Weaknesses of the United States Economy in the 1920's Low prices for agricultural products




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HIST 460

Chapter 11



Weaknesses of the United States Economy in the 1920's
1. Low prices for agricultural products

2. Low wages for workers

3. Unequally distributed wealth

4. Protective tariffs

5. European nations defaulted on debts and withdrew investments in the United States.

6. Unregulated stock speculation

7. Bank failures
By 1932 one in four American workers were unemployed, family income had dropped by fifty percent, one hundred thousand businesses had failed, and the gross national product was cut in half.
Herbert Hoover advocated a "cooperative state" to solve the problems of the Great Depression:
1. Business owners pledged to maintain wages and production levels.

2. Workers pledged not to strike.

3. Local governments and charities would provide temporary relief.

4. The national government would offer loans to businesses and create an air of optimism.


Hoover opposed a dole and government-sponsored work-relief.
Franklin D. Roosevelt's New Deal programs used the resources of the federal government to attack the immediate problems of poverty and despair. The New Deal did not end the depression or work fundamentalism changes in the capitalist economy. It did apply the resources of the federal government to attacking the immediate problems of poverty and despair. Early in his administration, Roosevelt's program and personality attracted the support of most Texans.
Because few Texans were invested in the stock-market, the immediate impact of the crash did not affect most Texans. Initially, Texans looked to private charities for relieve, but by 1931 private organizations announced they were inadequate to the task.
Local government assumed more responsibility for the poor:
1. Provided public works and "hire-the-unemployed" campaign

2. Provided free garden space

3. Provided soup kitchens

4. Used public buildings to house transients

5. West Texas cities sponsored rabbit hunts

6. Some cities encouraged "back-to-the-farm" movements

7. Some cities denied assistance to minorities

8. Some cities stationed police at train stations to prevent transients from staying in the community.

9. All cities instituted austerity programs, often resulting in the discharge of women employees.

10. School districts cut teachers' salaries and reduced educational appropriation.

11. Most cities eliminated some services.

12. Most cities froze employees' salaries.

In Texas, many believed that 1) government aid sapped the willingness to work and that 2) white men should come first. Women and minorities were the last hired and first fired. Mexican Americans outnumbered all others in percentage of unemployment. Twenty-five percent of the unemployed had no resources. Dan Moody (1927-31) did little to address the problems of the depression. Ross Sterling (1931-33), president of Humble Oil and Refining (later Exxon) until 1925, defeated Miriam Ferguson in the election of 1930. During his administration, two controversies (East Texas oil and cotton prices) weakened his political support.


East Texas oil boom
In 1930, Columbus Marion "Dad" Joiner drilled an oil well near Kilgore that tapped into one of the greatest oil discoveries in history. Believing that the area held no oil reserves, the "majors" had not leased mineral rights from local land owners. Therefore, "independents" controlled 80 percent the Great East Texas field.
Economic effects of the East Texas oil boom
1. Helped the poorest part of the state

2. Kilgore a boom town

3. Drove down the price of oil from over one dollar per barrel in 1930 to eight cents per barrel in 1931
Why did independents continue to high amounts of oil?
1. Many lacked the capital necessary to limit production until prices rose.

2. They could not stop production if others did not or the oil would be pumped from under their lease.


The Texas Railroad Commission (TRC) had the authority to "prorate" oil to maintain prices, conserve oil, and to protect the environment. In 1931, the TRC issued proration order for East Texas because overproduction threatened to ruin the market for oil. Because majors refused to refine East Texas crude, independents built their own "teakettle refineries" which produced low-grade gasoline sold at independent stations. Because these refineries handled oil pumped above proration levels, their product was termed "Hot Oil." The TRC had no power to enforce its proration guidelines and producers could not agree to limit production voluntarily. Governor Sterling, formerly president of Humble Oil, sent troops into East Texas to enforce the proration order. General Jacob F. Walters, an attorney for the Texas Company (later Texaco), commanded the National Guard troops. Understandably, most East Texans considered Sterling's actions to be in support of the majors efforts to destroy the independents. The National Guard and Texas Rangers confronted resistance (sometime violent) as it attempted to stop the production of Hot Oil. Federal and state laws restricted the production of Hot Oil. By 1940, the majors owned 80 percent of East Texas field.
Factors which brought the conflict to a conclusion
1. Texas Rangers

2. The National Recovery Administrations established codes for the oil industry

3. Majors produced inexpensive gas

4. Law regulated refineries

5. The Connally Act made it illegal to transport Hot Oil across state lines
Impact of the East Texas Field
1. By 1935, the combination of federal and state laws enforced the TRC's power to prorate oil to maintain prices

2. By 1939, the majors owned 80 percent of the East Texas Field

3. The stronger independents survived.

4. Independents established offices in Dallas

5. The boom helped Texans survive the Great Depression

Sterling's effort to regulate cotton production also cost him political support. As the prices for farm products declined, voluntary limits on production failed. State plans under governors Moody and Sterling to limit production of cotton were ineffective.


In the election of 1932, Miriam "Ma" Ferguson (1933-35) defeated Sterling. She confronted 1) state debt, 2) a failed welfare system, 3) compulsory New Deal legislation that complicated state actions, 4) a legislature that resisted cooperation with the Fergusons. Charges of corruption focused on pardons, tampering with Texas Rangers, and the use of relief monies and patronage to build a Ferguson machine.
John Nance Garner, former Speaker of the House of Representatives, was Franklin Delano Roosevelt's vice president from 1933 to 1941. Roosevelt appointed Houston banker Jesse H. Jones as chairman of Reconstruction Finance Corporation (RFC). Among Texans, the most consistent supporters of Roosevelt and the New Deal were Wright Patman, Texarkana congressman, Sam Rayburn, Speaker of the House of Representatives, and Lyndon Johnson. Maury Maverick, a liberal New Dealer, became mayor of San Antonio and administrator of wartime mobilization agencies during the Second World War.
The New Deal took action to stabilize banks and established the Federal Deposit Insurance Corporation to insure deposits. The Wagner Act insured fair bargaining between employers and employees. It enabled labor unions to begin organizing in the Gulf Coast refining and defense industries.
Various New Deal programs provided employment
1. The Public Works Administration (PWA) built large projects such as dams, buildings, and roads.

2. The Civil Works Administration (CWA) was created to put men to work quickly in the winter of 1933-34. In Texas most CWA workers repaired streets and bridges.

3. The Works Progress Administration (WPA) carried out construction projects and "make work" jobs as researchers for history projects and artists painting murals in court houses.

4. The National Youth Administration (NYA) employed students in work-study jobs. Lyndon Johnson directed the NYA in Texas for two years. Because he used need as the only criterion for enrollment, 40 percent of participants were black in 1937.


Roosevelt believed that raising farm income would not only help farmers, but also would give them purchasing power to buy up surplus industrial production. He attempted to reduce production by government control.
Agricultural Adjustment Act (AAA, 1933)
1. Subsidies to farmers who would take land out of production

2. Taxed processors to pay for the cost of the program

3. Authorized marketing agreements to stabilize prices

4. Abandonment of the gold standard to inflate the currency


The AAA restricted production in cotton, wheat, corn, rice, tobacco, dairy products, and hogs. Cattle were soon added. When some cotton farmers resisted the restrictions, the Bankhead Cotton Control Act (1934) compelled farmers to accept quotas when two-thirds of the county's voters authorized them. The AAA greatly reduced the amount of cotton produced. When the Supreme Court ruled the AAA unconstitutional, new laws reestablished the quotas. Livestock producers and grain farmers also received subsidies from the national government.
The Rural Electrification Administration (REA) established electric cooperatives that brought Texas farmers into the era of modern amenities.
Overall, New Deal programs pumped nearly $717 million into the Texas economy.
The Great Depression hit minorities hardest. A disproportionate number of African Americans and Mexican Americans suffered from malnutrition. The agricultural programs drove tenant farmers off the land. Minorities often confronted discrimination in government programs. Nevertheless, like other needy Americans, minorities benefited from New Deal programs. Most African Americans switched their political allegiance from the Republican to the Democratic Party.
Mexican Americans confronted special problems. New Deal programs often required proof of citizenship. The 1930's were years of massive deportation and repatriation. Those who attempted to organize unions confronted vigilante violence and strikebreakers. The Tejano middle class born in the United States perceived themselves as different from the Immigrant Generation that arrived earlier in the century. The younger, "Mexican American Generation," founded League of United Latin American Citizens (LULAC) in 1929.
LULAC's goal was to fight discrimination against Texas Mexicans.
1. Eliminate racial prejudice 3. Improve educational facilities

2. Win legal equality 4. Gain a political voice


LULAC opposed strikes, demonstrations, picketing, and boycotts. It sponsored poll-tax drives, investigated charges of police brutality, attempted to desegregate public places, and lobbied against the second-class status of Mexican American schools. In 1930 it funded the first challenge to the segregation of Mexican American school children. In Del Rio Independent School District v. Salvatierra the Texas court ruled that segregation based only on Mexican American ethnicity was unconstitutional. The Del Rio school district later successfully argued that the Mexican American children's language deficiencies justified segregated schools.
In the election of 1934, James V. Allred was elected governor. He strongly supported the New Deal and cooperated closely with federal programs to fight the Great Depression. This support for the New Deal helped Allred's reelection in 1936. In his second administration, Allred established a new teacher retirement system, expanded welfare and social security obligations, increased funding for public schools, increased appropriations for the prison system, and financed an expensive Texas centennial celebration. Unfortunately, he could not get the legislature to pass the tax laws necessary to support his program and left the state $3 million in debt. Historians have frequently described Allred as the last liberal governor of Texas.
Conservative opposition to New Deal
1. Businesspersons and bankers disliked government regulations.

2. Many considered welfare measures a violation of the American tradition of self-sufficiency.

3. Many feared the increased power of the federal government.

4. Businessmen and many other Texans resented the Wagner Act's protection for unions.

5. Many resented the inclusion of African Americans in New Deal programs.

6. Traditionally Texans resented the influence of northern urban liberals over the federal government and the national economy.


In 1936, a meeting of Democratic conservatives in Detroit founded the Jeffersonian Democrats. Texans included John Kirby, the lumberman and Joseph W. Bailey, Jr., the son of long-time senator. Their strategy was to support local Democrats, in order to maintain strength within the party, and campaign against the goals of the national party.
Roosevelt v. conservatives (Democrat and Republican)
1. Decisions by the conservative Supreme Court that ruled some New Deal legislation unconstitutional angered Roosevelt. When he attempted to "pack" the court with liberals in 1937, Representative Hatton Sumners bottled up the legislation in the House and Vice President John Nance Garner killed it in the Senate.

2. Senator Tom Connally led a filibuster that defeated an antilynching bill in the Senate.

3. Garner and other conservatives demanded a balanced budget.

4. Opposition from conservative Democrats angered Roosevelt who attempted to "purge" his opponents from the party


After 1938, with Garner as its leader a southern Democratic and Republican coalition emerged that prevented an expansion of New Deal programs and cut some of those in existence.
In the election of 1938, W. Lee "Pappy" O'Daniel (1939-41) was elected governor. O'Daniel was a flour merchant from Fort Worth who became prominent as a radio personality. His platform was abolition of the poll tax, opposition to capital punishment, state assistance for the elderly, a promise of no sales tax, and endorsement of the Ten Commandments. In his first administration, he advocated transaction (sales) tax to subsidize support for the elderly. The legislature refused to approve the tax. In the 1941 session, O'Daniel and the legislature approved the Morris Omnibus Tax Bill which increased taxes on oil and gas, gasoline, tobacco, and some businesses. It did not address the long-term problem of state revenue. O'Daniel's one deeply held political conviction was hostility to labor unions. He called on the legislature to pass antilabor laws and warned of "labor racketeers." In 1941, O'Daniel defeated Lyndon Johnson in a special election for the United States Senate. Johnson accused O'Daniel of stealing votes in East Texas. Johnson believed that the returns also indicated Texans' growing disenchantment with the New Deal. He decided to distance himself from the New Deal in future elections. In 1942, O'Daniel won a full term in the senate. O'Daniel's carefully crafted "country bumpkin" image appealed to the Ferguson voters in Texas's past. However, his anti-New Deal, anti-labor, anti-communist platform would provide a model for future Texas conservatives.


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