Great Depression Study Guide (Notes)

Prosperity before depression

Republican Presidents Warren Harding and Calvin Coolidge. Both benefited from the economic boom of the 1920’s. Elections were not even close.

Problems in the US before the stock market crash

Farmers still suffering, wealth is not distributed evenly, and credit problems – Americans spending more money than they are saving

Why were farmers still suffering in during WW1?

Farmers bought new machinery and more land so they could supply enough crops to the Allies. Many of these farmers took out loans so they could afford this land and equipment.

Wealth = Uneven distribution

Most of country’s wealth = in the hands of the few. Industrial workers were better off than farmers

Between 1923 and 1929

Industrial wages rose by 8%

Worker productivity rose by 32%

Corporate profits rose by 65%

America’s Overuse of Credit

Many Americans began to live beyond their means during the 1920’s

60% of automobiles = bought on installment plans

80% of radios = bought on installment plans

Stock Overspeculation

Way too many Americans gambling on the stock market Why? Because stock prices were increasing. Increasing stock prices = based on consumer confidence. Too many people are pouring money in the stock market, and many were buying their stocks on margin.

Black Tuesday

October 29th = Known as “Black Tuesday” Prices plunged and more than 16 million shares were sold. So, investors were rushing to pull their money out of the stock market.

Black Tuesday Continued

Billions of dollars were lost and whole fortunes wiped out. Many speculators who bought on margin lost everything. Hoover responds: “Business of the country is on a sound and prosperous basis.”

Economic Recession

All of the following decline during a recession: Purchasing/consuming products declines, business profits decline, savings decline, employment declines, wages decrease, and investments decline.

Banks Collapse

After stock market crash, consumer confidence is low. Many Americans worried about their money in the banks.

“Run on the Banks”

Americans were rushing to withdrawal their money. Too many withdrawals can close a bank down; a bank depends on having some of their customers’ money in their safes.

Bank Failures

1929 – about 660 commercial banks failed

1930 – 1,350 banks failed

1931 – 2,294 banks failed

1932 – 1,456 banks failed

1933 – 4,000 banks failed

Businesses Close

As a result, business leaders began to cut back production, lay off workers, and tried to maintain price levels Example: In 1931, Henry Ford closed down factories in Detroit. 75,000 people out of jobs

The Federal Reserve

Job is to regulate (manage) money supply and to set interest rates.

Why did the Federal Reserve decrease the amount of money in circulation?

They thought it would discourage lenders from issuing stocks on credit (trying to limit stocks that are bought on margin)‏

Money in Circulation

1929 – $26.2 billion

1930 – $25.1 billion

1931 – $23.5 billion

1932 – $20.2 billion

1933 - $19.2 billion

What is a tariff

In 1930, Congress passed the Hawley-Smoot Tariff. Prices on foreign goods are raised so they could not compete with American goods. European countries raised their tariff rates as a result

Tariffs Worsens Economy

Protective tariffs closed down international markets. The Great Depression becomes a global depression!

The Great Depression…Goes Global

In Europe during this time… Following the stock market crash and the raise of tariff rates, Europe experienced massive unemployment, bank closings, and business failures just like in the U.S.

Reparation war payments

These come to an end because no one can afford to pay them anyways!

Massive Unemployment

Between 1921 and 1929, the unemployment rate = 3.7% or below Unemployment rate between 1929 and 1933:

1929 – 3.2%

1930 – 8.7%

1931 – 15.9%

1932 – 23.6

1933 – 24.9%

Searching for Job and a Meal

Massive unemployment rates = more Americans going hungry. Bread lines become very common and overcrowded with hungry American families and unemployed workers. Many laid off workers were forced to resort to other ways of bringing in some income

Diet Habits Change

Americans replace milk with water; meat less common on the dinner table.

Hooverville

Where homeless Americans set up tents and shacks on public land or vacant lots.

Farmers Losing Farms

Between 1930 and 1934, nearly 1 million farmers lost their farms

Why were farmers losing farms

Farmers could not pay off mortgages, so banks foreclosed on their land and repossessed their farming equipment

Falling Crop Prices

In 1919:

A bushel of wheat cost $2.16

A pound of cotton cost 41.75 cents

In 1932:

A bushel of wheat cost 38 cents

A pound of cotton cost 4.6 cents

Farmers Face Uncertainty

Some farmers remained on their land and worked as tenant farmers. Tenant farmers moved to other farms and worked for bigger landowners instead of for themselves. Other farmers left the area and looked for work elsewhere

Migrant Workers

Lost their homes and farms. They had to become tenant farmers. Tenant farmers worked for larger landowners instead of for themselves

Hoboes

Many younger Americans and teenagers. They traveled the country on trains looking for work or a place to live.

The Dust Bowl

1930’s – Severe droughts struck the Great Plains area of the U.S. Texas, New Mexico, Oklahoma, Kansas, Colorado, Nebraska, Wyoming, South Dakota, North Dakota were all affected by these droughts. Rainfall levels dropped and a severe drought began. Dust storms struck and carried off top soil, destroying crops all over the region.

Why did farmers practice intensive farming techniques?

Destroyed the natural grasses which kept the top soil shielded from the strong wind storms.

Why did the Dust Bowl begin?

Intensive farming techniques, Drought/drop of rain levels, and High speed wind storms

Black Blizzards

These massive dust storms filled the skies, killing animals and covering up everything in dust One storm could carry up to 3oo million tons of dust! 300 million tons = about 20,000 blue whales. 5 million acres of wheat were destroyed!

What were the huge dust storms called?

Black blizzards because they looked like dark snow storms.

Dust Bowl Migrants

The Dust Bowl migration = largest migration in American history. 2.5 million people moved out of the Great Plains states by the end of the 1930’s 200,000 moved to California. These migrants were called Okies. Okies did not always receive a nice welcome from the area’s residents.

President Hoover Responds

Hoover did not cause the Depression, but Americans looked to him for a solution to the country’s problems. He believed that the recession was just a part of the business cycle and that eventually the country would come out of this economic slump.

What did President Hoover do about the Depression in the beginning?

Nothing.

Volunteerism

When people voluntarily work towards common goals.

Hoover’s First Response

At first, Hoover turned to volunteerism as a solution to the economic recession. Hoover asked business leaders to keep workers employed, to keep wages the same, and to keep prices of goods steady. He also asked rich Americans to donate more money to charities.

Hoover’s First Response Fails

Volunteerism did not work the way Hoover had hoped. Business leaders still cut wages and laid off workers. Americans did not work cooperatively together like Hoover thought they would.

Hoover Favors Localism

Hoover thought it was the job of local and state governments to provide relief. Believed that it was not the role of the federal government to provide relief to Americans.

Hoover Changes Course

Hoover began to use federal resources to try to solve the depression. Congress passed the Reconstruction Finance Corporation (RFC) in 1932. The RFC gave over $2 billion to U.S. businesses, railroad companies and banks.

Reconstruction Finance Corporation

Hoover thought that if banks had more money, they would give out more loans to businessmen. Businessman then could hire workers and increase production. This theory is known as trickle-down economics.

Trickle-down economics

To give money to those at the top of the economic pyramid (business leaders and the banks) and it will trickle down to the base to those at the bottom of the pyramid.

Hoover Dam

Hoover Dam was constructed as part of a public works program. This was one of President Hoover’s successful projects; began it while Secretary of Commerce. Hoover Dam provided much needed employment and also added a valuable energy source to the region.

The Bonus Army

World War I veterans who wanted the money that Congress had promised to pay them. Congress did not owe them the money until 1945. Congress agreed to pay them early, but Hoover vetoed the bill. WWI Veterans wanted their money earlier, so they marched on Washington.

Adjusted Compensation Act

Provides a lump sum payment to WWI veterans.

The Bonus Expeditionary Force

The Bonus Army marched on Washington, demanding their payment. President Hoover called on the Army to keep order. General MacArthur and the U.S. army drove out the Bonus Army, burning down their tents and driving them away from the city.

Which group experienced an early depression in the 1920s?

Farmers

In 1929, the stock market crashed because

Investors lost confidence in the market and rushed to sell their shares.

Which of these factors helped hide economic problems in the 1920s?

Americans purchased many consumer goods on credit

What event occurred on Black Tuesday?

Investors sold more than 16 million shares on stock

Why did so many banks collapse at the beginning of the Great Depression?

Too many depostiters tried to withdraw their money all at once

European countries reacted to the Hawley-Smoot Tariff by

Passing high protective tariffs

What economic condition did economist John Maynard Keynes believe caused the Great Depresion?

Lack of government intervention

At the onset of the Great Depression, urban unemployment

Increased dramatically

Which of these factors contributed to the plight of rural farmers?

Falling prices for crops and livestock

Farmers contributed to the problems that led to the Dust Bowl by

Using intensive farming practices that removed protective grasses

President Hoover responded cautiously to the Great Depression because he

thought that the business cycle would correct itself

The policy of volunteerism called for which of the following

Public works program

President Hoover urged Congress to institute the RFC because he believed the economy suffered from

a lack of credit

Some Americans blamed the Great Depression on

Capitalism

Why did many Americans decide that the country needed new leadership in 1932?

President Hoover’s volunteerism and trickle-down economic policies had failed

What was the destination of most Dust Bowl migrants?

Cities to find work

How did the uneven distribution of the nations wealth lead to the depression?

All of the above

Why were banks one of the first institutions to feel the effects on the stock market crash?

People began to lose confidence in the economy and frightened depositors began to remove their money from banks

What did President Hoover do that directly led the Bonus Army March on Washington in 1932?

Vetoed the bill that Congress passed allowing early bonus payment to out-of-work veterans

What event happened when the veteran groups marched in protest on Washington?

Federal troops used tear-gas and marched with their bayonets on the protesters, many of the veterans were injured

While this number is fluid, generally what percent of depositors money do banks keep on hand?

10%

What was the unemployment rate in 2019 and during the majority of the 1920s?

3.7%

Which of these government safety nets was created as a result of the Great Depression?

Social Security

Americans began eating less meat during the Great Depression because

Meat became too expensive

Which of these economic problems struck Germany?

Inflation due to printing more money

WW1 veterans who marched to demand payment of money promised by congress

Bonus Army

Dust Bowl refugees who moved westward to find work

Okies

Risky stock purchases made by investors with the hope of high returns

Speculation

President when the stock market crashed

Herbert Hoover

Government efforts to encourage or pressure Mexican immigrants to return to Mexico

Repatriation

General who dispersed protesters in the capital by ordering federal troops to fire on them with tear gas

Douglas MacArthur

The periodic expansion and contraction of the economy

Business Cycle

Agricultural workers who work on land owned by someone else

Tenant Farmers

The theory that money invested in banks and businesses will work its way through the system to laborers

Trickle-Down Economics

The occasion of the stock market crash

Black Tuesday