History Questions 1865-1945

Great Depression

The 1920s stand out as one of the golden eras of unfettered consumption. President Herbert Hoover and many others were filled with optimism in 1929. One editorial on January 1, 1929, stated: “It has been twelve months of unprecedented advance, of wonderful prosperity. If there is any way of judging the future by the past, this new year will be one of felicitation and hopefulness.” Instead, what followed was an economic downturn so severe that it almost led to the economic and social collapse of the entire nation. Repercussions of the Great Depression, which lasted through the 1930s, are still felt in the United States today.

For five years prior to 1929 the stock market had been characterized by rising prices; there was an enormous “bull market.” During this era, the stock market—not housing starts, sales of durable goods, or the financial health of banks—was viewed as the chief economic indicator of the United States. In September 1929 stock prices began to fluctuate, but there was no alarm. Hoover and others called such things “temporary.” In reality, stock prices had become totally out of proportion to actual profits. Sales of goods and construction of factories were falling rapidly while stocks continued to climb. However, very few Americans chose to worry.

On October 24, 1929, known as “Black Thursday,” people began dumping their stocks as quickly as they could. Sell orders inundated market exchanges. The bull market suddenly shifted to a bear market. By evening the market had stabilized a bit, thanks to J. P. Morgan and other financiers who bought up stock in order to stop the panic and to keep the market afloat. With no federal regulation or controls on the market, the financiers themselves were left to keep the market solvent. On Friday, October 25, the House of Morgan continued to keep the market stable and it seemed that the panic had passed. Over the intervening weekend, thousands of investors began to worry. Many of them decided to sell whatever stock they still had as soon as the market opened on Monday.

On Monday, October 28, there was another wave of sell orders. The next day, October 29, 1929, known as “Black Tuesday,” marked the beginning of the Great Crash. This was the single most devastating financial day in the history of the New York Stock Exchange. Within the first few hours of trading, prices fell so far as to wipe out all the gains that had been made in the previous year. Public confidence was shattered. Between October 29 and November 13 (when stock prices hit their lowest point) over 30 billion dollars disappeared from the American economy.

The nature of the panic can be glimpsed through the idiom of popular culture. For instance, popular songs of the day followed the cycle from optimism to despair. In 1930 people sang “Happy Days Are Here Again” and the national income dropped from 87 billion dollars to 75 billion dollars. In 1931 people sang “I've Got Five Dollars” and the national income dropped to 59 billion dollars. By this point little optimism remained. The song of 1932 was “Brother, Can You Spare a Dime,” when the national income fell to 42 billion dollars, eventually dropping to 40 billion dollars in 1933.

In order not to alarm the public, President Hoover chose his words carefully in discussing the state of the economy in 1929. Recent history had referred to economic downturns as the “Panic of 1873” and the “Panic of 1893.” Hoover called this latest downturn a “depression” rather than a “panic,” and the name stuck. Other nations also suffered from this economic malaise. It was the social impact of such prolonged economic difficulty in the United States that was particularly acute, especially given the American trust in its own “exceptionalism” and in the capitalism that governed the economy.

Few Americans were left untouched by the economic suffering. The Great Depression established its own environment, and people had to survive any way they could. There may have been enough food to feed those in need, but the system that allowed distribution of the food to the people broke down. All over the nation, rents could not be paid. The plight of the poor was made worse by eviction. In agricultural areas, banks began to foreclose on unpaid loans and acquired the land itself in foreclosure proceedings. Industries closed down without orders for their products, so management fired more employees. In April 1931, Henry Ford fired 75 thousand workers (there was no unemployment compensation at that time). People ran out of hope, housing, and money. Similar to a line of falling dominoes, the plight grew worse with each day.

Within months of the Great Crash of 1929, industries demanded that the federal government offer them economic protection. They got it in the form of the Hawley-Smoot Tariff Act of 1930. By imposing a stiff tariff on imports, business theorized that the tariff would protect American business weakened by the market's loss of liquidity. Instead, the move worsened the situation. A staggering European market could not absorb its own productivity, much less goods exported from the United States. Furthermore, some European governments retaliated by imposing high tariffs on American exports. The Great Depression rapidly became a worldwide disaster.

The mood of the country was one of anger; the unemployed, evicted for nonpayment of rent and without enough food for their families, threatened to take food from stores unless it was provided at no cost. Most of the people in bread lines had lost everything, including cash. For a while, five thousand homeless people sold apples on the streets of New York City. Many of the evicted families constructed temporary homes, referred to derisively as “Hoovervilles.”

In the spring of 1932 veterans of World War I marched to Washington to demand the war bonus immediately, not years in the future as had been promised. These foot soldiers of the Bonus Army demanded that Congress pay them immediately. The Bonus Army consisted of about twenty thousand veterans from all over the country. Congress heard the message, and the House authorized payment of the war bonus, but the Senate rejected the measure. Discouraged, some of the veterans left Washington, but most of them stayed, living in shacks made out of packing crates and discarded newspapers. President Hoover ordered the army to evict them. General Douglas MacArthur was in command of the cavalry (tanks and infantry charged with removing these homeless veterans). Major Dwight D. Eisenhower, later president of the United States, was MacArthur's aide. The army used tear gas to disperse the veterans, injuring a thousand of them in the process. Shots were fired, killing two veterans.

This shameless use of force surely influenced the outcome of the election a few months later. Franklin Delano Roosevelt, a Democrat from Hyde Park, New York, defeated Herbert Hoover in a landslide. Roosevelt got 57.4 percent of the total popular vote and 472 electoral votes to Hoover's 59 electoral votes. Norman Thomas, a Socialist candidate, got 885 thousand popular votes, while William Foster, the Communist candidate, got 103 thousand popular votes.

Roosevelt was sworn in as president on March 4, 1933, and immediately set about creating a New Deal for the American people. Roosevelt's New Deal attacked the problems of the Great Depression by allowing the government wartime privileges to proceed with little interference from the other branches of government. In his inaugural address, Roosevelt reported, “I shall ask the Congress for … broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.” The assertion was that poverty was an enemy and foreign presence in America.

Roosevelt's plans partitioned out the major problems or affected groups of the Depression and set out to devise solutions. Roosevelt and his advisers agreed that it was essential to restore purchasing power to farmers, blue-collar workers, and the middle class. This required cutting production in order to create “the economics of scarcity.” The “First Hundred Days” of the New Deal began with the Emergency Banking Relief Bill to put the federal government behind remaining banks in order to stabilize the economy and assure customer confidence. Subsidies were implemented to entice farmers to grow less. And Roosevelt legalized the sale of low-alcohol beer and wines and placed a federal tax on them.

In order to create jobs and stir consumer spending, Roosevelt established a job corps called the Civilian Conservation Corps (CCC), direct cash grants of five hundred million dollars to the states for relief payments to the needy, and a massive public-works project. Next, New Deal policies sought to aid business development with the National Industrial Recovery Act and the National Recovery Administration (NRA). Consumers were urged to frequent businesses bearing the NRA's blue eagle in the window. Possibly the boldest of New Deal programs addressed the poverty and barren lands of the Tennessee River Valley. The Tennessee Valley Authority (TVA) carried out the nation's most extensive regional planning effort, building dams to control floods and produce electricity, as well as constructing communities and educating farmers.

The federal government would never fully back off from this intensified role defined by the New Deal and demanded by the Great Depression. However, scholars are uncertain whether Roosevelt's policies should be termed a success or failure. While there were some signs of economic recovery by 1940, it was World War II and the construction of the military-industrial complex that would flesh out recovery and carry the nation's economic growth through the end of the century. Although somewhat relaxed owing to perceived greater involvement in a global economy, the controls on banks and regulations on other aspects of society that grew out of the New Deal continue today in hopes of making certain that there will never again be a downturn as widespread as the Great Depression.