The Great Depression 1929-1941

The Great Depression 1929-1941

Roaring Twenties

• Optimistic Time– Wealth and productivity– Medical advancements

• Decrease in infant mortality• Life expectancies increased 10 years from 1900

Warren Harding (1921-23) Calvin Coolidge (1923-1929)

Main cause of collapse: hubris?

• excessive pride or self-confidence; arrogance

• “We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poor house is vanishing from among us.”

- Herbert Hoover, 1928

What accounted for severity?

• Lack of Diversification• Maldistribution of purchasing power• Credit structure of economy• America’s position in international trade• International debt structure• Protective tariffs

Warning signs:

• Uneven wealth– In 1929 richest Americans (0.1%) had held

34% of the country’s savings– 71% of individuals earned less than $2,500

(minimum standard of living)– 200 largest companies controlled 49% of

industry

Warning sings continued…

• Rise in personal debt– Buying with credit (installment plans)

• Radios, vacuums, refrigerators

• 80% families had no savings, even though entire families were working

Overproduction

• Rising Productivity• Wages Rose, but assembly lines produced

goods too quickly• Caused some industries to slow

– Automobile, housing

• BUT… Stock market kept rising

Playing the Stock Market

• Before WWI, only wealthy invested• After, “Get rich quick” attitude prevailed

– Newspapers reported on ordinary people– Small investors bet life savings

• Buying “on margin”– Buy stock for fraction of the price and borrow

the rest

Stock Market Crash

• By 1929, prices of stocks soared above their real value

• Peaked in Sept., then slowly declined• Tuesday, Oct. 29, 1929, investors raced to

get their money out of the stock market• Initially, only affected investors

– 1929 only 4 million of 120 million

Ripple Effects

• Risky loans hurt banks• Consumer borrowing• Bank runs• Bank failures• Savings wiped out• Cuts in production• Rise in unemployment• Further cuts in production

Economic Effects (1930-1933)

• Collapse of Banks– 6,000 bankrupt or closed– Depositors lost $2.5 billion

• Widespread unemployment– 15 million, 25% of workforce

• Collapse of farm economy– By 1932, farm income down 60%– 2/3 of farm families lose land

Normal Business Cycle

• Economic…– Expansion– Peak– Contraction– Trough

• Recession vs. Depression

– Depression = prolonged and severe

• Great Crash of 1929 triggered most severe depression in U.S. history

• Great Depression (1929-1941)

• As for welfare capitalism– Henry Ford shut down Detroit auto factories– Put 75,000 out of work

• The GNP: $104 billion (1929) to $56 billion (1933)

Cycles of Depression• Investors and Businesses

– Businesses lose profits, Investors lose $$$

• Businesses and Workers– Consumer spending drops, businesses cut

investment and production (some fail), workers are laid off

• Banks– Businesses and workers cannot repay loans,

banks run out of money/fail, bank runs occur, savings accounts are wiped out

World Payments

• Overall U.S. production plummets

• U.S. investors have little/no money to invest

• U.S. investments in Europe/Germany decline

• German war payments to Allies fall off

• Europeans cannot afford American goods

• Allies cannot pay debts to United States

Interdependent World

• By 1930s, international banking, manufacturing, trade connected nations– Latin American depended on U.S. for goods– Europe depended on U.S. loans/investment– U.S. was world’s leading economy

• After WWI, Allies (France/G.B.) relied on Germany’s reparations to repay U.S.– After market crash, U.S. stopped $ to Germany– German economy failed, Allies’ payments to

U.S. ended

Great Depression

Part II

President Hoover (1929-1933)

Future 1st Lady Lou Henry (age 17)

“Hoovervilles”• Shantytowns named for President Hoover

Sacramento, 2009

Social Effects

• Hardships at all levels– Few prospects for laid off white-collar workers

• Poorest hit hardest– Hunger, sickness, homelessness

• Homeless/jobless became drifters– “hit the rails”

Farm Distress

• Crop prices plummeted – Families could not pay mortgages/loans

• Families lost farms to banks– Banks would auction farms off

• In South, landowners expelled tenant farmers and sharecroppers

The Dust Bowl (1931-1940)

• Severe drought and over-farming – Severe soil erosion, soil (“dust”) clouds

• Removal of prairie grasses exposed topsoil

• Wind blew it for hundreds of miles– Cities in east had darkened skies– Reports of soil landing on ships in Atlantic

Dust Cloud Approaches Stratford, TX, 1935

“Okies” driving to California

• “Migrant Mother”

by Dorothea Lange (1936)

Surviving the Depression

• Nothing wasted

• Planted “relief gardens” in cities

• Breadlines and soup kitchens widespread

• Farm families stuck together– Penny auctions

• Millions left home to “ride the rails”

Americans took their failures personally

• Widespread Shame– Especially w/ men who lost jobs

• Many were embarrassed or too ashamed to accept charity

• Discrimination– Nativism– Deportation– Higher unemployment in minority groups

Americans sought political solutions

• In Europe, riots and political upheaval

• Most Americans trusted democratic process

• Communism and Socialism made small gains

• Eventually, Americans blamed Hoover directly

Hoover’s Limited Strategy

• Insisted on confidence

in system

• Blamed depression on

world-wide crisis

• Supported voluntary controls by industry– For example, to maintain min. wages

• Hoover held rigidly to his plan (voluntary controls and confidence), and economy continued to worsen

Finally, The Government Acts

• Began with govt. spending on public buildings, roads, parks, dams

• Hawley-Smoot Tariff (1930)– Highest import tax in history– Backfired, Europeans raised their tariffs

• Still, Hoover believed:– state and local govts should handle relief– direct federal assistance would destroy

people’s self respect and create a large beaureacracy