How the Party Ended

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How the Party Ended
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Problem areas prior to the crash

• Weaknesses in agriculture.
• Weaknesses in traditional manufacturing.
• Concentration of wealth
• Over-extension of consumer credit.
• Speculative mentality.
• Unstable domestic financial situation.
• Unstable international financial situation.

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Agriculture

• Tremendous expansion during World War I.
• Government subsidies to encourage production.
• War ends . . . Subsidies withdrawn
• European production increases
• Agricultural sector had over-expanded.

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Market price for wheat per bushel

• 1919 2.25
• 1929 1.03
• 1932 .39

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Weaknesses in traditional manufacturing

• Electricity competes with coal.
• Synthetic materials compete with cotton.
• Poor management.
• Great increases in production.

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Weaknesses in traditional manufacturing

• Business consolidation.
• 1929 200 largest companies control 50 of all
  corporate wealth.
• Concentration of wealth . . .
• Wages went up, but not in "real" terms.

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Concentration of wealth

• Wealth of top 1 bottom 42
• 71 (120 million) lt 2,500 per year
• 12 million lt 1,200 per year

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Consumer Economy
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How do you move inventory ??

• Advertising
• Consumer credit
• "Dollar down, dollar a week."

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The Stock Market

• Banks invested significant in stock.
• More individuals were investing than ever before.
  
• 1920s a long "Bull Market."
• You "couldnt loose."
• Could buy on margin of 10
• Note No significant controls on the market or
  financial institutions..

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Buying on margin . . .

• 10 down payment required at time of purchase.
• If stock price falls below a set price
• "Margin Call The stock holder must pay off the
  debt.
• Works great as long as the market continues up.

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Unstable domestic financial situation

• Consolidation of banking
• 1 of U.S. banks controlled 46 of resources
• No controls on what banks could invest in.
• No such thing as a "guaranteed deposit."

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Unstable international situation
Germany
US

Allies
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The party's over in October 1929.
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What was "The Depression" ?

• Bank failures
• (1,300 by December 1930)
• Unemployment

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How bad was it ?

• 1932 13,000,000 unemployed
• Some areas 70-80
• National wages 40 of 1929 level.
• Economy operating at lt half of 1929 level.

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Election of 1932

• Hoover (R) vs. Franklin Roosevelt (D)
• Roosevelt wins
• Popular vote 22.8 million to 15.7 million
• Electoral vote 427 to 59
• Democrats control both houses of Congress.

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Who was Franklin D. Roosevelt ?

• Wealthy only child.
• Harvard educated.
• Asst. Secretary of the Navy under Wilson.
• Governor of New York

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Why was he elected ?

• Hoover and the Republicans were discredited.
• Somebody had to do something.
• Roosevelt projected confidence.

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"The New Deal"

• Addresses
• Relief
• Recovery
• Reform
• No plan - do what works.

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• Roosevelt's most important quality
  His ability to consider any idea.

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"Keynesian Economics"

• John Meynard Keynes
• "pump priming"
• Increased government spending will stimulate the
  economy.
• (Roosevelt probably didnt understand Keynes.)

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Traditional View of the New Deal

• 1st New Deal, "The First Hundred Days" -
• 2nd New Deal
• 3rd New Deal, "Synthesis New Deal"

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1st New Deal (early 1933)

• Objective restore confidence.
• Bank "holidays"
• The "Alphabet Agencies"
• CCC - Civilian Conservation Corps
• AAA - Agricultural Adjustment Act
• TVA - Tennessee Valley Authority
• NIRA - National Industrial Recovery Act
• PWA - Public Works Administration
• large-scale public works

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2nd New Deal (1935)

• Focus shift toward reform
• FDR seeks to address public discontent
• Becomes less cooperative with business
• WPA - Work Progress Administration
• Smaller-scale public works projects
• Social Security Act
• National Labor Relations Act (Wagner Act)

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3rd New Deal

• 1937 - National Housing Act
• 1938 - Agricultural Adjustment Act
• 1938 - Fair Labor Standard Act Established
• minimum wage 40 / hour
• maximum workweek 40 hours
  (in businesses in interstate
  commerce)

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Opposition to FDR . . .

• Traditional Republicans
• Father Coughlin
• Huey Long
• The Supreme Court - "Court Packing " scheme

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Father Charles Coughlin
Huey Long
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• The "New Deal" does not work.
• Specifically, it does not pull the U.S. out of
  the Depression.

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1st New Deal
3rd New Deal
2nd New Deal
Korean War
World War II
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If it didn't work, why is he important ?

• Restores confidence.
• Saves democratic capitalism.

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1936 - develops the "traditional" Democratic
Party coalition

• labor
• blacks
• urban voters
• progressives

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• By 1938 he had run out of ideas.
• There were some things he would not do.
• Specifically, throw out the idea of a free-market
  economy.

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By 1938 there were important international issues
. . .