Causes of the Great Depression

Prosperity Hides Troubles Throughout the 1920s, the U.S. had experienced economic prosperity with two Republican presidents. When likeable Herbert Hoover was chosen as the Republican candidate in 1928, he promised “…a chicken in every pot, a car in every garage.” Hoover had held numerous gov. positions previously and excelled in them, such as head of the Food Administration during WWI and Secretary of Commerce.

Prosperity Hides Troubles Underneath the prosperity, though lurked several problems that compounded throughout the decade. Farmers had increased production, bought more land, and purchased machinery on credit during WWI. However, production did not immediately decrease after the war. Farmers were unable to sell their abundant crops, pushing them further into debt.

Prosperity Hides Troubles When industrial wages rose steadily, their output increased at a much greater rate; management made more. The rich Americans did not make up for the lack of purchasing power of the lower-wage Americans. This is known as an uneven distribution of wealth. Buying on credit compounded with each year. More and more Americans bought what they could not afford.

Prosperity Hides Troubles These problems boiled over on October 29th, 1929 when the stock market crashed. It became known as Black Tuesday. However, this was part of the business cycle– a series of expansions and recessions in the economy.

The Great Depression Begins The reaction to the stock market crash signaled the start to the Great Depression. Stock market speculation too many people had put money into the stock based on what could happen, and not real information (known as speculation); Banks collapse when people lost money on the stock market, they feared they would lose their money in the banks, so they withdrew it.

The Great Depression Begins The government attempted to protect American products, by passing the Hawley-Smoot Tariff. It raised taxes on imported goods, crippling international trade. European difficulties with reparations and war debt payments worsened when the U.S. could not lend money to European countries.

Misery and Despair Grip American Cities Massive unemployment as a result of the economic collapse led to widespread homelessness and poverty. This led to the ‘construction’ of American shantytowns, made from cardboard boxes. They were known as Hoovervilles because many saw the blame for the collapse as belonging to the president.

Poverty Devastates Rural America Part of the problem facing farmers was the over-use of the land in the Midwest. Loose soil, compounded by drought and high winds led to the Dust Bowl– an area where dust storms were common. States affected included Texas, Oklahoma, Kansas New Mexico and Colorado.

Poverty Devastates Rural America

Poverty Devastates Rural America Many farmers were forced to abandon their farms. Some chose to become tenant farmers, and work for a larger farmland. Others chose to leave the Midwest altogether, mainly for California. These individuals were known as Okies– although not all were from Oklahoma. The plights of these migrant farmers were chronicled in John Steinbeck’s 1939 novel– The Grapes of Wrath.

Cautious Response to Depression Fails When Americans looked to Hoover to solve the crisis of the Great Depression, he did not immediately jump into action. In the beginning, Hoover adopted a hands-off policy because he felt the economic cycle would correct itself. However, to appease public opinion, Hoover then adopted a policy of volunteerism in which businesses and industrial leaders agreed to keep wages, prices and employment at current levels. In return, they would be given money by the government.

Cautious Response to Depression Fails But this policy relied too much on voluntary cooperation– something which most businesses were not willing to do. So, Hoover instead turned to a policy of localism, in which state and local governments would provide jobs. But, this did not work because the governments did not have the funds, and Hoover refused to help them. Instead, he believed in “rugged individualism” where people should better themselves through their own efforts.

Hoover Adopts More Activist Policies The American public associated the President’s name with suffering, so eventually Hoover had to get the government involved. He urged Congress to create the Reconstruction Finance Corporation (RFC) to provide loans to railroads, big businesses and banks. By doing so, they would employ more workers and production and consumption would increase again. This theory was known as trickle-down economics– the more wealth at the top of society, the more that was available to ‘trickle-down’ to the poor.

Americans Protest Hoover’s Failures Although Hoover was working hard to end the depression, to the everyday American, it was not enough. Some Americans proposed radical change to correct the economy– a rejection of capitalism and instead adopting socialism or communism. They saw capitalism as creating inequalities within American society.

Americans Protest Hoover’s Failures Although most Americans did not favor radical change, most did want SOMETHING to change. One group included WWI veterans who had been promised bonuses paid to them in 1945. Because of the depression, though, they wanted their money in 1931. Congress had passed a bill allowing the early payment, but Hoover vetoed it. They marched on the White House to demand early payment. Hoover ordered Douglas MacArthur to ‘clear out’ the Bonus Army because he feared violence. MacArthur took excessive force on the Bonus Army, using sabers and tear-gas. From that point on, Hoover was doomed in the eyes of the public.