Potential economic problems
in U. S. apparent in 1920s
Textile, steel & railroad industries
in trouble.
Railroads lost business to new
forms of transportation.
Textile mills faced competition
from mills in Japan, India,
China, and South America
that used cheaper labor
to sell at cheaper prices
Coal mining hit especially
hard due to competition
from new forms of energy: fuel oil,
hydroelectric power,and natural gas.
1930s, these new sources supplied
more than half the power once
provided by coal.
New house construction fell
steadily after peaking in 1925
The decline
caused other
businesses
dependent on
construction to
decline also.
Furniture,
and household
appliances
Agriculture suffers in 1920s
World War I: demand for
wheat, corn, etc. soared
Prices rose
Farmers planted more
Took out loans for more
land and equipment
After war, demand fell—
prices declined by 50% or
more
Agriculture suffers in 1920s
Because of low prices, farmers
could not repay loans
Banks foreclosed and seized farms
and equipment as payment
Agriculture suffers in 1920s
McNary-Haugen Bill in Congress
Proposed federal price supports
for key products
• Government would buy surplus
crops at guaranteed prices higher
than market rate
• Government would then sell crops
on world market for lower prices
• To compensate for losses, taxed
domestic food sales.
Agriculture suffers in 1920s
McNary-Haugen Bill in Congress
Cost passed to consumers
Coolidge twice vetoed
Farmers began to
experience severe financial
difficulties.
The economy of the late
1920s:
People: less disposable income
Farms and factories continued
to produce more
People bought less creating a
surplus that caused farmers and
businesses to go further into
debt.
The economy of the late
1920s:
Many Americans lived beyond their
means
Bought goods on credit
Distribution of wealth very uneven
Rich got richer; poor got poorer
1928 election:
Republicans: Herbert Hoover
Iowa, engineer, had
not previously run for
elective office
“A chicken in every
pot; 2 cars in every
garage.”
Democrats: Alfred Smith
Brooklyn, New York;
Catholic; career politician.
1928 election:
Hoover won an overwhelming
victory.
People liked the Republican
message: “The poorhouse is
vanishing among us.”
1928 election:
The Stock Market
Many Americans invested in
stocks and bonds
A “bull market”—rising prices
1929—4 million Americans (3%)
owned stocks
Many investors engaged in
speculation—short term ownership
of particular stocks—ignored risks
to make quick profits.
The Stock Market
Unrestrained buying and
selling
Prices rose—paper wealth
Stock prices often became
far greater than the real
worth of the companies represented
by particular stocks.
The Stock Market
Many investors bought on
margin—borrowed on the value of
the stock.
Company X=$10.00 per share
Buy 400 shares: $4,000.00
Pay 25% down: $1,000.00
Borrow 75% from
Stockbrokers:
$3,000.00
As prices rose and investors sold,
paid off debt and kept profits
The Stock Market
September 1929: stock prices
peaked; began to decline due to
surpluses and increasing business
and farm debt.
October 24, 1929: stocks plunged.
October 29, 1929: Black Tuesday
Prices spiraled downward
People sold frantically to cut
their losses
16 million shares dumped
The Great Depression
The Great Depression: Five factors
Lack of economic diversification
Misdistribution of purchasing power,
weakness in consumer demand
Credit structure: farmers too deeply
in debt
Decline in European demand for U. S.
goods
International debt structure
The Great Depression
Begun by Stock Market crash
Other causes:
Old/decaying industrial base
Farm products crisis
Availability of easy credit
Unequal distribution of income
Low interest rates encouraged
more borrowing; greater debts
The Great Depression
People panicked; withdrew
their money from banks (runs on)
Many banks lost a lot of money
in stock market crash
Could not cover those losses plus
withdrawals of individual accounts
1929—259 banks closed By 1933,
6,000 banks (25%) had failed
9-million individual savings accts.
wiped out by 1933
The Great Depression
Millions of Americans lost
their jobs
Unemployment:
1929: 3% ( 1.6 million)
1933: 25% (13 million)
The 2005 film
Cinderella Man
depicted the hard
times of the Great
Depression
The Dust Bowl
The Dust Bowl
The Dust Bowl
The Dust Bowl
John Steinbeck & The Grapes of Wrath
The Scottsboro Case
Gracie Allen and
George Burns
Jack Benny
Orson Welles
Hollywood Moguls
Louis B. Mayer
MGM
Jack Warner
Warner Brothers
Frank Capra
It Happened One Night
It’s A Wonderful Life
Walt Disney
Snow Wight and the Seven Dwarfs
(1937)
The Wizard of Oz
Gone With the Wind
Margaret Mitchell
The Marx Brothers
Greta Garbo
President Hoover tried to
reassure Americans that
the American economy was on
solid ground in late October 1929.
“Any lack of confidence in the
economic future. . . is foolish.”
Americans had experienced previous
depressions.
Felt they were normal parts of
the business cycle.
Many experts believed that
the best course of action in
late 1929-early 1930: do nothing
Secretary of the Treasury
Andrew Mellon: “Let the
slump liquidate itself.”
Hoover: minimal
government intervention
in the economy; but
government should play
some role in solving problems.
Hoover:
Logic combined
with humanitarianism
Hard time making
political compromises—
too inflexible
Difficulty adjusting his attitudes to
changing desperate circumstances
of the nation.
Government’s role: encourage and
facilitate cooperation; not control it.
Believed in “rugged
individualism”—people
should succeed through their
own efforts; they should not depend
on the government to bail them out.
Believed individuals, charities, and
local organizations should pitch in
and care for less fortunate.
Federal government: direct relief
measures, but not through a
bureaucracy.
Cautious approach
Called together business,
banking and labor leaders,
urging them to work together to find
solutions to the nation’s economic
problems.
Hoover asked employers not to cut
wages or lay off workers; asked
labor leaders not to demand higher
wages or strike.
None of his urgings did any
good.
Unemployment rose
More companies & banks went
out of business
Increasing numbers of breadlines,
soup kitchens, shantytowns, and
hoboes.
The “nice guy,” laissez faire (let
business do it) approach did not
work.
The Great Depression
American imports severely reduced
Further stress on European economies
Difficult to sell U. S. products abroad
1930 Congress passed the
Smoot-Hawley Tariff Act
Highest protective tariff in
U. S. history
Designed to protect U. S. farmers
Reduced flow of goods into U. S.
The Great Depression
1930 Congress passed the
Smoot-Hawley Tariff Act
European “pay back”—raised their
own tariffs
Limited U. S. exports
Increased U. S. unemployment
World-wide affect
World trade fell by > 40%
World-wide crisis
1930 off year elections:
Democrats win
control of the House
of Representatives
Republicans only control Senate by
1 vote
People very displeased with Hoover
and the Republican Party (GOP)
Americans outwardly
expressed anger with Hoover
Farmers burned corn
and wheat, dumped
milk on roads (rather
than sell it at a loss),
and blocked roads to
prevent food from
getting to market.
Americans outwardly
expressed anger with Hoover
Shantytowns: Hoovervilles
Americans outwardly
expressed anger with Hoover
Newspaper blankets: Hoover blankets
Hoover flags
People started thinking
of Hoover as cold and
heartless
Still, he refused to consider direct
relief from the government or any
form of federal welfare.
By 1930, Hoover did take
a more activist approach to
stimulating the economy.
Genuine sensitivity to people’s
suffering. Began to listen to others.
Initiated public-works projects
Roads, dams, bridges
Approved $800 million for projects
Effort to stimulate business and
provide jobs
Most famous federal project:
Boulder (now Hoover) Dam.
Other local, with some
federal assistance,
projects included:
Golden Gate and Transbay
Bridges over S. F. Bay
Other efforts by Hoover to
help the U. S. out of the
Depression:
Creation of the Federal Farm Board—
designed to keep crop prices high
1933—Glass-Steagall Banking Act—
increased bank reserves for easier
loans
Federal Home Loan Bank Act—lower
mortgage rates and money for
farmers to refinance farm loans
Other efforts by Hoover:
1932—Reconstruction
Finance Corporation
Emergency financing to banks,
life insurance companies, railroads,
and other large businesses
Hoover’s theory: money would trickle
down to average citizen through job
growth and higher wages.
The Bonus Army
1932: 10,000-20,000
World War I veterans and families
arrived in Washington, D. C.
Bonus to World War I
veterans who had not
been paid adequately
for wartime service
Congress passed the
bonus in 1924 to be paid in 1945
as a life insurance policy.
The Bonus Army
Patman Bill Congressman
Wright Patman of Texas
Patman believed the bonus should
be paid immediately
Hoover provided food
and supplies so the
veterans could erect a
shantytown in sight of
the capitol
The Bonus Army
June 17, 1932—Congress
voted down the Patman Bill
Hoover asked the veterans to leave;
all but about 2000 did. They
marched on the capitol.
Hoover calls out the Army to
disband the Bonus Army.
Army, led by General Douglas
MacArthur, assisted by
future generals George
Patton and Dwight D.
Eisenhower,
The Bonus Army
. . . uses tear gas, bayonets,
and the “flats” of cavalry swords
to disband the Bonus Army.
11-month-old baby killed,
8-year-old partially blinded
2 people shot
American people
outraged and
blame Hoover for
the incident.