7.9+The+Great+Depression

The Great Depression

Business Cycle Overview

• Business cycles consist of periods of growth, recession, and depression.

• Previous depressions in 1837, 1873, and 1893 involved bank failures and system collapses.

• The Great Depression was marked by extensive business failures, unemployment, and widespread impact on various social classes.

Causes of the 1929 Crash

• The Great Depression began with the significant collapse in October 1929.

• The stock market crash was not the sole cause; it was a culmination of several factors.

Wall Street Crash

• Stock prices rose consistently from March 1928 to September 1929.

• The Dow Jones Industrial Average peaked at 381 on September 3, 1929.

• Many investors lost substantial amounts when the market collapsed in October 1929.

Black Thursday and Black Tuesday

• Black Thursday occurred on October 24, 1929, with extreme stock selling and falling prices.

• A temporary stabilization attempt by bankers on Friday failed, leading to Black Tuesday on October 29, marked by panic selling.

• By late November 1929, the Dow fell to 198, and three years later, it hit 41.

Underlying Causes of the Great Depression

1. Uneven Distribution of Income

   • Wages did not keep pace with productivity; the wealth was concentrated in the top 5%.

   • Lack of purchasing power among the majority led to business layoffs and a downward economic spiral.

2. Stock Market Speculation

   • Many Americans speculated on stock prices instead of investing wisely in companies.

   • Buying on margin encouraged borrowing with low down payments, leading to significant losses when the market crashed.

3. Excessive Use of Credit

   • Low interest rates fostered a culture of borrowing, leading to defaults on loans.

4. Overproduction of Consumer Goods

   • Increased production meant surplus goods that stagnant wages could not support.

5. Weak Farm Economy

   • Farmers faced debts and low prices post-WWI, worsened by natural disasters.

Government Policies

• In the 1920s, minimal government intervention allowed business growth but neglected to regulate effectively.

• High tariffs were enacted that benefited U.S. industries but harmed farmers and trade.

• Federal Reserve’s monetary policies contributed to bank failures and worsened the economic environment.

• U.S. refusal to consider European economic struggles exacerbated global conditions.

Effects of the Great Depression

• Declining Gross National Product (GNP): Dropped from $104 billion to $56 billion from 1929 to 1932.

• National income fell by over 50% and approximately 20% of banks closed, impacting millions of savings accounts.

• Unemployment: Reached 25% of the workforce by 1933, not including farmers.

Social Effects

• Increased poverty and homelessness were felt across all classes, especially among those who didn’t share in the previous prosperity.

• Many migrated to cities seeking jobs, resulting in widespread evictions, foreclosures, and the creation of "Hoovervilles."

President Hoover's Initial Policies

• Hoover was initially reluctant to intervene directly, believing recovery would come from voluntary efforts.

• Eventually, he recognized the need for federal assistance but preferred state/local solutions.

Response to Worldwide Depression

• The Hawley-Smoot Tariff (1930) enacted high tariffs that led to retaliatory tariffs by other nations, worsening the global depression.

• Proposed a debt moratorium on international debts due to deteriorating economic conditions.

Domestic Programs: Too Little, Too Late

• Hoover's federal actions included:

  • Federal Farm Board: Intended to stabilize farm prices but was too modest.

  • Reconstruction Finance Corporation (RFC): Aimed at supporting key businesses through emergency loans.

Despair and Protest

• Unrest on the Farms: Farmers organized to prevent bank foreclosures.

• Bonus March (1932): A march by WWI veterans demanding bonus payments that ended in violence and increased public disillusionment with Hoover.

Changing Directions

• Economic decline hit bottom by 1932-1933, paving the way for policy changes and a shift toward federal intervention under Franklin D. Roosevelt.

• The 1932 presidential election marked a significant turning point with the Democratic landslide victory.

The Great Depression

Business Cycle Overview

• Periods of growth, recession, depression; past depressions (1837, 1873, 1893) involved bank failures.

• Marked by extensive business failures, unemployment, and wide-ranging social impact.

Causes of the 1929 Crash

• Start of Great Depression: Collapse in October 1929, not solely from the stock market crash.

• Wall Street Crash: Rising stock prices from March 1928 to September 1929; Dow peaked at 381.

• Black Thursday & Tuesday: Extreme selling on October 24 (Black Thursday); panic selling on October 29 (Black Tuesday).

Underlying Causes

• Uneven Income Distribution: Concentration of wealth in top 5%; lack of purchasing power led to layoffs.

• Stock Market Speculation: Risky speculation and buying on margin resulted in severe losses.

• Excessive Credit Use: Low interest rates promoted borrowing; led to loan defaults.

• Overproduction: Excess goods without sufficient demand from stagnant wages.

• Weak Farm Economy: Post-WWI debts and low prices, worsened by natural disasters.

• Government Policies: Minimal intervention and high tariffs harmed trade and farmers, while Federal Reserve actions led to failures.

Effects of the Great Depression

• Declining GNP: Dropped from $104 billion to $56 billion (1929-1932); poor income and bank closures impacted millions.

• Unemployment: Reached 25% of workforce by 1933; excluded farmers.

• Social Effects: Increased poverty and homelessness, migrations to cities, and rise of "Hoovervilles."

President Hoover's Initial Policies

• Reluctant to intervene; believed recovery would come from voluntary efforts but later favored state/local aid.

Response to Worldwide Depression

• Hawley-Smoot Tariff (1930): High tariffs caused retaliatory tariffs, worsening the global depression.

• Proposed international debt moratorium.

Domestic Programs

• Federal Farm Board: Aimed to stabilize farm prices but was inadequate.

• Reconstruction Finance Corporation (RFC): Provided emergency loans for key businesses.

Despair and Protest

• Farmers organized against foreclosures; Bonus March (1932) saw violent protests by WWI veterans.

Changing Directions

• Economic decline bottomed out by 1932-1933, leading to a policy shift towards federal intervention under Franklin D. Roosevelt. The 1932 election marked a pivotal Democratic victory.