THE GREAT DEPRESSION

Herbert Hoover

• Self-made millionaire, successful businessman, brilliant administrator

• Head of Food Administration during WWI then head of American Relief Commission to organize food supplies for millions of starving Europeans

• Secretary of Commerce• 1928-Elected President

Reasons for Stock Market Boom and Crash

• Buying on Margin- pay for 10-20% of stock and borrow the rest. Risky because if stock price fell, broker would issue a margin call and you must pay loan immediately.

• Stock Speculation/Consumer Confidence- instead of long term investing, people are thinking they can get rich quick because of confidence that stocks will always increase in value.

• Unsound Business Practices- driving up prices for quick profits rather than true reflection of company’s value.

• Stock Pools- deliberate attempt to manipulate and create artificial stock prices for benefit of those involved.

Causes of the Great Depression

• Federal Reserve/Monetary Policy

• Concentration of Wealth• Foreign Trade

Imbalance/Tariff Policy• Overproduction• Farm Problems• Bad Banking Practices• Bad Business Practices• Stock Speculation

Federal Reserve/ Monetary Policy

• U.S. was on the Gold Standard

• The FED raised interest rates to stem the outflow of American gold and dampen the booming stock market

• Other countries responded with their own deflationary policies

• These policies were designed to restrict economic activity and reduce price levels

• That is what they did and a worldwide depression began

Concentration of Wealth

• During the 1920s the top 1% had 34% of all savings while the bottom 80% had none.

• Most Americans were buying on credit

• Corporations and Super-rich controlled U.S. economic policy

Foreign Trade Imbalance/Tariff Policy

• U.S. had loaned Europe $10 billion during WWI

• Europe was late with payments because Germany was late with reparation payments.

• Smoot-Hawley Tariff closed European market to U.S. goods

• As a creditor nation, the U.S. needed to import so other nations could repay loans, or reduce/forgive debt, or allow more time. The U.S. did none of these things.

Overproduction

• America produced consumer products most of which were durable goods (cars, stoves, refrigerators)

• Purchased on credit• People could not afford

to buy new things. Companies could not hire people because no one was buying what they produced.

Farm Problems

• Faced with foreign competition, many farmers planted cash crops such as wheat which depleted the soil

• A vicious cycle occurred as the wheat price dropped due to the surplus which forced even more to grow wheat

• Severe drought and depleted soil led to the Dust Bowl as the topsoil blew away

• Many farmers lost their farms and moved to California.

Bad Banking Practices

• No federal regulations• Deposits not insured• Made risky loans• Corruption• Bought stocks with

customer’s money• When the stock market

crashed, customer’s savings vanished

• Thousands of banks failed causing bank runs

Bad Business Practices

• Pyramid schemes• Stock pools-

deliberately drive up a stock’s price for quick profit

• Unregulated stock market

Stock Speculation

• Get rich quick schemes• Bull Market-growth• Bear Market- little or no

growth• As stock values softened

in Sept. 1929 fear rose• Oct. 24 Black Thursday• Oct. 29 Black Tuesday• Stock Market Crashed as

stock was sold off in fear

• Market crashed which meant corporations could raise no money

• People who lost their money on the stock market could not pay rent or loans leading to bank failure

• Millions lost their life savings

NYSE today

Bull- representing the strong economy

U.S. economic policy

Effects of the Great Depression

• 1/3 of the nation’s bank closed

• National wealth declined 50%

• Businesses cut prices, production, and jobs

• FED raised interest rates which made things worse

• 25% unemployment by 1933• Farm income decreased 60%

1929-1932

Social Effects of the Great Depression

• Urban Areas• Rural Areas• African Americans• Mexican Americans• Women• Families

Urban Areas

• NE and MW cities 50-80% unemployed

• Breadlines, soup lines• Hobos rode the rail• Homelessness, shanties,

Hoovervilles

Rural Areas

• Farmer income decreased 60%

• Dust bowl• Migration to California

African Americans

• Suffered more than whites

• 50% of blacks unemployed

• 500,000 left the South for northern cities to escape hatred and violence

• NAACP worked to break down racial barriers

Mexican Americans

• Large numbers of Mexicans came into the U.S. in the early 1900s

• Most were in California and the Southwest

• Whites took their jobs and Hoover’s Repatriation Act sent 500,000 Mexicans back to Mexico, many who were U.S. citizens.

Women

• Women sought work to help their families

• Men took many of their jobs

• Support eroded for women’s rights

Families

• Less consumerism and more homespun

• Dating, birth rates, marriage, education, and divorce declined

• Poverty and desertion increased

• Households included extended families

Hoover’s Philosophy in dealing with the Great Depression

• Rugged individualism- each person responsible for own welfare

• No direct welfare from government

• Voluntarism- relief from family, friends, churches, and charities which were soon overwhelmed and ran out of funds

• Laissez-faire- very limited government regulation

• Believed depressions were part of business cycle and could only be healed by time

• Took a while to help the people because he was worried it would destroy their self-reliance

Hoover’s Response to the Great Depression

• Mexican Repatriation Act 1929- forced migration of Mexicans and Mexican Americans

• Federal Farm Board 1929• Hawley-Smoot Tariff

1930• Debt Moratorium 1931-

suspended collecting European debt one year

• National Credit Corporation 1931- strong banks loan money to weak ones

• Federal Home Loan bank Act 1932- refinance mortgages to avoid foreclosure

• Reconstruction finance corporation 1932- stabilize key businesses with $2 billion infusion was too little too late

Bonus Army 1932

• Unemployed WWI veterans demanded payment of their $500 bonus.

• Camped out in shanty• Hoover sent MacArthur

to evict veterans• With tanks and tear gas

veterans were kicked out• Hoover seen as heartless