The Great Depression
Americans in 1929 wanted to believe they were on what one analyst described as
an, “. . . unlimited escalator of progress.” President Hoover announced at his
inauguration that, “. . . the day [is near] when poverty will be banished from this nation.”
Shortly thereafter the Stock Market Crash set in motion events that, combined with
worldwide economic decline, created the Great Depression. America’s response to this
crisis can be looked at in at least two ways through two potential thesis statements for this
article. Try, “Drunk with nostalgia for the American Dream, the federal government took
on the impossible task of making it come true for everyone.” Or, “Faced with
unprecedented economic collapse and a resurgence of totalitarianism in Europe, the
federal government rose to the occasion with innovative legislation and a commitment to
defend freedom on a global scale.” I wrote both of those sentences and can never decide
which is true. Maybe they both are—what do you think?
Margin buying had contributed to the notion that our prosperity would never end.
You could buy stocks with as little as 10% down in the 1920s. Inflated stock prices were
going up so fast that after a short time you could make enough to pay back the 90% you
borrowed from your broker with interest while still making a tidy profit. Then you went
home and put the proceeds in savings, no? No. Most people could not resist borrowing
more money to purchase even more stock at 10% down. Stock prices were wildly
inflated as a result. Furthermore, large stockholders “pumped and dumped” stocks by
purchasing large amounts of stock in companies like RCA and then paying journalists to
pump up the reputation of the company. Three or four wealthy people would sell the
stock among themselves to create the impression that there was a boom on a hot stock.
When regular people (the suckers) began to buy the stock in earnest, the pool men would
let the stock go a little higher, then sell all they had reaping huge profits on what quickly
became nearly worthless stock. Both severe margin buying and “pump and dump”
schemes are illegal now because they dramatically removed the Stock Market from the
actual value of the American economy, hence the crash.
The separation from actual national economic growth was understandable,
however, with stories like that of a millionaire who turned his one million into thirty
million in just eight months buying and selling stocks. Even a peddler was reported to
have invested $4,000 at the same time and came out with $250,000. In 1927 there was a
40% rise in stock prices (not values). In 1928, prices went up another 35%. By
September of 1929, stock prices were 400% above their level only five years earlier when
Coolidge was president. In some inexplicable way, however, people began to
collectively fear a collapse and began to “Sell! Sell! Sell!” on October 23rd, 1929. Few
buyers came forward. Sensing a crash was imminent, Charles Mitchell saved the Market
by organizing massive stock purchases by his bank and those of his associates. They
staved off disaster for six days, largely because two of those days were on a weekend.
On October 29th, however, another sell-off began which neither Mitchell nor anyone else
could stop. By June of 1932, stock prices were at a level 50% below prices in Coolidge’s
day. The Stock Market had crashed.
The collapse of the inflated Stock Market is only the second domino that led to
the Great Depression. Falling farm prices after World War I was the first, and by the end
of 1929, the third was the fact that consumption dropped in a society with a consumer-
based economy. Suddenly, “needs” went back to being luxuries or dreams. The US
economy averaged a 50% slowdown in all indicators. As many as one third of the
population was unemployed by 1933! Many fortunes were lost; those on the edge had
nothing. Some remained prosperous like Joseph P. Kennedy, father of future President
JFK, who had amazingly sold everything he had in the Stock Market just before the
crash. He waited until prices bottomed out, and then put all his cash back in the market,
ultimately reaping huge profits. Even the fortunate few who pulled that trick off had
companies go bankrupt because of a lack of business, and laying workers off deepened
the depression. Food lines formed! In America!
President Hoover assured the nation that, “Prosperity is just around the corner.”
He originally shunned involving the federal government in relief efforts saying, “If the
government supports the people, then who will support the government?” Then Hoover
gave in to pressure to begin relief programs including the Reconstruction Finance
Corporation, an attempt to bolster the banking industry. While Hoover equivocated, the
Bonus Army marched on Washington. These protestors were a group of veterans from
World War I who had been promised bonuses (cash payments) upon retirement for their
service in the war. They came with their families and camped around the lawns of the
nation’s capital in July of 1932 and tried to directly lobby Congress to give them their
bonuses early. In fear of a rebellion, Hoover sent Douglas MacArthur in with the Army
to disperse the crowds. A baby died from exposure to tear gas, and it was hard for
Hoover to make that sound like a good sacrifice to restore law and order. By the Election
of 1932, it was also hard to make the fact that 20% of the banks in the US had closed
sound like prosperity just around the corner. Hoover won the electoral votes of only six
states.
Democrat Franklin Delano Roosevelt, therefore, won in a landslide. Among other
qualities, he possessed a dynamic grin which he flashed from behind a cigarette holder
perched at a cocky angle above a raised chin. Such simple gestures spread hope to
Americans desperate for any happy news. Stricken with polio as an adult, FDR had lost
the use of his legs; however, he supported himself by his arms at his acceptance speech at
the Democratic National Convention. Such symbolic gestures of resolve continued. In
his Inaugural Address he promised a New Deal to follow the Square Deal of TR, his
cousin. After his speech he refused to attend the Inaugural Ball and went straight upstairs
to his new office in the White House and got to work. Another cousin (fifth, once
removed), Eleanor, was his wife and chief aide. Speaking of family, FDR was related to
a total of eleven other presidents: George Washington, John Adams, James Madison,
John Quincy Adams, Martin Van Buren, William Henry Harrison, Zachary Taylor,
Ulysses S. Grant, Benjamin Harrison, Theodore Roosevelt, and William Howard Taft.
But there is not really an aristocracy in America.
FDR had followed the same path to power of his Oyster Bay Roosevelt cousin
TR. He had been the Assistant Secretary of the Navy and Governor of New York. He
was a Hyde Park Roosevelt and married TR’s brother Eliot’s daughter, Eleanor, who
became his legs for him. She went so far as to tour factories and coal mines, exploits that
she discussed in her “A Day in My Life” daily newspaper column. The Roosevelts were
the first husband/wife presidential team, and some say the position has been a two-person
job ever since.
Eleanor sat beside her husband while he delivered “fireside chats” in his warm
radio voice, or at least a machine made knitting-needle sounds to give that impression. In
these speeches, the first delivered over the radio to the American people by their
president, FDR used simple analogies to explain his policies. He never allowed himself
to be photographed while sitting in his wheelchair. In fact, only one photograph exists in
which he was shown incapacitated in the wheelchair, and it was taken while he was
distracted by a child. What America did see was his grin with his chin up, and what they
heard was the pleasing tones of a voice that was relaxed and confident. He said, “The
only thing we have to fear is fear itself.” Whatever that means, it sounded good and
boosted morale. Privately, he said, “It’s time for the nation to be radicalized, at least for a
while.”
Therein lay FDR’s great plan. He attempted a revival of Progressivism and
succeeded wildly. He used the Wisconsin Idea to collect a web of Cabinet personnel that
lasted, incredibly, through all four terms he won as president. His Cabinet included the
first woman to hold such rank in American history, Frances Perkins, a worker from Hull
House who became the Secretary of Labor. His advisers, both official and unofficial,
were known as his “Brains Trust,” and FDR made it clear to them that they were free to
brainstorm and try just about anything to turn the Depression around. When he coined
the phrase, “New Deal,” he had no idea what he intended to do, but through trial and
error a response to the crisis was organized roughly along three headings, “Relief,
Recovery, and Reform,” so yes, there were three R’s to go along with the three C’s (and
the three T’s). Relief was intended to provide basic necessities to people without food,
clothing, or shelter. Recovery measures attempted to restore the economy, and Reform
measures were designed to prevent a depression of this magnitude in the future.
The Roosevelt Administration worked with Congress to pass dozens of new laws
to address the Depression, a feat still remembered as the First Hundred Days. Every
president since FDR has tried to do something significant in that time frame, but not all
succeeded. Banking seemed to be the place to start the New Deal. Even banks in New
York City and Chicago were closing in the bitter winter of 1932-33. Upon entering
office, FDR declared a “bank holiday” that closed all American banks for two weeks to
prevent further “runs” on banks with no cash to give their depositors. A common
attribute of people who suffered the loss of their life savings was to never trust banks
again the rest of their lives. If you wondered why your great-grandmother kept her cash
in a Mason jar stuffed under her mattress, this was why.
FDR continued and expanded Hoover’s Reconstruction Finance Corp. (RFC)
which loaned over one billion dollars to restart the banking system. When the bank
holiday was over, 90% of US banks reopened. Maybe that’s what FDR meant by, “The
only thing we have to fear is fear itself.” His good morale was supposed to help the
morale of Americans to have faith in the system, and then the system would work. Blows
kept coming to America, though, literally. By 1934 the New Deal was floundering due to
the Dust Bowl, a drought coupled with massive windstorms that stripped much of the
Midwest and West of its topsoil. The classic American novel The Grapes of Wrath
portrays the results of the Dust Bowl and was written by John Steinbeck while he was on
relief (receiving special payments from the government for artists to relate the Great
Depression in their works).
Several critics of FDR’s policies emerged. Many of the most famous believed
that FDR had not gone far enough! Governor Huey P. Long of Louisiana used the
slogan, “Every Man a King!” to rally people to support the confiscation of the wealth of
the rich for redistribution to the poor. He wanted to give homesteads worth $5,000 to
people and pay a “salary” of $2,500 per year to all poor folks. His popularity was only
checked by his being assassinated. Father Charles Coughlin’s radio show was so popular
it is said you could walk all the way through town on a summer night and hear the whole
show as it filtered out of one screened window after another. Coughlin was, of course, a
Catholic priest who blamed the Depression on Wall Street and called for the
nationalization of all banks, a frightening prospect indeed. He could not quite contain his
anti-Semitism, however, and was never a serious political contender. Dr. Francis E.
Townsend proposed that the federal government give $200 per month to unemployed
people as long as they agreed to spend it all that month, an attempt at forcing Americans
to be consumers again. Remember, radicals like these allowed FDR to try ever more
radical measures without being checked.
Still Roosevelt became so controversial in his use of presidential power that
Americans either loved or hated him. Poor people embraced his message that they had
constitutional rights, too. The wealthy referred to him as, “That man in the White House”
and said he was a traitor to his class. They said he was going to produce chaos by
robbing the wealthy to give to the lower classes. The American Liberty League was
formed and spent millions to discredit both FDR and the New Deal. They realized
something was gone in America, and you should know what it was—laissez faire.
The Roosevelt Administration shamed all pretenders who sought to match his
record in the first hundred days of a presidency. FDR was, however, the only one to ever
accomplish such sweeping change in such a short time because he was the first to indulge
in deficit spending on purpose. Convinced by Alfred Maynard Keynes that the
government had a duty to “prime the pump,” Roosevelt initiated huge spending programs
to flesh out his three R’s and quickly spent more money than even a raised income tax
could bring in. From then on he borrowed the money to spend and created huge deficits.
America has relied on deficit spending to one degree or another ever since. Our next
installment will be dedicated to seeing if he spent the money wisely.