Great Depression & the New Deal

The Crash and the Collapse

The Great Depression was the defining economic catastrophe of twentieth-century America. The proximate trigger was the stock market collapse beginning on Black Thursday, October 24, 1929, and culminating on Black Tuesday, October 29, 1929, when the Dow Jones Industrial Average shed billions in value. Yet the crash was a symptom, not the disease. Underlying structural weaknesses included agricultural overproduction and depressed farm prices through the 1920s, gross maldistribution of income, speculative margin buying, an overextended banking system, and the rigidities of the international gold standard.

Banking Panic and Contraction

Between 1929 and 1933 the United States suffered four waves of banking panics. Roughly 9,000 banks failed, and the money supply contracted by about one-third—the monetary collapse later emphasized by Milton Friedman and Anna Schwartz in A Monetary History of the United States (1963). Unemployment, near 3 percent in 1929, reached approximately 25 percent by 1933. Gross national product fell by nearly half in nominal terms. The Smoot–Hawley Tariff Act of 1930, raising duties on thousands of imports, provoked foreign retaliation and deepened the contraction of world trade.

Hoover's Response

President Herbert Hoover is wrongly remembered as a pure do-nothing. He rejected direct federal relief on philosophical grounds, favoring 'rugged individualism' and voluntary cooperation, but he did act: the Reconstruction Finance Corporation (1932) lent to banks, railroads, and insurance companies, and the Federal Home Loan Bank Act (1932) addressed mortgage credit. These measures were too limited and too late. Hoover's image was sealed by the violent dispersal of the Bonus Army of World War I veterans in Washington in July 1932 by troops under General Douglas MacArthur, and by the shantytowns nicknamed 'Hoovervilles.'

The Election of 1932

Franklin Delano Roosevelt, Democratic governor of New York, defeated Hoover decisively in November 1932, promising 'a new deal for the American people.' His inaugural address of March 4, 1933 declared that 'the only thing we have to fear is fear itself.' Roosevelt immediately confronted a banking system in free fall: by inauguration day most states had declared bank holidays. He proclaimed a national bank holiday on March 6, 1933, and Congress passed the Emergency Banking Act within days. His first 'fireside chat' on March 12, 1933 restored enough confidence that deposits flowed back when banks reopened.

The period from March to June 1933—the 'Hundred Days'—saw an unprecedented burst of legislation that redefined the federal government's role in economic life. Understanding the distinction between the relief, recovery, and reform aims of these measures, and which programs survived constitutional challenge, is essential to mastering this era.

Relief, Recovery, Reform

The New Deal is conventionally organized around the 'three Rs.' Relief for the unemployed and poor came through the Federal Emergency Relief Administration (FERA, 1933), the Civilian Conservation Corps (CCC, 1933), and the Works Progress Administration (WPA, 1935), which employed millions on public works and arts projects. Recovery programs sought to revive industry and agriculture: the National Industrial Recovery Act (NIRA, 1933) created the National Recovery Administration (NRA) and its industry codes, while the Agricultural Adjustment Act (AAA, 1933) paid farmers to limit production. Reform measures aimed to prevent future collapse: the Glass–Steagall Act (1933) created the Federal Deposit Insurance Corporation (FDIC) and separated commercial from investment banking; the Securities Act of 1933 and Securities Exchange Act of 1934 created the SEC; and the Tennessee Valley Authority (TVA, 1933) brought public power to Appalachia.

The Second New Deal

The so-called Second New Deal (1935) was more reformist and labor-friendly. The National Labor Relations Act (Wagner Act, 1935) guaranteed collective bargaining and created the NLRB. The Social Security Act of 1935 established old-age pensions, unemployment insurance, and aid to dependent children—the cornerstone of the American welfare state. The Revenue Act of 1935 ('Wealth Tax Act') raised top marginal rates.

The Constitutional Battle

The Supreme Court initially struck at the heart of the New Deal. In Schechter Poultry Corp. v. United States (1935) the Court unanimously invalidated the NIRA, holding that Congress had unconstitutionally delegated legislative power and exceeded the Commerce Clause. In United States v. Butler (1936) it struck down the AAA's processing tax. Frustrated, Roosevelt proposed the Judicial Procedures Reform Bill of 1937—the 'court-packing plan'—to add up to six justices. The plan failed politically, but the Court shifted: in West Coast Hotel Co. v. Parrish (1937) it upheld a state minimum wage, and in NLRB v. Jones & Laughlin Steel Corp. (1937) it upheld the Wagner Act under an expanded Commerce Clause—the 'switch in time that saved nine,' associated with Justice Owen Roberts.

Limits and Legacy

The New Deal did not end the Depression; unemployment remained high until wartime mobilization after 1941, and the 'Roosevelt Recession' of 1937–38 followed premature fiscal tightening. The AAA and many programs excluded most Black agricultural and domestic workers, and Social Security originally omitted those categories. Yet the New Deal permanently expanded federal power, created the regulatory and welfare state, realigned the Democratic Party around a coalition of labor, urban ethnics, and African Americans, and established the modern expectation that Washington manages the macroeconomy.

Why This Matters for the Exam

For the FSOT's US History, Government, and Society content, the New Deal is high-yield because it is the hinge between the limited-government nineteenth century and the modern administrative state. Examiners test it as both a history topic and a government/constitutional topic, so you must hold facts and doctrine together.

What Gets Tested

Expect items distinguishing the three Rs: candidates routinely confuse relief (FERA, CCC, WPA), recovery (NRA, AAA), and reform (FDIC, SEC, Social Security). Know which agency each acronym denotes and its founding year. Expect a Commerce Clause and separation-of-powers thread: Schechter (1935) on nondelegation, the 1937 court-packing plan, and the Jones & Laughlin (1937) expansion of federal commerce power. The FSOT favors cause-and-effect and chronology questions, so anchor the sequence: 1929 crash → 1930 Smoot–Hawley → 1932 election → March 1933 Hundred Days → 1935 Second New Deal → 1937 court fight and recession.

High-Yield Facts to Retain

Memorize four anchors: the Emergency Banking Act and first fireside chat (March 1933); the Social Security Act and Wagner Act (1935); the FDIC's origin in Glass–Steagall (1933); and the SEC's origin in the 1934 Act. Be ready to explain the political legacy: the New Deal coalition that dominated American politics into the 1960s. On the diplomatic side, note the linkage to the gold standard and Smoot–Hawley's role in collapsing world trade—a recurring lesson cited in debates over protectionism. A frequent PYQ-style trap pairs a program with the wrong president or decade; another asks you to identify the single program (Social Security) with the most durable institutional legacy. Answer with specificity, not generality.