4. Living on Credit a. Americans living beyond their means due to buying on credit putting a little money down and paying later

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1 Chapter 22: The Great Depression Begins I. The Nation s Sick Economy (Section 1) A. Economic Troubles on the Horizon 1. Industries in Trouble a. Key industries began to struggle railroads, textiles, steel, base coal, etc. industries of the 1920s began to weaken automobiles, consumer goods, house building, etc. 2. The higher the housing starts the healthier the economy 2. Farmers Need A Lift b. Mining a. During and lumbering at an all-time high during WWI were no longer in demandeven Popular 1. One telling indicator of the economy is housing starts the number of new houses being built low=prices low=farmers can t pay back loans=foreclosure and land seizure=bank foreclosures=land/equipment actions b. To try and help farmers, Congress passed the McNary-Haugen WWI demand high=prices high=farmers producing more=loans for land and equipmentpost WWI demand Bill 1. would provided federal price-supports government buys have surplus and sells on the world market 3. Consumers Have Less Money to Spend a. Consumers buying less higher prices, stagnant wages, indebt, etc. 4. Living on Credit a. Americans living beyond their means due to buying on credit putting a little money down and paying later b. Production expanded much quicker than wages 2. would have helped stabilized prices in domestic market 3. the bill was vetoed by President Coolidge and failed to ever pass b. Most popular credit was installment plans paying a small percentage and making monthly payments (plus interest) to pay for item c. Consumers built up too much credit and then cut back on spending 5. Uneven Distribution a. 1920s rich got richer and poor got poorer b. 70% of the nation earned less than $2,500 per year (the minimum amount that a family could live decent on) c. Most Americans did not purchase new products because they could not afford them B. Hoover Takes the Nation 1. The Election of 1928 a. Republican Herbert Hoover Secretary of Commerce under Harding and Coolidge b. Democrat Alfred E. Smith Career politician who served as governor of New York He was catholic which scared many people as they believed he might become a puppet for the pope c. Hoover won because American liked the years of prosperity under Republican leadership 2. Wickersham Commission a. The Wickersham Commission was established in May of 1929 when President Herbert Hoover appointed George W. Wickersham (1858-1

2 1936) to head the National Committee on Law Observation and Enforcement, popularly called the Wickersham Commission b. The Commission was an 11-member group charged with identifying the causes of criminal activity and to make recommendations for appropriate public policy i. The emphasis was almost entirely on the widespread violations of national alcohol prohibition ii. The Commission documented the widespread evasion of prohibition and the numerous counterproductive effects it was having on American society iii. The 11 members of the commission disagreed among themselves on whether Prohibition should continue; most felt that the noble experiment was ineffective and promoted crime, yet the commission as a whole recommended that prohibition be continued 3. Dreams of Riches in the Stock Market a. The stock market became the most visible sing of American prosperity 1. The Dow Jones Industrial Average was an indicator used to judge how the stock market was doing 2. The Dow is the average value of 30 large, industrial stocks (such as General Motors, Goodyear, IBM, Exxon, etc.) i. The Dow Jones Industrial Average ii. S&P 500 the average value of 500 large companies iii. Russel 2000 index average value of 2,000 smaller companies b. It was a Bull Market (the market was doing well) Dow was up 300 points higher than it had been in the previous five years c. Nicknames for how the market is doing: 1. Bull Market when economy is doing well (prices of stocks as a group are rising or have risen) 2. Bear Market when economy is doing poorly (prices of stocks as a group are falling or have fallen) d. Over Inflated Stock Market 1. People were engaging in speculation buying stocks and bonds to make a quick profit 2. People who could not afford stock began Buying on Margin paying a small percent of a stock s price as a down payment and then borrowing the rest 2

3 3. As the stock market rose, prices did not reflect the actual value of companies C. The Stock Market Crashes 1. Black Thursday a. October 24, 1929 prices dropped considerably as investors began to unload their shares b. Led to a lack of confidence in the market and prices continued to drop c. At the end of the day number of leading bankers began to buy stocks to try and prevent a futher collapse 2. Black Tuesday a. October 29, 1929 Black Tuesday the bottom fell out of the market b. Prices continued to drop as investors tried to sell c. People who had bought on margin were now in huge debt d. By mid-november, investors had lost approximately $30 billion dollars D. Financial Collapse 1. Stock market crash signaled the start of the Great Depression period from 1929 to Bank and Business Failures a. Banks were not insured by the government, by 1933 almost half of the nation s banks had failed (those with money in savings lost it all) because: 1. people panicked and withdrew their money 2. were owed money (buying on margin, installment buying, house loans, etc.) and were not being paid back 3. had invested in the stock market b. With so many much money being loss, companies went bankrupt (90,000 companies) or began to cut their goods and services either eliminated jobs c. ¼ of the nation was out of work the unemployment rate went from 3 percent in 1929 to 25 percent in Worldwide Shock Waves a. Europe was also facing depression through the 1920s b. Countries faced great debts due to WWI and relied on two factors to help them: 1. Germany to pay war reparations which it could not (printed more money which led to inflation) 2. Success in selling goods in the United States which it could not because of the Hawley-Smoot Tariff 3

4 a. Hawley-Smoot Tariff was the highest protective tariff in U.S. history b. Reduced European imports European countries had hoped to pay off much of their debt to U.S. by selling their products c. Many countries retaliated and raised their tariffs which reduced U.S. imports to Europe thus further hurting American companies 4. Causes of the Great Depression a. Tariffs and war debt policies that cut down the foreign market for American goods b. A crises in the farm sector c. The availability of easy credit d. An unequal distribution of income E. Business Cycle 1. Industries increase production and hire more workers during prosperous times resulting in surpluses 2. With a surplus, industries then cut back on production and lay off workers triggering a recession or a depression 3. Once the surplus goods are sold, industries then start production and the down turn comes to an end II. Hardship and Suffering During the Depression (Section 2) a. The Depression Devastates People s Lives i. The Depression in the Cities 1. People lose jobs, are evicted from homes 2. Shantytowns (Hoovervilles), settlements consisting of shacks, arise in cities 4

5 3. To feed themselves: a. People dig through garbage, beg b. Soup kitchens offer free or low-cost food c. Bread lines people line up for food from charities, public agencies 4. African Americans and Latinos were hit especially hard by the depression a. high unemployment and lower pay ii. The Depression in the Rural Areas 1. Advantage over city life: Most farmers can grow food for their families 2. About 400,000 farms lost through foreclosure 3. many become tenant farmers, barely scraping out a living iii. The Dust Bowl 1. Farmers in Great Plains exhaust land through overproduction (No Crop Rotation) s, drought, windstorms hit; soil scattered for hundreds of miles 3. Dust Bowl area from North Dakota to Texas that is hardest hit 4. Many farm families migrate to Pacific Coast states known as Exodusters or Okies b. Effects on the American Family i. Men in the Streets 1. Many men used to working, supporting families have difficulty coping a. Every day they travel streets looking but cannot find jobs 2. As many as 300,000 hoboes wander country on railroad box cars 3. No federal system of direct relief (dole) cash or food from government ii. Women Struggle to Survive 1. Homemakers budget carefully can food, sew clothes, buy food as group, etc. 2. Women work outside home getting paid less and resented by unemployed men 3. Many women suffered in silence starving to death in cold attics and rooming houses too ashamed to stand in bread lines iii. Children Suffer Hardships 1. Poor diets and health care lead to serious health problems in children 2. Lack of tax revenue leads to shortened school year, school closings 5

6 3. Teenagers leave home to alleviate stress on parents one less mouth to feed 4. These wild boys or Hoover Tourists rode trains in search of work and adventure iv. Social and Psychological , suicide rate rises over 30% 2. Admissions to state mental hospitals triple 3. People give up health care, college, put off marriage, children 4. Stigma of poverty doesn t disappear financial security becomes goal 5. Many show great kindness to strangers 6. Develop habit of saving and thriftiness c. Fear of Revolution Radical Alternatives i. Unrest offered hope to Socialists and Communists who said Depression marked end to capitalism 1. both argued government control means of production 2. both promised economy would result in abundance for all ii. Anti-Democratic movement weakened because two cut each other down 1. Socialists thought to gain power through persuasion and voting 2. Communists believed you had to gain power through violence a. Earl Browder [Communist general secretary] said can t make omelets without breaking some eggs ) iii. Using the Forces of Democracy 1. Protest movements failed to unify and no single leader came forward 2. Most Americans clung to their democratic traditions and expressed their anger at the ballot box d. Foreign Policy During the Depression i. Latin America 1. The Clark Memorandum argued the position that the Roosevelt Corollary to the Monroe Doctrine had no historical basis the Monroe Doctrine could not longer be used 2. Due to the Clark Memorandum and the depression, the U.S. stayed out of Latin American affairs ii. Germany 1. Hoover wanted to see U.S. interests as well as the German republic preserved 2. In 1931, Hoover proposed an international moratorium of one year of all war-debt payments to the United States 6

7 iii. Japan 1. In 1931, Japan seized China s rich province of Manchuria breaking the Nine-Power treaty of 1922 (which guaranteed China s sovereignty) and the Kellogg-Briand Pact (which outlawed war) 2. In 1932 U.S. declared the Hoover-Stimson Doctrine which said U.S. would not recognize any territory gained thought he violation of the Kellogg-Briand Pact 3. The doctrine was designed to enlist world opinion against aggressor nations but did nothing to aid China and served only to irritate the Japanese III. Hoover Struggles with the Depression (Section 3) A. Hoover Tries to Reassure the Nation 1. Hoover s Philosophy a. Government s role in business was to encourage and facilitate cooperation between business and labor, not to control it force cooperation b. Like Americans, Hoover believed people would succeed through their own hard work i. Hoover was against federal welfare (direct relief directly giving food and/or money) believing it would enable and weaken people s self-respect and moral fiber ii. He believed individuals, charities, and local organizations care for the needy not the federal government 2. Hoover Takes Cautious Steps a. After crash, called key leaders (in business, banking, and labor) together and encouraged solution thinking suggested i. employers not cut wages nor work force ii. labor not demand higher wages nor go on strike b. None of his initial steps were productive as unemployment rose as did bankrupt companies 3. Boulder Dam (Hoover Dam) a. A project Hoover proposed when he was secretary of commerce b. Paid for by the profits from the sales of the electricity the dam would generate c. In the fall of 1929, Hoover finally authorized the building of the dam 7

8 d. It provided electricity, flood control, controlled water supply (agriculture), and jobs 4. Democrats win the 1930 Congressional Elections a. The 1930 U.S. Congressional Election occurred in the middle of Republican President Herbert Hoover's first term With the Great Depression beginning to take hold, Republican incumbents became unpopular b. U.S. House of Representatives Republican Party lost a net of 52 seats to the Democratic Party c. U.S. Senate Democrats gained a net of eight seats, although Republicans retained control of the chamber by one member 5. People continued to grow frustrated with Hoover s approach to the Depression a. Farmers i. Burned their corn and wheat and dumped their milk publicly rather than sell at a loss ii. Declared a farm holiday and refused to farm their field iii. Blocked roads to prevent food from getting to markets iv. Using force to prevent the foreclosure of farms b. Nicknames i. Shantytowns: Hoovervilles ii. Newspaper blankets: Hoover Blankets iii. Empty pockets turned inside out: Hoover flags c. Despite the anger and criticism directed at him, Hoover stood by his principles and refused to give direct relief B. Hoover Takes Action gradually softening to government intervention 1. Hoover Backs Cooperatives a. Federal Farm Board organization of farm cooperatives that would try and raise crop prices b. National Credit Corporation loaned money to smaller banks to try and help them avoid bankruptcy 2. Direct Intervention 8

9 a. As the presidential election approached, Hoover tried to pass banking reform, mortgage assistance, and invest federal funds into business investment b. Federal Home Loan Bank Act i. Lowered mortgage rates for homeowners ii. Allowed farmers to refinance their farm loans to avoid foreclosure c. Congress passed the Glass-Steagall Banking Act which separated investment from commercials banking d. Reconstruction Finance Corporation (RFC) i. Authorized up to $2 billion for emergency financing for banks, life insurance companies, railroads, and other large businesses ii. Criticized for helping only the corporations, Hoover argued that that the money would trickle down to the average citizen iii. Americans did not want to wait for the trickle, they wanted relief now iv. Despite more than $805 million to large corporations, businesses continued to fail C. Gassing the Bonus Army 1. The Patman Bill Denied a. In 1924, Congress passed the Adjusted Service Certificate Law of 1924 which would give World War I veterans a bonus in 1945 for appreciation for their service b. During the depression, veterans wanted payment immediately rather than waiting until 1945 c. In 1932 John Patman of Texas, introduced the Veteran's Bonus Bill which mandated the immediate cash payment of the endowment promised to the men who fought in the war i. In the Spring and Summer of ,000 World War I veterans, their families, and other affiliated groups, demonstrated in Washington, D.C. in support of the Patman Bill 9

10 ii. Led by Walter Waters, the veterans, calling themselves the Bonus Expeditionary Force known to history as the Bonus Army iii. When the Senate vetoed the bill, all but 2,000 veterans left Washington D.C. iv. About 2,000 veterans refused to leave Washington 2. Hoover Disbands the Bonus Army a. President Hoover, already believing the veterans were communists and persons with criminal records rather than veterans, believed the remainder of the Bonus Army would start trouble b. He sent 1,000 soldiers under the command of General Douglas MacArthur (and his aid Major Dwight D. Eisenhower) in to remove the veterans c. Troops carried rifles with unsheathed bayonets and tear gas were sent into the Bonus Army's camps d. Hundreds of veterans were injured and several were killed on their way to clearing the veterans e. Americans were outraged by Hoover and the governments treatment of these veterans 10