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The Great Depression was a severe global economic downturn during the 1930s, marked by plummeting stock prices, soaring unemployment, and widespread poverty. Key causes included the 1929 stock market crash fueled by margin buying and overproduction, coupled with restrictive monetary policies and international economic challenges. The impact was devastating, with thousands of businesses failing, a significant drop in income, and millions left unemployed. Government response under President Hoover was minimal initially but included attempts to stimulate the economy through various relief programs, though these measures were largely seen as too little, too late.
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The Great Depression Causes and Impact
What is a depression? • A period of severe reduced economic activity • Sharp rise in unemployment • Decrease in consumerism due to unemployment • The October 29th, 1929 was not the only depression the US suffered but it was by far the very worse.
Stock Market Crash - 1929 • #1 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
#2 Overproduction • 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
#3 International Economic Problems • 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. • Tightened the money supply
#5 Depressed Farms & Industries • Major industries laid off workers in ’20s • Less $ to consume projects
Who Was Hurt by the Depression? • 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 in at a home “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
Hoover’s Initial Response • His response was consistent with Republican philosophy – minimal gov interference in the economy • However…. • Asked business leaders for a pledge not to cut wages or production of goods • Suggested that city & state govs fund bldg projects • Agric Marketing Act & Farm Board (?) • Farmers lost their mortgages
Depression Worsens • 1929 23,000 businesses failed; 32,000 in 1932 • Average income in 1929 was $2300 reduced to $1600 by 1935 • Unemployment in 1929 was 5% and rose to 25% by 1932 • Bread lines, soup kitchens, Hoovervilles • Brother Can You Spare a Dime? Yip Harburg
Too Little Too Late • Hoover reluctantly agrees to intro new gov programs. • Reconstruction Finance Corp – largest fed’l program ever at that time • Authorized to dispense $2 billion – supposed to have trickle-down effect • Emergence Relief Act - $300 m to states on verge of bankruptcy • Neither successful
Bonus Army 1932 • Veterans of Great War were promised a bonus payment in 1945 • Veterans organized the march to lobby for early payment • Very well disciplined & organized • Agreed to honorable code of conduct • By the time they reached DC there were 1700 • Senate rejected the bill
Aftermath • Most veterans returned home • About 2000 remained • Hoover dispatched Douglas McArthur & his aide Eisenhower to force veterans out • Cavalry, infantry, tanks, machine guns were present • Torched the “Hoovervilles” • 100 people injured • 1 Child killed from tear gas
Impact of the Bonus March • Political suicide for Hoover – seen as bully • “Nailed his coffin shut” • Press commented “What a pitiful spectacle that the American Government, mightiest in the world, chasing unarmed men, women and children with Army tanks.”
