What caused the most severe economic crisis in American History?
Name:
Section:
Document A
Source: President Calvin Coolidge, last Annual Message to Congress,
December 1928
Analysis:
What is the main idea of this document?
“No Congress of the United States ever assembled…has met
with a more pleasing prospect…The great wealth created by our
enterprise and industry, and saved by our economy, has had the
widest distribution among our own people, and has gone out in
a steady stream to serve charity and the business of the world.
The region of luxury…The country can regard the present with Is there any way in which Coolidge’s optimism in late 1928 may have
satisfaction and anticipate the future with optimism.”
helped trigger a depression a year or two later?
Note: When Coolidge made these remarks he was just finishing five
years in the White House, having succeeded Warren Harding in 1923.
Perhaps more than any president in U.S. history, Coolidge’s name is
synonymous with business. He had the good fortune of presiding over
a growing economy.
Document B
Source: John T. Raskob, former executive, General Motors;
Chairman, Democratic National Committee. “Everybody Ought to be
Rich,” Ladies Home Journal, August, 1929.
A man is rich when he has an income from invested
capital which is sufficient to support him and his family in a
decent and comfortable manner - to give as much support, let us
say, as has ever been given by his earnings.
Suppose a man marries at the age of twenty-three and
begins a regular savings of fifteen dollars a month—and almost
anyone who is employed can do it if he tries. If he invests in
good common stocks and allow the dividends and rights to
accumulate, he will at the end of twenty years have at least
eighty thousand dollars and income from investments of around
four hundred dollars a month. He will be rich. And because
anyone can do that I am firm in my belief that anyone not only
can be rich but ought to be rich.
The obstacles to being rich are two: the trouble of
saving, and the trouble of finding a medium for investment. If
Tom is known to have two hundred dollars in the savings bank
then everyone is out to get it for some absolutely necessary
purpose. More than likely his wife’s sister will eventually find
the emergency to draw it forth. But if he does withstand the
attacks, what good will the money do him? The interest he
receives is so small that he has no incentive to save, and since
the whole is under his jurisdiction he can depend only upon his
own will to save. To save in any such fashion requires a
stronger will than the normal.
Analysis:
What is the main idea of this document?
Is there any way in which an article like Raskob’s could have helped
cause the Depression?
Document C
Source: “Buying on Margin” from History Alive! Pursuing American
Ideals, 1st Ed. p. 384
Borrowing money was easy to do in the 1920s. A buyer
might pay as little as 10% of a stock’s price and borrow the other 90%
from a broker, a person who sells stock. The result was that someone
with just $1,000 could borrow $9,000 or $10,000 worth of shares.
This is called buying on margin. When the market was rising, brokers
were happy to lend money to almost anyone.
Easy borrowing encouraged speculation, or the making of
risky investments in the hope of earning large profits. Stock
speculators do not necessarily buy stock to own a party of a company
they believe will do well. They buy a stock to make as much money
as they can as quickly as possible. In a speculative market, a
company’s stock price does not go up because the company’s value
increases. Prices rise because speculators want to buy a stock today
and sell it for a quick profit tomorrow. As speculation drives up the
price of a company’s stock, the total value of the stock may become
worth far more than the company itself. Rising stock market prices
created a high-flying bull market without a solid foundation. When
the market turned down, this borrowed-money house of cards
collapsed.
Document D
Source: Harry J. Carman and Harold C. Syrett, A History of the
American People, 1952.
The final development that set the state for the collapse of
American prosperity in 1929 was the speculative boom that developed
with increasing intensity in the years after 1927. As more investors
put their money into securities (stocks) in the home of making a quick
profit on a speculative rise in stocks, the character of the New York
Stock Exchange was fundamentally altered. Instead of serving
primarily as a device for the accumulation of capital of industrial
enterprises, the exchange became a betting ring where people
gambled on stocks in much the same fashion that gamblers wagered
on roulette or horse races. Security prices were forced up by
competitive bidding rather than by any fundamental improvement in
American corporate enterprises.
Document E
Source: William E. Leuchtenburg, The Perils of Prosperity, 19141932, 1958.
With debt no longer regarded as shameful, people bough on
installment. Three out of every four radios were purchased on the
installment plan, 60 per cent of all automobiles and furniture. In other
words, consumers bought goods on installment at a rate faster than
their income was expanding, but it was inevitable that a time would
come when they would have to reduce purchases, and the cutback in
buying would sap the whole economy.
Analysis:
What does it mean to “buy on the margin”?
Should buying stock on margin be listed as a cause of the Great
Depression?
Analysis:
What is meant by “a speculative rise in stocks”?
What is the connection between speculation in stocks and a
depression?
Analysis:
What is meant by “installment buying”?
Can installment buying help cause a depression?
Document F
Source: Table constructed from date in Frederick Lewis Allen, The
Big Change, 1952.
U.S. Family Income Distribution (1929)
Annual Income
Percent of American Families
Earning this Income
Over $10,000
2%
$5,000-$10,000
6%
$2,000-$5,000
32%
$1,500-$2,000
18%
$1,000-$1,500
21%
Under $1,000
21%
Note: in 1929, a $2,000 income was considered the minimum
necessary for meeting basic needs of the average U.S. family. It
marked the poverty line.
Analysis:
According to this document, what was the poverty line for the average
American family in 1929?
What percentage of American families lived at or below that line in
1929?
Did uneven income distribution help cause the Great Depression?
Note: In 1929, the wealthiest 5% of the U.S. population received
about 33% of the nation’s personal income. In 1948, the wealthiest
5% received less than 20%. (Calbraith, The Great Crash, pp. 197198).
Document G
Source: John Kenneth Galbraith, The Great Crash, 1954.
Analysis:
Describe, in simple terms, the steps in a classic bank failure.
…Although the bankers were not usually foolish in 1929, the banking
structure was inherently weak. The weakness was…in the large
number of independent (banks). When one bank failed, the assets of
the others were frozen while depositors elsewhere had a …warning to
go and ask fo their money. Thus one failure led to other failures, and
these spread with a domino effect…When income, employment, and
values fell as the result of a depression bank failures could quickly
become epidemic. This happened after 1929…The weak destroyed
not only the other weak, but weakened the strong…Needless to say,
such a banking system, once in the convulsions of failure, had
a…repressive effect on the spending of its depositors and the
investment of its clients.
What is the connection between bank failure and depression?
Note: Bank failures in the early years of the Depression numbered as
follows:
1929
642 bank failures
1930
1,352
1931
2,294
Note: By the fall of 1931, an estimated 1 billion dollars had been
withdrawn from banks and placed in shoe boxes, old mattresses, and
safety deposit boxes. The reason is that before the Federal Deposit
Insurance Corporation was established in 1933, there was no
insurance for depositors. If a bank looked shaky, people withdrew.
Document H
Source: Elmer Davis, “If Hoover Fails,” Harpers Monthly, March,
1929
Our prosperity is a quantity prosperity…(a)and quantity inevitably
defeats its own purpose…When every family has become a two-car
family, dividends on automobile stocks can be maintained only by
insisting that it must become a three-car family. In past
times…(w)hen people had bought all they could afford they stopped
buying; production slackened, workmen were laid off, until the
manufactured surplus was used up. We, it seems, have abolished the
business cycle; when people have bought all they can afford they go
on buying, a little down and the rest in easy payments. But I suspect
that…we have only deferred payment, not escaped it, and that the bill
will be all the larger when it finally has to be faced.
Analysis:
What does Davis mean by “quantity prosperity”?
What is the context of this document—when and why was it written?
What inferences can be made?
Why does Davis say that quantity prosperity will defeat its own
purpose?
Document I
Source: Current History, from St. Paul Daily News, April, 1930
Analysis:
What does the cartoon say was a big problem for U.S. farmers?
What happens to prices when surpluses are high? Why do prices fall?
What is the cause and effect chain of events that connect farm
overproduction to a nationwide depression?
Note: The overproduction problem that Davis discusses in document
F was also an agriculture problem. U.S. farmers had been buoyed up
by European demand during and shortly after World War I. Farmers
sought mortgages from rural banks to finance the purchase of more
crop land and new machinery. When Europe recovered in the mid1920’s and no longer needed American farm goods, U.S. farmers
were left with debt and a surplus of crops.
Document J
Source: Printed in Current History, August, 1930.
Analysis:
What is a tariff? Who is the tariff wall protecting?
Whose boats are being blocked?
Who is America probably supports the tariff wall?
Is there any way the tariff wall might hurt American business?
Document K
Source: William E. Leuchtenburg, The Perils of Prosperity, 19141932, 1958.
Analysis:
What does Leuchtenburg mean when he says the U.S. was a creditor
nation?
…(World War I) had produced a revolutionary change in the world
economy. In 1914 the United States was a debtor nation; American
citizens owed foreign investors three billion dollars. By the end of
1919, the United States was a creditor nation, with foreigners owing
American investors nearly three billion dollars. In addition, the United
States had loaned over ten billion dollars to foreign countries, mostly
to carryu on the war, in part for post war reconstruction.
How cold a protective tariff hurt a creditor nation?
…If the United States was to function as a creditor nation, it had to
import more than it exported (only by selling to the U.S. could foreign
nations get the money to pay off U.S. creditors). But the country
moved in precisely the opposite direction. By an emergency tariff in
1921 and the Fordney-McCumber Tariff Act of 1922, the United
States…restored the high prewar rates and added a few new high tolls
of its own.
…in 1930, neomercantilism (the attempt to export more than was
imported, regardless of the long-run effect) was carried as far as it
could go with the adopted of the Hawley-Smoot Tariff; in the teeth of
protests from thirty-four countries and over one thousand American
economists, Congress stepped up tariff rates still higher. As the
economists had warned, the new law throttled world trade and brought
a wave of retaliation from other countries.
Did the protective tariffs help cause, or at least deepen, the
Depression?