CHAPTER 4: The Great Crash, the Depression and the New Deal Policies, 1920-41
Introduction
October 1929 marked the crash of stock prices on Wall Street.
The New York Exchange recorded a fall of 37 percent in stock prices.
The Great Crash preceded the Great Depression, with about 13 million unemployed Americans by winter 1932-33.
Franklin Roosevelt was elected in 1932 promising a New Deal for Americans.
This chapter explores:
Causes of the Great Crash
Causes and impacts of the Depression
Effectiveness of Roosevelt's strategies in the 1930s
Opposition to the New Deal and its impacts
KEY DATES
1920: Warren Harding elected president
1923: Harding died; Calvin Coolidge became president
1924: Coolidge elected president
1928: Herbert Hoover elected president
1929: Wall Street Crash
1929-32: Great Depression
1932: Franklin Roosevelt elected president
1933: The Hundred Days
1934: Democrat success in mid-term elections
1935: The Second New Deal
1936: Roosevelt re-elected president
1937: Supreme Court battle
1937-38: Roosevelt Recession
1940: Roosevelt elected president for the third time
1941: The USA entered the Second World War
Causes of the Great Crash
Prosperity and Economic Boom
Few Americans anticipated the upcoming economic crash; the 1920s were marked by widespread prosperity.
After 1921, the economy boomed, despite rural America feeling left out.
The impression of an unprecedented economic boom was prevalent.
Increase in Productivity
Technological innovations led to significant productivity increases.
Between 1921 and 1928, industrial production nearly doubled while population rose by 16 percent.
Annual income on average rose by 30 percent.
Historian Michael Parrish noted that economic growth depended on more productive use of labor and capital.
Electricity Industry
Electricity use more than doubled in the 1920s, with massive generator constructions.
By 1929, 16 million homes had electricity, controlled by 16 companies, primarily led by Samuel Insull.
Insull's utilities empire was valued at $3 billion by 1928.
Automobile Industry
The automobile revolution, led by Henry Ford and his assembly line techniques, played a crucial role in the economic boom.
Production increased dramatically with Ford's factories producing a car every 10 seconds.
By 1929, nearly 27 million cars were registered, employing 447,000 workers and stimulating multiple industries (petroleum, steel, glass).
Construction Growth
There was a significant increase in housebuilding and commercial construction, with 400 skyscrapers by 1929.
The Empire State Building, completed in 1931, became the tallest building in the world at 1,250 feet.
Cinema and Radio Prosperity
The Hollywood film industry flourished with the USA producing 80 percent of the world's films by 1927.
Radio broadcasting began in 1920, with the first station being KDKA in Pittsburgh; by 1930, half of American families owned a radio.
Consolidation in Industry
By 1929, the largest corporations controlled nearly half of the USA's corporate assets; a consolidating trend emerged within industries.
Producers sought to stabilize prices, forming trade associations to manage competition.
Structural Weaknesses in the Economy
Although prosperity was widespread, many Americans did not benefit equally.
Poverty: 12 million of 27 million families earned less than $1,500 annually, below the decent living standard.
Agricultural Problems
Many farmers prospered during WWI but fell into decline post-war, experiencing plummeting prices for wheat and cotton.
Technological innovations in farming increased production without increasing demand, leading to surplus.
Farmers faced reduced income and high debts, exacerbated by congressional efforts being largely ineffective.
Disparity in Industries
Traditional industries (coal, textiles, leather) faced challenges while new industries thrived, causing instability.
Consumerism Growth
By 1927, consumer products proliferated in urban homes, showing an impressive rise in household goods ownership.
Advertising boomed, manipulating consumer expectations and encouraging overspending.
Speculation in the Stock Market
The rise of a middle-class investing culture began post-war with government-backed bonds.
By 1929, about 2 million Americans held stock; brokers offered loans (margin buying) to facilitate stock purchases.
Wall Street Boom Characteristics
The stock market saw substantial rises, with share prices soaring by nearly 300 percent from mid-1927 to mid-1929, unreflective of actual company performance.
Causes of the Great Crash
Overproduction and Oversupply: Mass production techniques led to excessive goods awash in the market without sufficient consumer purchasing power.
Banking Problems: A weak banking system, marked by speculative practices and inadequate regulation, significantly contributed to the crisis.
The Impact of the Great Crash and the Great Depression
Main Features of the Great Crash
Early signs of economic inefficiency were evident by early 1929, including farmers’ distress, reduced exports, and a slowing automobile industry.
Events of the Great Crash
Black Thursday (October 24, 1929): 13 million shares sold, prices plummeted; a banking syndicate intervened to stem panic.
Black Tuesday (October 29, 1929): 16.5 million shares sold, leading to a chaotic sell-off.
Consequences of the Great Crash
By November 1929, stock value fell by a third; banks faced withdrawals, leading to failures and further unemployed.
Unemployment surged from 1.5 million (earlier in 1929) to 4.3 million within a year due to corporations deferring spending.
Economic Collapse
The banking collapse after the stock market crash limited credit flow, further compounding unemployment and decreasing consumer spending.
Hoover Administration's Responses
Hoover’s perceived lack of action led to widespread criticism, though contemporary analysis recognizes his efforts as predicated on voluntary cooperation rather than direct governmental intervention.
Policies included the Federal Farm Board, Hawley-Smoot tariff, and the National Credit Corporation, though outcomes remained limited in mitigating the economic turmoil.
Social Impact
The Great Depression led to mass unemployment and worsened social conditions, catalyzing the emergence of Hoovervilles (shantytowns) where unemployed resided.
Discrimination against black Americans heightened, with unemployment rates amongst them almost double that of whites.
Roosevelt’s New Deal Strategies
Roosevelt's Inauguration
Roosevelt's address in March 1933 highlighted a decisive shift in governmental responsibility towards economic recovery, contrasting sharply with Hoover's approach.
The New Deal Response
The first Hundred Days of Roosevelt's administration saw rapid legislative actions, including:
Emergency banking reforms to restore public confidence in the banking sector.
The Agricultural Adjustment Act (AAA) aimed at stabilizing farm prices through managed production.
The National Industrial Recovery Act (NIRA) established the National Recovery Administration, working towards fair industry practices and wage security.
Long-Term Reforms
Government programs such as the Tennessee Valley Authority (TVA) provided national economic planning through the development of regional resources, although outcomes varied.
Conclusion
The actions taken during the Hundred Days fundamentally altered the relationship between federal government and American citizens, marking a shift towards active intervention in economic matters to avert future crises. Critics emerged from both political spectrums, illustrating the era's complex socio-political landscape.
SUMMARY DIAGRAM
CAUSES OF THE GREAT CRASH:
Structural Weaknesses
Disparity between agriculture and industry
Consumerism growth
Stock market speculation
IMPACTS OF THE DEPRESSION:
Mass unemployment
Social distress in urban and rural areas
Discrimination and marginalization of specific groups (notably black Americans)
ROOSEVELT'S RESPONSE:
New Deal Programs (AAA, NIRA, TVA, etc.)
Expansion of federal responsibility in economic management