The Great Depression

The Great Depression

Key

• Red writing – years/dates• Yellow writing – historical evidence• Blue writing – key words/phrases• Purple writing – evaluation points

Effects of the Depression

• On industry:• Number of sales dropped: car sales dropped from 4.6m (1929) to 1.6m (1933)• Construction hit an all-time low in 1933• Unemployment rose (no full-time steel workers by 1932)

• On farming:• ¼ of farmers lost their land and their farms closed down• Agricultural prices dropped e.g. bushels down to 38 cents by 1932• Bank failures meant that farmers couldn’t borrow

• On ordinary lives:• Lost savings and couldn’t borrow when banks closed (5500 failures by 1933)• High unemployment and cut wages/hours decreased purchasing power

Economic consequences of the Depression• Unemployment rose from 3.2% in 1929 to 25.2% in 1933• GNP dropped by $60b• Many workers with jobs were only part-time• Industrial stocks declined• Bank closures multiplied, mostly among small banks• There was a ‘run’ on the bank to withdraw savings• The banks were repossessing worthless property• People couldn’t afford to pay back their debts

• Average income declined by 32%

Personal consequences of the Depression• Homelessness increased, with more people living in ‘Hoovervilles’• The suicide rate rose to 17.4 per 100,000 in 1932• Older adults had nothing to look forward to and no pension• There was no federal unemployment benefit• Marriages declined and the birth rate dropped• Relief was provided by charitable organisations, but there was a stigma

attached to applying for aid (e.g. some churches wouldn’t allow people receiving aid to attend their Sunday services)• 1-2m people became hoboes• Resources became scarce; people didn’t give to charity or pay taxes

Hoover

Moratorium

• The European Depression meant that countries like Britain, France and Germany couldn’t pay back the loans they owed to the US.• When the Depression hit America, the US stopped lending and began to

recall its loans.• But Germany couldn’t afford to pay back its loans, and Hoover was worried

that a conflict might break out between Germany and France over reparations payments.• Hoover called a moratorium, pausing the European war debts for 18

months, so that they would be able to pay back later.• Yet this only meant that the US lost one source of income, and Europe did

not recover because of the moratorium.

Hawley-Smoot Tariff (1930)

• Increased tariffs on agricultural equipment by 40%.• Other countries retaliated, and this effectively killed international

trade.• HOWEVER, Hoover had not meant to pass such a protectionist policy;

rather, he gave in to Congress lobbyists who pressured him into passing the Tariff.

Voluntarism

• Hoover called a conference to try and convince businesses to not cut wages or fire people, and for union members to continue spending.• While he secured promises that this would happen, US Steel still cut

their workers’ wages by 10%, as the worsening economy forced them to make cutbacks.

Agricultural Marketing Act (1929)

• Created farming co-operatives which could help to better the agricultural situation.• The Act was undermined by the cheap grain from Canada and

Argentina.• The co-operatives could not stop overproduction.

National Credit Corporation (1931)

• $500m was given to bail out the banks, but the NCC only spent $10m.• The private bankers that made up the NCC put their own interests

first, and thought that investing in failing corporations went against the traditional business model.

Federal Home Loan Bank Act

• Set up loan associations to provide people with mortgages.• HOWEVER, it could only lend people up to 50% of the worth of the

property.

Emergency Relief and Construction Act (1932)• Provided $1.5b to establish local public works.• These public works programmes created jobs through projects such as

the Boulder Dam Project.• HOWEVER, it has been argued that this measure was too little, too

late.

Emergency Committee for Employment• Co-ordinated relief organisations to help the unemployed.• However, these organisations couldn’t cope with the scale of

unemployment and homelessness.• In Philadelphia, relief payments were cut to $4 per family per week,

before they stopped altogether, despite there being 300,000 unemployed in the city by 1932.

Raising interest rates

• The Federal Reserve Board raised interest rates.• This made it more expensive to borrow and discouraged people from

doing so.• With people less willing to borrow, banks could make no profit from

interest that no one was paying, and this contributed to the banking problems.

Balanced budget

• Hoover was obsessed with keeping the budget balanced: ensuring that the amount that was spent by the government was equal to the amount that the government was earning.• This obsession led to the raising of taxes in 1931 to fund the public

works programmes through the Emergency Relief and Construction Act, despite Hoover having lowered taxes in 1929.• This shows the inconsistencies in Hoover’s policies.

Bonus Marches

• First World War veterans who were owed a bonus, due to be paid in 1945, asked for the bonus to be paid early as they were cash-strapped and desperate.• Hoover refused to meet with the protestors and refused to pay them

the bonus.• Some of the protesters left, but many stayed behind at Anacostia Flats

and refused to leave.• Hoover then drafted in General MacArthur to get rid of them, and the

scenes of violence that followed involving the army and tanks cemented Hoover’s ice-cold, uncaring image.

Historians’ views

Herbert Hoover (Europe)

• The Depression was European in its origins.• Austria and Germany founded the Customs Union (which abolished

trade barriers between the two and raised them between others).• The Customs Union angered Britain and France, who demanded the

immediate repayment of bills owed to them by the banks of Germany and Austria.• This led to bank collapses across Europe, and these closed banks

couldn’t pay back the money owed to the USA.• US banks couldn’t get their money back, and they collapsed as well.

Charles P. Kindleberger (Hoover and capitalists)• The Depression’s length was down to Hoover himself.• Hoover and the Federal Reserve Board should have been willing to

bail out the banks.• The Hawley-Smoot Tariff kept international trade low, which also

exacerbated the situation.

Robert Sobel (Hoover, capitalists and businessmen)• Hoover’s inactivity was responsible for the collapse.• He should have done more to reform the financial system.• The Wall Street Crash in itself did not lead to the Depression.

J.K. Galbraith (Businessmen and capitalists)• The economy already had problems, without which the Wall Street

Crash would not have been so devastating.• The Crash led to the collapse of companies which existed only to buy

and sell stock, but as these companies controlled other companies that made actual goods, this led to greater unemployment.• The Crash led to a loss of confidence in the economy so that people

were unprepared to buy on credit.• The Fed should have loosened the money supply to bail out banks,

particularly the small and weak ones.

Paul Johnson (Hoover)

• Hoover should have done less, rather than more.• There was an inconsistency in his policies (e.g. lowering taxes and

then increasing them to pay for public works schemes).• The Hawley-Smoot Tariff only made things worse by choking off

international trade.• The economy would have righted itself eventually anyway.

David M. Kennedy (Europe)

• The economic state of Europe affected the Depression in the US.• Britain abandoning the gold standard led to other countries doing the

same, which led to protectionist actions like the raising of tariffs.• Hoover should have abandoned the gold standard as well, as other

countries recovered after abandoning it; Hoover didn’t.• The maintenance of the gold standard led to the rise of interest rates

to stop the outflow of gold from the US, which decreased liquidity in the US economy.