The Great Depression Notes

Causes and Effects of the Great Depression on the U.S. Economy

The Great Depression (1929-1941).
The economy experienced a severe decline, leading to massive unemployment.
The Great Depression was significantly worse than the economic panics of the 1800s, causing widespread economic fallout nationally and globally for over a decade.

Long Term Causes of the Great Depression

Overproduction:
- Businesses increased production in the 1920s, outpacing consumer demand.
- Wages did not increase proportionally with production.
- Businesses suffered from declining demand, leading to employee layoffs.
Problems in Farming:
- Demand for crops increased during WWI, but prices fell dramatically in the 1920s after the war.
- Overproduction of farm goods caused prices to fall, making it difficult for farmers to repay loans, leading to foreclosures.
Low Interest Rates and Risky Loans:
- Low interest rates and installment plans led consumers and businesses to assume the economic boom would continue.
- Many U.S. banks made speculative (risky) investments in the stock market, leading to financial issues in the late 1920s.
Unequal Distribution of Wealth:
- Wages for many workers increased only slightly compared to the profits of U.S. businesses during the 1920s.
Lack of Regulation in the Stock Market and Banking Industry:
- Financial gains in the stock market during the 1920s led people to believe they could get rich by "playing the market."
- Investors speculated that stock prices would continue to rise for quick profits.
Speculation:
- Making risky investment decisions to make a significant profit in a short period of time.
Buying on Margin:
- Buying stocks with borrowed money (loans).
- Investors bought stocks with a small down payment (usually 10%) and borrowed the rest from a stockbroker.
Pro-Business Government Policies:
- The government had complete faith in business and did little to regulate it during the 1920s.
Global Economic Problems:
- Nations had become more economically interconnected.
- Europe had not fully recovered financially from WWI.
- The U.S. insisted on European nations repaying loans to U.S. banks and implemented high tariffs on European goods, negatively impacting European economies.

The Beginning of the Great Depression (1929)

The "Great Bull Market" (a sustained time of economic gains in the stock market) collapsed in October 1929.
Stock prices fell rapidly on October 21 and 23.
Black Tuesday (October 29, 1929):
- Panicked investors sold off stocks in massive numbers, crashing stock prices.
- This event highlighted that the economic prosperity of the 1920s was quickly ending, but it did not cause the Great Depression.
- After Black Tuesday, the stock market continued to decline for the next four years and did not recover for another decade.

Effects of the Great Depression

Massive unemployment across the nation.
Businesses and manufacturers cut back on production and laid off employees.
By 1933, the national unemployment rate was 25%, nearly 13 million Americans (not including farmers who lost their farms).
Throughout the Depression, the unemployment rate never dropped below 15%.
The unemployment rate for African Americans was significantly higher (50%).
Nearly 20% of all banks closed, resulting in over 10 million savings accounts being wiped out.
The federal government did not believe it was its responsibility to provide direct relief to those impacted by economic hardships (at the beginning of the depression).
Families looked to state and local relief organizations for assistance, but these agencies were unprepared for the demands.
Shantytowns:
- Little towns mainly consisting of cardboard shacks on the outskirts of cities.
Soup Kitchens and Bread Lines:
- Places where food was offered for free to the needy by charitable organizations.
Americans wanted the federal government to provide Direct Relief (direct assistance to those in need).
President Herbert Hoover did not believe in direct relief; instead, he urged charities and local businesses to provide assistance.
Many people who bought items on credit were unable to make installment payments, and these items were repossessed.
Many men had difficulty coping with unemployment and abandoned their families.
Jobs that did become available often went to men.
Women found it easier to hold onto jobs because they were paid less.
Children were often forced to quit school and find jobs.
The decline in the standard of living contributed to increased stress on American families.
Suicides increased by 30% during the Great Depression.
The Depression hit Americans in rural areas the hardest.
Income for farmers dropped by over 60% from 1929-1932.
1/3 of all farms were foreclosed on (nearly 400,000 farms).
The Dust Bowl:
- Extended from Texas to North Dakota, caused by drought and dust storms in the 1930s, making farmland worthless.
"Okies":
- Nickname given to migrant farmers who left Oklahoma and the Midwest and moved to California in search of work.
Dorothea Lange:
- Photographer whose pictures highlighted the suffering of Americans during the Great Depression.
John Steinbeck’s novel The Grapes of Wrath:
- Highlighted agrarian life during the Great Depression as many families became migrant workers and endured the Dust Bowl.
Radios remained very popular.
Movies remained largely popular.
The Socialist Party of America:
- Emerged and attempted to use the Great Depression as a major criticism of capitalism.

Hoover's Response to the Great Depression

President Hoover emphasized his belief that the economy would recover.
His response revolved around "Volunteerism", where organizations and businesses should assist local communities.
Hoover’s views on the role of government intervention were rooted in "Rugged Individualism" (The idea of “self-reliance”).
As poverty and homelessness increased, so did the stress on the American people.
Home foreclosures and evictions became commonplace.
The homeless traveled from town to town by train searching for jobs and living in shantytowns.
Many Americans held Hoover personally responsible for the Depression and openly ridiculed him.
Hoovervilles:
- A nickname referring to shantytowns made out of cardboard boxes.
Hoover hotel:
- A nickname for a cardboard shack.
Hoover blankets:
- A nickname for newspapers that people would wrap themselves up in to keep warm.
Hoover flags:
- A nickname for empty pockets turned inside out.
Hoover attempted to enact measures to address the Depression, but his policies were not able to alleviate the nation’s economic problems.
Federal Farm Board (1929):
- Government program aimed at helping farmers keep prices stable, but it did not resolve overproduction issues.
Boulder Dam (aka, Hoover Dam):
- Construction began as a public works program to boost economic growth and create jobs.
The Federal Home Loan Bank Act (1931):
- Attempted to help homeowners avoid foreclosure.
The Reconstruction Finance Corporation (1932):
- Created to help provide loans to banks and other companies to stabilize the economy, but primarily benefited companies and the wealthy.
In Summer 1932, 1000 unemployed WWI veterans went to Washington D.C. to demand the immediate payment of a bonus set to be paid out in 1945.
Other veterans and their families joined “The Bonus Army” protestors and set up a shantytown close to the Capitol.
Congress did not approve the immediate payment, and violence erupted when President Hoover sent in the U.S. Army to disperse them.
Protestors were met with tanks and tear gas.
The public reaction to Hoover’s response to the Bonus Army contributed to him not winning re-election in 1932.

Election of 1932

Herbert Hoover vs. Franklin Delano Roosevelt (FDR)
FDR pledged a “New Deal” for the American people.
The New Deal would become FDR’s economic policy to address the issues of the Great Depression.
FDR won the election in a landslide.
In his inaugural speech, FDR stated, “The only thing we have to fear is fear itself.”