% of income of $5,000,000. ($84,745,762.71 today).

■ “Soak the Rich” tax

– Rich people were against it

■ Inflation Calculator http://inflationdata.com/Inflation/Inflation_Calculators/Inflation_Rate_Calculator.asp

1936 Election

FDR (D) E.C. 523 Popular Vote : 27,752,648 (60.8%)Alfred Landon (R) E.C. 8 Popular Vote: 16,681,862 (36.5%)

Roosevelt’s Second Term

■ A New Direction for Unions

– Union membership soared

■ A Slumping Economy

– To slow economic growth and minimize inflation FDR cut government spending on social programs

– Stock Market slumped

– 4 million workers laid off

Grumbling Among Southern Democrats

■ FDR had courted African American voters to help win election of 1936

■ Southern Democrats opposed any attempts to reform segregation or encourage social equality

■ Southern Democrats stayed home in the midterm elections of 1938 and Republicans took control of the House of Representatives

■ Dissatisfaction among Southern Democrats would erupt during Lyndon B. Johnson’s administration with the Equal Employment Act and the Voting Rights Act

■ Richard Nixon would use the “Southern Strategy” of luring Southern Democrats to the Republican party in his successful election campaigns in 1968 and 1972