Chapter 21 – The Great Depression Begins

1. Chapter 21 – The Great Depression Begins Section Notes Video The Great Depression Begins The Great Crash Americans Face Hard Times Hoover as President Maps History Close-up The Election of 1928 The Dust Bowl Life in a Hooverville Quick Facts Images Distribution of Wealth, 1929 Causes of the 1929 Stock Market Crash Economic Impact of the Great Depression Visual Summary: The Great Depression Begins Fallen on Hard Times The Dust Bowl Relief Line Japanese American Migrant Workers

2. The Great Crash • The Main Idea • The stock market crash of 1929 revealed weaknesses in the American economy and trigger a spreading economic crisis. • Reading Focus • What economic factors and conditions made the American economy appear prosperous in the 1920s? • What were the basic economic weaknesses in the American economy in the late 1920s? • What events led to the stock market crash of October 1929? • What were the effects of the crash on the economy of the United States and the world?

3. “Boom”, Crash, and Depression • 3% • $3 billion • $505 • 25% • $7 billion • $28

4. The 1920s: The Appearance of Prosperity (Another Gilded Age?) Strong Economy • Between 1922 and 1928 the U.S. gross national product, or total value of all goods and services, rose 40 percent. • Though farmers and some other workers didn’t benefit, the overall economy performed well, especially for automakers and those who made auto parts. • Overall unemployment remained low, averaging around five percent between 1923 and 1929. • Union membership slowed as employers expanded welfare capitalism programs, or employee benefits. • This feeling of prosperity encouraged workers to buy new products and enjoy leisure activities such as movies. Strong Stock Market • The stock market, where people buy stocks, or shares, in companies, performed very well in the 1920s, with stock values sharply increasing each month. • The value of stocks traded quadrupled over nine years. • The steep rise in stock prices made people think the market would never drop, and more ordinary Americans bought stocks than ever before. • The number of shares traded rose from 318 million in 1920 to over 1 billion in 1929. • Business leaders said everyone could get rich from stocks.

5. Many Americans thought the prosperity of the 1920s proved the triumph of American business, and public confidence in government was high. • Presidents Harding and Coolidge both favored policies that helped business, and both were very popular, easily winning elections. • When Coolidge didn’t run for reelection in 1928, the Republicans easily chose Herbert Hoover. • Hoover had been on Harding and Coolidge’s cabinets, had overseen America’s food production during World War I, and had an outstanding reputation as a business-like administrator. • Hoover’s opponent was New York governor Al Smith, an outgoing politician with a strong Brooklyn accent, whose support came mostly from cities. • Smith was the first Catholic to run for president. He faced prejudice because of his religion, and because of his opposition to Prohibition. • Hoover easily won the election, but the race clearly demonstrated the conflicts dividing the nation in that era. High Hopes Faith in business and government The election of 1928

6. Economic Weaknesses: Long-term causes of the Great Depression • While many Americans enjoyed good fortune in the 1920s, many serious problems bubbled underneath the surface. • One problem in the American economy was the uneven distribution of wealth during the 1920s. • The wealthiest one percent of the population’s income grew 75 percent, but the average worker saw under a 10 percent gain. About 2/3 of Americans remained poor. • For most Americans, rising prices swallowed up any increase in salary. Productivity far outpaced wages. Eventually, there were too many unsold goods because there was a lack of demand.

7. Rising wages masked an uneven distribution of wealth. While factory workers’ wages rose 8%, factory output increased by 32%. As a result, worker incomes rose modestly, while rich investor incomes skyrocketed.

8. Economic Weaknesses: Causes of the Great Depression • Coal miners and farmers were very hard hit, but by 1929 about 65-70 percent of U.S. families had too low an income for a good standard of living. • Four out of every five families couldn’t save any money during the so-called boom years. • There was a large portion of the population that could not afford to buy the increasing number of consumer goods on the market.

9. Economic Weaknesses: Causes of the Great Depression • Easy credit, fueled by low interest rates, advertising, and failure of wages to keep pace w/productivity led to an explosion of consumer debt and over speculation in housing and the stock market. • Credit allowed Americans to buy expensive goods, but by the end of the decade many people reached their credit limits, and purchases slowed. • Warehouses became filled with goods no one could afford to buy.

10. Easy credit and installment buying lead people to purchase goods they can’t pay for. By 1929, Americans racked up more than $6 billion in personal debt — more than double the 1921 level.

11. Until September 1929, the stock market continued to rise. Many people borrowed money to buy stock, assuming prices would continue to go up. Buying-on-margin allowed investors to buy stock for as little as 10% down.Hype and greed drove prices higher and higher. Some economists feared that stocks were over-priced.

12. Investors increasingly used credit to buy stocks as the market rose. Buying on Margin • Investors were buying on margin, or buying stocks with loans from stockbrokers, intending to pay brokers back when they sold the stock. • As the market rose, brokers required less margin, or investors’ money, for stocks and gave bigger loans to investors. • Buying on margin was risky, because fallen stocks left investors in debt with no money. • If stocks fell, brokers could ask for their loans back, which was called a margin call. The Federal Reserve • The board of the Federal Reserve, the nation’s central bank, worried about the nation’s interest in stock and decided to make it harder for brokers to offer margin loans to investors. • Their move was successful, until money came from a new source: American corporations who were willing to give brokers money for margin loans. • Buying continued to rise.

13. Causes of the Great Depression: War Debts and Reparations Slow Europe’s Economy • Both the losers and the victors of the Great War struggled during the 1920s. American banks demanded money from the Allies who in turn demanded reparations from Germany. Recession, depression, and hyper-inflation all occurred at some point in Europe during the 1920s. Europeans couldn’t afford to buy US goods. On top of that, high tariffs in the US didn’t help matters.

14. On October 29th, 1929 the stock market went into a free fall as investors tried to sell at any price. 16 million shares were sold on “Black Tuesday.” Billions of dollars were lost in a few hours. Many who bought stocks on margin were wiped out.

15. The Stock Market Crashes • The steady growth of the early 1920s gave way to astounding gains at the end of the decade until its September 3, 1929, peak. • Many people were beginning to see trouble as consumer purchasing fell and rumors of a collapse circulated. • On Thursday, October 24, 1929, some nervous investors began selling their stocks and others followed, creating a huge sell-off with no buyers. • Stock prices plunged, triggering an even greater panic to sell. • Toward the end of the day, leading bankers joined together to buy stocks and prevent a further collapse, which stopping the panic through Friday. • But the next Monday the market sank again, and Black Tuesday, October 29, was the worst day, affecting stocks of even solid companies. • The damage was widespread and catastrophic. In a few short days the market had dropped in value by about $16 billion, nearly one half of its pre-crash value.

16. The Stock Market Crash • The value of a share in Radio Corporation of America (RCA) went from $505 on September 3, 1929, to $28 on November 13. • Half the value of the stocks listed in the New York Times index was lost in ten weeks. • “It came with a speed and ferocity that left men dazed.” (NYT)

17. The Stock Market Crash • “Between 1929 and 1932, the price of a share of U.S. Steel fell from $262 to $22, and General Motors (GM) from $73 to $8.” • “Four-fifths of the Rockefeller family fortune vanished.” • “In 1932, the economy hit rock bottom. Since 1929, the GNP had fallen by one-third, prices by nearly 40 percent, and more than 11 million Americans – 25% of the labor force – could not find work.” • “U.S. Steel, which had employed 225,000 full-time workers in 1929, had none at the end of 1932, when it was operating at only 12% of capacity.” (GML, p.739, 3rd Ed.)

18. Effects of the Crash Impact on Individuals • Though some thought the market would rally, countless individual investors were ruined. • Margin buyers were hit the hardest, because brokers demanded they pay back the money they had been loaned. • To repay the loans, investors were forced to sell their stocks for far less than they had paid, and some lost their entire savings making up the difference. • In the end, many investors owed enormous amounts of money to their brokers, with no stocks or savings left to pay their debts. Effects on Banks • The crash triggered a banking crisis, as frightened depositors rushed to withdraw their money, draining the bank of funds. • Many banks themselves had invested directly or indirectly in the stock market by buying companies’ stocks or by lending brokers money to loan to investors on margin. • When investors couldn’t repay margins, banks lost money, too. • These failures drove many banks out of business.

19. Fragile Banking System • The prosperity of the 1920s was more of a façade than a reality. The fragile state of the American economy was strikingly revealed in October 1929 with the stock market crash. Although the crash itself affected only a small percentage of wealthy Americans (about 2.5 percent of the population), it became increasingly difficult for the wider American public to remain confident in the economy in the weeks following the crash.

20. Fragile Banking System Inherent weaknesses in the American banking system represented the core problem. During the Progressive Era, President Woodrow Wilson’s administration sought to standardize the banking system with the Federal Reserve Act of 1913. By 1929, however, only one-third of the nation’s banks were members of the Federal Reserve System; the vast majority were independently owned and operated and lacked any sort of organizational structure.There was a lack of regulation and oversight of most banks.

21. Fragile Banking System Consequently, as nervous depositors began closing their accounts, panics forced a growing number of banks to shut their doors. The collapse of the banking system ended all hope of restoring the public’s confidence in the national economy.

22. In growth periods, workers are hired, wages rise, and demand for products increases. • In contraction periods, workers are fired, wages drop, and demand for products falls. The Great Crash was a hallmark of the nation’s business cycle. The economy periodically grows and then contracts.

23. The stock market crash didn’t start the Great Depression by itself. Instead, it quickened the collapse of the U.S. economy. The actions that followed in the months after the Crash turned a recession into a depression.

24. The banking system feels the effects of the crash first.People fear that their money will be lost so they run to the bank and attempt to withdraw their funds. (There is NO depositors’ insurance.) But banks don’t have enough of their money on hand as cash. These bank runs cause banks to fail. Government failed to intervene to stabilize the banking system.

25. More Effects of the Crash: A Worldwide Depression Impact on Business • The crash crushed businesses, because banks couldn’t lend money. • Consumers also cut back their spending on everything but essentials, and companies were forced to lay off workers when demand decreased. • Unemployed workers had even less money to make purchases, and the cycle continued. • In the year after the crash, American wages dropped by $4 billion and nearly 3 million people lost their jobs. Impact on Europe • The fragile economies of Europe were still struggling from World War I. They had borrowed a great deal of money from American banks that the banks now wanted back. • With U.S. buying power down, foreign businesses were less able to export their products and were forced to fire workers. • Governments tried to protect themselves by passing high tariffs, making foreign goods expensive.

26. Factories closed, causing worker layoffs. • This lowered demand for goods. • By 1933, the unemployment rate reached 25%. • President Hoover and Congress refused to have the Federal Government pump money into the economy, especially directly into peoples’ hands and create demand.

27. The strategy was a mistake. Other nations retaliated and raised tariffs as well. The resulting drop in world trade only made the glut of American factory and farm products harder to sell. Congress passed the Hawley-Smoot Tariff in 1930 to protect American manufacturers from foreign competition.

28. As international trade falls, a global drop in business leads to a worldwide depression.

29. There were several causes of the Great Depression. There is still disagreement over which are most important. hardships in Europe and rural America uneven distribution of wealth speculation in the stock market increased personal debt

30. The Great Recession (2008-10)

31. Americans Face Hard Times • The Main Idea • The Great Depression and the natural disaster known as the Dust Bowl produced economic suffering on a scale the nation had never seen before. • Reading Focus • How did the Great Depression develop? • What was the human impact of the Great Depression? • Why was the Dust Bowl so devastating?

32. Great Depression by the Numbers • After the stock market crash, economic flaws helped the nation sink into the Great Depression, the worst economic downturn in history. • The stock market collapse strained the resources of banks and many failed, thus creating greater anxiety. • In 1929 banks had little cash on hand and were vulnerable to “runs,” or a string of nervous depositors withdrawing money. • A run could quickly drain a bank of all its cash and force its closure. • In the months after October 1929, bank runs struck nationwide and hundreds of banks failed, including the enormous Bank of the United States. • Bank closures wiped out billions in savings by 1933. Today, insurance from the federal government protects most people’s deposits, and laws today require banks to keep a large percentage of their assets in cash to be paid to depositors upon request.

33. Farm Failures • The hard times farmers faced got worse during the Great Depression, when widespread joblessness and poverty cut down on the demand for food as many Americans simply went hungry. • By 1933, with farmers unable to sell food they produced, farm prices had sunk to 50 percent of their already low 1929 levels. • Lower prices meant lower income for farmers, and many borrowed money from banks to pay for land and equipment. • As incomes dropped, farmers couldn’t pay back their loans, and in the first five years of the 1930s, hundreds of thousands of farms went bankrupt or suffered foreclosure. Foreclosure occurs when a lender takes over ownership of a property from an owner who has failed to make loan payments.

34. Unemployment • The year following the crash of October 1929 saw a sharp drop in economic activity and a steep rise in unemployment. • Such negative trends are not uncommon in times of economic downturn, but the extent and duration of these trends made the Great Depression different. • By 1933 the gross national product dropped over 40 percent from its pre-crash levels. • Unemployment reached a staggering 25 percent, and among some groups the numbers were even higher: • In the African American neighborhood of Harlem, for example, unemployment reached 50 percent in 1932.

35. The true measure of the Great Depression’s disaster lies in how it affected the American people. Hoboes • Hoboes were mostly men, but included teens and women. • Boarding trains was hard and illegal, and railroads hired guards to chase hoboes away. • Finding food was a constant challenge, because people had little to spare and rarely shared with hoboes. • Hoboes developed a system of sign language to warn of possible dangers or opportunities. Hoovervilles • Thousand applied for a handful of jobs, and job loss resulted in poverty for most Americans. • To survive, people begged door to door, relied on soup kitchens and bread lines. Some went hungry. • Some who lost their homes lived in shantytowns, or Hoovervilles, named after President Hoover who many blamed for the Great Depression. The Human Impact of the Great Depression

36. The Emotional Impact of the Depression • The Great Depression’s worst blow might have been to the minds and spirits of the American people. • Though many shared the same fate, the unemployed often felt that they failed as people. • Accepting handouts deeply troubled many proud Americans. Their shame and despair was reflected in the high suicide rates of the time. • Anger was another common emotion, because many felt the nation had failed the hardworking citizens who had helped build it.

37. Devastation in the Dust Bowl • Nature delivered another cruel blow. In 1931 rain stopped falling across much of the Great Plains region. • This drought, or period of below average rainfall, lasted for several years, and millions of people had fled the area by the time it lifted. • Agricultural practices in the 1930s left the area vulnerable to droughts. • Land once covered with protective grasses was now bare, with no vegetation to hold the soil in place. • When wind storms came, they stripped the rich topsoil and blew it hundreds of miles. The dust sometimes flew as far as the Atlantic Coast. • Dust mounds choked crops and buried farm equipment, and dust blew into windows and under doors. • The storms came year after year, and the hardest hit areas of Oklahoma, Kansas, Colorado, New Mexico, and Texas eventually became known as the Dust Bowl.

38. The droughts and dust storms left many in the Dust Bowl with no way to make a living, and some simply picked up and moved: American Imagination • The plight of the migrants captured the imagination of some of America’s greatest writers and artists. • Author John Steinbeck and singer-songwriter Woody Guthrie described the Dust Bowl and the disaster’s effect on the people it touched. • Guthrie’s lyrics spoke of the hardships all Americans felt during the Great Depression. Migrants • By the end of the 1930s, 2.5 million people had left the Great Plains states. • Many headed along Route 66 to California, then settled in camps and sought work on farms. • The migrants were called Okies, after the state of Oklahoma, but migrants came from many states. • Many migrants met hardship and discrimination. For much of the decade, the Depression defied most government efforts to defeat it, and Americans had to fend for themselves. Fleeing the Plains

39. Hoover as President • The Main Idea • Herbert Hoover came to office with a clear philosophy of government, but the events of the Great Depression overwhelmed his responses. • Reading Focus • What was President Hoover’s basic philosophy about the proper role of government? • What actions did Hoover take in response to the Great Depression? • How did the nation respond to Hoover’s efforts?

40. Al Smith lost to Herbert Hoover in 1928. However, Al Smith won more popular votes than James Cox did in 1920, but lost more states. What likely explains this? • 1920 election results

41. The 1st Catholic nominee • Al Smith was the first Catholic to be nominated for President by a major political party. He faced a lot of opposition from bigots and lost support in rural areas in the South that had traditionally voted Democratic.

42. Herbert Hoover • Promising “a chicken in every pot, and a car in every garage,” Republican Herbert Hoover won a landslide victory over Al Smith in 1928. • Americans wanted to keep the Republicans and their pro-business policies. • Within six months of taking office the stock market crashed, and with it the economy and Hoover’s popularity.

43. Why did Herbert Hoover’s policies fail to solve the country’s economic crisis? As the Great Depression spread misery across America, Herbert Hoover struggled unsuccessfully to respond to the nation’s problems. As a result of Hoover’s failed response, in 1932 Americans would turn to a new leader and increased government intervention to stop the depression.

44. Herbert Hoover did not cause the Crash, but his failure to respond to the effects of the crash may have made a recession turn into a depression. Americans looked to him to solve the crisis. He tried a number of different approaches, but in the end hefailed to discover the right formula for stopping the crisis.

45. Herbert Hoover • Hoover was an ideological conservative. • An ideologue is a zealous advocate of a particular doctrine or philosophy (way of thinking); An ideologue is one who is unwilling to alter their views even when evidence which seriously challenges or disproves their beliefs is presented. • As an American 20th century conservative, Hoover espoused much of the traditional liberal viewpoint that “the government that governs least, governs best.” • He firmly believed in rugged individualism and self-reliance. • Hoover was largely a self-made man. If he was able to rise from humble circumstances, become wealthy (and President), anyone could in America.

46. Hoover • He did not believe government should interfere with the market place. His laissez-faire attitude, however, did not preclude government from helping business. • He believed that government could help encourage business and even ask business to do things, but it could never force business, nor any other property holder to do anything that it/they did not want.

47. Hoover • Hoover also believed that government should NEVER give direct relief to anyone. Relief (welfare) was the responsibility of private charities, or as a last resort, local and state governments. • In keeping with his belief in small, unobtrusive government, Hoover abhorred deficits. Budgets should ALWAYS be balanced. Deficit spending would indicate bigger government. • Hoover’s definition of freedom was: absence of government. To traditional conservatives, government power was the enemy of freedom. Government help only encourages dependency in lazy people.

48. Hoover’s Philosophy • Herbert Hoover came to the presidency with a core set of beliefs he had formed over a long career in business and government service. • He had served in the Harding and Coolidge administrations and shared many of their ideas about government’s role in business, favoring as little government intervention as possible. • Hoover believed unnecessary government threatened prosperity and the spirit of the American people. • A key part of this spirit was something he called “rugged individualism.” Hoover didn’t reject government oversight or regulation of certain businesses or think businesses should do exactly as they pleased, but he thought it was important not to destroy people’s belief in their own responsibility and power.

49. What did Hoover do? Did it help? • 1. nothing- He told people to remain calm. The stock market crash was just a “correction”. The economic slowdown was part of the business cycle. • 2. asked business to keep wages, employment, and prices the same • 3. asked people to give more to charity and states and local governments to provide more relief • 4. approved some modest public works spending (ex. Hoover Dam) • 5. refused to provide direct federal relief and run budget deficits • 6. signed Smoot-Hawley Tariff bill • 7. loan money to banks and businesses (NCC, RFC got $2b.) * • 8. raised taxes in 1932 to balance the budget

50. The Associative State. • According to Hoover, individualism did not rule out cooperation • Hoover thought businesses should form voluntary associations to make the economy more fair and efficient. • Skilled government specialists would then cooperate with the associations. • Hoover called this the “associative state.” • As Coolidge’s secretary of commerce, and as President, Hoover put his beliefs into action, calling together meetings of business leaders and experts to discuss ways of achieving national goals.