Ch. 14 – The Great Crash

Ch. 14 The Great Depression Begins U.S. History

Causes of the Great Depression 

1) Problems in Industry 

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Over production of goods. Demand for many goods fell, factories laid off workers…

2) Problems in Agriculture 

Over-production by farmers caused crop prices to fall. Many farms could not make a profit and foreclosed upon…

Causes of the Great Depression 

3) Increased Consumer Debt  Many Americans lived beyond their means. Easy credit (buy now, pay later) on the installment plan increased debt for families. Many cut back on spending…

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4) Uneven Income Distribution –  Not all Americans shared in the prosperity of the 1920s. During 1920s, income of wealthiest Americans rose much more than the average family. The poor got poorer, could not afford to buy all the goods factories produced…

Causes of the Great Depression 

5) Buying on Margin and Speculation – 

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People began engaging in speculation buying stocks to make a quick profit & ignoring risks. Many began buying on margin - paying a small percentage of stock’s price as a down payment & borrowing the rest from a broker. Brokers borrowed money from banks. Unrestrained buying & selling fueled market’s upward spiral. Rising prices did not reflect companies’ worth.

Causes of the Great Depression 

6) Federal Reserve’s Monetary Policy 

Federal Reserve (created by President Wilson in 1913) served as the nation’s central bank (loaned money & set interest rates for other smaller banks).

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Fed. Reserve concerned about “speculation” – chose to raise interest rates on loans in 1928 to discourage “bad” investing and bring down inflated stock prices. Result: Slowdown in economic activity, together with high interest rates, was likely the most important source of the stock market crash that followed October 1929.

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Herbert Hoover Becomes President (1928) 

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Republicans choose Herbert Hoover as presidential candidate in 1928. Popular, head of Food Administration during WWI. Hoover believed in “rugged individualism” – people could solve their own economic problems & government should not meddle in those problems. Herbert Hoover won 1928 Presidential election.

President Herbert Hoover

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Stock Market Crash 

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Early September 1929 stock prices began to fall. Some investors quickly sold their stocks and pulled out (ex: Joseph Kennedy). October 1929 – Black Tuesday – the bottom of the market fell out. Shareholders frantically tried to sell before prices plunged lower. Millions could not find buyers. People who had bought on credit were stuck w/ huge debts. Others lost most of their savings. Stock market crash signaled beginning of the Great Depression.

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Bank & Business Failures 

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After the crash, people panicked and withdrew their money from banks. Some could not get their $ because banks had invested it in the stock market. By 1933, 11,000 of nation’s 25,000 banks had failed. Millions of Americans lost their savings accounts. 90,000 businesses went bankrupt. Unemployment rose to 25% by 1933.

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Depression in the Cities 

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People lost jobs, evicted from homes, ended up in the streets. Some slept in parks or sewer pipes, wrapped in newspaper to keep warm. Others used scrap materials to build shacks. Shantytowns – little towns consisting of shacks, sprang up. Soup kitchens offering free or low cost food and bread lines were common.

Unemployment Lines

Shantytowns or “Hoovervilles”

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Depression in Rural Areas 

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Farmers had one advantage over city dwellers – most could grow food for their families. With falling prices and rising debt, thousands of farmers lost their land. By 1932, 400,000 farms were lost to foreclosure.

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The Dust Bowl  

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Dust Bowl occurred in the Great Plains states. Caused by drought & decades of harsh farming. Removed the protective layer of prairie grasses which held down the topsoil. Windstorms scattered millions of tons of topsoil and sand. Thousands of farmers were evicted. Many migrants (known as Okies) followed Route 66 to California to work as farmhands.

The Dust Bowl

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Men, Women, Children during the G.D. 

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“Hoboes” – homeless, jobless men wandered the country looking for work. Hitched rides in railroad boxcars and slept under bridges. Women - many felt they had no right to work when men were unemployed. Often starved in their homes.

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Men, Women, Children during the G.D. (cont.) 

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Children suffered from malnutrition & disease. Falling tax revenues caused thousands of schools to close. “Hoover tourists” – teenagers who left home to ride the rails in search of work, adventure, escape poverty.

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Opinion Turns Against Hoover 

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Experts believed depressions were a normal part of the business cycle. Best to do nothing and let economy fix itself. Americans grew more frustrated by the depression. Hoover held firm to his belief in “rugged individualism” and refused to support direct relief or govnt welfare. Hoover seen as a cold & heartless leader. Shantytowns called “Hoovervilles”, newspapers called “Hoover blankets”, empty pockets turned inside out called “Hoover flags”.

Hoover’s name became an object of ridicule

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Hoover’s Attempts to Ease the Depression 

Smoot-Hawley Tariff (1930) Tariff became the highest peace-time barrier in the nation’s history.  Average duty on non-free goods raised from 38.5% to nearly 60%.  Foreign countries interpreted tariff as an economic declaration of war.  Trade gaps widened  Worsened the existing international economic depression.  International financial chaos resulted in U.S. becoming even more isolationist 

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Federal Home Loan Act (1932) 

Lowered mortgage rates for homeowners & allowed farmers to refinance to avoid foreclosure.

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Hoover’s Attempts to Ease the Depression (cont) 

Reconstruction Finance Corporation (1932) RFC provided up to 2 billion in emergency finances for banks, railroads, large businesses.  Benefits would trickle down to citizens through higher wages, job growth. Highly criticized as helping the rich & poor Americans could not wait for benefits. 

Hoover’s Attempts to Ease the Depression (cont) 

Mexican Repatriation 

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In order to free up jobs for Americans, Hoover authorized the deportation of anywhere from 200,000 – 300,000 Mexicans.  Over the next 10 years, the Mexican population in the US dropped by 40%.  Later, President Franklin Roosevelt ended federal support of deportations, but many state and local governments continued with their efforts. Estimates now indicate that approximately 60 percent of the people deported were children who were born in America and others who, while of Mexican descent, were legal citizens.

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Hoover & the Bonus Army (1932) 

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“Bonus Army” of WWI veterans came to support a bill up for debate in Congress. Bill would authorize immediate payment of $500 bonus to veterans. Hoover feared bonus marchers were “communists & criminals”. When bill was defeated, Bonus Army refused to leave. Hoover sent 1000 soldiers to gas & disband Bonus Army. Hoover’s image suffered, Americans outraged at treatment of veterans.

Bonus Army Veterans