The Great Depression

THE GREAT DEPRESSION: STUDY NOTES

Essential Questions

  • What were the underlying causes of the Great Depression?

  • What effect did the Great Depression have on America?

  • How did the Federal Government respond to the Economic Crisis?

Overview of the Great Depression

  • What Made the Great Depression So Great?

    • High level of US Unemployment

    • Estimated unemployment reached significant levels throughout the early 1930s, peaking around 30%.

    • Farm Prices (1928-1935)

    • Sharp decline in prices affecting agriculture due to economic conditions.

    • Wall Street Crash on the Dow Jones Industrial Average in 1929

    • Details:

      • October 24: Nervous investors started dumping stocks, trading 12 million shares.

      • October 29: Prices plummeted further with 17 million shares traded, marking a significant stock market crash.

Causes of the Great Depression

  • The Stock Market Crash

    • The period leading up to the crash was characterized by a boom (1928-29).

    • Factors contributing to the crash:

    • Margin Buying: Investors purchased stock with borrowed money, leading to inflated prices.

    • Over-inflated Stock Prices: Speculation drove prices beyond real value.

  • Lack of Diversification in Industry

    • The Business Cycle: Regular fluctuations with boom and bust phases.

    • US economy dependence on few key industries such as:

    • Automobile and Construction.

    • Agricultural Sector: Economic struggles in these areas severely impacted overall employment and economic stability.

  • Income Gap

    • Economic Disparities:

    • Wealthiest 1% increased wealth by 63%.

    • Poorest 93% experienced a decrease of 4% in wealth.

    • Resulted in a significant lack of purchasing power, leading to insufficient demand relative to supply.

    • Estimated that 25% of the nation would soon be unemployed.

  • Consumer Debt

    • Innovations in mass production reduced costs, and while incomes improved, many families lived just above the poverty line.

    • Increased reliance on credit contributed to economic instability:

    • Farmers deeply indebted due to loans.

    • Slumping economy raised interest rates, making loan repayment difficult.

    • Many banks failed as a result of unpaid loans.

  • The Global Depression

    • International trade saw a dramatic decline.

    • Factors affecting global recovery:

    • Lack of European demand.

    • High tariffs such as the Smoot-Hawley Tariff, which was the highest in US history.

    • Reparations post-World War I devastated economies, particularly in Germany.

  • The Banking Crisis in 1933

    • Defaulted loans led to widespread banking failures.

    • Customer panic resulted in mass withdrawals:

    • Approximately 9,000 banks failed leading to a loss of around $2.5 billion.

    • Dramatic reduction in money supply caused deflation.

  • Severe Economic Contraction

    • Gross National Product (GNP) fell from $104 billion in 1929 to $76 billion in 1932.

    • Consumer prices dropped by 25%.

    • Agricultural income decreased from $12 billion to $5 billion.

    • 25% of the nation was unemployed, with 33% affected by wage cuts or reduced hours.

Societal Impacts During the Great Depression

  • Paralyzed Cities

    • Visual representation of joblessness and homelessness, e.g., in New York, jobless men waiting for free meals in 1932.

  • Personal Responsibility

    • A significant theme was the narrative around individual and communal responsibility during hard times.

  • Destitution

    • Public sentiments reflected the struggles of many, shown through posters of jobless men and despair in urban areas.

  • Living Conditions

    • Daily life impacted through construction of Hoovervilles—shantytowns named after President Hoover, indicating the public's discontent.

    • Depictions of homeless conditions and families, e.g., Christmas Dinner in 1936 illustrating stark realities.

The Dust Bowl

  • Causes of the Dust Bowl

    • Primarily driven by drought and high winds.

    • Farmers contributed to this by over-cultivating land.

Effects on Families and Minorities

  • Depression Era Families

    • Decline in consumer spending led to significant cultural shifts:

    • Decrease in marriage and birth rates noted due to economic pressures.

  • Impact on Minorities

    • Shared hardship experienced by minorities was worse than that of whites:

    • African Americans faced around 50% unemployment.

    • Displacement of labor amongst various groups, including Mexican Americans and educated Japanese Americans facing discrimination and forced deportation.

Government Response

  • Hoover’s Economic Programs

    • Emphasized “Rugged Individualism” and restoring public confidence through voluntarism and limited government intervention.

    • Policies included:

    • Agricultural Marketing Act of 1929 and the establishment of the Federal Farm Board.

    • Smoot-Hawley Tariff: Protectionist measure that aimed to support domestic industries but also worsened the economic situation.

  • The Reconstruction Finance Corporation (RFC)

    • Aimed to protect banks, railroads, major corporations, and insurance companies with a fund of $1.5 billion.

    • Only a fraction of the fund was distributed, failing to reach those in most dire need.

  • Shift from Hoover to Roosevelt

    • Events such as the Farmer’s Holiday and Bonus Army protests illustrated the shift in public support from Hoover to Franklin D. Roosevelt (FDR).

    • The Election of 1932 marked a shift towards policies aimed at relief, recovery, and reform.

FDR and the New Deal

  • Key phrases: "The only thing we have to fear is… fear itself."

  • Major New Deal Programs:

    • Agricultural Adjustment Act (AAA): Aimed at stabilizing farm income.

    • Federal Emergency Relief Administration (FERA): Provided direct relief for the unemployed and impoverished.

    • Civilian Conservation Corps (CCC): Provided jobs for young men in environmental projects.

    • Glass-Steagall Act: Established the FDIC (Federal Deposit Insurance Corporation) to provide deposit insurance.

    • Federal Housing Administration (FHA): Aimed to increase home ownership with insured loans.

    • The National Recovery Administration (NRA): Sought to stimulate business recovery.

    • Works Progress Administration (WPA): Focused on job creation through public work projects.

    • Securities and Exchange Commission (SEC): Established to regulate the securities industry.

    • Social Security Administration: Aimed to provide financial security for the elderly and disabled.

    • Tennessee Valley Authority (TVA): Aimed to improve the economic conditions of the Tennessee Valley.

Legacy of the New Deal

  • Established the concept of the Welfare State, where the government took a more active role in economic management.

  • Increased expectations of Americans from the federal government to intervene in economic crises.

  • Formation of the Broker State, enhancing the power of government to mediate between interest groups.

  • Expansion of regulations on banking and the stock market.

  • Shift in American focus increasingly directed towards economic issues rather than cultural issues.