1930's crash and the depression

longterm causes of the depression

* overproduction in industry
* overproduction in agriculture
* fall in trade
* falling demand for consumer goods

overproduction in industry

* by late 1920s US market is saturated by unsold consumer goods
* the supply of goods outstripped the demand
* manufacturers did not cut back on production and continued to flood the market

overproduction in agriculture

* by mid 1920s new farming techniques meant overproduction of farming goods
* recovery of European markets meant that US farmers were exporting less
* US market did not soak up this excess produce so prices were cut
* many farmers put out of business

fall in trade

* late 1920s, US struggling to sell goods to Europe
* Fordney Mc-Cumber Tariff of 1922 increased custom duties on foreign exports to encourage Americans to buy American goods; tariffs caused foreign countries to tax US goods more highly in response
* European countries cannot pay back US loans and debts to US banks

falling demand for consumer goods

* wealth in US society was unevenly distributed
* poor people could not buy consumer goods
* the people who could afford to buy cars, for example, had already purchased these goods and had no need for them, but 60% of Americans were not part of that minority
* this meant that the supply was far greater than the demand
* companies ignored this and continued to overproduce
* companies could not sell their leftovers to Europe as Europe was struggling to pay back US loans and high tariffs on foreign goods
* foreign governments did the same for American goods, causing them to lose their foreign market

short term causes of the depression

* rise of stock market speculation
* loss of confidence
* Wall St. Crash

stock market speculation

* banks had allowed many customers to borrow money on the premise that it would be invested into the stock market **“on the margin”**
* inexperienced ordinary people saw a chance to get rich quick by putting their money into the stock market, waiting for profits to rise, and selling at a higher price
* problem with this is that the price of shares will not continue to rise exponentially and as such, a crash was inevitable
* value of shares continued to rise even though consumer demand was falling causing US business to be horrendously overvalued

consequences of speculation

* Those who had bought stocks on margin not only lost the value of their investment, they also owed money to the people who loaned them money for their stock purchases
* as people failed to pay their loans due to the crash, banks began to call in other loans for repayment to prevent the banks from bankruptcy
* little government help from Hoover who believed that prosperity was ‘just around the corner

loss of confidence

* by autumn of 1929, those who understood economics well and were able to see flaws in the financial system became nervous enough to start selling shares
* this started a virtual epidemic in terms of loss of confidence and cause people to sell shares in masses

Wall St. Crash

* October 29th 1929, the US stock market, the entire economy tanked, causing millions of people to lose billions of dollars within the hour
* October 24th (Black Thursday) : 13 million shares sold
* October 29th (Black Tuesday) : 16 million shares sold

Why was the crash such a surprise for Americans

* The economy had boomed during the 1920s
* Many consumer items had sold well in the 1920s
* Share prices kept rising throughout the 1920s
* Speculators had made huge profits
* Investors did not realise the economy was slowing down
* An attitude of ‘you couldn’t lose’ on the stock market.

economic consequences of the crash

* banks
* unemployment

banks

* 5000 banks closed in the first 3 years of the great depression
* customers unable to withdraw money as banks shut down


* other banks forced to close as customers withdrew all savings
* just like the consumers, businesses who’s loans needed repayment were unable to pay, this created a vicious cycle
* companies close → unemployment rises → companies cannot repay banks → companies close → unemployment rises → people have less income → people spend less
* massive loss of confidence

unemployment

* unemployment in 1930: **4.3 m, 9%** of workforce
* unemployment in 1932: **12m, 24%** of workforce
* No support system for the unemployed 

social consequences of the depression

* big cities
* rural communities
* hoovervilles
* the rich
* farmers

big cities

* as unemployment rose, many people couldn’t make payments to keep their homes,
* this created so called “hoovervilles” which were shanty towns on the edges of big cities where the homeless lived
* massive unemployment lead to a huge rise in the number of people travelling to find work across the country, risking their lives by hitching on long-distance trains
* in 1932, about 2m hobos left their lives behind to travel in search of work
* __USA had no welfare system (providing basic economic security for its citizens),__ this worsened the effects of the depression
* in 1930, a rally of the unemployed turned into a riot as police charged the crowd
* workers in employment were sick of the starvation level wages they were paid
* this led to strikes and bitter clashes 

rural communities

* given the already unfortunate economic circumstance faced by farmers and the knock-on effect in small rural communities, the depression was bad news

hoovervilles

* shanty towns on the outskirts of big cities
* residents searched for scrap metal and cardboard to reinforce their homes
* some would resort to begging in the town
* they were dependent on soup kitchens and scavenging rubbish dumps for scraps of food
* they waited for the charity organisations to bring food and clothing

the rich

* suffered less on average than ordinary people
* the wealthy had lots of wealth stored in assets such as property and gold which were relatively unaffected by the depression
* wealthy opportunists went as far as buying recently foreclosed homes of those who lost everything in the crash

farmers

* the demand for produce was lower than ever and prices of crops fell further
* in oregon, farmers killed thousands of sheep because the price that they would buy them at the market was less than it would cost to transport them there
* wheat and fruit was allowed to rot
* resistance in rural areas against authorities
* caused massive migration of agricultural workers to urban areas
* black and immigrant farm labourers were hit hardest 
* many young and elderly died of malnutrition and starvation; 
* impact of Depression made worse by Dust Bowl in Midwest and Southern states

dust bowl

* by 1930s a lot of land was overfarmed and infertile
* a series of hot summers and no rain turned the soil into dust
* the wind created sand storms which smothered everything in sight
* over 20 million hectares of land became desert, thousands of farms were ruined

Okies

* migrants from Oklahoma
* coming to California looking for work
* people who were made poor by the Dust Bowl
* They worked on large farms in California and lived in shanty towns

bonus marchers

* 25k veterans demanded war pensions marched in Washington 1932
* peaceful protest, __yet Hoover regarded it as a threat to the government, and a potential communist uprising__ 
* Hoover asked the army to clear the bonus marchers
* the army burned the camp and used machine guns, tanks and tear gas
* 2 veterans killed, 1 thousand injured, 1 child killed
* made Hoover appear unsympathetic and indifferent to the suffering in the Depression

Herbert Hoover (the bad)

* Herbert Hoover pioneered a policy of **“rugged individualism**”, which was the belief that the might of the US general public could work their way out of economic hardship independently, without government intervention
* **laissez faire**: the government wouldn’t interfere with the economy
* lack of government money for schemes and Farm Board so they remained ineffective on the whole
* **voluntarism**: relied on charities and state governments (which had a lack of funds) to provide relief for the hungry and homeless
* this made Hoover look uncaring, making him a pretty unpopular and unlikely candidate for the November 1932 election

Herbert Hoover (the good)

* Hoover did realise federal government needed to act when the Depression worsened
* government schemes provided nearly $500million for building programmes to create jobs
* e.g Hoover Dam
* Reconstruction Finance Corporation in 1932 provided loans amounting to $1.5billion to businesses to help them recover
* The farm board: brought surplus farm produce to keep the prices up, although this was ineffective