🗽US History Unit 25 – The Great Depression: Economic Crisis 1929-32

What Led to the Great Depression?

• Overproduction and underconsumption created a supply and demand imbalance
  • Factories produced more goods than consumers could afford to purchase
  • Wages did not keep pace with productivity gains, reducing purchasing power
• Excessive speculation in the stock market led to artificially inflated stock prices
  • Many investors bought stocks on margin, borrowing money to finance their investments
  • Widespread belief that stock prices would continue to rise indefinitely
• Unequal distribution of wealth and income contributed to economic instability
  • Top 1% of Americans owned over 40% of the nation's wealth by 1929
  • Bottom 80% of Americans had only 8% of the nation's wealth
• Weak agricultural sector struggled due to overproduction and falling crop prices
  • Mechanization and improved farming techniques led to increased output
  • Declining demand and global competition drove down prices for agricultural goods
• Tight monetary policy and high interest rates implemented by the Federal Reserve
  • Aimed to curb speculation and slow the booming stock market
  • Made borrowing more expensive and reduced investment in the economy
• Lack of government oversight and regulation in the banking and financial sectors
  • No federal deposit insurance to protect bank customers' savings
  • Insufficient regulation of stock market practices and margin lending

The Stock Market Crash of 1929

• Stock prices peaked in September 1929 after years of rapid growth
  • Dow Jones Industrial Average reached an all-time high of 381.17 on September 3, 1929
• Selling pressure intensified in October, leading to a sharp decline in stock prices
  • Investors began to panic as the market's decline accelerated
  • On October 24, 1929, known as "Black Thursday," the market lost 11% of its value
• Massive sell-off on October 29, 1929, known as "Black Tuesday," triggered a full-scale panic
  • Dow Jones Industrial Average fell 12.8%, the largest single-day percentage drop at the time
  • Investors sold over 16 million shares, a record volume for the era
• Stock market crash wiped out billions of dollars in wealth and eroded consumer confidence
  • Many investors who bought stocks on margin faced significant losses and debt
  • Crash marked the beginning of the Great Depression, a prolonged economic downturn
• Psychological impact of the crash led to decreased spending and investment
  • Consumers and businesses became more cautious, reducing demand for goods and services
  • Decline in consumer spending and business investment contributed to rising unemployment

Banking Crisis and Bank Runs

• Thousands of banks failed during the early years of the Great Depression
  • Over 9,000 banks collapsed between 1929 and 1933
• Bank failures were caused by a combination of factors
  • Declining asset values, particularly in real estate and stock market investments
  • Unsound banking practices, such as overextending credit and speculating with depositors' funds
• Lack of federal deposit insurance led to panic among depositors
  • Depositors rushed to withdraw their savings, fearing their banks would fail
  • Bank runs exacerbated the crisis, as banks struggled to meet withdrawal demands
• Many banks were forced to liquidate assets at fire-sale prices to raise cash
  • Selling assets at depressed prices further weakened banks' financial positions
  • Liquidation of assets contributed to deflationary pressures in the economy
• Credit contraction and reduced lending hampered economic recovery
  • Banks tightened lending standards and hoarded cash to maintain liquidity
  • Businesses and consumers found it difficult to access credit, stifling investment and spending
• Banking crisis led to a severe contraction of the money supply
  • As banks failed and credit dried up, the amount of money in circulation decreased
  • Monetary contraction exacerbated deflationary pressures and economic downturn

Impact on American Families

• Widespread unemployment left millions of Americans without a steady income
  • Unemployment rate rose from 3.2% in 1929 to 25% in 1933
  • Many breadwinners lost their jobs, leaving families struggling to make ends meet
• Declining wages and reduced working hours for those who remained employed
  • Companies cut wages and hours to reduce costs and avoid layoffs
  • Lower incomes made it difficult for families to afford basic necessities
• Foreclosures and evictions became common as families struggled to pay mortgages and rent
  • Thousands of families lost their homes and were forced to live in shelters or makeshift dwellings
  • "Hoovervilles," named after President Hoover, emerged as shantytowns for the homeless
• Malnutrition and poor health outcomes increased as families struggled to afford food
  • Many families relied on bread lines and soup kitchens for sustenance
  • Children often went hungry, leading to stunted growth and developmental issues
• Psychological toll of unemployment and financial hardship on individuals and families
  • Loss of self-esteem, feelings of worthlessness, and depression were common
  • Strained family relationships and increased domestic violence in some cases
• Delayed marriages and reduced birth rates as couples postponed starting families
  • Economic uncertainty led many young adults to delay marriage and childbearing
  • Birth rates declined sharply during the Great Depression years

Hoover's Response and Policy Failures

• President Herbert Hoover initially believed in limited government intervention
  • Hoover encouraged voluntary cooperation between businesses and local relief efforts
  • Relied on the private sector and local governments to address the economic crisis
• Hoover's "rugged individualism" philosophy emphasized self-reliance and personal responsibility
  • Believed that providing direct federal aid would undermine American values and create dependency
  • Encouraged individuals and local communities to take the lead in relief efforts
• Reconstruction Finance Corporation (RFC) established in 1932 to provide loans to banks and businesses
  • RFC aimed to stimulate the economy by providing credit to struggling institutions
  • Criticized for being too little, too late, and for favoring large corporations over small businesses
• Smoot-Hawley Tariff Act of 1930 raised import duties to protect American industries
  • Intended to safeguard domestic production and employment
  • Led to retaliatory tariffs from other countries, reducing international trade and worsening the global economic downturn
• Hoover's reluctance to provide direct relief to unemployed workers and struggling families
  • Believed that providing direct aid would discourage work ethic and create a culture of dependency
  • Resisted calls for federal unemployment insurance, public works projects, and other forms of direct assistance
• Bonus Army incident in 1932 damaged Hoover's public image and support
  • World War I veterans marched on Washington, D.C., demanding early payment of their service bonuses
  • Hoover ordered the army to disperse the protesters, resulting in violence and public outcry

International Ripple Effects

• Great Depression quickly spread beyond the United States, becoming a global economic crisis
  • International trade declined sharply as countries imposed tariffs and trade barriers
  • Global industrial output and employment levels plummeted
• Collapse of international credit markets and banking systems
  • Many European banks had invested heavily in American markets and were hit hard by the crash
  • Bank failures and credit contractions occurred in countries around the world
• Decline in global commodity prices, particularly affecting resource-dependent economies
  • Falling prices for agricultural goods, raw materials, and other commodities
  • Countries reliant on exports of primary goods (Latin America, Africa, Asia) faced severe economic hardship
• Rise of protectionist policies and economic nationalism
  • Countries sought to insulate their economies by raising tariffs and limiting imports
  • Breakdown of international economic cooperation and rise of beggar-thy-neighbor policies
• Political instability and social unrest in many countries
  • Economic hardship and high unemployment led to political upheaval and regime changes
  • Rise of extremist political movements, such as fascism in Europe
• Debt defaults and financial crises in Europe
  • Many European countries had borrowed heavily from the United States during the 1920s
  • As the Depression deepened, countries struggled to repay their debts, leading to defaults and financial crises
• Collapse of the gold standard and currency devaluations
  • Countries abandoned the gold standard to regain control over their monetary policies
  • Competitive currency devaluations as countries sought to boost exports and stimulate their economies

Key Figures and Their Roles

• Herbert Hoover, President of the United States (1929-1933)
  • Oversaw the initial government response to the Great Depression
  • Criticized for his reluctance to provide direct federal aid and his adherence to "rugged individualism"
• Franklin D. Roosevelt, President of the United States (1933-1945)
  • Implemented the New Deal, a series of programs and reforms aimed at providing relief, recovery, and reform
  • Restored public confidence through his "fireside chats" and leadership during the crisis
• John Maynard Keynes, British economist
  • Developed Keynesian economics, which advocated for government intervention to stimulate demand during economic downturns
  • His ideas influenced economic policy and the New Deal programs
• Charles E. Mitchell, President of National City Bank (now Citibank)
  • Represented the excesses and risky practices of the banking industry leading up to the crash
  • Faced charges of tax evasion and was forced to resign from his position
• Jesse Livermore, famous stock market speculator
  • Made and lost millions during the boom and bust of the stock market
  • His life story exemplified the risks and instability of the era's financial markets
• Dorothea Lange, American photographer
  • Documented the human impact of the Great Depression through her powerful photographs
  • Her images, such as "Migrant Mother," became iconic representations of the era's hardships
• Eleanor Roosevelt, First Lady of the United States
  • Played an active role in advocating for social welfare programs and civil rights
  • Served as a public face of the New Deal and a champion for the underprivileged

Lessons Learned and Long-Term Consequences

• Importance of government intervention during economic crises
  • Keynes's ideas and the New Deal's success demonstrated the value of government action to stabilize the economy
  • Paved the way for a more active role of the government in managing economic affairs
• Establishment of social safety net programs
  • New Deal programs such as Social Security, unemployment insurance, and public works projects
  • Provided a foundation for the modern welfare state and a cushion against economic hardship
• Increased regulation of the banking and financial sectors
  • Glass-Steagall Act of 1933 separated commercial and investment banking to reduce risky practices
  • Securities and Exchange Commission (SEC) established to regulate the stock market and protect investors
• Shift in economic thinking and the rise of Keynesian economics
  • Keynes's ideas challenged classical economic theories and emphasized the role of aggregate demand
  • Keynesian economics became the dominant paradigm for managing the economy in the post-war era
• Long-term impact on the role and size of the federal government
  • Expansion of federal power and the growth of the bureaucracy during the New Deal era
  • Increased public expectations for government intervention and assistance during economic downturns
• Lasting cultural and social changes
  • Great Depression left a lasting imprint on American society and culture
  • Influenced art, literature, and music, with themes of hardship, resilience, and social commentary
• Geopolitical consequences and the rise of fascism in Europe
  • Economic instability and political unrest in Europe contributed to the rise of fascist regimes
  • Failure to effectively address the global economic crisis set the stage for World War II
• Lessons for economic policymaking and crisis management
  • Importance of swift and decisive action to restore confidence and stabilize the economy
  • Need for international cooperation and coordination to address global economic challenges