Unit II
The Not-So-Roaring Twenties, the Great Depression,
and a "New Deal" for Americans

Discussion Goals:

  1. To understand that the 1920s was a decade of sharp contrasts.
  2. To examine the economic realities of the 1920s and the consequences of ignoring economic warning signs.
  3. To understand President Hoover's response to the Great Depression
  4. To trace the rising power of the federal government through the goals and accomplishments of Franklin Delano's Roosevelt's New Deal
  5. To undertake a more indepth analysis of three of the most important acts of the Federal government during the New Deal: the Social Security Act, the Glass-Stegall Act, and the 1937 U.S. Supreme Court decision about contract of liberty.

Discussion Goal #1: To understand that the 1920s was a decade of sharp contrasts.
  1. It was an age, on the one hand, of expanding freedom while on the other hand, it was an age when freedom was dramatically restricted:

Flapper PhotographExpanding freedom: women got out of their corsets, Americans danced in new ways to exciting new music, people created thousands of inventions , Harlem experienced a cultural renaissance, gays and lesbians tentatively moved out of the closet, and the automobile caught Americans by storm.

    Restricting freedom: the KKK terrorized African Americans and those not believed to be 100% American, alcohol consumption and purchase was prohibited, immigration was dramatically restricted. KKK Crossburning

 

 

 

 

2. It was also an age of consumer consumption of new products versus an age of excess.

3. It was a period of increasing corporate profit and prosperiety for skilled worker versus decreasing prosperity for farmers and unskilled workers.Ford advertisement

And this age of contrasts - and all it brought with it - changed American society. The effects of the automobile on American lives demonstrates such changes. The popularity of the automobile in the 1920s:Photo of car on assembly line


Discussion Goal #2: To examine the economic realities of the 1920s and the consequences of ignoring economic warning signs

  1. Easily-available credit. For the first time, Americans in the 1920s became enamored with the stock market as a possible road to riches. Speculation ran rampant. Newspaper buy stock
    • What is speculation? Buying stock with the expectation of selling it at a higher price.
    • By 1929, 10% of the American population - 4 million people - owned stock.
    • Many bought on the margin - they would purchase a $100 share of stock with as little as $10 down and the remaining $90 would be owed to the stock broker - on the margin. If the stock advanced to $150, then the investor could pay the broker, plus have a profit. But if the stock fell to $50, the investor still owed $90 to the broker.
    • Many Americans also speculated in real estate. By 1923, Florida had become the playground of the nation's elite. By 1924, land in Florida was increasingly accessible to middle class Americans. Many began to buy acres of overpriced land hoping to resell at large profits.
  2. Little government regulation of the economy due to the belief that voluntary cooperation among competing groups and interests could foster economic and social progress, as well as international peace. This was especially true for President Hoover who believed that once government stepped into the lives of ordinary Americans to directly solve society's problems, the people gave up their freedom and the government then became the problem - the government should help but not solve problems.
  3. Slowing American economy. Both the American public and policy-makers failed to recognize the signs of economic weakness. Prosperity was dependent upon the rise of a few major industries - automobile, construction, and consumer goods. These boomed throughout most of 1920s, but began to show signs of weakness due to overproduction toward end of the decade.
  4. Unequal distribution of income. The gap between the wealthy and the poor substantially widened. There were 513 families with annual incomes exceeding $1 million, but over 70% of all families lived on less than $2,500 a year.
    • Upper and middle classes experienced prosperity
    • The poor, minorities, and those living in rural areas enjoyed no increases in wages or savings - but they did experience increases in prices. For these people who spent every penny of what they earned, any change in credit policy or wages could spell disaster.

The consequences of ignoring these economic realities Depression Era photograph

  1. October 1929 Wall Street Crash - http://www.youtube.com/watch?v=RJpLMvgUXe8&feature=related
  2. October 1929-1933 - Beginning of the Great Depression
    • 90,000 businesses failed.
    • 9,000 banks closed and depositors lost $2.5 billion.
    • Expenditures for goods decreased by 45%.
    • Unemployment rose from 3% to 25% - with 13 million out of work.
    • Workers incomes dropped 40% - average annual incomes dropped 35%, from $2,300 to $1,500
    • In their desire to endure, men and women were willing to work for almost nothing.
    • People not only lost their jobs, they also lost their houses and apartments.
    • Family structures were strained and sometimes shattered.
    • Thousands of youths became homeless - Riding the Rails at http://www.pbs.org/wgbh/amex/rails/filmmore/index.html
    • People were hungry, many suffered from malnutrition, and some starved to death.
    • Some people who began to search for explanations for their miser turned to racism and racial stereotyping especially against African Americans, immigrants, and Mexican Americans.

Discussion Goal #3: To understand President Hoover's response to the Great Depression

Hoover's reaction came in three stages: Photo of Herbert Hoover

  1. He reminded the nation that voluntary action would heal the economy and that any dramatic changes in government action would be in keeping with American political tradition.  Asked employers not to cut wages or production or to lay off workers; asked unions not to demand higher wages.  Only a few employers and union members listened - not enough to stimulate the economy.
  2. He allowed the federal government to assume some direct involvement in economic recovery.  Asked federal, state, and local governments to increase spending to construct public works projects, especially highways, dams, and government facilities.  All governments doubled their spending on public works, but it was not enough to make an impact on the economy.
  3. He promoted more direct federal involvement in the economy by asking Congress for banking reforms, financial support for home mortgages, creation of the Reconstruction Finance Corporation, and higher taxes to pay for it all.

In short, Hoover's policies were based upon the "trickle down" theory - the belief that benefits to workers and the unemployed would trickle down in the form of voluntary actions that would result in higher wages and new jobs.

But Hoover's big mistake - and the mistake that lost him the election - was his response to the Bonus Marchers.

Consequently, during the Election of 1932 the American people turned to a new presidential model - Franklin Delano Roosevelt - for two primary reasons:Map of 1932 election


Discussion Goal #4: To trace the rising power of the federal government through the goals and accomplishments of Franklin Delano's Roosevelt's New Deal

Photograph of Franklin D. Roosevelt1. When FDR came to office, the nation's economy was on the brink of collapse, almost 1/4 of the entire labor force were unemployed, and banks were closed in 38 states. On inauguration day, FDR declared that he would call Congress into a special session and request "broad executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe." And what kind of power does he ask for - Federal intervention in the economy.

2. FDR then took two unprecedented steps within the first 4 months of his presidency, steps that greatly expanded the role of the federal govenrment into the lives of Americans: First, he used the federal government to provide economic relief for Americans . Second, he used the powers of the federal government to try to stimulate an economic recovery. Both the relief and recovery efforts will represent an unprecedent rise in the power of the federal government.

3. While FDR's relief and recovery measures made the Great Depression bearable for some, they did not end the Great Depression.


Discussion Goal #5: To undertake a more indepth analysis of three of the most important acts of the Federal government during the New Deal: the Glass-Stegall Act of 1933, the Social Security Act of 1935, and the 1937 U.S. Supreme Court decision about liberty of contract.

The Glass-Steagall Act of 1933 prohibited commercial banks from engaging in the investment business in order to protect depositors from the hazards of risky investment and speculation., gave the Federal Reserve System tighter regulation over national banks, and created the Federal Deposit Insurance Corporation (FDIC) which insures bank deposits. So, why was this needed and why did it represent a huge increase in government power?

The Social Security Act of 1935. Prior to the Depression, several States had been forced to deal with the problems of economic security in a wage-based, industrial economy. Some states established Workers Compensation programs welfare programs for the elderly. But the main strategy for providing economic security to the elderly was some kind of old-age "pension" welfare program based on proof social security posterof financial need. But these plans were always inadequate: some had restrictive eligibility requirements which disqualified many of the elderly and even the most generous plans paid a maximum of $1 per day.

With the coming of the New Deal a "new" idea of social insurance which was already widespread in Europe. Social insurance, as conceived by President Roosevelt, would address the permanent problem of economic security for the elderly by creating a work-related, contributory system in which workers provided for their own future economic security through taxes paid while employed. This would be an alternative to reliance on welfare and it would be a radical change in our capitalist system. In the context of its time, it can be seen as a moderately conservative, yet activist, response to the challenges of the Depression.

By the time America adopted social insurance in 1935, there were 34 nations already operating some form of social insurance program that used government-sponsored efforts to provide for the economic security of its citizens.

On June 8, 1934, President Roosevelt, delivered a message to the Congress in which he introduced the need for social security:

"Security was attained in the earlier days through the interdependence of members of families upon each other and of the families within a small community upon each other. The complexities of great communities and of organized industry make less real these simple means of security. Therefore, we are compelled to employ the active interest of the Nation as a whole through government in order to encourage a greater security for each individual who composes it . . . This seeking for a greater measure of welfare and happiness does not indicate a change in values. It is rather a return to values lost in the course of our economic development and expansion . . ."

He then announced his intention to provide a program for Social Security based upon studies of his newly-created Committee on Economic Security (CES) which was instructed to study the entire problem of economic insecurity and to make recommendations for Congressional legislation. Within six months, the CES developed a report and drafted a detailed legislative proposal, both of which were presented to Roosevelt and Congress in early 1935. The Social Security Act was finally passed and sent to President Roosevelt who signed it into law on August 14, 1935. In addition to several provisions for general welfare, the new Act created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement. Following are the basic elements of Social Security:

1937 West Coast Hotel v. Parrish U.S. Supreme Court on Liberty of Contract. Elsie Parrish, an employee of the West Coast Hotel Company in Washington, argued that she received sub-minimum wage compensation for her work and that she should recover the difference between the wages paid to her and the minimum wage fixed by state law. The question before the court was - Did the minimum wage law violate the liberty of contract as construed under the Fifth Amendment as applied by the Fourteenth Amendment? In a 5-to-4 vote, the Court held that the establishment of minimum wages for women was constitutional.


Conclusions

1. The decade that began in 1920 and ended in 1929 could more appropriately be called the "Not-So Roaring Twenties."  While much progress was made in terms of modern industry and consumerism - the reality is that the Twenties was a decade of sharp contrasts. 

2. Such sharp contrasts produced ambiguous results.  For instance:

3. The great technological innovations of the period helped reshape American society - especially the automobile, electricity, radio, and motion pictures.

4. At least four economic realities of the decade were ignored by the vast majority of Americans: easily-available credit, little government regulation of the economy,a slowing economy, and the unequal distribution of income.

5. The consequences of ignoring the economic warning signs led to the stock market crash of 1929 and the Great Depression.

6. The Great Depression exacted a heavy human toll on the lives of ordinary Americans who often worked for almost nothing; often lost not only their jobs, but their homes as well; suffered severe family strain; were hungry and sometimes starving; and often blamed immigrants, blacks, and Mexicans for their plight.

7. Many historians have come to believe that the New Deal controls were really "concessions" - concessions that didn't solve the problems created by the Depression, but nonetheless, did create an atmosphere of progress and improvement that restored the faith of many Americans in the system.  In short, only enough help had been given to make Roosevelt a hero to millions - but the same system that brought depression and crisis remained functional.

9. New Deal legislation was not responsible for recovery from the Depression.  That only occurred with the outbreak of WWII which propelled the American economy into another era of prosperity.

10. The New Deal did little to help Americans without effective voices or political clout - African Americans, Mexican Americans, women, sharecroppers, small farmers.  For African Americans especially, the New Deal "was psychologically encouraging" despite the facts that its programs did little to help African Americans.  Jim Crow was still the rule in the south and much of the rest of the nation, as well as in the armed forcers.  Because they were largely tenant farmers, farm laborers, migrants, and domestic workers - they did not qualify for unemployment insurance, minimum wages, social security or farm subsidies.

11. Despite such limitations, the New Deal did change the nation and its people.  Indeed, the New Deal:

12. Historians remain divided about the New Deal's legacy.

**US presidents have issued executive orders since 1789. Although there is no Constitutional provision or statute that explicitly permits executive orders, there is a vague grant of "executive power" given in Article II, Section 1, Clause 1 of the Constitution, and furthered by the declaration "take Care that the Laws be faithfully executed" made in Article II, Section 3, Clause 4. Most Executive Orders use these Constitutional reasonings as the authorization allowing for their issuance to be justified as part of the President's sworn duties. To implement or execute the laws of the land, Presidents give direction and guidance to Executive Branch agencies and departments, often in the form of Executive Orders.

Executive Orders have been used by every chief executive since the time of George Washington. Most of these directives were unpublished and were only seen by the agencies involved. In the early 1900s, the State Department began numbering them; there are now over 13,000 numbered orders. Orders were retroactively numbered going back to 1862 when President Lincoln suspended the writ of habeas corpus and issued the Emancipation Proclamation by Executive Order. There are also many other Executive Orders that have not been numbered because they have been lost due to bad record-keeping. Such is not the problem today. All Executive Orders passed from President Herbert Hoover to today are easily accessible.