CHAPTER 25
	THE GREAT DEPRESSION AND THE NEW DEAL, 1929-1939
			Out of work people selling apples on the streets
			STUDY GUIDE QUESTIONS
			25.a.1-2 Causes of the Great Depression, Foreign and Domestic 25.a.4 Maldistribution of Wealth & Overproduction 25.a.3 Smoot-Hawley Tariff 25.a.5 GES 25.a.6 Debt and Reparations 25.c.2 FDR's 1st Inaugural Speech 25.c.3 Liberalism and Conservatism: Definitions of Today 25.d.9 First New Deal 25.f.1-2 Second New Deal 25.f.8 Democratic Party: mass party of the 1930's 25.h.5 Germany, Italy and Japan respond to Economic Depression 25.j.1 WWII and the Great Depression The New Deal and American Democracy To whom did New Dealers defer? WWW Links related to Chapter 24
	[a.1-2]		CAUSES OF THE GREAT DEPRESSION: DOMESTIC
	US flaws fatal		Historians and economists debate weather the Great Depression (1920-1939) was the foreordained fate of capitalism. One thing is certain: the economic health of the US determined the economic health of the world. The US accounted for 40% of global production, 50% of the world's gold reserves, and 16% of international trade. John Galbraith, an economic historian, points to the following internal factors:
			bad US banking structure poor distribution of wealth in US unsound business practices in US poor state of economic intelligence unsound stock market practices (unregulated margin buying, etc.) [a.1] Downturns in production and demand Collapse of credit/loan confidence Federal Reserve fails to raise interest rates until 1928--maybe too late [a.2]
	[a.3]		SMOOT-HAWLEY TARIFF (1931)
	High tariff hurtful to international economy		High tariffs sound good because they protect American industry. They can also injure a nation's economy. Think of it like this: How could other nations earn American dollars if they can't sell products in America? Their only options are to devalue their currency (making their products cheaper), or to cover the imbalance of payments in gold (not good for any nation).
	Smoot-Hawley high		The Smoot-Hawley tariff was one of the highest in our nation's history. Because other countries had difficulty selling in the US, they could not earn money. And if they couldn't earn money, they couldn't make loan payments dating back to WWI, nor could they purchase American products. That's why President Herbert Hoover urged FDR to participate in the London Economic Conference, the last world-wide attempt to fix the international causes of the Great Depression.
	[a.4]		MALDISTRIBUTION OF WEALTH & OVERPRODUCTION
	under consumption		The graph below indicates that the top 20% of American society was getting richer, while the bottom 60% was getting poorer during the 1920's. Economic theorists argue therefore that overproduction caused the Great Depression. Workers made too little to buy everything the US industrial plant produced. It was only when the 2d New Deal began (1935) that the US government adopted strategies to boost spending power instead of restoring profits.
	[a.5]		BREAKDOWN OF GOLD EXCHANGE SYSTEM
	GES established		GOLD STANDARD By 1873, the US had, much of the world had, unofficially adopted the Gold Standard. In 1900 this fact became official. Gold discoveries in Alaska, South Africa, and Australia increased the gold reserve, stimulating the global economy. By the time of the Great Depression, virtually the entire world operated on the Gold Exchange system (GES).
	advantages		gold coins minted anywhere in the world were legal tender anywhere in the world. stabilization of currency the inflow of gold to nations exporting more than importing promised national wealth.
	disadvantages		Sudden discoveries of gold made prices of commodities soar. The low supply of gold suppressed the amount of money in circulation.
	1920-1933		In 1920 the Gold Bullion standard was adopted. Instead of freely exchanged coins, nations merely backed their paper currency with gold. Nations wishing to add to their reserves could purchase more bullion at prices fixed by international agreement. The Great Depression ended the gold standard system until its revival after WWII.
	1945-1976		After World War II, the world pegged its currency value to the US dollar ("key currency" in monetary terms). In turn, the US pegged the dollar to gold. But as gold reserves flowed out of the US during the "gold crisis" of 1968, the US reassessed it commitment to the yellow metal. In 1971 the US abandoned gold, leaving the world without a unified monetary system. In 1976 the International Monetary Fund announced that pure market forces would determine national currency values, a situation which prevails to this day.
	GES could return		By the year 2000 the European Currency Unit (ECU) might replace the dollar as the world's most important monetary unit. Other economists predict that the GES could return within 50 years.
	[a.6]		CAUSES OF THE GREAT DEPRESSION: DEBT AND REPARATIONS
	Effects of WWI linger		During WWI the US became a creditor nation. Countries preferably try to maintain the balance of payments between themselves and other nations by selling them their own exports. But the Smoot-Hawley tariff (1931) made it difficult for foreigners to sell in the US Cut off from the US market, nations could take three other less preferable measures: 1) transfer gold to cover payments; 2) devalue their own currency to make their exports cheaper to other nations; or 3) limit imports to reduce foreign competition. All attempts failed, and the depression deepened. As demand for US goods abroad declined, so did US productivity.
	Mismanagement of German debt hurt global exchange		Historians trace the global origins of the Great Depression to mismanagement of international debts and German reparations. This international failure of the financial system is linked to the reasons listed below:
			The international system of bank loans underwritten by the US were shaky. Germany was not being reintegrated, and a lot of loans went into unsound enterprises in Latin America. Britain and France defaulted on loans extended to them during WWI. German reparations to Britain and France were unrealistic. Germany ultimately defaulted. Failure of Germany to pay debts or rebuild economy hurt fragile British and French economies which had not completely recovered from WWI suffered. The circulation of debts and reparations and ultimate default is diagrammed below:
	The revolving door
	Default		Massive defaults shattered US investment confidence, reducing the amount of dollars available to the world. And without US loans or lower tariff, the world could not buy US goods, forcing US businesses to cut production and layoff workers.
	[c.3]		LIBERAL v. CONSERVATIVE
	Mid 20th Century definition		The New Deal era (1929-1939) defines what we mean today by "liberal" and "conservative." Without intending to label, you might consider the following analysis to determine if you're a "liberal" or a "conservative": If you believe poverty results from structural defects, you probably lean toward being a liberal; If you believe poverty results from failure to take advantage of opportunities, then you might tilt toward the conservative side. Note the differences between the two ideologies:
			LIBERALISM     Liberals today trace their heritage to the New Deal--FDR's plan for government action to revive the nation's sagging economy from depression. Differs from traditional liberalism. Modern liberalism accepts the expansive role of government in the affairs of the nation. Liberalism of the 1930's and since has made efforts to address ethnic and class issues. This sets liberals apart from turn of the century progressives. CONSERVATISM     Conservatives objected to the New Deal's government driven programs as an assault on individualism. Conservatives disliked the New Dealer's appeal to class issues, which they felt was divisive. This meant that conservatives opposed empowerment of labor unions, etc. Conservatism was on the defensive until the Reagan revolution of 1980.
	[d.9]		FIRST NEW DEAL (1933-1935)
	Profits had fallen		Strategists of the first New Deal believed the problem in the American economy was that profits had fallen in industry and agriculture. In other words, prices were too low. They reasoned that if they could raise prices by creating scarcity, enacting codes, and providing federal money to businesses, that profits would rise. Idle workers and idel plant machinery could then be put back into operation. The NRA and AAA exemplified this approach.
	[f.1-2]		SECOND NEW DEAL (1935-1939)
	Keynesian economics		When the economy failed to pick up after 1934, the New Dealers looked for another strategy. John M. Keynes, [f.2] a British economists, long advocated "Pump priming," the term used to denote government deficit spending to lift the economy out of depression.
	Wages too low		Government spending on large-scale projects would put men back to work. In other words, wages had been too low. Therefore, the strategy of the 2d New Deal was to boost consumer spending power.
	[f.8]		DEMOCRATIC PARTY: MASS PARTY OF THE 1930'S
	Liberalism triumphant		During the 1930's, the Democratic Party was a mass party. American demanded government action, and got it in the New Deal administrations of Franklin D. Roosevelt. African-Americans, for example, deserted Republican ranks in droves to vote for the "common man's" president. The Democratic constituency would prevail for the next 40 years. After the unraveling of liberalism in the 1960's, the responsibility for promoting minority rights, for example, has increasingly been assumed by the Supreme Court. The Democratic Party remains today, but has lost the mass appeal it once had.
	[h.5]		GERMANY, ITALY AND JAPAN RESPOND TO ECONOMIC DEPRESSION
			The economic depression spreading over the world forced nation after nation to surrender to extremist politicians. Hitler took power in Germany (1933), Mussolini in Italy (1923), and in Japan, the militarists took over by 1931. Each of these countries exalted military conquest of market and raw material regions as the solution to their problems.
[j.1]		WWII AND THE GREAT DEPRESSION
Programs of New Deal actually do very little		The Depression had not totally ended by the time WWII began in 1939. The war forced the federal government to spend $350 billion worth of defense contracts on the economy. This massive spending ultimately dug the US out of economic depression, not any reorganization of the economy under the New Deal.
		NEW DEAL AND DEMOCRACY
Greater representation		The New Deal strengthened American democracy. America did not turn to fascism, as Germany, Spain, and Italy did, nor did it turn to a communist oriented command economy, complete with a "dictatorship of the proletariat." The US even avoided the moderate socialization undergone by Britain and France. Millions of Americans, inspired by Roosevelt's activist government policies, went to the voting polls. Many of them had never before voted. With more people voting, more of America became represented.
		TO WHOM DID NEW DEALERS DEFER?
The top		The New Deal's rhetoric stood for distributive justice and prosperity for all. The following group benefited most: middle-class consumers farm owners European ethnics northern factory owners
The bottom		The following groups were left out were essentially left out of national recovery planning: women Mexican-Americans Blacks farm laborers
		In the end, the New Dealers had deferred to those with power.
		WWW LINKS RELATED TO CHAPTER 25
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