Why Hoover failed to deal with depression Key Q 3: What were the causes and consequences of the Wall Street Crash? Causes of Crash Why Roosevelt won in 1932 Consequences of Crash Why Hoover failed to deal with depression Speculation: This means risking money to try to make money on the stock market (effectively gambling). Only 4 million share owners in 1920 but 20 million by 1929, all risking their money. If there is huge demand for something then the price will rise, so share prices kept rising, but the share prices of companies were valued way higher than they should have been. At some point they would return to normal and prices would stop going up, meaning people would lose money. Personality: He had charisma, he could get people to like him. He said to Orson Wells (famous actor) ‘You and I are the two best actors in America.’ He spoke to the people in simple terms but not patronisingly. Banks went bankrupt: Usually because they had lent too much money (buying on margin, hire purchase) and when people couldn't pay it back the banks went bankrupt. This meant that even people who didn’t borrow any money and just had their savings in the banks, also lost everything. In 1930 over 1,300 banks went bankrupt. Laissez-faire: Until 1932 Hoover continued to believe in laissez-faire and little government intervention, even though people blatantly needed government help. He thought the situations would sort itself out because capitalist countries had always experienced booms and busts in the past. However, this one was the biggest ever. He was not Hoover: Hoover was associated with the crash and the depression but also with doing little to help people. Hoover’s handling of the Bonus Army made things even worse. Confidence: This is essential to a prosperous economy and the crash destroyed confidence. This meant people were more likely to save than spend Rugged Individualism: Hoover believed that if people are given too much help then they will learn to rely on it. He believed that Americans must be left to help themselves. Buying on margin: People were borrowing money to buy shares, waiting for the price to go up and then selling the shares, paying back the loan and keeping some profit. Banks lent $9billion for people to buy on the margin in 1929. This meant more money was available for people to be able to buy shares and they did so the price continued to go up. Prices were bound to return to normal levels at some point. Belief in ‘active government’: This is the opposite to laissez-faire, he wanted the government to spend money to create jobs and help people out. He had already done this in his role as Governor of New York. Wages: Because less workers were needed to make products because less people were buying them, it meant that there weren’t many jobs around. There was huge numbers of unemployed people. This meant people were often desperate for a job, so companies could offer lower wages as people would take anything. Wages across the USA dropped by 60% between 1928 and 1933. Tariffs: Hoover tried to protect US businesses by increasing tariffs but this just made it even more difficult for US companies to sell abroad as countries raised their own tariffs on US goods in response. Market saturation: In the early 1920s barely anybody had a radio, a car, a fridge or any of the other many new products available. Furthermore, the majority of people didn’t have electricity in 1920. By 1929 the majority did have electricity and those that could afford the new products had bought them. So by 1929 there were fewer people to sell to then in 1920, companies began to struggle to sell and ended up laying off workers as they didn't have to make as many products. This meant less people had money, couldn’t buy as much and it had a knock on effect on the economy. Hoover’s belief in voluntary help: Hoover tried to get businesses to agree not to fire workers and to get banks to lend more money to people to get the economy going (National Credit Corporation) but he didn’t actually force businesses or banks to act so the help they offered was far, far from enough. Grand tour of USA: Travelled over 20,000km making many speeches to try to connect with US people. Unemployment: There were 14 million unemployed people by 1933. This meant there were 14 million people who couldn’t afford to buy things – keeping the US in a depression. A New Deal: He promised the people a new deal, he realised they wanted action. He was vague on what action he would take but he said he would take action and people believed him. Farmers: Already struggling during the 1920s, the depression made things worse as banks tried to seize farms for loans not repaid. Some farmers even banded together to resist with pitch forks. Over farming and drought led to a dust bowl in some central southern states, ruining thousands more. Republican belief in voluntary help: Even when Hoover decided he had to act in 1932 and set aside $300million for states to provide support for the unemployed, only $30million was spent by Republican states because they believed so strongly in ‘rugged individualism’ which is that people should help themselves. Roosevelt won by a landslide. He got 7 million more votes than Hoover and his party the Democrats won the majority of seats in Congress. It was the biggest ever defeat for the Republican party. Tariffs: Normally, if companies were struggling to sell in the US, they would try to sell abroad but tariffs put on US goods by foreign countries (who were responding to tariffs that the US had put on their goods being sold in the US) meant it was difficult for US companies to sell abroad. Hooverville: Shanty towns that grew on the edge of cities by the thousands of homeless who searched for work. Named after the President that they blamed. Malnutrition: In 1931, 238 people admitted to hospital in New York suffering from malnutrition or starvation. 45 of them died.