America: Pathways to the Present | Chapter 15: Crash and Depression (1929–1933)
This chapter focuses on the stock market crash of October 29, 1929. The crash led to a worldwide economic depression that caused much suffering, especially in the United States as millions lost their jobs and homes. The chapter is divided into four sections: the Stock Market Crash, Social Effects of the Depression, Surviving the Great Depression, the Election of 1932.
Section 1: The Stock Market Crash
Main Ideas
- Overspeculation in the stock market and the overproduction of goods resulted in panic selling that caused the U.S. stock market to crash, leading to severe economic depression in the United States.
- Because so many other countries depended on the United States for investments, loans, and as a marketplace for goods, the entire world economy was affected by the Great Depression.
Summary and Analysis
By 1929, the rising U.S. stock market dominated the news in America. By September 3, the Dow Jones Industrial Average, an average of the stock prices of major industries, had reached an all-time high. Prices were inflated well above the actual values of many stocks based on companies’ earnings and assets. After the peak in September, prices began slowly falling, and some brokers called in the loans of those who had bought on the margin. This began a panic as worried stockholders began to sell. On Tuesday, October 29, the panic climaxed when a record 16.4 million shares were sold. Black Tuesday, as it is called, saw a complete collapse of the stock market—now known as the Great Crash. By the end of the day, investors had lost over $30 billion.
Although the effects of the Great Crash were initially felt by the actual investors (some of whom lost everything), the effects soon rippled throughout the whole economy. First, banks began to fail. Banks depend on their investments—specifically, the interest they make on loans—to survive. When investors cannot repay the bank, the bank cannot survive. As banks began to close, there came another panic as worried customers went to withdraw their money and banks did not have the money to give them. Bank failures caused many Americans to lose their life savings at the very time they needed it. Secondly, because businesses could no longer borrow money to produce more goods, and few people had the money to buy them anyway, the production of goods slowed to a near stop. If companies were not producing goods, they could not pay salaries, and thus millions of people lost their jobs. Because fewer people had money, fewer goods were produced, resulting in even more job loss. Further, service industries such as restaurants, retail stores, and motels also lost customers and had to lay off workers or even shut down. Because the international economy was dependent on the United States for loans, investments, and a market place, the ripple effect of the Great Crash led to a worldwide economic depression.
Although the crash sparked the depression, there were several underlying causes. The first was an unstable economy where nearly all the wealth was held in a few families and not spread among farmers and workers. Second was the overspeculation in the stock market and investors borrowing heavily to cover their purchases. Third was the government regulation that cut interest rates to encourage speculation and then limited the supply of money to discourage lending at the first signs of trouble. Once the problems with the market were obvious, there was too little money in the economy to recover from the crash.
Section 2: Social Effects of the Depression
Main Idea
- By the early 1930s, growing unemployment as well as wage cuts for those still working brought widespread suffering across America.
Summary and Analysis
People at all levels of society found themselves in trouble during the depression as they lost their savings in bank failures, their jobs in company closures, and their homes because they could no longer pay rent or mortgages. Many of the homeless built shantytowns out of tar paper shacks or other scrap material. They called these makeshift towns “Hoovervilles” after President Hoover, who was blamed for not alleviating the crisis.
The situation for farmers, who had not seen prosperity during the 1920s and were already losing their farms, was made even worse by an environmental crisis. Years of drought and the disappearance of natural prairie grasses led to dust storms that blew away good topsoil, leaving nothing to farm. A large area of the Great Plains became known as the Dust Bowl. This caused about 60% of faming families to leave their land and hundreds of thousands to leave the area and migrate either to California or northern cities.
The Great Depression took an enormous physical and psychological toll on the nation. Many people suffered from an inadequate diet and lack of shelter. Some died because they could not afford food and medical treatment. Men suffered because they could not support their families. Many were ashamed for being out of work, and some even abandoned their families. The hard times increased discrimination against African Americans and other minorities.
Section 3: Surviving the Great Depression
Main Idea
- Americans survived the Great Depression by helping one another and by looking at a bad situation with humor and determination.
Summary and Analysis
Americans survived the Great Depression by sticking together. This can be seen very clearly in the penny auctions of the farmers. When a farmer was to lose his land to the bank for failure to pay his mortgage, other farmers would conspire to give the land back to its owner. They would bid mere pennies on the land and the machines auctioned by the bank and then give the land and machines back to the owner. The success of these auctions led some states to pass laws to give farmers more time to pay off debts.
Other Americans survived the depression by leaving home and riding the rails—stealing rides on trains and wandering the country looking for work and a place to start over. This solution was particularly favored by adolescents. By the mid-1930s, over 250,000 teenagers were living on the road.
By the early 1930s, there were some signs of change. Prohibition was repealed as a failed experiment. Jacob Raskob began the building of the Empire State Building, giving people in New York an opportunity to work. As the memory of the 1920s faded away, the nation’s distressed condition was symbolized by the tragic kidnapping and murder of the infant son of Charles and Ann Morrow Lindbergh.
Section 4: The Election of 1932
Main Ideas
- As the depression worsened, many people blamed Hoover and his Republican party for making only limited attempts to help the economy.
- When Franklin Roosevelt offered the people a “New Deal” in his 1932 presidential campaign, they voted for him in droves.
Summary and Analysis
After the stock market crash, President Hoover insisted that the economy would recover if everyone had enough confidence. It didn’t. Hoover also refused to provide relief for the millions of unemployed and homeless, insisting that this was the job of private charities, not the government. He eventually did take measures to help suffering Americans, but they were too little. To protect domestic industries, he supported the Hawley-Smoot Tariff. In 1932, he set up the Reconstruction Finance Cooperation, which gave government credit to large industries, railroads, insurance companies, and banks. Congress passed the Home Loan Bank Act to help owners save their homes. The government also began to create jobs by building the Hoover Dam.
Despite these measures, Hoover’s unpopularity continued to grow. People saw him as cold and uncaring. In 1932, World War I veterans called the Bonus Army marched on Washington to get early payment of a pension bonus that had been promised them. Hoover refused and told them to leave. When they did not leave, he asked General Douglas MacArthur to make them leave. MacArthur decided to use force and drove the marchers, former members of the American armed forces, out of Washington with guns. The country was horrified, as was Hoover himself, and Hoover’s popularity plummeted even more.
The Democratic candidate for president in 1932 was Franklin Delano Roosevelt (FDR), a distant relative of Theodore Roosevelt. Like his relative, FDR had served as the assistant secretary of the Navy and as governor of New York. While running for president, FDR promised a “New Deal” for all Americans. Roosevelt was ready to experiment with government roles to provide relief. As governor of New York, he had worked boldly for relief, making New York the first state to provide monetary assistance for unemployment and to aid the poor during the Great Depression. Roosevelt won in a landslide victory, and as he stepped into office, he would bring sweeping change to the role of the federal government in people’s lives and to the presidency itself.
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