Chapter 21 The Great Depression Begins

SectionNotes

The Great Crash

Americans Face Hard Times
Hoover as President

HistoryCloseup
Life in a Hooverville

QuickFacts

Distribution of Wealth, 1929

Causes of the 1929 Stock Mark
et Crash
Economic Impact of the Great
Depression
Visual Summary: The Great Dep
ression Begins

Video

The Great Depression Begins

Maps

The Election of 1928

The Dust Bowl

Images

Fallen on Hard Times

The Dust Bowl
Relief Line
Japanese American Migrant Work
ers

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?

The Appearance of Prosperity

Strong Economy

Strong Stock Market

Between 1922 and 1928 the U.S.

gross national product, or
total value of all goods and
services, rose 40 percent.

The stock market, where people

buy stocks, or shares, in
companies, performed very well
in the 1920s, with stock values
sharply increasing each month.

Though farmers and some other

workers didnt 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.

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.

High Hopes
Faith in business and government
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.
The election of 1928
When Coolidge didnt run for reelection in 1928, the Republicans easily chose
Herbert Hoover.
Hoover had been on Harding and Coolidges cabinets, had overseen Americas
food production during World War I, and had an outstanding reputation as a
business-like administrator.
Hoovers 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.

Economic Weaknesses

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 populations income grew 75
percent, but the average worker saw under a 10 percent gain.

For most Americans, rising prices swallowed up any increase in salary.

Coal miners and farmers were very hard hit, but by 1929 over 70 percent
of U.S. families had too low an income for a good standard of living.

Four out of every five families couldnt save any money during the socalled boom years.

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.

Credit and the Stock Market

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 nations
central bank, worried about
the nations 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.

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.

Effects of the Crash

Impact on Individuals

Effects on Banks

Though some thought the market

would rally, countless individual
investors were ruined.

The crash triggered a banking

crisis, as frightened depositors
rushed to withdraw their money,
draining the bank of funds.

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.

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 couldnt repay
margins, banks lost money, too.
These failures drove many
banks out of business.

More Effects of the Crash

Impact on Business
The crash crushed businesses,
because banks couldnt lend
money.
Consumers also cut back their
spending on everything but
essentials, and companies were
forced to lay off workers when
demand decreased.

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.

Unemployed workers had even

less money to make purchases,
and the cycle continued.

With U.S. buying power

down, foreign businesses
were less able to export
their products and were
forced to fire workers.

In the year after the crash,

American wages dropped by $4
billion and nearly 3 million
people lost their jobs.

Governments tried to
protect themselves by
passing high tariffs, making
foreign goods expensive.

The decline in world trade in the 1930s created misery around the
world and contributed to the nations slide into the Great Depression.

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?

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 peoples
deposits, and laws today require banks to keep a large percentage of
their assets in cash to be paid to depositors upon request.

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 couldnt 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.

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.

The Human Impact of the Great Depression

The true measure of the Great Depressions disaster lies in how it
affected the American people.
Hoovervilles

Hoboes

Thousand applied for a handful

of jobs, and job loss resulted in
poverty for most Americans.

Hoboes were mostly men,

but included teens and
women.

To survive, people begged door

to door, relied on soup kitchens
and bread lines. Some went
hungry.

Boarding trains was hard

and illegal, and railroads
hired guards to chase
hoboes away.

Some who lost their homes lived

in shantytowns, or
Hoovervilles, named after
President Hoover who many
blamed for the Great
Depression.

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.

The Emotional Impact of the Depression

The Great Depressions 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.

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.

Fleeing the Plains

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:
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.

American Imagination
The plight of the migrants
captured the imagination of
some of Americas greatest
writers and artists.
Author John Steinbeck and
singer-songwriter Woody
Guthrie described the Dust
Bowl and the disasters
effect on the people it
touched.
Guthries lyrics spoke of the
hardships all Americans felt
during the Great Depression.

For much of the decade, the Depression defied most government efforts
to defeat it, and Americans had to fend for themselves.

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 Hoovers 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 Hoovers efforts?

Hoovers 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 governments 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 didnt 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
peoples belief in their own responsibility and power.

The Associative State

According to Hoover, individualism did not rule out cooperation.
The Associative State

The Hoover Dam

Hoover thought businesses

should form voluntary
associations to make the
economy more fair and efficient.

The building of the Hoover

Dam demonstrated Hoovers
beliefs in business and
government.

Skilled government specialists

would then cooperate with the
associations.

The dam harnessed the

Colorado River to provide
electricity and a safe,
reliable water supply to parts
of seven states.

Hoover called this the

associative state.
As Coolidges 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.

The federal government

provided the funding for the
project, which was approved
in the 1920s and built in the
1930s.
A group of six independent
companies joined together to
design and construct it.

Hoovers Response to the Great Depression

Hoovers core beliefsthat government should not provide direct aid,
but find ways to help people help themselvesshaped his presidency.
Ideas and Beliefs

Direct Action

Before the market crash, Hoover

tried to help farmers by
strengthening farm
cooperatives.

Businesses cut jobs and

wages, and state and local
governments cut programs
and laid off workers.

Cooperative: an organization
owned and controlled by its
members, who work together for
a common goal

The crisis persuaded Hoover

to go against his beliefs and
establish the
Reconstruction Finance
Corporation in 1932, a
program that provided $2
billion in direct government
aid to banks and institutions.

After the crash, Hoover

continued to believe in voluntary
action, and he urged business
and government leaders not to
lay off workers, hoping that their
cooperation would help the
economic crisis pass.

Later that year he asked

Congress to pass the Federal
Home Loan Bank, a program
to encourage home building.

The Smoot-Hawley Tariff Act

The Act
One of Hoovers major efforts to address the economic crisis was the
1930 Smoot-Hawley Tariff Act.
Tariffs are taxes on imported goods that raise their cost, making it
more likely that American purchasers buy cheaper American goods.
The Effects
The Smoot-Hawley Tariff Act was a disaster.
Originally designed to help farmers, it was expanded to include a
large number of manufactured goods.
The high tariff rates were unprecedented.
When European nations responded with tariffs on American goods,
international trade fell dramatically.
By 1934 trade was down two thirds from its 1929 level.

The Nation Responds to Hoover

Questions of Credibility
Hoover eventually saw the
limitations of his ideals and
pushed for some direct relief, but
his optimistic claims about the
economy undermined his
credibility with voters.
Early on, when millions lost their
jobs, he said the nations basic
economic foundation was sound.
Just a few months after the crash
he announced I am convinced
we have passed the worst, and
he spoke glowingly about the
relief efforts.
Millions of Americans did not
share Hoovers viewpoint.

Questions of Compassion
Many Americans came to
question Hoovers compassion.
As economic conditions grew
worse, his unwillingness to
consider giving direct relief to
the people became hard for
most Americans to understand.
When Hoover finally broke his
stated beliefs and pushed for
programs like the
Reconstruction Finance
Corporation, people wondered
why he was willing to give
billions of dollars to banks and
businesses but not to
individuals.

The Bonus Marchers

In May 1932 some World War I veterans set up camp near the capital.

The men were in Washington to pressure the federal government to pay a

veterans bonusa cash award they were promised for their war service.

The bonus was not due for many years, but the men needed the money.

Congress refused to meet the demands of these bonus marchers, and

some left. A core group remained, including women and children.

In July, as police and U.S. soldiers began clearing the area of veterans,
violence erupted and the camp went up in flames, injuring hundreds.

Hoover did not want to pay the bonus because he was concerned about
balancing the budget. However, many Americans were greatly disturbed
by the sight of soldiers using weapons against homeless veterans.

The publics opinion of Hoover fell even more.

The Voters React

Trying to balance the budget, Hoover pushed for and signed a large
tax increase in 1932.

This move was highly unpopular, because voters wanted more

government spending to aid the poor.

The 1930 Congressional election provided early signs that the public
was fed up with President Hoover.

Democrats finally won the majority of seats in the House of

Representatives and made gains in the Senate.

By the 1932 presidential election, it seemed certain Hoover would

lose the race.

The Great Depression showed few signs of ending, and Hoovers

ability to influence people and events was nearly gone.

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