Mr. Schaber - US History - Ch. 22 - Crash and Depression

Mr. Schaber - US History - Ch. 22 - Crash and Depression

*Section 1 - The Economy in the Late 1920s

- The mood of most Americans in the late 1920s was optimistic, and with good reason

- Because of medical advances, life expectancy had lengthened and people lived better

- The brightest hopes came from the economy

- In his final message to Congress, Pres. Calvin Coolidge said the country could “regard the present with satisfaction and anticipate the future with optimism”

- His successor, Herbert Hoover, predicted that “poverty will be banished from this nation”

- In 1928, Hoover won the Presidential election with ease - he was a self-made millionaire

- People expected that the good times would only get better under Hoover

- As Hoover took office, the US economy seemed to be in fine shape

- Because the stock market was widely regarded as the nation’s economic weathervane, The New York Times could describe the year as one “of unprecedented advance, of wonderful prosperity”

- Working people seemed to have prospered in the post-World War I period - since 1914, the value of workers’ wages had risen more than 40 percent - unemployment averaged below 4 percent

- People had unusually high confidence in the business world during the 1920s - for some, business success became almost a religion

- For example, corporate leader John J. Raskob, in his 1929 article “Everybody Ought to Be Rich,” stated that savings of only $15 a week over 20 years could bring a $400-a-month income from investments

- Although people in the late 1920s were wildly buying stocks with borrowed money, the Hoover administration did little to discourage such borrowing

- To keep the unions weak, many companies launched strategies to meet some of their workers’ needs without demands from unions - this idea is called welfare capitalism

- Employers raised wages and provided benefits such as paid vacations, health plans, and even English classes for recent immigrants

- Despite some stock market success stories, it was mainly the rich who got richer - huge corporations rather than small businesses dominated industry

- Similarly, a small proportion of families held most of the nation’s personal wealth

- Another sign of trouble was an increase in personal debt - in the 1920s assembly-line production made consumer items more affordable and available - people continually bought and bought, whether they could afford or not

- Fed by the optimism of the age, a “get-rich-quick” attitude prevailed during the 1920s

- There was widespread speculation (the practice of making high-risk investments in hopes of getting a high gain)

- Before WWI only the wealthy played in the stock market - now, the press reported stories of ordinary people who had made fortunes

- Small investors entered the stock market, often with their life savings

- By the late 1920s, the country’s warehouses held piles of un-bought consumer goods - wages had risen, but people still could not afford to buy goods as fast as the assembly lines turned them out

- Although the stock market kept rising, overproduction caused some industries to slow in the late 1920s

- For some sectors of the farm economy, the 1920s brought not prosperity but devastation

- During the good times, many farmers had purchased the new tractors and other machinery now available

- Falling farm prices made farmers unable to repay their debts for land and machinery - rural banks suffered when loans were not repaid, and about 6,000 banks went out of business

- Life remained exceedingly hard for many factory workers as well - while companies grew wealthy, most laborers still worked long hours for low wages

- To some observers, these factors - uneven wealth, rising debt, stock speculation, overproduction, and the hardships of farmers and workers - clearly signaled trouble in the economy

*Section 2 - The Stock Market Crash

- In early 1928 the Dow Jones Industrial Average (an average of stock prices of major industries) had climbed to 191 - on September 3, 1928, the Dow Jones Average reached an all-time high of 381

- The rising stock market dominated the news - keeping track of prices became almost as popular as counting Babe Ruth’s home runs

- After the peak in September, stock prices fell slowly - some brokers began to call in loans, but others continued to lend even more

- When the stock market closed on Wednesday, October 23, the Dow Jones average had dropped 21 points in 1hr.

- The next day, Thursday, October 24, worried investors began to sell, and stock prices fell

- Again, business and political leaders told the country not to worry

- Hoover maintained that the nation’s business “is on a sound and prosperous basis”

- To stop the panic, a group of bankers pooled their money to buy stock - this action stabilized prices, but only for a few days

- By Monday prices were falling again - investors all over the country raced to get their money out of the market

- On October 29, known as Black Tuesday, a record 16.4 million shares were sold, compared with the average 4 million to 8 million shares a day earlier in the year

- This collapse of the stock market is known as the Great Crash

- It took time for people to recognize the extent of the disaster caused by the Crash

- For people whose entire wealth did not depend on the stock market, life went on much as before, with perhaps a few cutbacks - others, including wealthy families, lost everything

- By 1929, about 4 million people out of a population of 120 million had invested in the stock market

- They were first to suffer from the Crash, but it soon affected millions who had never owned a single share of stock

- The Crash triggered a much wider, long-term crisis known as the Great Depression (a severe economic decline that lasted from 1929 until the US entry into WWII in 1941)

- The Great Depression caused millions of Americans to lost their jobs, farms, and homes

- As income and profits fell, American factories began to close - thousands of workers lost their jobs or had their pay cut - in 1931 Henry Ford shut down his Detroit automobile factories, putting 75,000 people out of work

- By 1932 more than 12 million people were unemployed, about a quarter of the entire US labor force

- Others worked only part-time or had their wages cut

- The Gross National Product (GNP) - the total value of goods and services a country produces annually - was $103 billion in 1929, and by 1933 it was only $56 billion

- The effects of the Crash spread - restaurants and other small businesses closed because customers could no longer afford to go to them

- Farm prices, already low, fell even more, bringing final disaster to many families

- Unpaid farm loans already had ruined many rural banks - now city banks were in trouble

- Banks exist on the interest they earn from lending out their deposits - they assume that not everyone will claim their deposits at once

- After the stock market crash, people with loans to repay as well as nervous depositors rushed to withdraw their money

- Thousands of banks closed their doors when they could not return their depositors’ money

- By 1933, the money from 9 million savings accounts had vanished

- When the world’s leading economy fell, the global economic system began to crumble

- The US had insisted that France and Britain, its wartime allies, repay their war debts

- The Allies had to rely on Germany’s reparations payments for income

- As long as the US companies invested in Germany, reparations payments continued - but with the Depression, investments fell off - German banks failed, Germany suspended reparations, and the Allies in turn stopped paying their debts - Europeans no longer could afford to buy American-made goods

- Thus the American stock market crash started a downward cycle in the global economy

- But, deeper problems were the real underlying causes of the Great Depression

- During the 1920s, speculators bought stocks with borrowed money, then pledged those stocks as collateral to buy more stocks

- The stock market boom was thus based on borrowed money and optimism instead of real value

- Mistakes in monetary policy were also to blame

- The Federal Reserve system had cut interest rates in the ‘20s to spur economic growth - then, in 1929, it limited the money supply to discourage lending

- After the Crash there was too little money in circulation to help the economy recover

- Overall, the seemingly prosperous economy lacked a firm base - national wealth was unevenly distributed, with the most money in the hands of a few families who tended to save or invest rather than buy goods

- Industry produced more goods than most consumers wanted or could afford

*Section 3 - Social Effects of the Depression

- Many Americans thought the Depression that followed would not last - for them, reality hit in 1931 and 1932

- Imagine that the bank where you had a savings account suddenly closed - your money was gone - or your parents lost their jobs and could not pay the rent or mortgage - one day you come home to find your furniture on the sidewalk - you had been evicted

- People at all levels of society faced these conditions and situations

- The hardest hit were those at the bottom of the economic ladder - some unemployed laborers, unable to pay their rent, moved in with relatives - other people just drifted

- Homeless people sometimes built shanty towns, with shacks of tar paper, cardboard, or scrap material

- These shelters of the homeless came to be called Hoovervilles, mocking the President, whom people blamed for the crisis

- When they could not pay their mortgages, they lost their homes or farms to the banks, which sold them at auction

- In the South, landowners expelled tenant farmers and sharecroppers

- In protest against low farm prices, farmers dumped thousands of gallons of milk and destroyed other crops - these desperate actions shocked a hungry nation

- For thousands of farm families in the Midwest, the harsh conditions of the Depression were made even more extreme by another major crisis of the decade

- This one was not economic, but environmental - it was the Dust Bowl (a region in the Great Plains where drought and dust storms took place for much of the 1930s)

- More than 440,000 people left Oklahoma during the 1930s - nearly 300,000 people left Kansas

- Thousands of families in Oklahoma, Texas, Kansas, and other southwestern Plains states migrated to California

- Dorothea Lange - she photographed the hundreds of migrant workers that streamed into California from the Dust Bowl - the pictures stirred public attention and helped win aid for the workers

- Her most famous photograph is entitled “Migrant Mother” - her work also inspired John Steinbeck’s Depression-era novel The Grapes of Wrath

- As the Depression wore on, it took a serious physical and psychological toll on the entire nation

- “No one has starved” President Hoover declared - but, some did starve, and thousands more went hungry

- One man said, “All last winter we never had a fire except about once a day when Mother used to cook some mush or something. When the kids were cold they went to bed. I quit high school, of course.”

- Living conditions declined as families moved in together, crowding into small houses or apartments

- People gave up even small pleasures like an ice cream cone or a movie ticket

- Men who had lost jobs or investments often felt like failures because they could no longer provide for their families - many were embarrassed to be seen at home during normal working hours - they were ashamed to ask friends for help

- Women faced other problems - those who depended on a husband’s paycheck worried about feeding their hungry children - working women were accused of taking jobs away from men

- Hard economic times put groups of Americans in competition with one another for a shrinking number of jobs

- This produced a general rise in suspicions and hostilities against minorities - African Americans, Hispanics, and in the West, Asian Americans, all suffered

- African Americans continued to leave the South, although not as many as in the 1920s

- Black unemployment soared - about 56% of black Americans were out of work in 1932

- Because relief programs discriminated against African Americans, black churches and organizations like the National Urban League gave private help

- Discrimination increased for African Americans in the South

- Hispanics and Asian Americans lost not only their jobs, but also their country - thousands were deported - even those born in America

- A generation of Americans would live to tell their grandchildren how they survived the Depression

- Nothing was wasted - people used everything they could for food, clothing, etc.

- Many kids never got to go to high school, “as survival was more important”

*Section 4 - Surviving the Great Depression

- No one who lived through the Great Depression ever forgot it - long after the economy rebounded, the “Depression generation,” even those who recovered enough to live a very comfortable life, would continue to pinch pennies as if financial ruin were just around the corner

- Some people even stuffed money under their mattresses rather than trust their life savings in a bank

- One reporter said of the American people, “...there is one thing they (Americans) are not, and that is - beaten.”

- People pulled together to help each other - people helped those they saw as worse off than themselves