The Great Depression

Causes of the Great Depression

  • High tariffs and war debts
  • Stock market crash and financial panic
  • Monetary policy
  • Unequal distribution of wealth
    • Income
    • Top 1% owned 35% of nation’s wealth
    • Bottom 20% owned 4% of the nation’s wealth
    • Fiscal policies
    • Lower income tax rates increased disposable income fueling installment plans and speculation
  • Over production
    • Agricultural
    • Mechanization and less European demand
    • Farmer income in 1929 was $273 compared to $750 avg. annual income
    • Price of farm land decreased from $69 per acre (1920) to $31 per acre (1930)
    • Industrial
    • While production increased by 32%, wages only increased 8%
    • Under-consumption due to less demand for durable goods
  • Financial Industry
    • Wall Street
    • Speculation inflated stock values: Dow Jones peaked at 381.17 on 9/3/1929
    • Black Thursday on 10/24/1929
      • Market loss 11% due to massive set-off
      • Big banks purchased blue chip stocks at inflated prices to boost confidence
    • Black Tuesday on 10/29/1929
      • Dow Jones dropped 12% losing $14 billion in one day
    • July 8, 1932 - Dow Jones avg. was 41.22
    • Banking Panics
    • Unregulated banking investment and growth
      • 20% of bank deposits lost with bank failures
    • Farm foreclosures and contractionary monetary policies
    • Bank runs - Americans withdrew $6.8 nillion
    • Monetary Policy
    • Pursued contractionary monetary policies to reduce speculation
    • Refused to provide liquidity to banks suffering bank runs, allowing them to fail
  • Foreign Policies
    • Lack of American financial capital disrupted reparations and war debt repayments
    • Hawley-Smoot Tariff
    • Intended to encourage domestic industrial consumption and protection for domestic agriculture
    • Foreign nations retaliated with higher tariffs
    • Exports declined 78%
    • International trade decreased from $36 billion to $12 billion

Hoover and Associationalism

  • Voluntary cooperative partnerships between businesses and government to provide for those in need
  • Encouraged concept of self-reliance, volunteerism, restraint
    • Rugged individualism: no help from the state or government

Reconstruction Finance Corporation (RFC)

  • January 1932
  • Emergency loans from the federal government
    • Loans provided to corporations, banks, industries (railroads, farms) to stimulate economy and recapitalize private financial systems
  • Provided loans to local and state public works
  • No relief for the avg. American

Depression by Numbers

  • Dow Jones Industrial Avg.
    • 1920: 381.17
    • 1932: 41.22
    • The avg. stock prices dropped over 90%
  • Price Indices
    • Consumer prices fell 25%
    • Wholesale prices fell 32%
  • Unemployment
    • 1929: 3.2%
    • 1933: 24.9%
    • Unemployment rates higher in specific regions
  • GDP
    • 1929: $103.6B
    • 1933: $56.4B
  • Bank Failures
    • 1929: 659 banks ($200 million)
    • 1930: 1,300 banks ($853 million)
    • 1931: 2,294 banks ($1.7 billion)
  • Income
    • National income fell $80B to $50B
    • Salaries declined 40%
    • Manufacturing wages down 60%
    • Farmers’ income declined 55%
  • Industrial production
    • Down 26% in 1930: 51% by 1932
  • Investments
    • $10B in 1929: $1B in 1932
  • Fertility Rates
    • 1928: 93.8
    • 1933: 76.3

Soup Kitchens and Breadlines

  • American families struggled to put food on the table
  • Churches and charity organizations
  • Federal government financed soup kitchens

Hoovervilles

  • Displaced Americans set up shanty towns and tent cities
  • Hoover terms:
    • Hoover blanket - old newspaper
    • Hoover flag - empty pocket turned inside out
    • Hoover leather - cardboard for worn-out shoe
    • Hoover wagon - car pulled by horses

Bonus March

  • WWI veterans marched on D.C. demanding early payments of pensions
  • Federal troops sent to break up Hoovervilles

The Dust Bowl (1930-1936)

  • Causes
    • Overgrazing
    • Improper farming techniques: failure to implement dryland farming
    • Increased cultivation
    • Drought in 1934
  • Dust storms
    • Black Sunday - April 14, 1935
    • 300 million tons of topsoil blown across southern Plains region

Agricultural Migration

  • “Okies”
    • Over a million Oklahoma and Midwest farmers displaced by Dust Bowl
    • Migrated west to California
    • Lived in shanty towns on outskirts of large farms
  • Mexican Repatriation
    • Estimates between 200,000 to 2 million repatriated Mexicans
    • 60% determined to be birthright U.S. citizens
    • Government and media scapegoated them for Depression
    • Marijuana and Reefer Madness
    • Marijuana Timeline

Election of 1932

  • Democrat
    • Franklin Delano Roosevelt (FDR)
    • Criticized Hoover for government intervention
  • Republican
    • Herbert Hoover
  • A Realignment Election
    • End of the Republican dominance of the Fourth Party System
    • Begin of the Democrat dominance of the Fifth Party System

Fifth Party System (1932-1968)

  • Democrats
    • New Deal Coalition
    • Catholics, Jews, Blacks, Progressive Intellectuals, Urban Machines, Populist Farmers, White Southerners, Labor Unions, Low-Income, Immigrants
  • Philosophy
    • Social liberalism/social democracy
    • Regulation of the market economy and expansion of civil and political rights
    • Social justice
    • Keynesian economics
    • The central belief of Keynesian economics is that government intervention can stabilize the economy
    • Increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Depression
  • Dominated Congress and American public for the next 36 years
  • Republicans
    • Pro-business
    • Economic conservatives
    • Social conservatives
    • Northeast, parts of the Midwest

Franklin D. Roosevelt (D) (1933-1945)

  • Great Depression
  • New Deal
    • Relief
    • Recovery
    • Reform
  • Good Neighbor Policy
    • Cooperation and trade in Latin America rather than military force
  • Arsenal of Democracy
  • Pearl Harbor
  • World War II

21 Amendment (1933)

  • Repealed the 18th Amendment
    • Only amendment to be ratified by state conventions
  • End of Prohibition
  • Reasons
    • Development of black market for alcohol
    • Increased violence due to rise in organized crime
    • Loss of revenue, industry, and employment
    • Speakeasies replaced saloons

FDR’s Message of Hope

  • FDR had no specific plan for the Depression
  • Calming the nation
  • Brain Trust
    • Political and economic advisers and academics to the President
  • Federal budget
    • Roosevelt believed in the normal federal budget (to be balanced) and the emergency budget
    • Pursued deficit spending - Keynesian economics

Economic (E) and Political (P) Systems

  • Capitalism (E) - trade and industry are controlled by private interests for profit rather than the state
    • Personal property - movable property
    • Private property - tools of production monopolized by few
  • Anarchism (P) - no state as it always places on class over another (hierarchies must be justified)
  • Socialism (E) - means of production are owned/regulated by the community as a whole
    • Ex. Zapatistas
  • Communism (E) - no state or government, class, or money where people are provided what they need by the community
    • Ex. USSR, China, North Korea → Dictatorship of the Proletariat
  • Totalitarianism (P) - the state exerts total power over its people
    • Ex. Mussolini’s Italy, Stalin’s Russia, Nazi Germany, Empire of Japan, PRC under Mao, North Korea
  • Authoritarianism (P) - the people must adhere to strict obedience to the authority of the state; limited freedoms
    • Ex. Cuba, China, Egypt, India, Iran, Singapore, Vietnam, Russian Federation, North Korea
  • Fascism (P) - authoritarian regime focusing on ultra-nationalism and dictatorial power
  • Neo-liberalism (E/P) - transfer control of economic factors from the public to the private
    • Favor deregulation, free trade, fiscal austerity, privatization, reduction in government spending
    • The state creates a framework to protect and ensure this is allowed
    • Both the Democrats and the Republican parties are neoliberal