The Great Depression Begins CHAPTER 9

The Causes of the Great Depression LESSON 1

Election of 1928 Alfred E. Smith: Democratic candidate Herbert Hoover: Republican candidate Smith was the first Roman Catholic to win a party’s presidential nomination Hoover won by a landslide

Stock Market Soars Stock Market: system for buying and selling stocks in corporations Bull Market: Long period of rising stock prices By 1929, 10% of Americans owned stocks Buyers thought the stock market would continue to climb Margin: buying a stock by paying only part of the price and borrowing the rest (stockbroker would pay the rest) Prices started to fall Margin call: demand by a broker that investors pay back loans

Starting to Fall In 1929, the market peaked, then prices began an uneven downward slide Investors decided the boom was over and sold more stock, causing prices to fall even further Customers put stocks up for sale driving the market into a tailspin

Black Tuesday October 24, 1929: became known as Black Thursday as prices fell further October 29, 1929: became known as Black Tuesday as prices took the deepest dive yet—16 million shares of stock were sold About $30 billion was lost The crash was not the major cause of the Depression, but it undermined the economy’s ability to overcome other weaknesses

Banks The crash weakened the banks by: ◦By 1929, banks lent billions to stock speculators ◦Banks invested depositors’ money in the market, when values collapsed banks lost money on investments and speculators defaulted on their loans Credit became less available as banks cut down on their loans The economy went into a recession

Panic The government did not insure bank deposits, so even those that did not invest in the stock market lost their money News of bank failures worried Americans Bank run: many depositers decide to withdraw their money at the same time, fearing the bank will collapse By 1932, 1 in 4 banks in the U.S. went out of business

Other Factors The crash would not have led to a long-lasting depression if other forces had not been at work Overproduction was another factor of the Great Depression More efficient machinery increased production and most Americans did not earn enough to buy the goods About 2/3 of families earned less than $2,500 a year—giving them little disposable income

Many Americans had purchased high-cost items on an installment plan People made small down payments on an item and would pay the rest in monthly installments Paying off debts caused people to make less purchases—causing less of a demand for products—layoffs resulted Slowdown in sales impacted many businesses Unemployment pay was nonexistent and few families had savings

Loss of Export Sales Many jobs might have been saved if American manufacturers had sold more goods abroad U.S. banks stopped loaning money to foreign companies resulting in them purchasing fewer American products The Hawley-Smoot Tariff raised the tariff rate to the highest in American history A decrease in exports hurt American companies and farmers

Mistakes by the Federal Reserve Instead of raising interest rates to curb excessive speculation, the Federal Reserve Board kept its rates low throughout the 1920s By keeping rates low, the Board encouraged member banks to make risky loans Low interest rates led business leaders to think that the economy was still expanding As a result, they borrowed more money to expand production This led to overproduction when sales were falling When workers were being laid off the Federal Reserve raised interest rates, tightening credit

Life During the Great Depression LESSON 2

Results of the Crash The Depression continued to grow worse In 1930, 1,352 banks suspended operations In 1932, about 30,000 companies went out of business By 1933, about ¼ of the workforce was unemployed When possible, the unemployed would stand outside soup kitchens or bread lines for free food

Homeless Many lost their homes because they could not afford rent or mortgage Bailiffs: court officers—would have to eject evicted tenants Many built shack or shantytowns they called Hoovervilles because they blamed President Hoover for the bad times Hoboes: wanderers that were homeless and penniless

Immigrants The Depression caused many immigrants to return to their native homelands The federal government launched repatriation drives to send poor immigrants back to their home countries Mexicans were targeted more than other immigrant groups and about 500,000-1 million were forced out It was less expensive to send Mexicans back than immigrants from Europe

Dust Bowl The Great Plains were dry with very high winds Much of the Great Plains were extensively deep plowed making the topsoil susceptible to rapid erosion This was not a problem for a long time due to heavy rainfall When crop prices dropped in the 1920s, many left their fields uncultivated In the early 1930s, a drought hit and there was nothing anchoring the soil which turned to dust

Winds blew the dust, blackening the sky for hundreds of miles Humans and animals caught outside would die of suffocation An average of 50 dust storms a year hit the Plains

Distractions Movies and radio programs became a way to escape worries Walt Disney produced the first feature-length film Snow White and the Seven Dwarfs In Mr. Smith Goes to Washington, Jimmy Stewart plays a senator unwilling to compromise his principles and exposes corruption of his colleagues These movies helped offset the helpless feelings many were dealing with

In 1939, MGM produced The Wizard of Oz The same year Gone With the Wind came out Millions of people listened to the radio daily Programs such as The Green Hornet became popular Sponsors were often makers of laundry soaps so they were nicknamed soap operas (drama on a television or radio using melodramatic situations)

Art & Literature Literature portrayed the thoughts and ideas of the time Steinbeck portrays a family fleeing the Dust Bowl in The Grapes of Wrath In 1936, TIME magazine publisher Henry Luce introduced Life, a weekly photojournalism magazine Dorothea Lange’s photo “Migrant Mother” exemplifies the Depression era’s characteristics and issues

Hoover’s Response to the Depression LESSON 3

Hoover President Hoover gave optimistic hope to the people following the crash that critics ridiculed as conditions worsened Hoover was trying to downplay the public’s fears and avoid more bank runs and layoffs His efforts failed to inspire the public’s confidence and the economy continued its downward spiral

He believed that the government should not interfere in the economy because he thought European socialism contributed to their lack of economic recovery Hoover was worried despite his statements and organized a series of conferences with heads of banks, railroads, other big businesses, as well as labor leaders and government officials to discuss solutions

Public Works Projects such as highways, parks, and libraries built with public funds for public use Hoover increased funding for public works which employed a small fraction of the millions unemployed The only way the government could create enough new jobs was through massive spending which Hoover refused to do

Congressional Elections As congressional elections approached, most Americans blamed the party in power for the economy’s problems Republicans lost 49 seats and their majority in the House of Representatives They barely held on to their majority in the Senate

Dealing with Money Shortage The president asked the Federal Reserve Board to put more currency into circulation, but they refused Hoover tried setting up the National Credit Corporation (NCC) to handle the money shortage, but it did not solve the problem In 1932, Hoover requested Congress set up the Reconstruction Finance Corporation (RFC) to make loans to businesses They lent about $238 million to bans, railroads, and building-and- loan associations—it also failed to fix the problem

Relief Aid in the form of money or supplies for those in need Hoover opposed the federal government’s participation in relief, thinking this was the job of state and local governments Congress ended up passing the Emergency Relief and Construction Act and Hoover signed it ◦Called for $1.5 billion in public works and $300 million in emergency loans to the states for direct relief

Reaction of the People The general attitude of society was very negative at this point In January 1931, about 500 residents of Oklahoma City looted a grocery store The following month, hundreds of unemployed citizens broke into a Minneapolis grocery store and stole meat, produce, and canned goods Crowds began showing up at rallies and “hunger marches” organized by the American Communist Party

Foreclosure To take possession of a property from a mortgager because of defaults on payments Creditors foreclosed on nearly one million farms between 1930 and 1934

The Bonus Marchers After WWI, Congress had enacted a $1,000 bonus for each veteran to be distributed in 1945 In 1929, a Texas congressman introduced a bill that would authorize early payment of these bonuses In May 1932, hundreds of Oregon veterans began marching to Washington, D.C. to lobby for passage of the legislation—as they went east about 1,000 other veterans joined them The Bonus Army started to grow once in D.C. to about 15,000

Hoover did not agree to speak with them and Congress did not approve the bonus bill Hoover ordered the vacant buildings the veterans were hold up in to be cleared When soldiers ended up killing a couple of veterans and assaulting many, Hoover’s reputation became even worse