1929 – 1932 Chapter 17

Causes of the Depression Election of 1928  Herbert Hoover nominated by Republicans Successful engineer Seven years as Secretary of Commerce  Alfred Smith nominated by Democrats Governor of NY Roman-Catholic Irish-American

Causes of the Depression Campaign Issues  Prohibition major issue  Smith’s Catholicism  Prosperity of 1920’s claimed by Republicans  Hoover won election

Causes of the Depression The Long Bull Market  Prosperity of 1920’s drove up prices of stock  Stock Market – system for buying & selling shares of companies  Bull Market – prolonged period of heavy investment  Margin – the purchase of stocks using down payment of 10% with rest owed to stock broker or bank  Margin Call – demand that the investor repay the loan at once  Speculation – buyers hoping to make a fortune took risks

Causes of the Depression The Great Crash  By late 1929 the stock bubble was recognized and experienced traders started selling  Prices slipped causing more to sell  Margin calls were made forcing people to sell stocks for less than they paid  October 24 “Black Thursday” – market prices plummeted  October 29 “Black Tuesday” – stocks lost $10 -$15 billion in value  Most money gone – people in debt  Stock market lost $30 billion in value

Causes of the Depression  Banks weakened – had lent money to investors to buy stocks and had invested bank money in stocks  With less money, banks could not make loans – caused recession  Some banks forced to close (end of bank) causing bank runs  Bank runs – people pull all their money out of the bank causing the bank to close  During first two years of Depression 3,000 banks closed (10% of nation’s total)

Causes of the Depression Roots of the Great Depression  Stock market crash caused recession but other forces caused Depression  Overproduction – factories and farms more efficient and produced more goods but low wages meant people bought less  Installment Plan – consumers bought goods by making down payment then making monthly payments  Consumers now paying down debt – not making new purchases  No purchases meant factories lay off workers – chain reaction

Causes of the Depression  Loss of Export Sales – banks lent money to stock speculators instead of foreign companies so fewer foreign companies bought American products  Hawley-Smoot Tariff – highest tariff ever to protect American business but foreign retaliation caused exports to drop 80%  Mistakes by Federal Reserve – failure to raise interest rates caused businesses to overproduce and led to risky loans

Life During the Depression Depression Worsens  By 1932 unemployment rate about 25%  Average income dropped by 30%  Bread Lines & Soup Kitchens – free food for the needy  Foreclosures & Evictions – people turned out of homes & apartments by bailiffs (court officials)  Shantytowns (Hoovervilles) – shacks made from wood, sheet metal, and cardboard on public lands  Hobos – wanderers going from town to town by rail looking for jobs or handouts

Life During the Depression The Dust Bowl  Prairie grasses torn up for wheat fields  Low crop prices resulted in fields left unplanted  Drought beginning in 1932 caused soil to turn to dust  High winds caused destructive dust storms  Many farmers had nothing left and had to migrate – may went to California

Life During the Depression Escape  People could escape the hard times if only for a few hours through movies and radio  Many movies contained spirit of optimism  Radio had everything from drama to comedy to music  Daytime dramas known as soap operas  Grapes of Wrath – novel by John Steinbeck describing the hardships of migrant farm family escaping the Dust Bowl

Hoover Responds Hoover asked business to keep factories open and stop slashing wages – they complied for awhile then rejected pledge Increased public works – construction projects financed by the government Only way to increase jobs was through deficit spending – idea rejected As a result of Depression, Republicans lost control of the House

Hoover Responds Bank closures had diminished money supply Hoover requested Federal Reserve to put more currency into circulation – Fed refused Hoover set up Reconstruction Finance Corporation – to make loans to banks & businesses RFC ultimately failed Hoover opposed using federal funds for relief – money going directly to poor families By the time he did act it was too late

Hoover Responds American public becoming desperate Oklahoma City – 500 people held “hunger march” sponsored by Communist Party Communist Party saw biggest increase in membership during Great Depression Many farms foreclosed – farmers destroyed crops to increase prices

Hoover Responds The Bonus March  WWI veterans promised $1,000 bonus to be paid in 1945  Hundreds of vets marched on Washington DC wanting bonus now  Called themselves “Bonus Army”  Set up “Hoovervilles” and ranks swelled to 15,000  Some occupied government buildings

Hoover Responds  Hoover called on Army Chief of Staff, Douglas MacArthur to clear buildings  MacArthur went further and destroyed veteran shantytown killing baby boy  Hoover blamed for the harsh measures and the government inability to deal with the crisis