The Great Depression. 1929-1939. Causes of the Great Depression. The stock market crash
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In 1929 Wall Street was the financial capital of the world. The heart of Wall Street was an imposing gray building, the New York Stock Exchange. Here soaring stock prices reinforced optimism about America’s booming economy. Between January 1921 and September 1929, the New York Times average of stock prices rose from $110 to $455. Many people began to believe that Republican economic policies had ushered in a New Era of rising prosperity.
Wall Street’s speculative bubble burst on Black Tuesday, October 29, 1929. Waves of panic selling overwhelmed the New York Stock Exchange. The wild shouting of 1,000 frantic brokers produced what one observer called “a weird roar.” The selling reached a crescendo on Tuesday, October 29th. Within less than a week stocks lost 37 percent of their value.
At first the Wall Street crash appeared to have only hurt the four million investors who owned stock. The United States’ vast industrial and agricultural resources were physically unhurt. There seemed to be no reason for prosperity to end. President Hoover tried to reassure the nervous public by confidently predicting, “The crisis will be over in sixty days.” But Hoover was wrong. The Wall Street crash dealt a severe blow to investors and to banks. It also revealed and intensified serious economic weaknesses in the U.S. economy.
In 1929, American factories produced nearly half of the world’s industrial goods. Rising productivity generated enormous profits. This wealth, however, was unevenly distributed. At the time of the crash the richest 5 percent of the population earned nearly one-third of all personal income. Meanwhile, at the other end of the scale, fully 60 percent of all American families earned less than the $2,000 a year needed to buy basic necessities. Eighty percent of the nation’s families had NO savings whatsoever. Thus, most families were too poor to buy the goods being produced and had no resources to fall back on if they lost their jobs.
The United States economy was thus simultaneously experiencing overproduction by business and underconsumption by consumers. As a result, store owners reduced their orders and factories began to cut back production and lay off workers. These actions started a downward economic spiral.
Many American farmers never shared in the prosperity of the 1920s. Scientific farming methods combined with new trucks and tractors enabled farmers to dramatically increase the yield of crops per acre. At the same time, American farmers faced new competition from grain growers in Australia and Argentina.
The global surplus of agricultural products drove prices and farm incomes down. Since they were unable to sell their crops at a profit, many farmers could not pay off their loans. These bad debts forced weakened banks to close.
Between 1929 and 1932 all the major economic indicators documented the same devastating story of economic collapse. By 1932 investors lost $74 billion as stocks lost 89 percent of their value. During these 3 years 86,000 businesses closed their doors and 9,000 banks declared bankruptcy wiping out 9 million savings accounts.
The burden of hard times fell most heavily on those least able to afford it. Unemployment rose from just 3.2 percent in 1929 to a staggering 24.9 percent in 1932. Poverty soon became a way of life for one-fourth of the population.
A strong, protective carpet of buffalo grass had once covered the Great Plains. The grass held moisture in the soil and kept the wind from blowing it away. However, as the demand for wheat increased, farmers plowed under the buffalo grass exposing the land to wind and sun. During the early 1930s farmers watched apprehensively as a prolonged drought and intense heat dried out the Great Plains.
Disaster struck without warning or mercy. Great black clouds of dust darkened the sky and covered homes and barns. “The storms were like rolling black smoke,” reported one awestruck Texas schoolboy. “We had to keep the lights on all day. We went to school with headlights on and with dust masks on.” Large areas of Kansas, the Texas panhandle, Oklahoma and eastern Colorado became known as the Dust Bowl.
Agriculture virtually ceased in the hardest-hit areas of the Dust Bowl. Over 350,000 desperate people fled the Great Plains during the 1930s. Called “Okies,” they loaded their meager belongings into battered cars and headed west along Route 66 to California. John Steinbeck captured the ordeal faced by these proud but impoverished migrants in his powerful novel, The Grapes of Wrath.
Prolonged unemployment created an army of homeless people. The jobless stood in breadlines, sold apples on street corners and slept anywhere they could find shelter.
Hooverville was the sarcastic term given to shantytowns inhabited by unemployed and homeless people. For Americans used to living in a land of abundance, Hoovervilles were among the most sobering sights of the Great Depression.
Like most leaders of business and government, President Hoover did not anticipate the sudden economic downturn that followed the stock market crash on October 29, 1929. He believed that the economy was fundamentally sound and that the real problem was a lack of confidence. Convinced that economic recovery depended primarily on the business community, Hoover summoned industrial leaders to the White House and urged them to maintain wages, jobs, and production. He also implored (urged) private charities and local governments to help unemployed workers.
Hoover rejected calls for federal programs to directly help unemployed workers. He stubbornly opposed a government dole because it ran counter to his belief in “rugged individualism.” Hoover argued that a program of direct federal relief to individuals would violate the Constitution and undermine the cherished value of “rugged individualism.” Hoover’s philosophy of rugged individualism and local volunteerism hardened into a dogma that prevented him from supported federal programs to combat unemployment.
While Hoover rejected federal programs to help the poor, he did listen to bankers who pleaded for federal aid. In early 1932 Congress created the Reconstruction Finance Corporation (RFC) to make emergency loans to distressed banks and businesses. The RFC loaned $1.78 billion to 7,400 banks, insurance companies, and railroads that needed help.
The RFC went far beyond anything the federal government had ever done before. Its emergency loans helped limit the number of bankruptcies. However, indignant (outraged) critics accused Hoover of insisting on rugged individualism for people standing in breadlines while at the same time supporting a “billion-dollar soup kitchen” for distressed bankers.
Hoover’s already sinking popularity fell even further because of his mishandling of the Bonus Army. In 1924, Congress promised a bonus of several hundred dollars to World War I veterans. The payment, however, would not be made until 1945.
Arguing that they needed the bonus money as soon as possible, many unemployed veterans demanded to be paid immediately. In the spring of 1932 a Bonus Army of about 20,000 veterans converged on Washington to lobby Congress to pass a bill providing for the immediate payment of their bonuses. However, Hoover opposed the bill arguing that its $2.5 billion price tag would make it impossible to balance the federal budget. Supported by Hoover, the Senate rejected the bill.
Although most of the discouraged veterans left Washington, a few thousand remained with their wives and children. Their presence embarrassed the President. In July Hoover ordered about 700 soldiers commanded by General Douglas MacArthur to evict the Bonus Army from downtown Washington. Newsreel cameras captured the jarring spectacle of U.S. Army troops using bayonets and tear gas to drive the veterans and their families from their ramshackle shacks. Hoover misjudged outraged public opinion when he proudly boasted, “Thank God we still have a government…that knows how to deal with a mob.”
The deepening depression crippled any chance Hoover had of winning reelection. The ubiquitous (everywhere) breadlines and Hoovervilles seemed to confirm the popular image of Hoover as a leader who was insensitive to the plight of the American people.
Sensing victory, the Democrats nominated Franklin D. Roosevelt, the popular reform-minded Governor of New York. In a dramatic gesture, Roosevelt broke tradition and flew to Chicago to personally accept his party’s nomination. He inspired the convention by promising cheering delegates, “I pledge you, I pledge myself, to a new deal for the American people.”
During the campaign Roosevelt remained deliberately vague about the details of the “new deal.” Despite the lack of a real debate on the issues, Hoover and Roosevelt did strongly disagree on the desirability of funding a massive program of public works to relieve unemployment. Unlike Hoover, Roosevelt believed government had a responsibility to take aggressive actions to fight the Depression.
Americans understood that voting for FDR meant endorsing a change in federal policy. Roosevelt won an overwhelming victory winning 57 percent of the vote while carrying 42 of the nation’s 48 states.