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CHAPTER
During the 1920's, many Americans enjoyed "playing the market" on Wall Street. It was a time when the value of shares continued to rise and it seemed easy to make money. In 1925, the combined value of the shares traded on Wall Street was around $34 billion, rising to $64 billion by 1929. However, things were not quiet as they appeared. Ideally, the value of shares rises when a company is doing well, increasing the sales and making more profit. Investors see the company as healthy and want to buy its shares, in order to share int he profits.
However, the growth in share value on Wall Street in 1929 occurred because:
As a results the New York Stock Exchange on Wall Street relied more on the confidence of investors that it did on successful businesses. When this confidence was weakened, the whole system began to collapse.
The first sign of trouble occurred when news spread in mid 1929 that stock market leaders had begun to sell their shares because they expected prices to fall. They recognized that the stock market was not aligned with the realities of the US economy.
For example, two of America's most important industries, car manufacturing and construction, were in decline. At the same time, the Federal Reserve had begun to make it more difficult to borrow money for speculation. Fearing worse was to come, the most experienced investors pulled out of the stock market.
The crash began when more followed their example and panic replaced confidence. By late October, most investors were desperately trying to sell their shares and prices dropped further until in mid-November they were low enough to bring some buyers back into the market. By then, many investors were ruined.
The problem banks now had to cope with was liquidity. Their customers demanded cash, but banks do not literally keep customers money in the safe. Instead, they invest it in the stock market (and in 1929 made losses along with everyone else) and loan it to companies and other customers. So, when customers asked for their savings in cash, banks had to ask companies and people with loans to repay them immediately so that they could return the money to their customers. With little spare money, banks stopped giving loans to businesses. If these measures did not provide the bank with enough liquidity, they were forced to close down. Customers lost their savings and businesses an important source of credit.
The Wall Street directly affected investors as share values continued to drop until mid-November 1929. By this point, shared had lost around $26 billion in value, which was a third of what they were worth in September. This was a big problem for investors who had bought on the margin, because brokers who suffered huge losses demanded immediate repayment. Investors had to take money from their savings in order to pay back what they owed, which put considerable strain on banks. If the investors had no savings, they had to sell their possessions to raise money.
The crash was a major factor bringing about the Great Depression in the US, although it was not the only cause.
Some Americans, including those who had invested in the stock market or worked for a company that did so, lost their savings or had to cope with wage cuts.
The result was a reduction in consumer spending, especially on luxury items like cars and electrical appliances, which meant newer industries struggled to find buyers for their products.
This created a difficult atmosphere for businesses, which was made worse by the problem of credit. Before the crash, companies could get a loan from their bank or sell shares on the stock market to raise money. This helped them to grow their business, or meet their day-to-day running costs. Afterward, the supply of credit was cut off and businesses had to change their approach. They invested less, cut down their production and began to get rid of workers. With lower production rates, and fewer wage earners, the US economy began to struggle.
Other Causes of the Depression
Besides the Wall Street Crash, other Economic problems in the USA contributed to the Great Depression:
Under- Consumption
A general feature of the Depression was that Americans reduced their spending on consumer goods. This was because there was a limited market for things like new cars, radios and houses. Those who could afford it had bought them, but most could not because of the hug gap between the rich and the poor, between farmers and workers in new industries, as well as between black and white people. This gap meant 71% of Americans were on low incomes of below $2500 a year and lacked the purchasing power to buy luxury consumer goods and new houses. Once the market was saturated, the well-paid workers who produced these goods began to loose their jobs, weakening their purchasing power too.
Other Causes of the Depression
Over Production in Industry
The challenges facing the older industries, including coal, textiles and the railroads have been outlines in Chapter 1. In addition to this, by the late 1920's the car and construction industries were also in decline. Before the Crash, car sales had fallen by 1/3 in 1929 and the amount spent on construction had dropped by $2 billion since 1926. All these industries were still producing goods to sell, but fewer people were buying them, which meant prices began to fall.
Other Causes of the Depression
Falling Income of Farmers
The 1920's was a difficult decade for 1/3 of the population who worked in agriculture. Over-production and falling demand created huge problems for farmers (see also Chapter 1). Key features of the Great Depression, like falling prices, lower incomes and rising unemployment already existed for them in the 1920's. As such, the beginning of the Great Depression did not signal a dramatic change for those in rural areas who were already struggling.
However, the situation did get worse int the 1920's lowering economic activity even more. Between 1930-1931, there were severe droughts across the Great Plains of the USA. This area had already begun to suffer from soil erosion causes by intensive use of the land by farmers, but conditions were made far worse by the dust storms that began to strike in 1932. As a result, huge amounts of land became unusable, unemployment increased and incomes decreased. This was not a cause of the Great Depression, but did make its impact greater.
Other Causes of the Depression
Failing Banks
A strong economy relies on banks to protect people's savings, which can be used to buy things such as goods and properties, while providing loans to hep businesses to grow. In the USA, banks had 2 major weaknesses:
Those weaknesses made banks likely to be affected by a "run" and even before 1929, 5172 US banks (around 20% of all banks) failed in the 1920s. Following the 1929 crash, customers saw banks failing and rushed to get their own savings out, incase their own bank failed. The "run" that banks feared was happening.
Banking failures contributed to the Depression because banks took spending power away from consumers and cut off loans to businesses. The most significant failure occurred in December 1930, when the New York City Bank left 400,000 people without their savings. In the absence of a rescue attempt by the Federal Reserve, $286 million were lost by its customers.
Faith in the banking system collapsed and many more banks, along with the businesses they supported, suffered the consequences.
Other Causes of the Depression
Problems in Europe
Not all of the problems that led to the Great Depression were American. One of the most important contributing factors was actually the First World War in Europe. During the war, the USA had lent the Allied Nations huge amounts of money, which needed to be repaid in the 1920's. Most European nations could not pay back these loans, so they used new loans from the USA to help pay off their first debt from the war. This was a cycle that relied on a continuous flow of money from America, which could not continue forever, especially after the Great Depression had begun in the USA itself. Once money supply was cut, the means to buy American goods in Europe was lost along with it and so American exports dropped, hitting company profits.
Another problem was that major European nations had begun to cut themselves off from America in the 1930's. They did this in a number of ways:
These actions closed off another market for American goods, damaging international trade. This situation was influenced by a crisis in 1931 when several European banks failed, resulting in huge withdrawals of cash. During one 6-week period, around $1,105 million was withdrawn in Europe. This led to bank failures and weakened international trade further, the value of which had fallen from $36 billion in 1929 to around $12 billion 3 years later.
CAUSES OF THE GREAT DEPRESSION
https://www.youtube.com/watch?v=FXNziew6C9A&feature=youtu.be
We have already seen how problems with banks were a causes of the Great Depression, but they were also victims of it. Once Americans lost confidence n the banks, they withdrew all their savings. A "run" on a bank usually meant they had to close down because they could not get sufficient money quickly enough to repay customers. The results of this weaknesses was that out of the 25,000 banks in the USA had in 1929 around 9000 closed between 1930 and 1933. These banks held the savings of 9 million Americans, who lost about $2.5 billion due to their closure.
Economic Crisis
In response to these economic problems, many farmers struggled to find ways to survive. This led to:
In 1929 prices for agricultural goods, like wheat and cotton, were already low. Nevertheless, as a result of continued over-production at home and increased production abroad, prices continued to fall. At the lowest point, they reached 60% below the 1929 level and farm incomes fell dramatically. Between them, American farmers earned around $6 billion in 1929, but by 1932 this had fallen to $2 billion. This made it almost impossible to continue to pay off mortgages and other debts which resulted in 1/3 of American farmers loosing their land.
The Environmental Crisis
Until the early 1930's, most farmers still had one further option available to them. They could work harder, grow more crops and rear more farm animals, Even though the prices were falling, increased production would help maintain their income. However, this option was also taken away from them by an environmental crisis that causes major problems for the states spread across an area that became known as the "dustball."
The Environmental Crisis
A drought, affecting 17 million Americans in Eastern USA, ruined crops in the summer of 1930. Then, with so much dry land, high winds created dust storms across the Great Plains in 1932. In April 1933, 179 small dust storms were recorded, of which 38 were severe black blizzards. These storms blew away surface layers were plants grew, leaving the land too poor for farming. Left with little land to grow or raise livestock, farms failed, leaving the farmer, his family and his workers without any source of income.
In such hopeless circumstances, many Americans left Oklahoma, Arkansas and other states on the Great plains, and chose to migrate west. Between 1930 and 1935, around 1 million people left their farms on the great Plains and headed to states where they thought work was available. A popular destination was California, where migrant labourers, nicknamed the Okies, were required to pick fruit and harvest crops for starvation wages. Sheltering in tents or hastily constructed cabins, Okies lived through some of the worst conditions that American experienced during the Great Depression.
Dust Bowl Migrants - Okies
Reductions in demand also led to companies cutting prices to try and sell goods. This turned national business profits od $9,628 million in 1929 into losses of $3,017 million in 1932. In an attempt to cope with these problems industries:
If these solutions did not result in profits, factories closed down. By 1933, around 70,000 factories had been forced to close down and many Americans suffered as a result of unemployment.
The biggest problem for American industry was the fall in demand of goods. Other countries did not want to, or could not afford, US goods which meant the physical amount the USA exported decreased by 39% between 1929 and 1932. Demand was a particular problem for industries that produced luxury goods as customers from around the world, as well as in the USA itself no longer had the spare money to buy them.
For example, car manufacturers sold 3.5 million fewer cars in 1933, than they had in 1929. This meant newer industries had to face the same difficulties that had affected older ones during the 1920's.
EFFECTS OF UNEMPLOYMENT
UNEMPLOYMENT
The immediate effects of unemployment on a family was a decline in their living standards. Utilities such as electricity were cut off and household spending on fuel and food was reduced. As a result, people's health suffered. For example, in 1932, 20,000 children in NY did not have enough food. One magazine even claimed 1/6 of the nation would die in winter. This claim, although exaggerated, shows how bad Americans believed the situation had become in 1932.
By this time, some American families were struggling to fund themselves and had to rely on relief. Despite this need, there was not much support available, as there were no nationals benefits or help for the unemployed. Instead, they turned to their extended families, soup kitchens funded by private charities or their local governments. These groups could provide little for them, but they did not have the funding to make a difference.
During the Great Depression, millions of Americans lost theirs jobs. In 1929, 3.2% of the potential workforce was unemployed, but this had risen to 24.9% by 1933. In certain regions, where people worked in steelmaking or car manufacturing, the situation was even worse and may have reached 50%. However, it was not just the unemployed who faced difficulties. For the rest of the workforce who remained in their jobs, underemployment was a serious problem. Up to 1/3 of the people had to work part time, which meant even those with job had lowered incomes.
EFFECTS OF UNEMPLOYMENT
EFFECTS ON DISADVANTAGED GROUPS
In such circumstances, many chose to leave their homes. Some people traveled across the USA searching for jobs, while around 100,000 others applied for jobs in the Soviet Union.
A lack of relief had national consequences in the 1930's, including homelessness and protests, as well as significant social effects:
EFFECTS ON DISADVANTAGED GROUPS
HOMELESSNESS
Americans who could not pay rent or keep up with their mortgage payments often lost their homes. In these circumstances, many relied on charities or local governments to help them. For example, in 1931, NY City's government had to try and find accommodation for 20,000 children whose parents could no longer provide a home for them. However, with limited funding, local government and private charities could not cope. This forced many homeless Americans to find their own solutions.
HOMELESSNESS
HOOVERVILLES
A popular option was to move from one place to another in search of work. Over 1 million men, as well as some women and family groups traveled around on foot, car or railroad. This placed huge strain on popular destinations. In California, even before the dust storms began, there were around 100,000 homeless people in 1931 looking for work. The state and local governments, which was struggling to support its own residents, could not provide relief. Under these circumstance, the migrants often referred to as hobos, kept moving to find temporary work.
The hobo lifestyle did not suit everyone and if it was possible, the homeless tried to stay in or near their home towns. Often, they joined together to create a shanty town on empty land, building their accommodation from scrap materials. When joined by others, their population grew into the hundreds. In the biggest shanty towns, in NY, Washington DC and ST. Louis, thousands could be found living without running water, basic facilities or permanent shelter. The residents called their town "Hoovervilles" because they blamed their problems on President Herbert Hoover.
A typical example of a Hooverville was the one built in Seattle. Here a man named Jesse Jackson declared himself as mayor, took control of 9 acres of land and encouraged others to join him. As first his settlement struggled. The city's government did not approve and burnt down the settlement. However, the city's politicians quickly realized there was nowhere else for these homeless to go and officially acknowledged the Hooverville in 1932. As a result, men from various racial background lived there without an income, or the company of women and children. They led a difficult life, helped only by small donations from charities and the hope of getting a job and moving back into the city.
THE BONUS MARCHES
In this tense situation, Hoover was the first to act. He set a deadline when all veterans should have left the camp. When this deadline passed, he asked the police to act. On 28 July 1932, the police tried to empty some buildings occupied by the marchers, but were attacked with rubbish and rubble. They withdrew and tried again, but this time shots were fired and two veterans were killed. The police were not prepared for this and pulled out.
Later that day, Hoover sent in the army. Under the command of General Douglas MacArthur, infantry, cavalry, machine guns and tanks were all used to clear the camp. It was a powerful force and the veterans fled, chased by troops who burnt tents and teargassed marchers as they went. At the end of the day, the Bonus Marchers had been defeated, with 100 of them injured and one of their children killed. Nevertheless, they had achieved one victory. Hoover's reputation had been destroyed.
Congress had passed a law in 1924 giving WWI veterans a bonus of up to $625 each to make up for the wages they lost while fighting for their country. There was only 1 catch. Most would have to wait until 1945 to receive their bonus. During the boom years of the 1920's this was acceptable, but when the hard times of the Depression struck, the veterans felt they needed their money straight away. To get the government to listen to their demands, 20,000 thousand people known as the Bonus Marchers, marched to Washington DC in 1932. They camped across the river from the Capitol and waited for US Congress to decide whether they would get their bonus.
President Hoover was against the idea because he was trying to gather support and funds for other methods to tackle the Depression. After fierce debate, Congress rejected the bonus bill on June 17 1932, but made $100,000 available to help Bonus Marchers pay their journey home. Many took up Congress's offer, but up to 5000 veterans stayed behind to maintain pressure on the government. Both sides now waited for the other to back down.
Herbert Hoover
Hoover's beliefs
During and after the Great Depression, the Republican President, Herbert Hoover was heavily criticized. Many Americans believed he had not done enough to help them, accusing him of not taking enough action. However, the real picture is more complex. Hoover worked hard to fight the Depression, but his political beliefs limited how much action he would allow the government to take. These were:
Hoover's views were not unusual and reflected the beliefs of those people who supported the Republican party. They believed it was not the job of the government to tell businesses how to operate or tell people how to live their lives. This belief in laissez-faire (allow to do) had helped make America rich in the 1920's and if left alone the business world would restore wealth. Hoover held these beliefs too, but he knew that the crisis was so great that action was needed. He used various methods to help:
Hoover's measures did make a to the great Depression. He took the first steps towards recovery. However, it also shows the problems different groups continued to face as seen on previous slides. The reality was that a huge economic crisis could not be solved overnight and needed more government support and intervention than the USA had eve seen before.
No Republican president could ever take such radical action. It was no surprise when in 1932 the country voted in a Democrat president, Franklin Delano Roosevelt, who promised them a "New Deal".
Summary of Wall street crash
https://www.youtube.com/watch?v=D2iuUzkKu9k
Crash Course on the Depression
https://www.youtube.com/watch?v=GCQfMWAikyU&t=21s
The Great Depression
https://www.youtube.com/watch?v=BurFT68G_DQ
Life in the 1930's
https://www.youtube.com/watch?v=gkAfjRolNCI
Hoover & the Depression
https://www.youtube.com/watch?v=HaVjaxxBTqs
Hoover's influence on the Depression
https://www.youtube.com/watch?v=KfeHWnaK7rY