America and the Great Crash

Mr. Phipps

U.S. History

California State Standards• 11.6.1. Describe the monetary issues of the late nineteenth and

early twentieth centuries that gave rise to the establishment of the Federal Reserve and the weaknesses in key sectors of the economy in the late 1920s.

• 11.6.2. Understand the explanations of the principal causes of the Great Depression and the steps taken by the Federal Reserve, Congress, and Presidents Herbert Hoover and Franklin Delano Roosevelt to combat the economic crisis.

• 11.6.3. Discuss the human toll of the Depression, natural disasters, and unwise agricultural practices and their effects on the depopulation of rural regions and on political movements of the left and right, with particular attention to the Dust Bowl refugees and their social and economic impacts in California.

The Era

• Considered the worst economic catastrophe in the U.S.

• The American depression was part of global economic crisis

• The Stock Market crash did not cause the Depression, only made it happen faster

• The American government radically changed to respond to widespread economic and social problems

Part A:Economic Problems

The Great Depression started as a series of related economic

problems.

I. The Sick Economy of the 1920s

• The prosperity of the 1920s failed to cover up major economic problems

• Wages dropped, Production dropped, Unemployment increased

• Many important industries affected, including:– Agriculture and Farming– Railroads– Textiles– Steel– Mining– Lumber– Automobiles– Housing Construction– Consumer Goods

At the time of the Great Crash, stock values dropped from $87 to $19 Billion. Steel production dropped 80%, and overall industrial output decreased by 50%

II. Consumer Spending• Advertising and culture of

1920s emphasized mass consumption

• Excessive spending throughout the 1920s increased debt

• By the end of the 1920s, consumers were purchasing less

• Rising prices, declining wages, and higher interest payments resulted in greater debt

Consumer debt increased from $3 Billion in 1920 to over $7 Billion in 1929.

III. Distribution of Wealth

• The gap between the rich and the poor widened

• The wealthiest 1% saw their income increase by 75%; the rest of the population increased less than 9%

• 5% of Americans controlled 1/3 of all the wealth; 70% of Americans earned less than a subsistence wage

IV. Speculation on Wall Street

Stock Speculation --Investors buy risky or unstable stocks and bonds hoping for a quick profit

Buying on Margin --Investors buy risky stocks on loan, hoping that the profit, when sold, would exceed the loan amount

V. The Laissez-Faire PresidentHerbert Hoover (1929-

1933)• Political Experience

– Graduate from Stanford– Brilliant Engineer– Director of Food Administration

during WWI– Secretary of Commerce (1921-

1928)

• Campaign Promise– Continued economic prosperity Hoover’s campaign promise was to

assure the American people that there would be “a chicken in every pot.”

Hoover’s Conservatism

• Believed that Americans were self-sufficient -- rugged individualism

• Argued that government intervention would ruin American democracy

• Considered that the “economic down-turn” of 1929 was part of a regular business cycle

VI. Foreign Loans

• The Dawes Plan (1924) -- American loans to Germany (so that Germany could pay WWI war reparations to Britain and France)

• Hawley-Smoot Tariff (1930) -- Raised import tariffs on all goods, resulting in higher expense for good and decreased demand

• Reduction in foreign demand for American consumer goods -- world trade decreased by 40%

Foreign Loans Default

Part B:The Chain Reaction

Economic problems throughout the 1920s resulted in dangerous economic instability, setting off a chain reaction in October 1929.

I. The Pieces

Causes• Decrease in consumer

spending• Unequal distribution of

wealth• Overproduction of goods• Huge farm surpluses• Unpaid war debts

• Buying on margin

Effects• Under-consumption of

goods• Families had limited

income to buy goods• Price of goods falls• Drop in farm prices• Banks didn’t get back

money• Stock speculation, buying

on credit, unstable market

By mid-November, investors had lost over $30 billion.

II. The Chain• Investors call brokers--they want their money • Brokers call investors/speculators to collect

money (to pay back loans)• Investors sell stock at any price, flooding the

market with stocks• Brokers go under -- stocks are

worthless/Investors lose their savings• American public panics -- they go to their

banks to withdraw their money• Banks run out of money and close down

permanently

The Bank Runs

III. The Crash• September 1929

– Stock Market witnesses unusual ups/downs

• October 24, 1929– Stock Market takes major

plunge

• October 29, 1929– “Black Tuesday”– Stock Market bottoms out– 16.4 million shares sold,

causing stock prices to plummet

– The Stock Market fails to rally through November, compounding the economic problems

IV. The Failure

• Total of 11,000 (of 25,000) banks failed by 1933– Panicked, individuals went to

banks to withdraw savings– Banks loaned out money and had

no reserve savings– Banks closed permanently,

leaving people stranded

• Over 9 million people lost their savings

• 25,355 Business fail• 1/3 of employees laid-off,

unemployment increases to 25%

Great Great CrashCrash

Investors

Businesses and WorkersInvestors lose

millions.

Businesses lose profits.

Consumer spending drops.

Workers are laid

off.

Businesses cut investment and

production Some fail.

Banks

Businesses and workers cannot repay bank loans.

Savings accounts are wiped

out.

Bank runs

occur.

Banks run out of money

and fail.

World Payments

Overall U.S. production plummets.

U.S. investors

have little or no money to

invest.

U.S. investments in Germany

decline.

German war payments to Allies fall off.

Europeans cannot afford

American goods.

Allies cannot pay debts to

United States.

Part C: The Hoover Response

Blamed for the Crash, Hoover adopted small-scale measures and indirect aid to deal with the

Depression.

Stage 1: Reassurance

• “Any lack of confidence in the economic future…is foolish.”

• Recommends business as usual

• Contends that the Stock Market “crash” is a correction…just part of the regular business cycle

Stage 2: Business as Usual

• Hoover asks:– Industry to keep factories open and keep

wages high (pledge lasts less than a year)– The Federal Reserve Board to pump

more money in circulation (results in inflation)

– Private industrialists to loan money to the banks and community

Stage 3: Too Little, Too Late• Hoover establishes:

– Reconstruction Finance Corporation (1932) in indirect aid to banks--lends $238 million to banks, $500 million to insurance corporations, farmer groups, railroads, and individual governments

– Indirect Aid associations--intended to trickle down from the top (the rich buy stuff, creating jobs, etc)

• Major Problems:– Hoover strongly opposed to federal intervention--

thought it would ruin feelings of independence– Government was running out of money– Indirect aid was not helping those who most needed it

Hoover’s Dam

Construction Boulder Dam (now called Hoover Dam)– Was world’s tallest dam (726

ft.)– Was second largest (1,244

ft. long)

• Intended to create jobs and money flow

• $700 million project• Provided electricity,

water, irrigation, and flood control to 7 western states

Stage 4: The Bonus Army

Washington, D.C., Spring, 1932

• 17,000 World War I veterans march to the capital to demand that they get paid their bonus for service in the war

• The bonus was scheduled to be paid in 1945, but rising unemployment and desperation forced the government to response

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.

Bonus Army encampment at Washington, D.C. The process to get one’s bonus required someone to find their file, bound in red tape and review it. Thus, to review the file required the government worker to “cut the red tape.”

The Response

Hoover’s Response• Called “Bonus

Marchers” communists and criminals

• Congress voted to deny veterans their bonus

• Ordered the U.S. army to forcibly remove the protestors from Washington, D.C.

The Clash August 1932• 2,000 veterans and

their families refused to leave

• U.S. Army, under command of Douglas MacArthur and Dwight Eisenhower attack more than half with tanks and gas– One baby died, two

vets shot, scores injured, and many burned by attack

Hoover’s End

• Americans shocked by treatment of veterans

• People felt that Hoover had no compassion

• Failure to deal with Depression and the Bonus Army ends Hoover’s hope for re-election

Part D: The Social Impact of the Great Depression

The Great Depression defined an entire generation: poverty, unemployment, migrations,

hunger--affected all levels of society.

I. Foreclosures

• Job losses resulted in defaulted loans and mortgages

• Banks would take property--thousands lost their homes including all personal property

II. Hoovervilles• Foreclosures resulted in

homelessness• Homelessness resulted

in development of migrant towns

• Usually outside large cities, made from scraps, junk

• Considered crime-ridden slums

III. Families

Taken by famous photographer Dorothea Lange, this picture of a migrant mother and her children became the iconic photo of the Depression. The poverty of this family is evident, as is the mother’s endurance, strength, and pride. Many husbands left their families in search of jobs. Consequently, while many women were already jobless (and homeless), they were also abandoned by men who, sometimes, never returned.

Tennessee pea picker family. The intense poverty of the Depression put an enormous stress on families. In most cases, poor families either had to farm out their children to relatives, go on welfare, have their kids work, or abandon them to an orphanage.

IV. Migration

Forced to move in search of a job and because they

had lost their homes to foreclosure, many families lived out of their jalopies.

Migrating westward, many of these families were

seen as a threat to local workers, particularly in

California. Okies, migrants from the

Oklahoma dust bowl, and Arkies from Arkansas were

particularly discriminated as dirty bums.

V. BreadlinesAs a local source for aid, breadlines distributed foods within the community. Although some of these were funded by the federal government, most were subsidized by local charities. Most breadlines focused on working men, providing much needed nourishment before they found a job. Women, children, and minorities were typically barred from eating at breadlines and soup-kitchens. This photo, taken in San Francisco, underscores the poverty and desperation these men felt.

Feeling the Strain• Impact on Health

– Starvation and hunger– Child malnutrition (rickets and other diseases)– Suicide rate rises 30%– Admission to mental health hospitals triple

• Impact on Family– Living conditions deteriorate, living in smaller houses or on the road– Men feel the failure of providing for their family– Working women accused of job-stealing

• Impact on Minorities– Competition for jobs increases, producing increased hostility between African-

Americans, Hispanics, and Asian-Americans– Lynching increased– Aid and relief programs discriminate against minorities– Mexican-Americans and Americans of Mexican descent deported

The Dust Bowl

Persistent dust storms and drought in the Midwest

exacerbated the poverty of regional farmers.

Years of Drought

• Starting in 1930s, the Great Plains were gripped by severe drought and windstorms

• Causes– Over-farming– Mechanized Farming– Dry irrigation– Single crop

The Dust Bowl

• Areas hardest hit– Kansas, Oklahoma, New

Mexico, and Colorado

• Many farmers migrated to the West, particularly California

• Dust storms powerful enough to send dust to NYC, D.C., and other East coast cities

“Black Sunday”, April 14, 1935 is widely considered to be one of the worst dust storms in history. Clogging radiators and minimizing visibility, cars were unable to drive safely. Dust storms like these would completely remove the topsoil and deposit as far as Canada. Any new seedlings would be uprooted by severe winds, choked by dust, or zapped by the constant electrical charges of the waterless storms.

The Drought Ends

• Federal education program: how-to-farm films emphasize proper techniques to save soil

• Decreased demand for staple crops

• Drought cycle ends in some areas

• Parts of Texas, Kansas, and Oklahoma never recover from Dust Bowl

Summary

• The Great Depression was caused by many factors: – Overproduction – Credit debt– Rampant consumerism– Stock speculation– Increased gap between the rich and the

poor– Political philosophy of laissez-faire

The Crash

• Stock Market crash was a chain reaction– Investors sell watered down stocks quickly– Investors cash out sell tickets– Run on banks– Banks close– Credit not granted to businesses– Businesses close– Unemployment

Hoover

• Hoover fails to economically or politically address the crisis– Emphasized indirect aid, small federal

relief efforts, isolated construction projects– Considered it a part of a regular economic

cycle– Harshly treated the Bonus Army– Fails to be re-elected in 1932