The Great Depression

I. Pre-Crash Economy (1920s Boom)

• Strong economic growth; low unemployment (~3.5%)

• Stock market expansion driven by:

  • Speculation (buying stocks for quick profit, not value)

  • Margin buying (borrowed money to purchase stocks → high risk)

• Wealth inequality:

  • Rich invested heavily in stocks

  • Working class had low wages, minimal savings

• Weak consumer demand:

  • Overproduction + underconsumption

• Warning signs:

  • Decline in construction

  • Farm crisis (overproduction → low prices)

  • High business inventories

  • Lack of reliable economic data

II. Stock Market Crash (1929)

• October 24, 1929 (Black Thursday): panic selling begins

• October 29, 1929 (Black Tuesday):

  • 16+ million shares sold

  • Market collapse

• Consequences:

  • Massive loss of wealth

  • Bank failures (due to investments + withdrawals)

  • Start of Great Depression

III. Causes of the Great Depression

1. Structural Economic Weaknesses

• Overproduction in agriculture + industry

• Low wages → weak consumer purchasing power

• Heavy reliance on credit

2. Financial System Failures

• Margin buying amplified losses

• Bank instability (no deposit insurance)

• Bank runs → collapse of savings

3. Government Policies

• Smoot-Hawley Tariff (1930):

  • Raised import taxes

  • Triggered retaliatory tariffs → decline in global trade

• Federal Reserve policies:

  • Reduced money supply

  • Limited access to credit → slowed economic activity

4. Global Factors

• WWI debt + reparations destabilized Europe

• Decline in international trade

IV. Effects of the Depression

Economic

• Unemployment reached ~25% (1933)

• Business failures, wage cuts, reduced hours

• Bank collapses wiped out savings

Social

• Rise of Hoovervilles (shantytowns)

• Homelessness, hunger, poverty

• Breadlines, informal work (e.g., selling apples)

Family Changes

• Women entered workforce more

• Families doubled up housing

• Children:

  • Dropped out of school

  • Sought work or left home

Minorities

• Disproportionately affected:

  • African Americans: >50% unemployment in some areas

  • Mexican immigrants:

    • Faced deportation (Repatriation Program)

    • Even legal citizens expelled

V. Global Impact

• Worldwide economic downturn

• Germany:

  • Economic collapse → rise of Adolf Hitler

  • Nazi Party gained power (1932 Reichstag success, 1933 chancellor)

• Japan:

  • Invaded Manchuria (1931) for resources

  • U.S. response: Stimson Doctrine (non-recognition)

VI. Herbert Hoover

Background

• Engineer, humanitarian, global relief organizer

• President (1929–1933)

Philosophy

• Limited government intervention

• Belief in voluntary cooperation + self-recovery of economy

VII. Hoover’s Response

Actions

• Encouraged businesses to maintain wages/employment

• Supported public works projects

• Created Reconstruction Finance Corporation (RFC):

  • Loans to banks, railroads, businesses

• Glass-Steagall Act (1932):

  • Expanded credit availability

• Federal Home Loan Bank Act:

  • Supported mortgages

Approach

• “Trickle-down” strategy:

  • Aid businesses → expected benefits for workers

Outcome

• Ineffective at reducing unemployment

• By 1933:

  • 12+ million unemployed (~25%)

• Criticism:

  • Helped institutions, not individuals directly

Key Terms

• Speculation

• Margin buying

• Black Tuesday

• Overproduction / Underconsumption

• Smoot-Hawley Tariff

• Bank runs

• Hoovervilles

• Reconstruction Finance Corporation (RFC)

• Stimson Doctrine

Core Thesis (APUSH-Level)

The Great Depression resulted from a convergence of structural economic weaknesses, financial instability, and flawed government policies, intensified by global economic interdependence; Hoover’s limited-intervention approach failed to address mass unemployment, setting the stage for expanded federal action under Roosevelt.