THE GREAT DEPRESSION

Transcription

1 THE GREAT DEPRESSION I THE GREAT CRASH OF Causes: a. The Bull Market : The value of stocks continued to grow during the 1920s. The Dow Jones went from 180 in 1924 to 381 by Stocks were selling for 16X their earnings. b. Buying Stocks on Margin: 1) Investors purchased stocks from stockbrokers for as little as 5% down 2) When stock values rose, investors would pay back their debt. If no payment, stocks were held as collateral 3) If prices of stock decreased more than 10%, broker would sell stock for whatever price they could get. Result: Banks and businesses that had financed broker s loans lost much $. 4) Banks loaned money to stockbrokers to facilitate on margin buying c. Over Speculation: 1) Investors gambled that prices would continue to rise 2) Artificial rises in stock & commodity values fueled speculation. 3) Hoover unsuccessfully tried early to curb speculation through the Federal Reserve Board. 2. "BLACK TUESDAY" Oct. 29, 1929 a. Everybody wanted to sell. Within hours, the stock market crashed. b. By mid-november, $25 billion in stock value had disappeared. Fortunes were wiped out almost overnight; Dow Jones in 1932 = 41. c. Traditional historical interpretation puts the Crash as the immediate cause of the Great Depression. However, no direct connection has ever been proven; U.S. did not sink into a major depression until Dec Other factors more important (see below) II LONG TERM CAUSES OF THE GREAT DEPRESSION 1. Weak industries. a. Cotton industry was affected by the rise of synthetic materials. b. Railroad industry was affected by the automobile c. Low food prices affected the farming industry; Government refused price supports in 1920's. 2. Overproduction of goods by manufacturers. a. Consumers began to spend less on goods: under consumption. Ordinary workers and farmers had used their consumer credit and did not have enough money to keep buying products that were produced. 6

2 b. Many warehouses full of products that couldn't be sold. Companies lost money. 3. Uneven distribution of income. a. 5% of the population received 30% of the total income. b. Low wages for industrial workers and farmers. c. One-half of country lived below the poverty line. These were potential customers. 4. Unstable banking system. Due to mismanagement and over speculation 5. Weak international economy. a. Protectionist trade policies stopped foreign trade b. Hawley-Smoot Tariff (1930) --created highest tariff in U.S. history c. 23 nations retaliated by imposing tariffs on U.S. exports. III THE GREAT DEPRESSION 1. By 1932, 5,761 banks had failed (22% of total). Many banks invested in stocks before the crash 2. Thousands of businesses failed - 20,000 in 1929; 30,000 in Unemployment reached 25% by 1932 (13 million people) excluding farmers. a. As high as 33% including farmers; Chicago = 50%! b. Low-skilled workers most affected (professionals & middle-class suffered less); Blacks and immigrant workers especially hard hit (low-skilled) 4. Total wages dropped from $12 billion to $7 billion from 1929 to 1932 (lower wages = less money spent in the economy); about 41% 5. By 1932, 25% of farmers lost their farms. A major cause was the large drop in food prices 6. People experienced loss of self-worth: a. Many families broke up; marriage rate and birth rate declined. Families doubled up in houses and apartments 7

3 b. 3 million people became hobos and lived in makeshift shacks known as "Hoovervilles" c. Malnutrition rampant in certain areas but death by starvation uncommon. Perhaps malnutrition caused people to be susceptible to fatal disease. 7. Depression longest and most devastating in U.S. history: a. U.S. hit the hardest among industrialized nations. Gross National Product fell from $104 billion in 1929 to $56.1 billion in b. International reparations and war debts structure collapsed. c. U.S. exports dropped, further hurting the U.S. economy. IV HOOVER S RESPONSE TO THE DEPRESSION 1. Hoover's philosophy: a. Hoover believed (perhaps correctly) that outside forces in Europe were responsible for the Great Depression. b. Hoover thus took too long to initiate domestic measures to help the economy believing instead the international system had to be repaired. c. Due to this early inaction Hoover appeared unsympathetic and will always be blamed for the depression 2. Farming: a. Pre-crash: Agricultural Marketing Act passed by Congress in Designed to help farmers help themselves, largely through producers cooperatives. b. Federal Farm Board established in 1930 with revolving fund of $500 million 1) Lent funds to buy, sell & store agricultural surpluses. 2) Goal: raise sagging prices by buying up surpluses and selling them abroad; Failed as production of food increased. 3. Hawley-Smoot Tariff of 1930 a. Tariff became the highest peace-time barrier in the nation s history. b. Foreign countries interpreted tariff as an economic declaration of war. Trade gaps widened c. Exacerbated the existing international economic depression. d. International financial chaos resulted in U.S. becoming even more isolationist 4. Attempts at economic recovery: a. Volunteerism: Hoover believed voluntary cooperation (like in WWI) would enable the country to overcome the depression. 1) Urged businesses to avoid lay-offs of workers and wage cuts. 2) Secured no-strike pledges from labor leaders. 3) Urged all citizens to contribute to charities to ease the suffering. 4) In reality, private charity not adequate to meet the country s needs. b. Public works: 1) In 1930 Congress appropriated $750 million for public 8

4 buildings, river and harbor improvements, & highway construction to stimulate employment. 2) Hoover Dam begun in 1930 and completed in Created a huge man-made lake for purposes of irrigation, flood control, and electric power. c. Reconstruction Finance Corporation (RFC) ) RFC had appropriation of $500 million and authority to borrow $1.5 billion for loans to railroads, banks, and other financial institutions. Later legislation authorized RFC to lend $300 million to states for relief, & to make loans to states & cities for self-liquidating public works. 2) Prevented the failure of basic firms on which many other elements of the economy depended, but was criticized by some as relief for the rich. d. Norris-La Guardia Anti-Injunction Act (1932). Outlawed "yellow dog" (antiunion) contracts and forbade the federal courts to issue injunctions to restrain strikes, boycotts, and peaceful picketing. e. Refusal of relief (Hoover believed in "rugged individualism") 1) Hoover opposed vetoed use of federal funds for relief for the needy. 2) Feared govt. handouts would destroy the nation s work-ethic. f. Moratorium on international debts (1931) 1) Hoover pushed for a 1-year freeze on international debts to help European countries recover (esp. Germany). 2) The international economy was too heavily damaged for this to make much difference. V THE BONUS ARMY, ,000 unemployed veterans marched on Washington in summer of 1932 to lobby Congress for payment of a bonus approved in 1924, payable in At Hoover s insistence, the Senate did not pass the bonus bill and about half of the Bonus Army went home, transportation paid for by Congress. 3. Remaining 5000 remained, living in a shantytown Hooverville, and continued to lobby for their cause. 4. Govt. ordered the shantytown razed, 2 veterans were killed in a clash with the police. 5. Hoover panicked and ordered in federal troop. 700 Army troops, commanded by Douglas MacArthur, aided by D. D. Eisenhower, and G. S. Patton, dispersed the veterans and burned their camps. 6. Significance: Hoover appeared heartless to already angry Americans and contributed to his defeat in the November elections. VI ASSESSMENT OF HOOVER 9

5 1. Despite not doing enough, Hoover advocated more direct govt. involvement than any previous president in the nation s history. 2. Probably prevented a more serious collapse than did occur. 3. Policies paved the way for the New Deal (e.g. RFC) 4. His conservatism prevented him from going far enough to solve the worst slump in U.S. history. VII HOOVER S FOREIGN POLICY 1. Japanese attack Manchuria in September, 1931 a. Open Door shut as Western world was reeling in economic chaos. b. League of Nations condemned the action; Japan left the League 2. Hoover-Stimson Doctrine (1932) a. Hoover, reflecting isolationism of the U.S., did not want to fight a war in Asia. b. Declared U.S. would not recognize any territory conquered by force; Japan infuriated as U.S. had conquered territories a few decades earlier. Japan not deterred. c. Japanese aggression seen by many historians as the beginning of the road to World War II. d. Naked aggression was not halted by the League of Nations. U.S. would not commit to collective security. 3. Improved relations with Latin America a. Hoover aimed to abandon interventionist philosophy of Theodore Roosevelt. b. Took a goodwill trip of Latin American after his election in 1928 c. Great Depression meant less money for U.S. investors to spend overseas thus decreasing U.S. interest in economic imperialism. d. Early 1933, U.S. forces left Nicaragua after nearly 20 years. 10