American History Module Sixteen

The Great Depression

THE NATION’S SICK ECONOMY
Economic Troubles on the Horizon:
 Taxes on richest Americans were reduced.
 Government revenues dropped.
 Americans with annual income of $100,000 were only 0.1% of population.
 Many Americans couldn’t earn a decent living.
 Consumers and farmers were going deeper into debt.
INDUSTRIES IN TROUBLE:
 Superficial prosperity masked weaknesses that could signal the onset of Great
Depression.
 Industries: railroads, textiles and steel barely made a profit.
 Railroads lost business to new forms of transportation—trucks, buses and automobile.
 Mining and lumbering (expanding in war) were no longer in demand.
 Coal mining was hard-hit due to competition with new forms of energy like fuel oil,
hydroelectric power and natural gas.
 Boom industries manufactured far more products than consumers could afford to buy.
 Economic indicator that declined was housing starts.
o The number of new dwellings being built.
 Real estate prices were too high for many people.

FARMERS NEED A LIFT:

 Agriculture suffered the most.
 WWI: prices rose and international demand for crops (wheat and corn).
 Farmers planted more.
 Demand fell after the war and crop prices declined by 40%.
 Deflation: decrease in the general price level of goods and services took hold.
 They boosted production in the hopes of selling more crops but this dropped prices
further.
 1919-21: annual farm income declined from $10b to 4$b.
 Farmers who were gone into debt had difficulty paying off loans.
 Many lost their farms when bank seized the property as payment for debt.
 Congress tried to help them out with a piece of legislation called the McNary-Haugen
Bill.
o Federal price supports for key products (wheat, cotton and tobacco).
o Govt would but surplus crops at guaranteed prices and sell the on the world
market.
 President Coolidge vetoed the bill twice.

CONSUMERS HAVE LESS MONEY TO SPEND:

 Late 1920s: Americans were buying less because of:
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 o Rising prices, stagnant wages, unbalanced distribution of income, and overbuying
on credit in the preceding years.
 Production expanded much faster than wages which resulted in a wide gap between
the rich and the poor.
LIVING ON CREDIT:
 Americans bought good on credit—an arrangement in which consumers agreed to buy
now and pay later for purchases.
 It was in a form of an installment plan (monthly payments) included interest charges.
 By making credit available, businesses encouraged Americans to a large consumer
debt.
 Faced with debt, consumers cut back on spending.

UNEVEN DISTRIBUTION OF INCOME:

 The rich got richer and the poor got poorer.
 The income of the wealthiest 1% of the population rose by 75% compared with a 9%
increase for Americans as a whole.
 70% of families earned less than 2,500$ per year.
 Families earning twice couldn’t afford much of the household items.
 Economists estimate that the average person bought new outfit only once a year.
 Half the homes had electric lights or furnace for heat.
 One home in ten had an electric refrigerator.
 Unequal distribution of income meant that most Americans couldn’t participate in the
economic advances.
 The prosperity of the era rested on a fragile foundation.

Hoover Takes the Nation:

 Election btw Republican Herbert Hoover and Democrat Alfred Smith.

THE ELECTION OF 1928:

 Hoover was a mining engineer from Iowa while Smith was a governor of NY.
 Hoover believed that a focus on individual achievements
o Instead of a central govt controlling economy
o Made US great.

DREAMS OF RICHES IN THE STOCK MARKET:

 Economists warned of weaknesses in the economy.
 Increasing numbers, those who could afford to, invested in the stock market.
 Stock market was the most visible symbol of a prosperous American economy.
 Dow Jones Industrial Average was used barometer of stock market’s health.
 Dow is a measure based on the stock prices of 30 representative large firms trading on
New York Stock Exchange.
 Stock prices rose steadily.
 Dow reached a high of 381 points.
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 Bull market: period of rising stock prices where American rushed to buy stocks and
bonds.
 4m Americans or 3% of the population owned stocks.
 People were engaged in speculation—buying stocks and bonds on the chance of a
quick profit, while ignoring the risk.
 Many began buying on margin—paying a small percentage of a stock’s price as a
down payment and borrowing the rest.
 With easy money available to investors, unrestrained buying and selling fueled the
market’s upward spiral.
 If value of stocks declines, people who bought on margin would have no way to pay the
loans.
 Trend of buying on margin troubled the governing board of the Federal Reserve
System.
 It sets monetary policy to promote economic growth.
 They decided to make it harder for brokers to offer margin loans to investors.
 Borrowing from banks decreased but large corporations began providing brokers with
the cash to make margin loans.

The Stock Market Crashes:

 Stock prices peaked and then fell.
 Investors quickly sold their stocks and pulled out.
 Oct 24: market took a plunge and panicked investors unloaded their shares.
 Oct 29: Black Tuesday where the bottom fell out of the market and nation’s
confidence.
 Shareholders tried to sell before prices dropped even lower.
 Number of shares dumped onto the market that day was a record of 16.4m.
 Millions of shares couldn’t find buyers.
 People who bought stocks on credit were stuck with huge debts.
 Mid-Nov: investors lost $30b.
 The stock market bubble had finally burst.

Financial Collapse:
 The stock market crash signaled the beginning of the Great Depression.
 Period (1929 to 1930s) where economy plummeted and unemployment skyrocketed.

BANK AND BUSINESS FAILURES:

 After crash, people panicked and withdrew money from banks.
 Some couldn’t get their money because banks had no money.
 1929: 600 banks closed.
 1933: 11000 of the nation’s 25000 banks failed.
 Because govt didn’t protect or insure bank accounts, millions lost their savings.
 Federal Reserve System supplied more money to banks, but rules linking currency to
gold reserves hampered those efforts.

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 1929/1932: gross national product—the nation’s total output of goods and services—
was cut in half (from $104b to $59b).
 90,000 businesses went bankrupt.
 With the crash, Americans lost confidence in business and business in consumers.
 Businesses reduced their investments, which reduced their work forces.
 Millions of workers lost their jobs.
 Unemployment jumped from 3% (1.6m workers) to 25% in 1929 (13m workers) 1933.
 Those who kept their jobs faced pay cuts and reduced hours.

WORLDWIDE SHOCK WAVES:

 Growth in international trade, many world’s nations became interdependent.
 When the US economy failed, Americans investors withdrew their money from
European markets.
 US was not the only country gripped by the Great Depression.
 Many EU nations were trying to recover from WWI high war debts.
o Germany had to pay war reparations—payment to compensate the Allies for the
damage Germany caused.
 Great Depression compounded these problems by limiting America’s ability to import
European goods.
o Made it difficult to sell American farm products and manufactured goods abroad.
 Countries all around the world were affected by the financial collapse as
unemployment rates increased and prices decreased.
 1930: Congress passed the Hawley-Smoot Tariff Act, which established the highest
protective tariff in US history.
 It was designed to protect American farmers and manufacturers from foreign
competition, yet it had the opposite effect.
 By reducing the flow of goods into the US, the tariff prevented other countries earning
American currency to buy American goods.
 The tariff made unemployment worse in industries that could no longer export goods
to Europe.
 Within a year, world trade fallen more than 40%.

CAUSES OF THE GREAT DEPRESSION:

 Different causes and factors of the Great Depression:
o Tariffs and war debt policies that reduced the foreign market for American goods.
o A crisis in the farm sector.
o The availability of easy credit.
o An unequal distribution of income.

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HARDSHIP AND SUFFERING:
The Depression Devastates People’s Lives:
 Depression brought hardship, homelessness and hunger to millions.

THE DEPRESSION IN THE CITIES:

 People lost their jobs, evicted from their homes and ended up in the streets.
 Some slept in parks or sewer pipes, wrapping themselves in newspaper.
 Others built makeshift shacks out of scrap materials.
 Shantytowns: little towns consisting of shacks.
 Americans called shantytowns “Hoovervilles” bc they blamed Hoover for Depression.
 Poor dug through garbage cans or begged.
 Soup kitchens offering free or low-cost food and bread lines
o lines of people waiting to receive food provided by charitable org or public
agencies
 Conditions for A.A and Latinos were difficult.
o Their unemployment rates were higher and were the lowest paid.
o They dealt with racial violence from unemployed whites.
o 24 A.A were executed in 1933.
 Latinos (Mexicans) lived in the Southwest were also targets.
o White demanded Latinos to deport or expelled from country.
o Many of them were born in America.
o 1930s: thousands Mexican descent relocated to Mexico (voluntarily or deported)

THE DEPRESSION IN RURAL AREAS:

 Life in rural areas was hard but had one advantage:
o Most farmers grow food for their families.
 Falling prices and rising debt, thousands of farmers lost their land.
 1929-32: 400,000 farms were lost thru foreclosure—the process by which a mortgage
holder takes back property if an occupant has not made payments.

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 THE DUST BOWL:
 1930s: drought began and wreaked havoc on the Great Plains.
 1920s: farmers from Texas to N. Dakota used tractors to break up the grasslands and
plant millions of acres of new farmland.
 Plowing removed the thick protective layer of prairie grasses.
 Farmers exhausted the land thru overproduction of crops.
 Grasslands became unsuitable for farming.
 Rains stopped and wins began to blow, little gras sand few trees were left to hold soil.
 Wind scattered topsoil, exposing sand and grit underneath.
 The dust traveled hundreds of miles.
 1934: windstorm picked up millions of tons of dust from plains to East Coast cities.
 Dust Bowl: Kansas, Oklahoma, Texas, New Mexico, and Colorado.
 With dust storms and evictions, farmers had to decide to continue cultivating
unproductive land or give up and move on.
 Farmers and sharecroppers decided to leave their land behind.
 They packed up families, belongings and headed west Route 66 to California.
o They thought they would find jobs there.
 Okies: term referred to Oklahomans but was used negatively for all migrants.
 Migrants found work as farmhands, other continued to wander in search of work.

Effects on the American Family:

 Families entertained by staying at home and playing board games.

MEN IN THE STREETS:

 Men walked in the streets in search of jobs.
 Some became discouraged they stopped trying.
 Some abandoned their families.
 Having left their families behind, some men hit the road.
o 300,000 transients/hoboes in the country on railroad boxcars or under bridges.
o They developed a hidden language to help them survive.
o They marked houses or fences with symbols to get food, water, place to sleep.
 Early Depression, there was no federal system of direct relief—cash payments or food
the govt provides the poor.

WOMEN STRUGGLE TO SURVIVE:

 Many canned foods, sewed clothes and managed household budget.
 They worked outside home and received less money than men.
 People believed that married women had no right to work while unemployed men.
 Many women were starving to death in cold attics and rooming houses.

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 CHILDREN SUFFER HARDSHIPS:
 Poor diets and lack of money for health care led to health problems.
 Milk consumption declined, clinics and hospitals reported a rise in malnutrition and
diet-related diseases (Rickets).
 School boards shortened the school years and some closed.
 1933: 2,600 schools shut down with 300,000 students out of school.
o Children went to work instead.
 Eugene Williams: “If I leave my mother, it will mean one less mouth to feed.”
 Teenage boys and girls hopped abroad America’s trains for word and escape poverty.
 “wild boys” were sons of poor farmers, out-of-word miners and wealthy parents who
lost everything.
 “Hoover tourists” were touring in America for free.
 Riders were beaten or jailed by “bulls”—armed freight yard patrolmen.
 Riders had to sleep standing in noise.
 Some fell prey to murderous criminals.
 1929-39: 24,647 trespassers were killed.
o 27,171 injured on railroad property.

SOCIAL AND PSYCHOLOGICAL EFFECTS:

 People lost will to survive.
 1929-32: suicide rate rose more than 30%.
 Three times as many people were admitted to state mental hospitals as in normal
times.
 Economic problems forced Americans to accept
o compromises and make sacrifices that affected them for the rest of their lives.
 Adult stopped going to doctor or dentist because they couldn’t afford it.
 Young people gave up their dreams of going to college.
 Others got married, raising large families or having children at all.
 For some, achieving financial security became the primary focus in life.
 Many people showed great kindness to strangers.
o They often gave food, clothing, and a place to stay to the needy.
 People developed habits of saving and thriftiness—habits they would need to see
themselves thru the dark days on.

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HOOVER’S FAILED POLICIES:
Hoover Tries to Reassure the Nation:
 Business theory: periods of rapid economic growth were followed by periods of
depression.

HOOVER’S PHILOSOPHY:
 He was an engineer that believed in the power of reason and a humanitarian.
 He believed that the govt’s function is to foster cooperation btw competing groups and
interests in society.
o Ex: conflict btw business and labor, then govt help them find a solution with
mutual interests.
 He felt govt’s role was to encourage and facilitate cooperation not to control it.
 Rugged individualism: the idea that people should succeed thru their own efforts.
o They take care of themselves and their families, rather than depend on govt.
 He opposed federal welfare or direct relief to the needy.
o That it weakened people’s self-respect and moral fiber.
 His answer was that individuals, charities and local org help care for less fortunate.
o Not the federal govt.

HOOVER TAKES CAUTIOUS STEPS:

 After the stock market crash, he called key business, banking, and labor leaders.
 He urged them to work to find solutions to the nation’s economic woes.
o He asked employers not to cut wages or lay off worker.
o He asked labor leaders not to demand higher wages or go on strike.
o He created an org to help private charities generate contributions to the poor.
 These steps didn’t make much difference.
 After a year of the crash:
o The economy was still shrinking.
o Unemployment was still rising.
o More companies went out of business.
o Soup kitchen became a common sight.
o General misery continued to grow.
o Shantytown arose in every city.
o Hoboes continued to roam.

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 BOULDER DAM:
 Hoover served as secretary of commerce.
 He proposed initiative: construction of a dam on the Colorado River.
 Aim to minimize federal intervention, he proposed to finance the dam’s construction
o With profits from sales of the electric power that dam would generate.
 He helped to arrange agreement on water rights among 7 states of the Colorado River
basin—Arizona, California, Colorado, Nevada, New Mexico, Utah and Wyoming.
 1928: it won congressional approval part of $700m public works program.
o He was elected to the White House.
 1929: one year into presidency, he was able to authorize construction of Boulder Dam
or Hoover Dam.
 726ft high and 1,244ft long the tallest and second largest dam in the world.
 It provided electricity and flood control, a regular water supply which enabled the
growth of California’s massive agricultural economy.

DEMOCRATS WIN IN 1930 CONGRESSIONAL ELECTIONS:

 Political tide turned against Hoover and Republicans.
 1930: congressional elections, Democrats won more seats in Congress.
 Americans grew more and more frustrated by the Depression.
 Farmers with low crops prices burned their corn and wheat and dumped milk on
highways rather than sell it at a loss.
 Some declared “farm holiday” and refused to work their fields.
 Some blocked roads to prevent food from getting to market, hoping that food
shortages would rise prices.
 Some used force to prevent authorities from foreclosing on farms.
 Americans attached his name to various symbols of Depression.
 Shantytown as “Hoovervilles”.
 Homeless people called the newspaper they wrapped themselves in “Hoover
blankets”.
 Empty pockets turned inside out were “Hoover flags”.
 However, Hoover continued to hold firm to his principles.
 He refused to support direct relief or other forms of federal welfare.

Hoover takes Action:

HOOVER BACKS COOPERATIVES:
 His Attempt to relieve Depression involved negotiating agreements among private
entities.
 He backed the creation of Federal Farm Board, org of farm cooperatives.
 Farm board intended to raise crop prices by helping members buy crops and keep
them off market until prices rose.
 He tried to prop up the banking system by persuading nation’s largest banks to
establish National Credit Corporation.
 Org loaned money to smaller banks to help them avoid bankruptcy.
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 DIRECT INTERVENTION:
 1931: these measures failed to turn the economy around.
 Hoover appealed to Congress to pass a series of measures to:
o reform banking.
o provide mortgage relief.
o funnel more federal money into business investment.
 1932: Hoover signed Federal Homes Loan Bank Act,
o lowered mortgage rates for homeowners
o allowed farmers to refinance their farm loans and avoid foreclosure.
 Hoover time in office war over that Congress passed the Glass-Steagall Banking Act:
o Separated investment from commercial banking and prevent another crash.
 Reconstruction Finance Corporation was approved by Congress in 1932.
 It authorized 2$b for:
o emergency financing for banks
o life insurance companies and railroads.
 He believed that money come to average citizen thru job growth and higher wages.
 Critics argues that program benefit only corporations and poor still needed direct
relief.
 RFC loaned more than $805m to large corporations, but business failures continued.

The Bonus Army Incident:

 20,000 WWI veterans and their families arrived in Washington DC.
 They called themselves the Bonus Expeditionary Force or the Bonus Army.

THE PATMAN BILL DENIED:

 Led by Walter Waters, Bonus army came to DC to support bill under debate in
Congress.
 Patman Bill authorized govt to pay bonus to WWI veterans who were not
compensated for their wartime service.
 1924: Congress approved and supposed to pay in 1945 in form of cash and a life
insurance policy.
 Congressmen Patman believed that money 500$ per soldiers be paid immediately.
 Hoover thought of the Bonus Marcher as communists rather than veterans.
 He opposed the legislation.
 June 17: Senate voted down the Patman bill.
 Hoover called the Bonus Army marchers to leave.

HOOVER DISBANDS THE BONUS ARMY:

 He decided that Bonus Army be disbanded.

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 July 28: 1,000 soldiers under command of General MacArthur and Eisenhower came
to roust the veterans.
 Infantry gassed 1000 people including 11-month boy who died.
 8-year-old boy partially blinded.
 Two people were shot and many injured.
 November: Hoover faced opponent Democratic candidate Franklin Delano Roosevelt.

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