IB History of the Americas/Chapter 11

The Great Depression in the Americas (Topic 11)

Background to the Great Depression

• The US’s production in the late 20s were sky-rocketing, stimulated by the automobile, radio, film and other industries. There was a new plateau of prosperity, but few saw what was coming.
• Prices on the stock market were rising at incredible rates.
• The crash was partially triggered by the fact that the British had raised interest rates to try and bring back capital lured abroad by American investors.
• Foreign investors and local speculators decided to sell their “insecure” stocks which led up to a selling frenzy.
• On October 29th 1929, 16,410,030 shares of stocks were sold; the day was also known as the Black Tuesday.
• As the supply of stocks in the market increase the price decreases. With low prices for stocks the demand for them decreases and there is less activity in the stock market. People with stocks lose out as the value for their stocks decrease and there is no demand.
• By the end of 1929 stockholders had lost $40 billion
• The stock market crash triggered a world-wide depression and by the end of the 30s more than 4 million workers in the US were jobless.
• Over five thousand banks collapsed in the first three years of the depression and took with them the life savings of tens of thousands of people.

Causes of the Depression

• The reason for the depression was overproduction in the agricultural and industrial sector.
• There was too much production and not enough consumption.
• More money was going into the hands of the wealthy that invested and increased productions, but not enough to the workers in terms of salaries. There was a lack of purchasing power.
• Another reason was credit through installment; these methods caused many consumers to spend more than they could afford thus bringing them into bankruptcy.
• The rise in unemployment due to new labor-saving technologies also played a part in the depression.
• Financial problems abroad also helped to trigger the depression. There was the lack of international trade due to problems facing European nations.
• Europe had not recovered fully from WW1 and the financial collapse aided to the depression.
• The Hawley-Smoot Tariff of 1930 was designed as a protective tariff that placed a 38.5% duty on nonfree goods; it was designed to protect the local agricultural industry. The tariff also helped in the decline of international trade.
• Hoover’s Fight against the Depression
• Initially began with “Laissez-Faire” policies but moved to more intervention type ones towards the end of his presidency.
• He fought against schemes that he saw as “socialistic”.
• Hoover sought to use public works to get the economy running again. He was granted $2.25 billion from Congress for the projects.
• Hoover Dam (1930 – 1936)
• In 1932 the Reconstruction Finance Corporation (RFC) was started. It was a government lending bank that provided indirect relief by helping insurance companies, banks, agricultural organizations, railroads and governments. “Pump-Priming”
• Congress passed the Norris-La Guardia Anti-Injunction Act in 1932 to give more rights for labor. Under the act there would be no “anti-union” acts and unions had the right to do boycotts, strikes and peaceful picketing.

FDR and the New Deal

• FDR’s New Deal programs aimed at three R’s – Relief, Recovery and Reform.
• Congress gave FDR extraordinary blank-check powers for his New Deal program.
• The Emergency Banking Relief Act of 1933 gave FDR the power to regulate bank transactions and foreign exchange and also to reopen solvent banks.
• He used the radio for his “fireside chats” in which he persuaded the 35 million Americans that it was safe to put their money in reopened banks. People had then started to deposit and banks were opening up once again.
• The Glass-Steagall Banking Reform Act created the Federal Deposit Insurance Corporation which insured deposits of up to $5000, this further increased the confidence in depositing money and ended several bank failures.
• The gold standard is a monetary system in which the normal economic unit of account is a fixed weight of gold coin. Under the gold standard, banknote issuers can redeem notes, upon demand, in that amount of gold coin.
• At the time the gold reserve was declining and to prevent any sort of chaos he forced all private holdings of gold to be surrendered to the Treasury in exchange for paper notes. The value of the currency would become unmanageably high since the price of gold was increasing due to its growing scarcity. He then took the nation off the gold standards to maintain a more “managed economy”.
• With the new “managed currency”, that was a result of the US leaving the Gold Standard, was aimed to bring about inflation in the economy. Since the price of the dollar was not allowed to increase with the price of gold the prices of goods in the market rose but not the price of dollar; thus resulting in inflation where the price of goods increase. FDR believed that the increased levels of inflation would stimulate new production.
• However, he brought the country back later to Gold Standards for purposes of international trade only.

FDR’s Alphabet Agencies

• The Civilian Conservation Corps (CCC) provided jobs for about 3 million young men. Jobs were in reforestation, fire-fighting, flood control, and swamp drainage. They were forced to send their pay home to support their families.
• The Federal Relief Act (FERA) was designed to employ millions of unemployed adults. The agency was granted about $3 billion to put adults to work on various work projects.
• The Agricultural Adjustment Act (AAA) made available millions of dollars to help farmers with their mortgages on lands.
• The Home Owner’s Loan Corporation (HOLC) was designed to refinance mortgages on normal homes and was successful in helping millions of families. The agency helped to move middle-class support to the Democratic Party.
• The Civil Works Administration (CWA) was under the FERA and it gave temporary jobs during the winter emergency, jobs such as leaf-raking were given to fight unemployment.
• The Works Progress Administration (WPA) was launched in 1935 to provide employment on useful projects. $11 billion was spent on thousands of new buildings, bridges and roads.
• The National Recovery Administration (NRA) was the most complex and far-reaching out of all the schemes. It managed to combine immediate relief with long-range recovery and reform. Labor hours were to be reduced so that more people could be employed, and minimum wages were set. It also benefited labor as antiunion activities were forbidden.
• The Agricultural Adjustment Administration (AAA) would pay farmers to reduce their crop acreage to eliminate price-dropping surpluses. Through “artificial scarcity” the prices were brought back higher to original parity prices that were in place before the depression. It would make up for the payments by taxing flour millers and other food processors. It was later changed to the second AAA two years later, now farmers would only receive payments on specific commodities such as wheat and cotton.
• The Wagner Act of 1935 created the National Labor Relations Board and reasserted the right of labor to self-organize and bargain collectively. The Act gave the workers a voice.
• FDR supported unions and persuaded worker to be part of unions.
• FDR won the election again in 1937 and promised to continue working the “New Deal”.
• His second term was not as successful as his first. In 1937 there was a depression-in-the-depression, social security taxes began to bite into payrolls and the government started to cut back on spending. FDR was now adopting the “Keynesian” methodology.
• By 1938 the “New Deal” had lost most of its momentum.
• People complained of the New Deal saying that it “pampered” the labor and farmers and not so much the middle and upper class. People said that it was a “Planned Economy”, and that there was “Creeping Socialism”. People also spoke badly about FDR’s blank-check powers and said he had too much of it.
• Economists believe that even after billions spent on “Priming the Pump” the gap between production and consumption did not close.
• FDR provided bold reform without a bloody revolution. He helped preserve American democracy at a time when socialism seemed more favorable.

Argentina and the rule of the Concordancia

• Depression occurred during Yrigoyen’s second term (1928 – 1930)
• The Radicals suffered a terrible blow after the Depression had hit Argentina.
• Exports dropped by 40% and foreign investment stopped.
• Unemployment was widespread.
• The government was severely affected as it depended on import duties for most of its revenues.
• The government had incurred huge deficits and tried to cover for it by borrowing. It was not at competition for credit with the landed elite, who also needed credit to survive with the decline in the amount of exports.
• Yrigoyen did not have the support of the elite nor the military and he was seen as senile and corrupt, he had become the scapegoat. He was incapable of ruling Argentina at a time of crisis and this ruined the party.
• Yrigoyen has finally overthrown by the military in 1930.
• General Uriburu had control of the military, which had abolished democracy by taking out Yrigoyen.
• He later created a coalition called the Concordancia which was composed of the conservative aristocrats, the church and the military. Using corrupt practices the Concordancia had soon won control of the national government
• His regime was oppressive and worked to eliminate any social opposition, or worked to leave them dispersed and or defenseless.

The Concordancia’s Fight against the Depression

• The Concordancia worked to remove Argentina from the financial crisis by abandoning free-trade and through conservative economic policies such as state intervention. They wanted to protect Argentina from the cyclical effects of the world capitalist economy.
• The main foreign market; Great Britain, was protected by establishing a currency-exchange system that went against non-British imports. They also set up import-substitution industries using foreign investment.
• US firms started businesses in Argentina as it was difficult to export due to high tariffs and the discriminatory exchange system. Foreign investment played a crucial role during the 30s and was 50% of the total capital investment in the Argentine industry.
• The Roca-Runciman Treaty of 1933 promised Argentina a fixed portion of the British chilled beef market and eliminated tariffs on wheat. Argentina in return reduced tariffs on British goods and promised to spend its British earnings on British goods.
• Economy improved after 1934; wheat and meat prices rose, industrial investment returned to pre-depression levels and unemployment dropped.
• The labor unions were becoming bigger and more powerful, especially the General Confederation of Labor (CGT) and had memberships of between 300 – 350 thousand. The CGT gained power and overthrew the Concordancia in 1944.

Brazil under Vargas

• During the depression Brazil’s exchange rate plummeted and foreign credit dried up. It was now impossible to finance the coffee valorization program, which later collapsed leaving behind huge amounts of debt.
• Vargas worked on the coffee valorization program and attempted to bring the coffee industry back on its feet.
• He used classic valorization methods such as the restriction of plantings, the purchase of surplus stocks, and burning excess coffee. However, the coffee industry did not grow in the 30s.
• The agricultural sector had more success with the labor from the coffee plants. Cotton exports rose until the 40s, however the exports could not make up for the huge amounts of imports occurring.

Import Substitution Methods

• Vargas implemented import substitution methods through industrialization to improve the local economy.
• He placed exchange controls, import quotas, tax incentives, and lower duties on imported machinery and materials and long-term loans at low interest rates to stimulate the local industries.
• Industrial production increased by double from 1931 to 1936, even when the US was still in depression Brazil’s national income had begun to rise.
• The Brazilian economy was no longer dependent on outside factors.
• In 1940 a Five-Year Plan was announced to expand the heavy industries and the railroad system.
• National Motor Company, National Steel Company at the Volta Redonda plant, National Petroleum Company to push the search for oil.
• Achieved self-sufficiency; autocracy.