The Great Depression Chapter 14 Causes and Impact

The Great Depression Chapter 14: Causes and Impact Ms. Garratt

What is a depression? n A period of severe reduced economic activity n Sharp rise in unemployment n Decrease in consumerism due to unemployment or low on savings n Black Tues, October 29 th, 1929 was the worse US depression

There was not one single reason for the Depression. There were many.

Problems on the Horizon n Gap between rich & poor n Key industries struggled (rr/coal, lumber) n Consumers & farmers going into debt n Margin buying

#1 Overproduction n n AKA “plague of plenty” or “great glut” of farm & factory goods Nation’s ability to produce surpassed its ability to consume Profits of big business went to wealthy who reinvested in factories rather than raising salaries & wages which would have stimulated more consumerism Installment & credit also encouraged overproduction while new technology added to unemployment

Stock Market Crash - 1929 n #2 Margin Buying – Speculators bought on margin – Borrowed $ from stockbrokers – Stock became collateral – When stocks increased speculators sold the stock, repaid broker & profited – When stocks began to decline brokers called in stocks – When speculators couldn’t repay the loan brokers sold the stockbrokers called in their margins

#3 International Economic Problems n n n Remember the Dawes Plan? When US banks were lending Germany $ so it could pay reparations to Allies & speed recovery of the postwar economy. During the “bull market” when stocks were increasing banks stopped loaning as much $ to Europe and loaned it instead to brokers who were selling stocks on margin. This decreased international trade Followed by high US tariffs Contributed to more underconsumption

#4 Restrictive Monetary Policy The Federal Reserve System which is responsible for regulating the amount of money in circulation followed a restrictive policy that dried up credit. n Tightened the money supply n (opposite today --- stimulus packages) n

#5 Depressed Farms During war demand was high n Farmers bought more land & equipment to meet the demand. n However, farm prices plummeted after WWI n Surplus of food led to depressed prices. n Mc. Nary-Haugen bill vetoed (artificial price supports) n Foreclosures began n

Consumerism Major layoffs in late 1920 s n People had less $ for consumerism n Had accumulated credit debt n Wages of poor didn’t keep up n

Who Was Hurt by the Depression? n n n Speculators & long term investors Overnight they went from millionaires to paupers – in a few months stock prices fell 75% Joke at the time about guests checking into a hotel “Will this be for sleeping or jumping? ” Regular “innocent” people who put their savings in banks. Banks had lent $ to brokers, when margins weren’t repaid they lost everything Banks were not insured at the time like today

Depositors Waiting to Withdraw their savings

Failure of the Banks

Hoover’s Initial Response His response was consistent with Republican philosophy – minimal gov interference in the economy n However…. n Asked business leaders for a pledge not to cut wages or production of goods n Suggested that city & state govs fund bldg projects n Agric Marketing Act & Farm Board (? ) n Farmers lost their mortgages n

Depression Worsens 1929 23, 000 businesses failed; 32, 000 in 1932 n Average income in 1929 was $2300 reduced to $1600 by 1935 n Unemployment in 1929 was 5% and rose to 25% by 1932 n Bread lines, soup kitchens, Hoovervilles n n Brother Can You Spare a Dime? Yip Harburg

Soup Kitchen

Food lines

Poverty

Photographer Dorothea Lange

Bread Line - NYC

Hoovervilles

Too Little Too Late Hoover reluctantly agrees to intro new gov programs. n Reconstruction Finance Corp – largest fed’l program ever at that time n Authorized to dispense $2 billion – supposed to have trickle-down effect n Emergence Relief Act - $300 m to states on verge of bankruptcy n Neither successful n

Bonus Army 1932 Veterans of Great War were promised a bonus payment in 1945 n Veterans organized the march to lobby for early payment n Very well disciplined & organized n Agreed to honorable code of conduct n By the time they reached DC there were 1700 n Senate rejected the bill n

Bonus Army Asks for Early Relief

Bonus Army Encampments 1932

Aftermath Most veterans returned home n About 2000 remained n Hoover dispatched Douglas Mc. Arthur & his aide Eisenhower to force veterans out n Cavalry, infantry, tanks, machine guns were present n Torched the “Hoovervilles” n 100 people injured n 1 Child killed from tear gas n

US Army Uses Force to Disperse Bonus Army

US Army Torches Camps

Hard times a “hoovering”

Impact of the Bonus March n Political suicide for Hoover – seen as bully n “Nailed his coffin shut” n n Press commented “What a pitiful spectacle that the American Government, mightiest in the world, chasing unarmed men, women and children with Army tanks. ” FDR comment “that just won me the election. ”

Hoover Stuggles with the Depression ml Cautious approach n Gov role to encourage & facilitate n cooperation Opposed federal welfare or direct relief n Boulder Dam n Democrats take back the House in 1930 n Farmers “dump” milk rather than… n Farm holiday n

ML add Hoover blankets – newspapers n Hoover flags – empty pockets n Federal Farm Board n National Credit Corporation n Federal Home Loan Bank Act n Reconstruction Finance Corp ($2 b hoped for trickle down effect never happened) n – Unprecedented example of federal involvement – Patman Bill and Walter Waters

The End Section 1 - Glencoe