Crash and Depression,1929 to 1933

(Chapter 22)

The Economy of the 1920s

• Republican Coolidge decides not to run - turn to Herbert Hoover, millionaire, great administrator

• Democrats choose Alfred E. Smith - Machine Politician, N.Y. Governor, Catholic

• Hoover Wins

• “We in America today are nearer the final triumph over poverty than ever before in the history of every land”

• “The poorhouse is vanishing among us”

• Buying on Margin - Speculation - Buyer paid some (margin), borrowed rest from stockbroker who held stock as collateral, and stockbroker borrowed from banks to cover loans to buyers

• Example - General Motors

• Bull Market - “Bull” is someone who expects market to rise “Bear” expects market to fall and profits from lower prices - Bulls dominate in the 1920’s - RCA

• Dreams of Wealth - “Everyone can be a millionaire if they play the market” - Everyone was playing the market

• Agricultural Problems - overproduction was main problem - bought land and equipment for WW I demand, couldn’t pay debts

• High tariff and war debt - foreign nations could no longer afford to sell products and couldn’t pay off war debt - Chain reaction leads to Depression in Europe

• Concentration of wealth - 30% of wealth goes to 5% of population (Rich get richer, poor get poorer)

• Overproduction and credit buying - producing more than could be consumed and installment plan - people living beyond their means buying becomes problem later

• Banks Fail - use depositors money to play the market - Bankruns develop - run to bank to take out money before bank runs out

• Domino Effect - Lose job, reduce spending, cancel orders, sales fall, surplus, unemployment (lose job)

• Economist Roger Babson - 9/29

• “Sooner or later a crash is coming and it may be terrific”

• Market listened briefly and short decline in speculation is called the “Babson Break”

• Margins get called in

• 10/24/1929 - “Black Thursday” prices begin to drop rapidly, tremendous losses

• 10/29/1929 - “Terrifying Tuesday” The Crash - 16 million shares traded (normal is less than 5)

• Rockefeller bought

• At the time of the crash - 1/2 million unemployed

• January, 1930 - 4 million

• January, 1931 - 8 million

• Didn’t believe in direct relief, believed it would make people dependent on the government

• “Rugged Individualism” - people should help neighbors

• 1932 1/3 of people needed charity

• Hoovervilles, bread lines, etc

• Asked for money to build buildings, improve waterways, harbors, and public roads

• Boulder (later Hoover) Dam for irrigation and raise the Colorado River

• Public Works Administration 1931

• Made loans to banks and local and state governments to be used for relief

• Wanted to allow certain key elements of the economy to remain open and provide legal relief programs

• July 22, 1932

• Rediscount home mortgages

• This was too late, many had already lost their homes

• Veterans from Oregon set out for Washington, D.C.

• Seeking WW I bonuses they were not to get until 1945

• Veterans from across the country joined them

• 20,000 total build homes of cardboard and crates across from the White House

• Hoover orders them to disband, sent soldiers, cavalry, tanks, Macarthur in charge - 2 veterans died

• Leads to Hoover’s defeat in the 1932 Election

• Republicans must stay with Hoover or take blame for Depression

• Democrats choose Franklin D. Roosevelt

• Hoover says F.D.R. will destroy the American economy