The Great Depression The Great Depression 1929-19331929-1933

The Great DepressionIn A Nutshell

The Great Depression was the worst collapse in the history of American capitalism. Throughout the 1930s, neither the free market nor the federal government was able to get the country working again. The American people endured a full decade of almost unbelievable economic misery. While a much-feared revolution—of either Communist or fascist persuasion—thankfully never materialized, Americans flirted with a number of radical alternatives to the status quo. Some of those radical alternatives faded into memory, while others were incorporated—in watered-down fashion—into the New Deal, where a few remain with us even today.

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Why Should I Care?We Americans are, in the phrase of historian David Potter, "people of plenty." Our country is blessed with a wealth of natural resources, and our democratic capitalist system has delivered us a level of material affluence unprecedented in human history. For most Americans, at most times in American history, the economy has provided real opportunity for real individual success.

But what would you do if the economy suddenly stopped providing that opportunity? If it no longer seemed to matter how hard you worked, how smart you were, how responsibly you took care of your money? If the system just stopped working, seemingly dooming you to a life of poverty through no fault of your own?

Would you blame yourself?

Would you work harder, striving to prosper, against all odds, within the failing system?

Or would you try to change the system itself? And if so, what would you try to change it into?

These are the questions that faced every American through the long, lean years of the Great Depression, which stretched mercilessly through the 1930s. Their answers might surprise you.

Causes of the Great Depression

Terms and People• Herbert Hoover – former Secretary of Commerce

and Republican candidate for President in 1928 • speculation – when investors gamble that stock

prices will rise• Black Tuesday – October 24, 1929, the day the

stock market crashed• business cycle – periodic expansion and

contraction of the economy

Terms and People (continued)

• Great Depression – The collapse of the United States and world economies beginning in 1929

• Hawley-Smoot Tariff – high protective tariff passed in June 1930 that contributed to a worldwide depression

How did the prosperity of the 1920s give way to the Great Depression?

During the 1920s, many Americans enjoyed what seemed like an endless era of prosperity. But in 1929, the stock market crashed. Production fell, unemployment rose, and the economy went into a period of dramatic decline. Years after the Great Depression began, periodic contraction was seen as part of the business cycle.

The Republicans took credit for the strong economy.Their presidential candidate was Herbert Hoover.He believed in voluntary cooperation between business and labor.

In the 1928 presidential race, the Republican Party was confident.

Farmers could not afford to buy goods or repay their loans.

The agricultural sector was in trouble. Rural

farmers produced huge surpluses of food that

depressed prices.

Despite Hoover’s confidence, some saw signs of weakness in the economy.

Fundamental Causes of the Depression

• Drop in farm prices• Massively uneven distribution of

income• “Get rich quick” schemes in real

estate and especially in stocks• Over-extension of credit• Increased inventories of goods• Immediate cause: October 1929

stock market crash Many consumers in the 1920s bought items such as this ironer on credit

The Day the Bubble Burst • October 29, 1929

• More than 16 million shares traded in one day

• Stock market lost $30 billion

• Beginning of the “Great Depression”

The trading floor of the New York Stock Exchange in 1929

Banking System Collapse• Banks invested

heavily in the market

• Collapse of market led to bank failures

• Many depositors panicked, leading to even more bank failures

Worried depositors wait outside a bank hoping to withdraw their savings

Easy credit and installment buying lead people to purchase goods they can’t pay for.

By 1929, Americans racked up more than $6 billion in personal debt — more than double the 1921 level.

Rising wages masked an uneven distribution of wealth.

While factory workers’ wages rose 8%, factory output increased by 32%. As a result, worker incomes rose modestly, while rich investor incomes skyrocketed.

Until September 1929, the stock market continued to rise.

Many people borrowed money to buy stock, assuming prices would continue to go up.

Some economists feared that stocks were over-priced.

On October 29th, the stock market went into a free fall as investors tried to sell at any price.

Many who bought stocks on margin were wiped out.

Billions of dollars were lost in a few hours.

16 million shares were sold on “Black Tuesday.”

• In growth periods, workers are hired, wages rise, and demand for products increases.

• In contraction periods, workers are fired, wages drop, and demand for products falls.

The Great Crash was a hallmark of the nation’s business cycle. The economy periodically grows and then contracts.

The stock market crash didn’t start the Great Depression by itself. Instead, it quickened the collapse of the U.S. economy.

The banking system feels the effects of the crash first. People fear that their money will be lost so they run to the bank and attempt to withdraw their funds.

But banks don’t have enough of their money on hand as cash. These bank runs cause banks to fail.

• Factories closed, causing worker layoffs.

• This lowered demand for goods.

• By 1933, the unemployment rate reached 25%.

The resulting drop in world trade only made the glut of American factory and farm products harder to sell.

The strategy was a mistake. Other nations retaliated and raised tariffs

as well.

Congress passed the Hawley-Smoot Tariff to protect American manufacturers from foreign competition.

As international trade falls, a global drop in business leads to a worldwide depression.

There were several causes of the Great Depression. There is still disagreement over which are most important.

Each of the following contributed to dangerous economic conditions:

hardships in Europe and rural Americauneven distribution of wealthspeculation in the stock marketincreased personal debt

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•UNEQUAL DISTRIBUTION OF WEALTH•HIGH TARIFFS AND WAR DEBTS•OVERPRODUCTION IN INDUSTRY AND AGRICULTURE•INCONSISTENT MONETARY POLICY•STOCK MARKET CRASH AND FINANCIAL PANIC

While historians disagree as to the exact causes of the Great Depression. Most scholars would include in their list:

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AGRICULTUREINDUSTRY

MONETARY POLICY

STOCK MARKET CRASH AND FINANCIAL PANIC

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THE 1920’S WAS A PROSPEROUS TIME, BUT THE PROSPERITY WAS NOT SHARED. EQUALLYMANY PEOPLE, LARGELY DUE TO NEWLY INTRODUCED INSTALLMENT BUYING, COULD AFFORD TO BUY CARS, RADIOS AND OTHER NEW PRODUCTS OF THE 1920’S. FARMERS, HOWEVER, WERE IN A DEPRESSION THROUGHOUT THE WHOLE DECADE.

Effects of the Depression

http://www.americanhistory.abc-clio.com/reel2real/scholarsnotes.aspx?relateddisplay=true&entryid=789977

Terms and People

• bread line – where charities or local agencies gave food to the poor

• Hooverville – term used to describe makeshift shantytowns set up by homeless people during the Great Depression

• tenant farmer – rural farmers who lost their land but stayed on to work for larger landowners

• Dust Bowl – millions of acres in the Great Plains that were destroyed when dust storms blew away the soil

Terms and People (continued)

• Okies – Great Plains farmers forced off their land by the Dust Bowl

• repatriation – policy whereby local, state, and federal governments encouraged or coerced Mexican immigrants—some of them U.S. citizens—to return to Mexico

How did the Great Depression affect the lives of urban and rural Americans?

The stock market crash signaled the end of boom times and the economy staggered into the Great Depression. Desperate poverty gripped the nation, leaving a permanent impression on those who lived through it.

Tested by extreme hardship, this generation forged a strong character and will to restore prosperity.

Between 1921–1929, the unemployment rate never rose above 4 percent. By 1933, however, it was near 25 percent.Those who managed to keep their jobs had their wages and hours cut.

Few Americans understood the causes of the Great Depression, but everyone felt the impact.

For many, the only food available came from public soup kitchens or bread lines run by charitable organizations.

People sold their property to buy food.

The homeless lived in empty railroad cars, in cardboard boxes, or in shacks built on public land or in empty lots.

Hoovervilles appeared in major cities across the country.

Hoovervilles• Settlements of

shacks inhabited by transients and unemployed

• Derisively named after President Hoover

• Many cities and towns had at least one

37“Hoovervilles”, homeless camps

Bankers sold the land and equipment at auction. Some farmers became tenant farmers, working for bigger landowners. Others decided to leave in search of work elsewhere in the United States.

Between 1930 and 1934, nearly a million farmers lost their farms, homes, and farm equipment because they could not pay their mortgages.

The remaining farmers on the Great Plains suffered a terrible drought, which led to the Dust Bowl.

Dust storms destroyed millions of acres of farmland.

• Farmers had dug up thick prairie grasses to plant wheat, so there was nothing to hold the soil in place.

• Winds traveling as fast as 100 mile-per-hour winds blew dust clouds 8,000 feet tall in Oklahoma, Texas, New Mexico, and Colorado.

• Wildlife and farm animals suffocated in the choking winds.

Millions of tons of topsoil were blown away in giant dust storms.

The Dust Bowl: Causes• Overcultivation

of land in the Great Plains

• Sustained drought throughout region

• High winds blew away loose topsoilA dust cloud approaches the town of Stratford,

Texas, in 1935

The Dust Bowl: Impact• More than 500,000 left homeless

• Storms blew large amounts of dust from the Plains into cities such as Chicago and Buffalo

• “Red snow” fell on towns in New England

The Plight of the “Okies”• Farmers from

Oklahoma fled the Dust Bowl

• Went to California for farm jobs

• Possibly 15 percent of Oklahoma’s population became migrants

A woman and her child rest beside their car during their trip west

Hardships• “Camps”

unsanitary• Wages decreased

for large numbers • California passed

an “anti-Okie” law

A migrant camp in California

The “Migrant Mother” • One of the most

famous New Deal–era photos

• Shot for the Resettlement Administration by Dorothea Lange

• Taken in California in February or March 1936

In old trucks, farmers moved west or to northern cities. Before the pace slowed, 800,000 Okies left Texas, Oklahoma, Missouri, and Arkansas alone. Rural states lost population during the 1930s.Those who could afford it bought distressed neighbors’ farms at low prices to build expanded commercial farms.

Farmers who had lost their land, called Okies regardless of where they were from, were forced to leave.

Family life was hurt by the Great Depression.

Some teens ran away, and families broke up.

America’s birthrate fell to its lowest level on record.

Those who were still working felt guilty because friends and relatives were unemployed.

Those who still had jobs lived in fear that their next paycheck would be their last.

Minorities suffered even more during the depression.

• As Okies moved west to find work, Mexicans and Mexican Americans faced fierce competition for jobs.

• Local governments urged repatriation for Mexican Americans.

• Even in good times, African Americans were “last hired and first fired.”

• Many were thrown off southern farms where they were sharecroppers.

Hoover’s Response to the Great Depression

Terms and People

• localism – policy whereby problems are best solved at the state and local level and not by the federal government

• Reconstruction Finance Corporation – created in 1932 to lend cash to investors to stimulate the economy

• trickle-down economics – economic theory that held that money lent to large banks and corporations would in turn be invested in small businesses which would hire more workers

Terms and People (continued)

• Hoover Dam – huge public works project on the Colorado River that provided jobs, water for irrigation, and power

• Bonus Army – group of World War I veterans who marched on Washington, D.C., in 1932, to demand early payment of a bonus promised them by Congress

• Douglas MacArthur – supervised the forced removal of the Bonus Army, which angered many Americans

Why did Herbert Hoover’s policies fail to solve the country’s economic crisis?

As the Great Depression spread misery across America, Herbert Hoover struggled unsuccessfully to respond to the nation’s problems. As a result of Hoover’s failed response, in 1932 Americans would turn to a new leader and increased government intervention to stop the depression.

Hoover’s Response• President Hoover

overwhelmed• Believed that private

charity was best suited to solve problems

• Most efforts failed• Reconstruction Finance

Corporation achieved some success

President Herbert Hoover

Herbert Hoover did not cause the Great Depression, but Americans looked to him to solve the crisis.

He tried a number of different approaches, but in the end he failed to discover the right formula for stopping the crisis.

Like most economists of the day, he believed that up and down swings in the economy were a natural part of the business cycle.

It was thought that strong businesses would weather storms without the support of the government.

At the start of the economic downturn, Hoover took a hands-off approach.

Asked businesses to keep wages, employment, and prices at current levels

Called for tax cuts, lower interest rates, and public works

Asked wealthy to donate more money to charity

Hoover saw that he must do something.

But volunteerism failed.

• Towns and states didn’t have the necessary resources to deal with the depression.

• Hoover did not support direct federal aid to individuals.

Hoover put his faith in localism, a policy whereby problems are best solved at the local and state levels.

The RFC gave billions of dollars to banks and large businesses.The idea was that they would lend to, and invest in, struggling businesses who would hire workers and thus end the depression. The RFC failed when businesses did not hire more workers.

In 1932, Hoover urged Congress to create the Reconstruction Finance Corporation (RFC). The RFC employed a policy known as trickle-down economics.

One policy that did succeed was the construction of Boulder Dam, (later renamed Hoover Dam) across the Colorado River.Started in 1930, the huge dam provided power for more than a million people and irrigation for farm land, and brought needed jobs to the Southwest.

• Some blamed Hoover and some blamed capitalism.• Some were World War I veterans who wanted a

bonus that was promised to them.• In 1932, those veterans formed the Bonus Army

and marched on Washington.

Many grew disillusioned during the Great Depression.

The Bonus Army• Patman Bill was to

move up bonus payments from 1945 to 1933

• Veterans camped near the Capitol to support the bill

• Bill failed in Congress• Hoover’s removal of

vets made Hoover appear heartlessWith the U.S. capitol visible in the

distance, shacks erected by the Bonus Expeditionary Force burn

In the summer of 1932, almost 20,000 veterans set up camps and occupied vacant buildings. In July, police tried to evict them and riots erupted.

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THE BONUS EXPEDITIONARY FORCE WAS A GROUP OF WWI VETERANS WHO HAD BEEN DENIED EARLY BONUS PAYMENTS FOR SERVICE IN THE WAR. THEY ORGANIZED A PROTEST MARCH ON WASHINGTON IN 1932. TWENTY THOUSAND MEN SET UP A TENT CITY, VOWING TO STAY UNTIL THEY GOT THEIR MONEY. PRESIDENT HOOVER SENT IN THE ARMY (LED BY FUTURE GENERALS OF THE ARMY DOUGLAS MACARTHUR AND DWIGHT D. EISENHOWER) TO BREAK UP THE PEACEFUL DEMONSTRATION.

BONUS MARCHERS SET UP CAMP IN WASHINGTON D.C.

THE BONUS MARCHMAY –JULY 1932

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SOME BONUS MARCHERS BROUGHT THEIR FAMILIES

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BONUS MARCHERS RALLY AT THE CAPITOL STEPS

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PRESIDENT HOOVER SENT THE ARMY TO DISPERSE THE BONUS MARCHERS

The eviction of the Bonus Army doomed Hoover’s bid for re-election. Americans were ready for new leadership and a greater role for the government in solving problems.

Hoover ordered General Douglas MacArthur to remove the veterans. He used tear gas, cavalry, tanks, and troops with fixed bayonets.Press photos of troops using excessive force angered the American public.

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ONE VETERAN WAS KILLED, 50 PROTESTORS AND SOME POLICE OFFICERS WERE INJURED. THE MARCHERS DISPERSED. THERE WAS ANOTHER SMALLER MARCH IN THE NEXT YEAR. PRESIDENT HOOVER WAS WIDELY CRITICIZED FOR HIS HANDLING OF THE SITUATION.

SHACKS OF THE BONUS ARMY AFTER THEY WERE FORCED OUT

THE GHOST OF LINCOLN TRIES TO COMFORT HOOVER IN THIS PRO HOOVER POLITICAL CARTOON

Chapter SummarySection 1: Causes of the Depression

Section 2: Americans Face Hard Times• Americans lost their jobs, savings, homes, and status. Families

went without food, stood on bread lines, or lived in “Hoovervilles.” A terrible drought turned the Great Plains into the Dust Bowl, sending thousands of migrants called Okies on the road.

• Many factors contributed to an economic collapse, including uneven distribution of wealth, credit buying, personal debt, agricultural over-production, government policy errors, tariffs, and stock speculation.

Chapter Summary (continued)

Section 3: Hoover’s Response Fails• President Hoover tried several strategies to respond to

the crisis, but each came up short. Volunteerism, localism, and a trickle-down economics approach all failed. Forced removal of the Bonus Army from Washington D.C. ended his chances for reelection in 1932.