His 1912 platform for change was called the New Freedom. Wilson was an admirer of Thomas Jefferson. The agrarian utopia of small, educated farmers envisioned by Jefferson struck a chord with Wilson. Of course, the advent of industry could not be denied, but a nation of small farmers and small businesspeople seemed totally possible. The New Freedom sought to achieve this vision.
The banking system pinched small farmers and entrepreneurs. The gold standard still made currency too tight, and loans were too expensive for the average American. Wilson signed the Federal Reserve Act, which made the nation's currency more flexible.
In 1920 Congress ratified the 18th Amendment, prohibiting the manufacture, transportation and sale of intoxicating liquors. Prohibition proved difficult to enforce and failed to have the intended effect of eliminating crime and other social problems--to the contrary, it led to a rise in organized crime, as the bootlegging of alcohol became an ever-more lucrative operation. In 1933, widespread public disillusionment led Congress to ratify the 21st Amendment, which repealed Prohibition.
The First World War.World War I broke out in Europe in the summer of 1914. The war set Germany and Austria-Hungary (the Central Powers) against the United Kingdom, France, and Russia (the Allied Powers), and eventually involved many more nations. The United States declared itself a neutral nation, but neutrality proved elusive. For three years, as Europeans faced war on an unprecedented scale, the neutrality so popular in the United States gradually slipped away.
At the outset, Germany and Britain each sought to terminate U.S. trade with the other. Exploiting its naval advantage, Britain gained the upper hand and almost ended U.S. trade with Germany. Americans protested this interference, but when German submarines began to use unrestricted submarine warfare in 1915, American public opinion turned against Germany. Then on May 7, 1915, a German submarine attacked a British passenger liner, the Lusitania, killing more than a thousand people, including 128 Americans. Washington condemned the attacks, which led to a brief respite in German attacks. In the presidential race of 1916, President Wilson won reelection on the campaign slogan “He Kept Us Out of War.”
In February 1917, however, Germany reinstated the policy of unrestricted submarine warfare. Ending diplomatic ties with Germany, Wilson still tried to keep the United States out of the war. But Germany continued its attacks, and the United States found out about a secret message, the Zimmermann telegram, in which the German government proposed an alliance with Mexico and discussed the possibility of Mexico regaining territory lost to the United States. Resentful that Germany was sinking American ships and making overtures to Mexico, the United States declared war on Germany on April 6, 1917.
The United States entered World War I with divided sentiments. Americans debated both whether to fight the war and which side to support. Since the outbreak of war in Europe, pacifists and reformers had deplored the drift toward conflict; financiers and industrialists, however, promoted patriotism, “preparedness,” and arms buildup. Some Americans felt affinities for France and Britain, but millions of citizens were of German origin. To many Americans, finally, the war in Europe seemed a distant conflict that reflected tangled European rivalries, not U.S. concerns.
But German aggression steered public opinion from neutrality to engagement, and the United States prepared for combat. The Selective Service Act, passed in May 1917, helped gradually increase the size of America’s armed forces from 200,000 people to almost 4 million at the war’s end.
At war for only 19 months, the United States suffered relatively light casualties. The United States lost about 112,000 people, many to disease, including a treacherous influenza epidemic in 1918 that claimed 20 million lives worldwide. European losses were far higher. According to some estimates, World War I killed close to 10 million military personnel.
World War I made the United States a world power. While European nations tried to recover from the war, the United States had overseas territories, access to markets, and plentiful raw materials. Formerly in debt to European investors, the United States began to lend money abroad. At home, the economy expanded. Assembly-line production, mass consumption, easy credit, and advertising characterized the 1920s. As profits soared, American zeal for reform waned, and business and government resumed their long-term affinity. But not all Americans enjoyed the rewards of prosperity. A mix of economic change, political conservatism, and cultural conflict made the 1920s a decade of contradictions.
But in 1929, Hoover’s first year as president, the prosperity of the 1920s capsized. Stock prices climbed to unprecedented heights, as investors speculated in the stock market. The speculative binge, in which people bought and sold stocks for higher and higher prices, was fueled by easy credit, which allowed purchasers to buy stock “on margin.” If the price of the stock increased, the purchaser made money; if the price fell, the purchaser had to find the money elsewhere to pay off the loan. More and more investors poured money into stocks. Unrestrained buying and selling fed an upward spiral that ended on October 29, 1929, when the stock market collapsed. The great crash shattered the economy. Fortunes vanished in days. Consumers stopped buying, businesses retrenched, banks cut off credit, and a downward spiral began. The Great Depression that began in 1929 would last through the 1930s.
The stock market crash of 1929 did not cause the Great Depression, but rather signaled its onset. The crash and the depression sprang from the same cause: the weaknesses of the 1920s economy. An unequal distribution of income meant that working people and farmers lacked money to buy durable goods. Crisis prevailed in the agricultural sector, where farmers produced more than they could sell, and prices fell. Easy credit, meanwhile, left a debt burden that remained unpayable.
The crisis also crossed the Atlantic. The economies of European nations collapsed because they were weakened by war debts and by trade imbalances; most spent more on importing goods from the United States than they earned by exporting. European nations amassed debts to the United States that they were unable to repay. The prosperity of the 1920s rested on a weak foundation.
After the crash, the economy raced downhill. Unemployment, which affected 3 percent of the labor force in 1929, reached 25 percent in 1933. With one out of four Americans out of work, people stopped spending money. Demand for durable goods—housing, cars, appliances—and luxuries declined, and production faltered. By 1932 the gross national product had been cut by almost one-third. By 1933 over 5,000 banks had failed, and more than 85,000 businesses had gone under.
The effects of the Great Depression were devastating. People with jobs had to accept pay cuts, and they were lucky to have work. In cities, the destitute slept in shanties that sprang up in parks or on the outskirts of town, wrapped up in “Hoover blankets” (newspapers) and displaying “Hoover flags” (empty pockets). On the Great Plains, exhausted land combined with drought to ravage farms, destroy crops, and turn agricultural families into migrant workers. An area encompassing parts of Kansas, Oklahoma, Texas, New Mexico, and Colorado became known as the Dust Bowl. Family life changed drastically. Marriage and birth rates fell, and divorce rates rose. Unemployed breadwinners grew depressed; housewives struggled to make ends meet; young adults relinquished career plans and took whatever work they could get.
The New Deal and World War II (1930 – 1945)
In the election of 1932 Franklin Delano Roosevelt, New York’s governor and a consummate politician, defeated Hoover, winning 57 percent of the popular vote; the Democrats also took control of both houses of Congress. Voters gave Roosevelt a mandate for action.
Roosevelt gathered a “brain trust”—professors, lawyers, business leaders, and social welfare proponents—to advise him, especially on economic issues. He was also influenced by his cabinet, which included Secretary of the Interior Harold Ickes, Secretary of State Cordell Hull, Secretary of Agriculture Henry Wallace, and Labor Secretary Frances Perkins, the first woman cabinet member. A final influence on Roosevelt was his wife, Eleanor, whose activist philosophy had been shaped by the women’s movement. With Eleanor Roosevelt in the White House, the disadvantaged gained an advocate. Federal officials sought her attention, pressure groups pursued her, journalists followed her, and constituents admired her.
Unlike Hoover, Roosevelt took strong steps immediately to battle the depression and stimulate the U.S. economy. When he assumed office in 1933, a banking crisis was in progress. More than 5,000 banks had failed. Roosevelt closed the banks, and Congress passed an Emergency Banking Act, which saved banks in sounder financial shape. After the “bank holiday,” people gradually regained confidence in banks. The United States also abandoned the gold standard and put more money into circulation.
Next, in what was known as the First Hundred Days, Roosevelt and the Democratic Congress enacted measures to combat the depression and prevent its recurrence. The measures of 1933 included: the Agricultural Adjustment Act, which paid farmers to curtail their production (later upset by the Supreme Court); the National Industrial Recovery Act (NIRA), which established codes of fair competition to regulate industry and guaranteed labor’s right to collective bargaining (again, the law was overturned in 1935); and the Public Works Administration, which constructed roads, dams, and public buildings. Other acts of the First Hundred Days created the Federal Deposit Insurance Corporation, which insured deposits in banks in case banks failed, and the Tennessee Valley Authority (TVA), which provided electric power to areas of the southeast. The government also set up work camps for the unemployed, refinanced mortgages, provided emergency relief, and regulated the stock market through the Securities and Exchange Commission.
The emergency measures raised employment, but the New Deal evoked angry criticism. On the right, conservative business leaders and politicians assailed New Deal programs. The Supreme Court, appointed mainly by Republicans, struck down many pieces of New Deal legislation, such as the NIRA, farm mortgage relief, and the minimum wage. On the left, critics believed that Roosevelt had not done enough.
In the election of 1936, Roosevelt defeated his Republican opponent, Alf Landon, in a landslide and carried every state but Maine and Vermont. The election confirmed that many Americans accepted and supported the New Deal. It also showed that the constituency of the Democratic Party had changed.
At the start of Roosevelt’s second term in 1937, some progress had been made against the depression; the gross output of goods and services reached their 1929 level. But there were difficulties in store for the New Deal. Republicans resented the administration’s efforts to control the economy. Unemployment was still high, and income was less than in 1929. To battle the recession and to stimulate the economy, Roosevelt initiated a spending program. In 1938 New Dealers passed a Second Agricultural Adjustment Act to replace the first one that the Supreme Court had overturned and the Wagner Housing Act, which funded construction of low-cost housing.
Meanwhile, the president battled the Supreme Court, which had upset several New Deal measures and was ready to dismantle more. Roosevelt attacked indirectly; he asked Congress for power to appoint an additional justice for each sitting justice over the age of 70. The proposal threatened the Court’s conservative majority. But the Supreme Court changed its stance and began to approve some New Deal measures, such as the minimum wage in 1937.
The New Deal never ended the Great Depression, which continued until the United States’ entry into World War II revived the economy. As late as 1940, 15 percent of the labor force was unemployed. Nor did the New Deal redistribute wealth or challenge capitalism. But in the short run, the New Deal averted disaster and alleviated misery, and its long-term effects were profound.
One long-term effect was an activist state that extended the powers of government in unprecedented ways, particularly in the economy. The state now moderated wild swings of the business cycle, stood between the citizen and sudden destitution, and recognized a level of subsistence beneath which citizens should not fall.
The New Deal also realigned political loyalties. A major legacy was the Democratic coalition, the diverse groups of voters, including African Americans, union members, farmers, and immigrants, who backed Roosevelt and continued to vote Democratic.
The New Deal’s most important legacy was a new political philosophy, liberalism, to which many Americans remained attached for decades to come. By the end of the 1930s, World War II had broken out in Europe, and the country began to shift its focus from domestic reform to foreign policy and defense.