THE FIRST YEARS OF THE GREAT DEPRESSION: 1929-1932

In the United States, the Great Depression began in the summer of 1929.

The downturn became markedly worse in late 1929 and continued until early 1933.

Real output and prices fell. Between the peak and the trough of the downturn, industrial production in the United States declined 47 percent and real GDP fell 30 percent.

The wholesale price index declined 33 percent (such declines in the price level are referred to as “deflation”).

Although there is some debate about the reliability of the statistics, it is widely agreed that the unemployment rate exceeded 20 percent at its highest point.

Timing

Government the government helped to cause the Great

Depression not by acting, but by failing to act.  Once the Depression started, some

government actions also helped to make it worse.

The most common critique of the government in the 1920s is that it was excessively laissez faire.  This line of criticism holds that the government let the economy run unregulated.  By doing this,

it allowed the stock market to

boom excessively and it

allowed production to rise

too high. 

Continued….

Once the Depression started, the government is said to have made it worse by what it did and by what it failed to do.  If failed to provide enough stimulus spending to get the economy going again.

  It acted wrongly by setting up tariffs that stifled trade.  By doing these things, it helped to make the Depression worse.

Hawley-Smoot Tariff Act Passed by Congress in 1930. President Hoover desired a limited upward revision of

tariff rates. General increases on farm products and adjustment of

a few industrial rates. U.S. foreign trade suffered a sharp decline. Depression deepened. Named after representative Willis C. Hawley and

Senator Reed Smoot.

Revenue Act of 1932 increased American tax rates greatly in an attempt to

balance the federal budget. Created another blow to the economy by further

discouraging spending. Signed on June 6, 1932. Rate on top incomes increased from 25 percent to 63

percent.

Revenue Act of 1932

188 - Statement on Signing the Revenue Act of 1932.June 6, 1932 Herbert HooverTHE PRESIDENT said:

"The willingness of our people to accept this added burden in these times in order impregnably to establish the credit of the Federal Government is a great tribute to their wisdom and courage. While many of the taxes are not as I desired, the bill will effect the great major purpose of assurance to the country and the world of the determination of the American people to maintain their finances and their currency on a sound basis."

Glass- Steagall Act act separated investment and commercial banking activities. Commercial banks took on too much risk with depositors'

money. Reasons

Commercial banks were accused of being too speculative in the pre-Depression era.

Banks became greedy, taking on huge risks in the hope of even bigger rewards.

Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks.

Effects Henry Bascom Steagall agreed to support the Act with

Senator Carter Glass after an amendment was added permitting bank deposit insurance.The GSA, however, was considered harsh by most in the

financial community, and it was reported that even Glass himself moved to repeal the GSA shortly after it was passed, claiming it was an overreaction to the crisis.

Impact of foreign issues International trade fell 30 percent as nations tried to protect

their industries by raising tariffs on imported goods Military dictatorship--a response that could be found in

Argentina and in many countries in Central America. Germany, Adolph Hitler and his Nazi Party promised to restore

the country's economy and to rebuild its military. After becoming chancellor in 1932, Hitler outlawed labor unions,

restructured German industry into a series of cartels, and after 1935, instituted a massive program of military rearmament that ended high unemployment.

Italy, fascism arose even before the Depression's onset under the leadership of Italian dictator Benito Mussolini.

Japan, militarists seized control of the government during the 1930s. In an effort to relieve the Depression, Japanese military officers conquered Manchuria, a region rich in raw materials, and coastal China in 1937.

Impact of the RFC

Reconstruction Finance CorporationObjective

providing liquidity to, and restoring confidence in the banking system.

make loans to banks and financial institutions.

Outcome People could not apply for RFC loans Hoover refused to lower steep tariffs or

support any “socialistic” relief proposals such as the Muscle Shoals Bill, which Congress drafted to harness energy from the Tennessee River.

HoovervillesThey used Hoover's name because they were frustrated and disappointed with his involvement in the relief effort for the Depression.

popular name for a shanty town

The name Hooverville has also been used to describe the Tent Cities commonly found in America.

a drought in the Mississippi Valley forced farmers to auction their land for taxes and reside in Hoovervilles.

Primary SourceLetter, October 24, 1932

My dear Mr. O’Brien:In extension of my recent verbal instruction as to the necessity for investigation of certain tariff schedules due to depression of currencies in foreign countries, I enclose herewith a list furnished me by the Department of Commerce of industries and localities where there has been actual increase of unemployment or alternatively where it is inevitable that it will increase from importations arising out of this cause unless they can be halted.You recognize that currencies in thirty countries have now depreciated from 5 to 55%, which has reduced the standards of living in those countries and greatly widened the difference in cost of production between the United States and those localities.I would therefore be obliged in order to afford all possible relief to unemployment in these communities. I urge this expedition because of this possible retardation of increasing employment of our people. If it shall prove that the differences in cost of production between here and abroad in these industries have altered the basis of the tariff duties, I wish to receive recommendations of the Tariff Commission at the earliest possible moment.Yours faithfully,Herbert HooverHon. Robert L. O’BrienUnited States Tariff CommissionWashington, D. C.

Origin- Letter, October 24, 1932 Purpose- Letter from President Hoover

to Unitd States Tarrif Comission explaining that many countries are in need of relief support in order to maintain their current standard of living and cost of production.

Value- President Hoover’s intention to stop the increase the unemployment in other countries as well as the U.S.

Limitation- biased towards the U.S. because he only wants to give relief to the other countries so the production in the U.S. doesn’t seem to be that expensive.

Works Cited

"The Great Depression." SparkNotes. SparkNotes, n.d. Web. 03 Feb. 2014. <http://www.sparknotes.com/history/american/depression/section4.rhtml>.

"Hawley-Smoot Tariff Act." Infoplease. Infoplease, n.d. Web. 03 Feb. 2014. <http://www.infoplease.com/encyclopedia/history/hawley-smoot-tariff-act.html>.

"Herbert Hoover: Statement on Signing the Revenue Act of 1932." Herbert Hoover: Statement on Signing the Revenue Act of 1932. N.p., n.d. Web. 03 Feb. 2014. <http://www.presidency.ucsb.edu/ws/?pid=23119>.

"Hoovervilles." Hoovervilles. N.p., n.d. Web. 03 Feb. 2014. <http://hoovervillehistory.tripod.com/>.

"Letter." Letter, October 24, 1932. N.p., n.d. Web. 03 Feb. 2014. <hhpapers.org/paper19321024.html>.

"New Paradigm in Economics Byrne & Derbin." New Paradigm in Economics Byrne & Derbin. N.p., n.d. Web. 03 Feb. 2014. <http://www.econnewsletter.com/107401.html>.

"Reconstruction Finance Corporation." EHnet. N.p., n.d. Web. 03 Feb. 2014. <https://eh.net/encyclopedia/reconstruction-finance-corporation/>.

"What Was The Glass-Steagall Act?" Investopedia. N.p., n.d. Web. 03 Feb. 2014. <http://www.investopedia.com/articles/03/071603.asp>.