Economic history · The Great Depression
Seven steps, about ten minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.
Pay and hours fell as well as jobs, and almost none of it was being measured at the time. America changed president in March 1933 with every bank in the country shut.
Roosevelt was sworn in on 4 March 1933. Every bank in the country was shut, about 12.8 million people had no work, and the economy had been falling for forty-three months.
In two years he built things that are still standing: a government promise behind bank savings, a regulator for the share markets, a state pension. He also built one that the Supreme Court cancelled, and that some economists believe held the recovery back.
Seven steps cover the first week, what lasted, the millions put on public payrolls, the argument about the industry codes, the right to organise, and why the pension law passed in 1935.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
Step 1 of 7
A new president arrived to find every bank in the country shut. He had a week.
Roosevelt took office on 4 March 1933 with every bank in America shut, and had a law through Congress five days later.
A customer standing outside a bank in March 1933 could not tell a sound bank from one about to fail. The Emergency Banking Act of 9 March was written to settle that.
Banks began opening again on 13 March, and within two days the ones open again held 90 per cent of the country's banking money.
About 4,000 banks never opened again, and their customers did not get their savings back.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
What did the Emergency Banking Act actually change?
For scale. Within two days of opening again, those banks held 90 per cent of the country's banking money.
The Banking Act of 16 June 1933 created the Federal Deposit Insurance Corporation.
Because they had failed in different ways. Savings vanished when banks shut, so the answer was a promise to pay customers back, written into the Banking Act of 1933. Share buyers had been sold companies they could not check, so the answer was to force companies to publish real information and to punish lying about it. The Securities Act of 1933 did the publishing half, and the Securities Exchange Act of 1934 set up the Securities and Exchange Commission to police it.
Savings were covered by from 1 January 1934. The Securities Exchange Act of the same year set up the Securities and Exchange Commission as a for dealing.
The Securities Act of the year before had already forced companies selling shares to publish real information about themselves.
American states had insured deposits since 1908, and Congress had been sent proposals since 1886. Deposit insurance was not a new idea, and it took the collapse of 1933 to pass it into law.
Insurance covered savings up to a set amount from January 1934. How much was covered for each customer?
For scale. American states had insured deposits since 1908, and Congress had been sent proposals since 1886.
The Civilian Conservation Corps put 2.5 million young men to work planting trees and building parks.
The Works Progress Administration hired people directly for public work: roads, schools, bridges and, famously, wall paintings and plays.
The two schemes ran side by side through the 1930s.
These were wages paid by the government to people who would otherwise have had none. They are what most people mean by the New Deal, which is the name given to the laws and schemes Roosevelt's government built from 1933.
The Civilian Conservation Corps took 2.5 million. How many people did the Works Progress Administration employ?
For scale. About 12.8 million Americans were out of work in 1933.
It is June 1934. The National Industrial Recovery Act of a year earlier let the firms in an industry agree rules together and gave those rules the force of law. More than 500 industries are now covered by codes that fix their prices and wages.
It was a set of rules covering every firm in one industry, agreed between those firms and given the force of law. A code could set the lowest price anybody was allowed to charge, the wage every firm had to pay, how much each firm could produce and who was allowed to open a new business at all. The aim was to stop firms cutting prices and wages against each other. The effect was that prices and wages were held up while people had no money to pay them.
Each code is a set of rules for one whole industry, agreed between the firms in it and given the force of law. A code sets the lowest price anybody may charge and the wage every firm must pay.
The aim was to stop firms cutting prices and wages against each other, in a country where prices had fallen about a third since 1929.
You are advising Roosevelt in June 1934. The codes hold prices and wages up in an economy where people have no money. What do you tell him?
The government kept the codes. More than 500 industries were covered, setting prices, wages, how much each firm could produce and who could enter the trade.
What followedThe Supreme Court struck the whole programme down in May 1935, in a case brought against a poultry firm called Schechter. Some economists hold that the codes had slowed the recovery by holding prices and wages up; others hold that they made little difference either way. It is the most argued-over part of the New Deal.
The third option replaced it: a legal right for workers to bargain together, passed two months after the codes were struck down.
The National Labor Relations Act of 5 July 1935 gave American workers a legal right to join a union.
Its words are that employees shall have the right to organise themselves, and to bargain through representatives of their own choosing, which is .
American union membership had bottomed at 2,689,000 in 1932.
The law did not raise a single wage by itself. It changed who was allowed to argue about wages.
The Act of July 1935 set no wage and paid no worker. Union membership then tripled by 1939. Why would a law about bargaining move pay at all?
For scale. Membership was 3,584,000 in 1935, the year the law passed.
Roosevelt signed the Social Security Act on 14 August 1935, setting up American state pensions and unemployment payments.
Until then the United States had no national scheme for either. An American who could no longer work depended on family, or on a state scheme where one existed. A worker who lost a job had no national payment to claim.
No American government had set up a national pension in the century and a half before that.
It is the piece of the New Deal that touches the most American lives today, and the last of the big ones to pass. The Supreme Court had struck the government's main recovery programme down in May 1935.
Put these four in the order they happened.
For scale. The Emergency Banking Act was signed on 9 March 1933, five days into the presidency.
In 1935 millions of Americans were publicly demanding a state pension and a share-out of the largest fortunes.
Huey Long, a senator, promised to share out every large fortune, and Francis Townsend, a doctor, wanted a pension of $200 a month for every person over sixty. Father Coughlin, a priest, was on the radio to millions.
The Social Security Administration's own history gives nine consecutive headings to those movements, under "Radical Calls to Action", immediately before it reaches the Act.
The government moved on pensions in 1935, while millions of people were publicly demanding that it should.
The Social Security Administration puts nine headings on popular movements just before the Act in its own history. What is that history saying about why the law passed?
For scale. The Act was signed on 14 August 1935.
Module 6 of 7 in The Great Depression
Every bank shut, and the law that opened them
6 and 9 March 1933Banks that never opened again
about 4,000, from January 1934
$2,500 eachRelief and public jobs
8 million and 2.5 millionIndustries covered by codes
more than 500, struck down May 1935Union membership, 1932 and 1939
2,689,000, then over 8 millionThe pensions law signed
14 August 1935You met five terms in this module
, , , ,
Recovery was under way by 1935 and it was not finished. The last question is what ended the Great Depression.
[1] What he did in the first week: Federal Reserve History, Emergency Banking Act of 1933. Every bank in the country was shut from 6 March 1933. Congress met on 9 March and the Emergency Banking Act was signed the same day, letting banks open again once government inspectors judged them sound. Banks in Federal Reserve cities began opening again on 13 March, and "within two days banks holding 90 percent of banking resources had reopened". About 4,000 never opened again.
[2] The promise behind savings: Federal Deposit Insurance Corporation, The First Fifty Years, via FRASER. "Section 8 of the Act created the Federal Deposit Insurance Corporation." The Banking Act of 1933 was signed on 16 June 1933. Insurance began on 1 January 1934 at $2,500 for each customer and rose to $5,000 on 1 July 1934. Chapter 2 records that the idea was not new: American states had insured deposits from 1908 and Congress had been sent proposals since 1886.
[3] The regulator for shares: US Securities and Exchange Commission, The laws that govern the securities industry. The Securities Act of 1933 has "two basic objectives: require that investors receive financial and other significant information concerning securities being offered for public sale; and prohibit deceit, misrepresentations, and other fraud in the sale of securities". The Securities Exchange Act of 1934 is the one that created the Commission and "empowers the SEC with broad authority over all aspects of the securities industry".
[4] The recovery law and the right to organise: US National Archives, Milestone Documents: National Industrial Recovery Act and National Labor Relations Act. The National Industrial Recovery Act was approved on 16 June 1933 and set up the National Recovery Administration, which supervised codes of fair competition; over 500 were adopted, setting prices, wages, production quotas and rules on who could enter an industry. The Supreme Court struck the programme down in May 1935 in Schechter Poultry Corp. v. United States. The National Labor Relations Act, approved 5 July 1935, states: "Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing." The National Archives also records "having offered employment to 2.5 million CCC enrollees and 8 million individuals through the WPA".
[5] What happened to unions: US Department of Labor, History, Chapter 5: Americans in Depression and War. "American unions (excluding Canadian members) hit the low point of 2,689,000 members in 1932. In 1935, the time of the AFL-CIO split, the total had grown to 3,584,000. By 1939 membership exceeded eight million." The same chapter records United States Steel employing 224,980 full-time workers in 1929 and none on 1 April 1933.
[6] The pension, and the pressure behind it: Social Security Administration, Historian's Office, Brief history. "The Social Security Act was signed into law by President Roosevelt on August 14, 1935." The history runs nine consecutive headings under "Radical Calls to Action": Every Man a King, The Townsend Movement, Fire & Brimstone, A Writer & his EPIC, Ham & Eggs, the Bigelow Plan, the General Welfare Federation of America and Technocracy. Those movements are the pressure the Act was passed against.
[7] The case against the codes: Cato Institute, Chris Edwards, The government and the Great Depression, Tax & Budget Bulletin 25. "It created 'codes' or cartels in more than 500 industries in order to limit competition." The bulletin's headings include Keeping Prices High and Keeping Employment Costs High. Cato argues a case rather than reporting a finding, and the 500 figure is separately confirmed by the National Archives.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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