great depression
slowing down of the boom
60% of Americans in 1929 lived on less than $2000 a year. The boom was slowing down for several reasons.
Banking system:
12 regulatory reserve banks headed by federal reserve board of 7 presidential appointed members
Banks allowed to regulate themselves without gov interference, represented the interest of banks so couldn’t be completely relied on, favoured low interest rates to keep market buoyant
National banks joined centralised system but local state banks didn’t have to — 30,000 banks in 1920s but mostly small so collapsation would lead depositors to lose their savings
Overproduction:
Boom was dependent on domestic consumption, with high tariffs and European depressed economies meaning Americans sold little abroad
Problems in small businesses — growth of huge corporations, 1 in 4 businesses succeeded but rest failed (e.g 108 motor vehicle companies in 1920 to 44 by end of the decade) and gov wasn’t prepared to help
The construction industry — good indicator of overall economic health. Mid 1920s: housing, office and highway boom, but demand fell after 1926 with demand for building materials, skills like plumbing and transportation decreased which lead to high unemployment in the industry
Falling domestic demand — late 1920s saw production outstripping demand and market flooded with goods that weren’t getting sold
1929: stores stopped ordering more goods (esp labour-saving goods) and credit seemed exhausted as people couldn’t buy things for themselves
Lead to unemployment due to cut back production (e.g thousands of automobile workers laid off
Unemployment statistics remained low but it is estimated that in 199, 80% of Americans were living close to subsistence
Land speculation:
Interest grew for Florida which in 1910 only had 54,000 population, accessible to mc with cars so popular for vacation and retirement — land boom
Coastal development and land sold to wealthy Northerners, investments into unseen developments (paid on credit with 10% deposit)
Demand tailed off in 1929 due to scandals that land advertised as close to the sea was actually inland or in the middle of swamps
Hurricanes in 1929 killed 400, left 50,000 homeless and people bankrupt, interest for land plummeted
Bull market:
1927-29 ‘wall street crazy’, easy credit meant people invested in stocks and shares on the margin
Insider dealing (selling shares with others in a group) created impression of great market interest, when prices rose they would sell for huge profits that left other buyers with depreciated stock, e.g Durant
great depression
Stages:
1929: Hoover boasts strength of the economy and prosperity in the country
Dow Jones reaches all time high of 381 points, this made economy look strong but weaknesses were starting to show
‘Bad loans’ given by banks, federal reserve increased lending rate to discourage borrowing to prevent any more risky loans being given out
European banks did the same, recovering countries after WW1 then went into recessions, meant had fewer foreign markets to sell to and couldn’t get money from loans they’d leant to Europe
Leading analyst warned that market could crash, uncertainty meant people began to sell their stocks
Oct 24 (black Thursday), value of stock market plummeted
Chairs of the largest banks bought stocks above the market value linto companies like US steel to increase people’s faith, this meant stock market only down by 6%
Black Thursday shook confidence of the market, loans used to buy on the market called back by banks to protect their money, black Monday where investors sell to cover their loans
Small investors lost money, consumer spending drops, banks closing after loans not repaid and panic to get money out by the public, credit freeze and massive unemployment — depression
Potential short term causes:
Clarence Hatry’s British business empire collapses in Oct due to being in massive debts and issuing fraudulent shares
Well-known business, people may think that all businesses are issuing fraudulent shares and won’t trust investing if they’ll lose money
Rumours that stock market players like millionaires Bernard Bauch and Joseph Kennedy were selling their shares
People wanted to follow stock market players because they made so much money from it
Rumours that federal reserve board was raising interest and restricting credit so it was harder to borrow
More expensive to pay for shares so selling them will mean they still have that money, people selling makes shares less valuable
Banks called loans from stock brokers who demanded repayment for investors
Everyone having to repay brokers by selling will decrease value of shares, fragile system that leads to people losing money
Who was to blame?
Henry Parker Willis blamed banks for risky practices, but everything banks did was allowed under Mcfadden-Pepper act regulations
Historians argue FRB could have done more but public opinion was against regulation and congress didn’t pass new powers for them to exercise
Economists say overproduction meant business failures were inevitable but American companies were doing better than European ones, so high confidence in them
Investors had gone ‘wall street crazy’ but share prices had been rising for years and market appeared healthy
effects of great depression on America
Economy:
GNP $91 bil in 1920 —> $55 bil in 1933
Unemployment 1.5 1929 —> 12.8 mil 1933
Wages fell 16% 1929-39 and investment down 98%
Fed. gov didn’t want to intervene, Hoover thought it would be short-lived
No old age pensions or unemployment welfare (responsibility of state gov)
Workers/families:
Voluntary organisations helped the poor
Soup kitchens and breadlines
Nearly 1 mil left home for work
Selling apples for money
1931: Colorado survey showed schoolchildren were not property fed and spread of diseases like typhus
Marriages and birth rates fell, families got separated
Ethnic minorities:
Preferential hiriing system fr white people
Several states banned non-US citizens from public works
1932 New York boycott of Chinese laundries
Black people usually fired first, Milwaukee workers went on strike to get black workers fired
Lynching increase, 24 deaths in 1932
Non-white people already faced discrimination in the workplace and forced out of work for white people in need of jobs
Farmers:
1929-32, farm income fell by 2/3, cotton prices also fell 2/3 (main crop of South-east)
Farmers had bank loans and used farms for security but over 6— banks out of business in 1930
Iowa, 1 in 8 farms put up for auction 1930-32
Farmers suffered during 1920s and only got worse
WW1 veterans:
Veterans marched to Washington DC, 21,000 protestors demanded bonuses due in 1945 to be paid
‘Battle of Anacostia flats’, army removed bonus marchers using tanks — 2 died
Hoover said marchers were a threat to democracy
Struggles of veterans suffering due to depression was ignored
solving the great dep.
hoover
He was head of the American citizens relief committee in WW1
He was secretary of commerce under Collidge and ‘undersecretary of everything else’
1928: he helped get relief to Mississipi after flooding and raised $15 mil for the red cross
Despite this, he believed in laissez faire and that gov shouldn’t solve problems that people are responsible for themselves
He believed hard work and imitative is what made him rich and that’s how others could get into his position too
Foreign policy:
Moratorium of allied debt and cancellation of German reparations 1931-32
Smoot-Hawley tariff 1930 — raised import taxes to highest level in US history to protect economy from foreign competition (avg tariff on agriculture/industrial good was 40% up)
It was designed to encourage international trade by releasing more money into the economy
Forced other countries to increase tariff rates in retaliation, caused the contraction of world economy and made recovery harder
Foreign partners stopped trading and tariffs had no effect because foreign tariffs raised too
Reconstruction finance corporation:
Voluantarism used to initally stop economic crisis
1932: RFC, one of the first direct attempts by federal gov to solve depression
$2 bil of taxpayers money to give to banks and insurance companies in trouble, 90% of money given to small/medium sized banks
Helped 160 banks, 60 railroads and 18 mortgage companies but didn’t encourage banks to lend to help businesses with financial problems to didn’t fully alleviate depression
It was intended to revive banking system and give financial stability to banking sector
Emergency relief and construction act 1931:
1932: 1st massive relief programme, designed to get people back in employment and help those struggling
$1.5 bil given to state govs to fund public works by corporation similar to RFC
State govs had to prove they didn’t have the money for poor relief
Lippmann, critic of Hoover, said $2bil would only be enough to help 10% of unemployed
Deep depression and low confidence that dramatic change was the only way crisis could be resolved
FDR
1932, FDR defeats Hoover by a landslide
FDR won 58% of the popular vote vs Hoover’s 40%
He won 472 electoral college votes compared to Hoover’s 59
Early life:
Born into distinguished, wealthy family
He married his distant cousin Elanor
He preferred socialising when he was young and had a reputation
He caught polio in 1921
—> he wasn’t the first in his family to be president and had the wealth to campaign, overcoming polio showed his strength and determination to voters
Political career before 1932:
He was a democrat in NY senate and assistant secretary to the navy
1929: he became a reforming governor of NY
1932: temporary emergency act — $20 mil in work relief during winter (income tax funded) that was a prototype for fed. emergency relief administration
—> he had lot’s of political experience, esp. in leadership roles and he put policies in place to get NY through great dep. so he knew how to deal with it
Election campaign:
He travelled American during election campaign and met people
Appointed NY personnel to white house, incl. Harry Hopkins as FERA heads
Usually experts, called ‘brain trusters’
1930s new deal and war president who died in office
—> people liked him and trusted him, he seemed to be more caring than hoover and had a lot of experience + smart people on his time that could be relied on
Positives of FDR: warm and friendly; met millions on his campaign; promised to end prohibition and the ‘social evils it created; overcame polio; promised direct action with relief and unemployment schemes; promised a new deal to restart industry and create a fairer society
Negatives of Hoover: people felt republican policies weren’t going to solve depression; unpopular and uncaring; thought depression would be short lived and that ‘prosperity was just around the corner’; people disliked the treatment of bonus marchers