Understanding the Great Depression and New Deal

Important Stuff! • Midterms are completed • Apologies for the delay, which was entirely my fault • Pay close attention to your TA’s discussion of what we were looking for on the IDs and essay • If you missed a lot of multiple choice, you need to study your lecture and recitation notes, textbook, and Hollitz more closely • Essay Two is due the week after finals: • Read and follow the hand-out • Basic goal: To “make” history the way historians do • Careful and historically informed investigation of historical evidence: Primary materials • Primary materials are to historians what geological strata are to geologists or fossils are to paleontologists • In all cases, the argument that best explains all the available data is likely to be the most widely accepted

Important Stuff! • Bit of advice: Begin reading The Autobiography of Malcolm X over break • Note: Because of the FDR film, we won’t be showing The Atomic Cafe • Students who had excused absences for the exam, please see me after class today • Agenda for today and this week: • Review Depression, New Deal, and WWII • Discuss World War III (AKA, the Cold War)

1) The Great Depression

What caused the Great Depression? • NOT the stock market crash, though contributed • The inequalities of wealth that had been building since the Gilded Age • Economic health increasingly dependent on mass consumption • Lacking unions or other means to increase worker wages, incomes rise only gradually while productivity soars • With wealth concentrating in hands of top 1-2%, wage workers unable to buy enough, resulting in overproduction • Laissez-faire philosophy of Coolidge (1923-29) • Ideologically refuses to use government to manage economy for sustained growth or discourage rampant speculation

What caused the Great Depression? • Number One Cause: World War I • As the “arsenal of democracy” in WWI, U.S. sold vast amounts of war materiel to England and France • Almost all bought on credit, which they were trying to pay back throughout the 1920s • Coolidge refuses to forgive this war debt because of isolationist sentiments • Versailles Treaty: Germany had to pay huge reparations to England and France • U.S. banks provided much of the capital (loans) to the Germans • Germans in turn used this capital to pay off England and France • A fragile triangle of international debt • When U.S. market crashed, bankers called in loans to Germany, which then was unable to pay England and France, who then defaulted on debt repayment to the U.S. • A Vicious Downward Spiral

The “Meaning” of the Great Depression • Isolationism was an illusion • League of Nations or not, Global Capitalism had now clearly linked the U.S. to the fate of the world • Laissez-faire policies had even more disastrous consequences in a global system: • Ideologically opposed to government management of even the domestic economy, free market advocates of laissez-faire were completely unable to recognize the need to somehow manage the international economy • The old belief that success and failure was primarily a result of individual hard work, discipline, etc., became even more ridiculous • Depression throws millions of hard-working, responsible Americans out of work • People lose their homes and families through no fault of their own • Can individual Americans truly control their own destinies? • Decisions made not just in New York board rooms, but offices in Berlin and London, dictate the fate of millions • The Independent Yeoman Farmer is truly dead

2) The Promise of a “New Deal”

The New Deal • Only possible because of the mass pain and suffering of free-market capitalism’s greatest historical failure (so far) • Narrow window of opportunity to experiment with new ideas about the proper role of government and the meaning of American liberty and freedom • In many ways, a break from the past • But also had roots with the more modest reforms of the Progressive Era

What did the New Deal do? • Historians think in terms of the First and Second New Deals: • The First New Deal: • Focused primarily on basic relief of economic suffering and attempts foster economic recovery • The Second New Deal: • Much more ambitious, FDR’s attempt to permanently alter the American political economy • Government to manage the economy for stable growth and to guarantee all Americans a modicum of economic security

The First New Deal • Agricultural Adjustment Act • Federal payments to farmers to take acres out of production, raise fewer pigs, etc. • Goal: Limit over-production • Civilian Conservation Corps • Employ idle young men in public works projects • Goal: Give people jobs and pump money into economy • Federal Depository Insurance Corporation • Guarantee private savings in banks • Goal: Regain public faith in safety of banks • National Industrial Recovery Act • Federal regulation of minimum wages, maximum hours • Promises workers right to unionize • Public Works Administration give people federal jobs

Did the First New Deal work? • Yes and no • Did not do succeed in getting the nation out of the Great Depression • By 1935, few signs of significant economic recovery • But did take the edge off the worst suffering • Gave Americans “hope in hard times” • Americans believed FDR was on their side, and he wins the lasting devotion of millions • FDR’s overwhelming popularity sweeps in a democratic majority in the Congress • Many of these more radical than FDR and push for bigger changes

Radical Threats • After five years of depression, many Americans begin to listen to would-be leaders much more radical than FDR • Consider what happened in many other capitalist nations

Germany: Hitler’s hyper-patriotic, nationalistic, and militaristic Nazi fascism

Italy: Mussolini’s hyper-patriotic, nationalistic, and militaristic fascism

Japan: The military’s hyper-patriotic, nationalistic, and militaristic Japanese-style fascism

USSR: Stalin’s anti-fascist, anti-capitalist, state-planned economy which suffered few ill-effects from the Great Depression • Few realized at the time, though, that Stalin had created the most brutal of police states that would kill millions of his own people

The distinctly un-militaristic, un-nationalistic, and un-fascistic (though none the less patriotic) FDR, with his Scotty Fala and an unknown young victim of polio

Radical threats at home • Remember: The U.S. evinced definite strains of fascistic ideas in the 1920s • 100% Americanism and radical nationalism • Intolerance for a diversity of ideas • Suppression of civil liberties • Red Scare: Fascism was anti-communist • Eugenics: Controlled human breeding for pure Anglo-Saxon blood • The KKK—White Sheets become Brown Shirts? • One notable exception: Lacked militarism

Home-grown American radicals: • Francis Townsend • LA doctor who called for generous federal monthly payments to the elderly to take them out of the labor pool

Home-grown American radicals: • Father Charles Coughlin • Detroit radio priest who called for the nationalization of major American industries • Deeply anti-Semitic, blamed economic troubles on a conspiracy of Jewish bankers (Adolf Hitler anyone?)

Home Grown American Radicals Huey Long Demagogic Louisiana Senator who wanted to “soak the rich” Confiscate large private fortunes, levy a steep progressive income tax Promised government would provide every average American family with a minimum household income of $2,500

FDR’s New Political Philosophy • In this climate of world fascism and home-grown radicalism, FDR’s “radical” Second New Deal was clearly very moderate—a middle way between total state control and laissez-fair; the amazing flexibility of American democracy • Avoids fascism and communism • Redefines the meaning of “liberalism”: • The simple old days when Americans could be truly independent and self-sufficient were gone • Most Americans could no longer guarantee themselves and their families a modicum of security • Left to its own devices, it appeared that free-market instabilities often led to fascistic or other dictatorial attempts to provide fearful people security in an insecure world • Therefore, it must be the task of democratically elected governments to guarantee some basic level of economic safety and security—if not, democracy itself would likely perish

The Second New Deal • Not about relief or recovery, but rather about creating a secure new political economy • Cyclic unemployment was a permanent and inevitable feature of modern industrial capitalism • Therefore, must have federal mechanisms to help the unemployed • Government to be the employer of last resort

The Second New Deal • 1935 Emergency Relief Appropriation • Allocated an unheard of sum—4 billion dollars—to provide federal jobs for the unemployed • (Robert) Wagner National Labor Relations Act • Guaranteed the right of labor to unionize and required industry to bargain fairly with recognized union representatives • Logic: Empower workers to get a fair deal from industry so pay, benefits, etc., are more economically viable • AVOIDS having the government directly regulate wages, hours, etc.

The Second New Deal • Social Security • Required all 48 states to establish some system of unemployment insurance • Provided old age pensions • Americans over 62 would be guaranteed a (very modest) pension • Self-funded by a payroll tax: workers contribute to their own future retirement • FDR believed this would make it impossible for any future politician to get rid of Social Security • What politician would be foolish enough to deny American seniors the benefits they themselves had paid for?

What did FDR and the New Deal do? • Created modern liberalism: A central purpose of government is to provide its citizens with economic security • For the first time, federal government less interested in preserving the rights of capitalists and corporations than in guaranteeing the security of the mass of average American people • Did so without destroying the creativity and wealth-generating power of industrial capitalism (indeed, post-war period sees the biggest economic boom in American history) • Nevertheless, some of the wealthy elites resented the New Deal and thereafter constantly fought to roll it back and reestablish elite control • Created an economic regulatory system and social safety net that—so far—may have prevented another economic downturn as severe as the Great Depression

What did FDR and the New Deal do? • Created the New Deal Democratic political coalition that would dominate until the 1980s • Lower class, middle class, farmers, labor, African Americans, urban north and “Solid South” • Greatly increased the size and power of the federal government • Likewise, also increased taxation, potentially unfair or illogical regulations, etc. • New Deal liberalism justified bigger government as a necessity to balance the power of big business, manage the economy, and guarantee every American a measure of economic security • Big Question: Would big government nonetheless eventually come to limit the freedom of Americans more than protecting those freedoms?

What did FDR and the New Deal NOT do? • Did not result in significant long-term redistribution of wealth • Did not create a system of substantial state ownership of industry, railroads, etc. • Did not end the Great Depression • In some cases, did more harm than good • Although large federal spending (Keynesianism) did spur modest economic growth, the economy was still weak by 1940 • Needed MASSIVE federal spending, which came only with the start of WWII

3) World War II: The Big Picture • Took the U.S. out of the depression and left it the most powerful economic force on the globe • By 1945, U.S. sole intact global industrial powerhouse • Germany, France, England, Japan, etc., will be eager customers for U.S. goods for a decade or longer • Begins an extraordinary era of American economic prosperity • Clearly establishes the U.S. as a major player in global power politics • Unlike after WWI, the U.S. does not retreat into isolationism • By 1949 U.S. is engaged in WWIII with the Soviet Union, leading to a seemingly permanent war-time footing • Centrality of the federal government in funding big science and industry is widely accepted • Manhattan Project demonstrated seeming necessity for federal role in the science of mass destruction • Creation of a Military-Industrial Complex

Questions?

Understanding the Great Depression and New Deal