Causes And Effects Of The Great Depression

In America Essay, Research Paper

The Causes and Effects of

The Great Depression

In America

Few Americans in the first months of 1929 saw any reason to question the strength

and stability of the nation’s economy. Most agreed with their new president that the

booming prosperity of the years just past would not only continue but increase, and that

dramatic social progress would follow in its wake. “We in America today,” Herbert

Hoover had proclaimed in August 1928, “are nearer to the final triumph over poverty than

ever before in the history of any land. The poorhouse is vanishing from among us.”1

In mid-October, 1929, the average middle-class American saw ahead of him an

illimitable vista of prosperity. I newly inaugurated president, Herbert Hoover, had

announced soberly in the previous year that the conquest of poverty longer a mirage: “We

have not yet reached our goal, but given a chance to go forward with the policies of the

last eight years, and we shall soon with the help of God be within sight of the day when

poverty will be banished from the nation.” This was the economic promise interwoven

with what a popular historian would call the American Dream. More complacently,

Irving Fisher and other economists in the confidence of Wall Street assured the citizen

that he was dwelling upon “a permanently high plateau” of prosperity.2

Only fifteen months later, those words would return to haunt him, as the nation

plunged into the severest and most prolonged economic depression in its history. It began

with a stock market crash in October 1929; it slowly but steadily deepened over the next

three years until the nation’s economy (and, many believed, its social and political

systems) approached a total collapse. It continued in one form or another for a full

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decade, not only in the United States but throughout much of the rest of the world, until

war finally restored American prosperity.3

In the autumn of 1929, the market began to fall apart. On October 21, stock prices

dipped sharply, alarming those who had become accustomed to an uninterrupted upward

progression. Two days later, after a brief recovery, an even more alarming decline began.

J. P. Morgan and Company and other big bankers managed to stave off disaster for a

while by conspicuously buying up stocks to restore public confidence. But on October 29,

all the efforts to save the market failed. “Black Tuesday,” as it became known, saw a

devastating panic. Sixteen million shares of stock were traded; the industrial index

dropped 43 points; stocks in many companies became virtually worthless. In the weeks

that followed, the market continued to decline, with losses in October totaling $16 billion.

Despite occasional hopeful signs of a turnaround, the market remained deeply depressed

for more than four years and did not fully recover for more than a decade.4

The sudden financial collapse in 1929 came as an especially severe shock because it

followed so closely a period in which the New Era seemed to be performing another

series of economic miracles. In particular, the nation was experiencing in 1929 a

spectacular boom in the stock market.5

In February 1928, stock prices began a steady ascent that continued, with only a few

temporary lapses, for a year and a half. By the autumn of that year, the market had

become a national obsession, attracting the attention not only of the wealthy but of

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millions of people of modest means. Many brokerage firms gave added encouragement to

the speculative mania by offering absurdly easy credit to purchasers of stocks.

It was not hard to understand why so many Americans flocked to invest in the

market. Stocks seemed to provide a certain avenue to quick and easy wealth. Between

May 1928 and September 1929, the average price of stocks rose more than 40 percent.

The stocks of the major industrials the stocks that are used to determine the Dow Jones

Industrial Average doubled in value in that same period. Trading mushroomed from 2 or

three million shares a day to more than five million, and at times to as many as 10 or 12

million. There was, in short, a widespread speculative fever that grew steadily more

intense. A few economists warned that the boom could not continue, that the prices of

stocks had ceased to bear any relation to the earning power of the corporations that were

issuing them. But most Americans refused to listen.6

The depression of the stock market impressed the general public with the idea that it

would depress general business. Because of a psychological consequence, it did, but it

should not have. There are 120,000,000 persons in the country and at the maximum not

more than 10,000,000 were involved in stock market transactions. The remaining

110,000,000 persons suffered no loss.

The bulk of the population may not have suffered the loss of stock investments, but

there were plenty of other ways to calculate loss, and by the end of 1929, with

unemployment rising, with shops and factories ornamented by closed or out of business

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signs, and, perhaps most terrifying of all, the closing of the nations banks, taking with

them millions of dollars in deposits.7

More than 9,000 American banks either went bankrupt or closed their doors to avoid

bankruptcy between 1930 and 1933. Depositors lost more than $2.5 billion in deposits.8

256 banks failed in the single month of November 1930, and further yet on December 11,

when the United States Bank, with deposits of more than $200 million, went under. It

was the largest single bank failure in America history up to that time, and contributed no

little portion to an economic hangover in which, in the words of banker J. M. Barker,

“cupidity turned into unreasoning, emotional, universal fear.9 The misery of the Great

Depression was, then, without precedent in the nation’s history.10

The most searing legacy of the depression was unemployment, which mounted

steadily from the relatively low levels experienced between 1922 and 1929. The

percentage of the civilian labor force without work rose from 3.2 in 1929 to 8.7 in 1930,

and reached a peak of 24.9 in 1933. The estimates of unemployment amongst non-farm

employees, which include the self-employed and unpaid family workers are even higher.

These are horrifying figures: millions of American families were left without a bread-

winner and faced the very real possibility of destitution.11

Within a few months after the stock market collapse of October 1929,

unemployment had catapulted from its status of a vague worry into the position of one of

the country s foremost preoccupations. Unemployment increased steadily, with only a

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few temporary setbacks, from the fall of 1929 to the spring of 1933. Even a cursory

reference to the several existing estimates of unemployment will amply show the rapidity

with which unemployment established itself as an economic factor of the first order of

importance.12

By 1932 a quarter of the civilian labor force was unemployed and the number was

still rising. State and local relief agencies lacked sufficient funds to meet the demands of

families for bare sustenance. Discouraged by continual turn-downs, the unemployed had

stopped looking for jobs. On good days in the great cities the jobless sat on park benches

reading discarded newspapers, and many who had lost their homes slept in the parks.

While some families managed to stay in their homes and apartments, even though

they failed to pay the rent or mortgage interest, others were evicted. To keep some

semblance of a home, families built shelters from discarded crates and boxes on vacant

land or in the larger parks. Municipal authorities, unable to provide adequate help, were

forced to adopt a tolerant attitude against these squatters. As time passed the structures

became more elaborate and habitable, but older children were inclined to wander away

and look for opportunities elsewhere.13

Fifty years after his presidency and twenty after his death, Herbert Clark Hoover

remains the person most Americans held responsible for the economic calamity that

struck after 1929. Few of our political leaders have been more ridiculed and vilified

during their tenure in office. By 1931, new words and usages based on his name had

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entered the country’s cultural vocabulary:

- “Hooverville”: a temporary bivouac of homeless, unemployed citizens.

- “Hoover blankets”: the newspapers used by people to keep warm at night while

sleeping in parks and doorways.

- “Hoover Flags”: empty pants pockets, turned inside out as a sign of poverty.

- “Hoover wagons”: any motor vehicle being pulled by a horse or mule

-In the heat of the 1932 election, hitchhikers displayed signs reading “If you don’t give

me a ride, I’ll vote for Hoover.”14

From the New York Times, October 22, 1932

Fifty-four men were arrested yesterday morning for sleeping or idling in the arcade

connecting with the subway 45 West Forty-second Street, but most of them considered

their unexpected meeting with a raiding party of ten policemen as a stroke of luck

because it brought them free meals yesterday and shelter last night from the sudden

change in the weather.

From the New York Times, September 20, 1931

Several hundred homeless unemployed women sleep nightly in Chicago’s parks, Mrs.

Elizabeth A. Conkey, Commissioner of Public Welfare, reported today.

She learned of the situation, she said, when women of good character appealed for

shelter and protection, having nowhere to sleep but in the parks, where they feared they

would be molested. “We are informed that no fewer than 200 women are sleeping in

Grant and Lincoln Parks, on the lake front, to say nothing of those in the other parks,”

said Mrs. Conkey. “I made a personal investigation, driving park to park, at night, and

verified the reports.”

The commission said the approach of winter made the problem more serious, with only

one free woman’s lodging house existing, accommodating 100.

These are just two of the many stories that came of the poverty of the depression.15

Not quite three and a half years had passed since the stock market crash, had

plunged the United States, and most of the world, into the worst economic debacle in

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Western memory. Industrial output was now less than half the 1929 figure. The number

of unemployed, although difficult to count accurately, had mounted to something between

13 and 15 million, or a recorded high of 25 per cent of the labor force-and the

unemployed had 30 million mouths to feed besides their own. Hourly wages had hourly

wages had dropped 60 per cent since 1929, white-collar salaries 40 per cent. Farmers

were getting less than 50 cents a bushel for wheat.

The stark statistics gave no real picture of the situation-of the pitiful men selling

apples on city street corners; of the long lines of haggard men and women who waited for

dry bread or thin soup, meager sustenance dispensed by private and municipal charities;

of the bloated bellies of starving children; of distraught farmers blocking the roads to

dump milk cans in a desperate effort to drive up the price of milk. “They say blockading

the highways illegal,” said an Iowa farmer. “I says, Seems to me there was a Tea Party in

Boston that was illegal too.’”16

The suffering extended into every area of society. In the industrial Northeast and

Midwest, cities were becoming virtually paralyzed by unemployment. Cleveland, Ohio,

for example, had an unemployment rate of 50 percent in 1932; Akron, 60 percent; Toledo,

80 percent. To the men and women suddenly without incomes, the situation was

frightening and bewildering. Most had grown up believing that every individual was

responsible for his or her own fate, that unemployment and poverty were signs of personal

failure; and even in the face of national distress, many continued to believe it.

8

Unemployed workers walked through the streets day after day looking for jobs that did

not exist. When finally they gave up, they often just sat at home, hiding their shame.17

An increasing number of families were turning in humiliation to local public relief

systems, just to be able to eat. But that system, which had in the 1920s served only a small

number of indigents, was totally unequipped to handle the new demands being placed on

it. In many cities, therefore, relief simply collapsed. New York, which offered among the

highest relief benefits in the nation, was able to provide families an average of only $2.39

per week. Private charities attempted to supplement the public relief efforts, but the

problem was far beyond their capabilities as well. As a result, American cities were

experiencing scenes that a few years earlier would have seemed almost inconceivable.

Bread lines stretched for blocks outside Red Cross and Salvation Army kitchens.18

Thousands of people sifted through garbage cans for scraps of food or waited

outside restaurant kitchens in hopes of receiving plate scrapings. Nearly 2 million young

men simply took to the roads, riding freight trains from city to city, living as nomads.

The economic hardships of the Depression years placed great strains on American

families, particularly on the families of middle-class people who had become accustomed

in the 1920s to a steadily rising standard of living and now found themselves plunged

suddenly into uncertainty. It was not only unemployment that shook the confidence of

middle-class families, although that was of course the worst blow. It was also the

reduction of incomes among those who remained employed.

9

Economic circumstances forced many families, therefore, to retreat from the

consumer patterns they had developed in the 1920s. Women often returned to sewing

clothes for themselves and their families and to preserving their own food rather than

buying such products in stores. Others engaged in home businesses taking in laundry,

selling baked goods, accepting boarders. Many households expanded to include more

distant relatives. Parents often moved in with their children and grandparents with their

grandchildren, or vice versa.19

The public did not understand the causes or solutions of unemployment, but people

could judge polices by results. They had little tolerance for anyone who said current

polices were working when, in fact, more jobs were being lost. One indication of how

desperate the situation was came in June when Chicago mayor told one House committee

that it still had a choice: it could send relief, or it could send troops.20

With local efforts rapidly collapsing, state governments began to feel new

pressures to expand their own assistance to the unemployed. Most resisted the pressure.

Tax revenues were declining along with everything else, and state leaders balked at

placing additional strains on already tight budgets. Many public figures, moreover, feared

that any permanent welfare system would undermine the moral fiber of its clients.21

People never enjoy paying taxes. With the lower incomes of the depression came

widespread demand for retrenchment and lower local taxes. Indeed, many local citizens

and property owners were quite unable to pay their taxes at all.

10

Since a large part of the revenues of local government is spent for public

education, it was perhaps inevitable that the tax crisis should produce cutbacks in schools.

Many communities decreased their school spending severely. In effect, they passed the

burden on to the teachers, the students, or both. No one will ever be able to calculate the

cost to American civilization that resulted from inadequate education of the nation’s

children during the Great Depression.

The colleges’ problems were somewhat different. Although the budgets of almost

all colleges, public and private, were not what they should have been, a greater problem

was that of students who were destitute. Rare was the college that did not have several

cases of severe student poverty. Thousands of students in the 1930’s made important

sacrifices to stay in college. Because the students of the depression constituted, on the

whole, a hungry campus generation they gave college life a new and earnest tone. The

goldfish gulpers may have got the big headlines in the late 1930’s, but they were not

typical depression undergraduates.22

During the first two years of the depression the schools did business about as

usual. By September, 1931, the strain was beginning to tell. Salary cuts were appearing

even in large towns, and the number of pupils per teacher had definitely increased.

Building programs had been postponed. In a few communities school terms had been

considerable shortened, and in others some of the departments and services were being

lopped off. But, on the whole, the school world wagged on pretty much as usual.

11

During the 1932-33 term the deflation gathered momentum so rapidly that many

communities had to close their schools. By the end of last March nearly a third of a

million children were out of school for that reason. But the number of children affected,

shocking as it is, does not tell the story so vividly as does the distribution of the of the

schools. Georgia had 1,318 closed schools with an enrollment of 170,790, and in

Alabama 81 percent of all the children enrolled in white rural schools were on an

enforced vacation. In Arkansas, to site the case of another sorely pressed state, over 300

schools were open for sixty days or less during the entire year. By the last of February

more than 8,000 school children were running loose in a sparsely settled New Mexico.

And over a thousand west Virginia schools had quietly given up the struggle.23

The downswing which began in 1929 lasted for 43 months. The Great

Depression’ has the dubious distinction of being the second longest economic contraction

since the Civil War, second only to that which began in 1873 and continued for 65

months. The length of a depression, however, can only give a limited indication of its

impact; the amplitude and national ramifications of 1929-33 give those years a special

importance.24

Economists, historians, and others have argued for decades about the causes of the

Great Depression. But most agree on several things. They agree, first, that what is

remarkable about the crisis is not that it occurred; periodic recessions are a normal feature

of capitalist economies. What is remarkable is that it was so severe and that it lasted so

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long. The important question, therefore, is not so much why was there a depression, but

why was it such a bad one.25

America had experienced economic crises before. The Panic of 1893 had ushered

in a prolonged era of economic stagnation, and there had been more recent recessions, in

1907 and in 1920. The Great Depression of the 1930s, however, affected the nation more

profoundly than any economic crisis that had come before not only because it lasted

longer, but because its impact was far more widely felt. The American economy by 1929

had become so interconnected, so dependent on the health of large national corporate

institutions, that a collapse in one sector of the economy now reached out to affect

virtually everyone. Even in the 1890s, large groups of Americans had lived sufficiently

independent of the national economy to avoid the effects of economic crisis. By the

1930s, few such people remained.26

Some economists argue that a severe depression could have been avoided if the

Federal Reserve system had acted more responsibly. Instead of moving to increase the

money supply so as to keep things from getting worse in the early 1930s, the Federal

Reserve first did nothing and then did the wrong thing: Late in 1931 it raised interest

rates, which contracted the money supply even further.27

At the time, a substantial majority of Americans and nearly all foreigners who

expressed opinions on the subject believed that the Wall Street stock market crash of

October 1929 had triggered the depression, thereby suggesting that the United States was

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the birthplace of the disaster. The connection seemed to obvious to be a coincidence.

Many modern writers have agreed; for example, the French historian Jacques Chastenet

says in Les Annees d’Illsions: 1918-1931, “After the stock market crash on the other side

of the Atlantic came an economic crisis. The crisis caused a chain reaction in the entire

world.28

Many years after it ended, former President Herbert Hoover offered an elaborate

explanation of the Great depression, complete with footnote references to the work of

many economists and other experts. “THE DEPRESSION WAS NOT STARTED IN

THE UNITED STATES,” he insisted. The “primary cause” was the war of 1914-18. In

four-fifths of the “economically sensitive” nations of the world, including such remote

areas as Bolivia, Bulgaria, and Australia, the downturn was noticeable long before the

1929 collapse of American stock prices.29

Un solved economic and social problems, accumulated over many years, made the

Great Depression more of a culture crisis than can be measured in new laws or economic

statistics. Americans had always been confident that the unique virtues of their society-its

stronger economic base, its more alert citizenry, and its higher moral principals-would

protect it from the evils and failures of Europe and would inevitable lead to new levels of

civilization. In spite of the derision of a few artists and intellectuals, this “American

Dream” still persisted in the 1920’s. Somewhere in the dark passages of the Great

Depression, as the forces of world history weakened belief in the uniqueness of the

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United States as a nation set apart, the dream faded and became indistinct. While

America would recover economically and would rise to new heights of material

achievement scarcely thought possible in the 1929, the myth of a unique destiny would

never regain its old force and certainty. Henceforth Americans would share some of the

realistic disillusionment of Europeans, some of the sense that survival alone was an

achievement in a world not necessarily designed for the triumph of the human spirit.30

15

Endnotes

1. Richard N. Current, The Great American History (CD-ROM) The Civil War to

WWII, (Carlsbad, CA.: Comptons New Media McGraw-Hill 1995) p.1

2. Dixon Wecter, A History Of America The Age Of The Great Depression, (New

York, NY.: The Macmillan Co. 1948) p.1

3. Current Opcit. p.2

4. Ibid. p.8

5. Ibid. p.6

6. Ibid. p.7

7. T. H. Watkins, The Great Depression America in The 1930s, (Boston, MA.:

Little Brown and Co. 1993) p.54

8. Current Opcit. p.16

9. Watkins Opcit. p.55

10. Current Opcit. p.4

11. Peter Fearon, War Prosperity & Depression The U.S. Economy 1927-45,

(Lawrence, KA.: University Press 1987) p.137

12. David A. Shannon, The Great Depression, (Englewood Cliffs, NJ.: Prentice

Hall Ins. 1960) p.6

13. Thomas C. Cochran, The Great Depression and World War II 1929-1945,

(Glenview, IL.: Scott Foresman and Co. 1968) pp.29-30

14. Michael E. Parrish, Anxious Decades America in Prosperity and Depression

1920-1941, (New York, NY.: W.W. Norton & Co. 1992) p.240

15. Shannon Opcit. pp.13-15

16. The Editors of TIME-LIFE BOOKS, This Fabulous Century 1930-1940, (New

York, NY.: Time-Life Books 1985) p.23

16

17. Richard N. Current, The Great American History (CD-ROM) The Civil War to

WWII, (Carlsbad, CA.: Comptons New Media Inc. McGraw-Hill 1995) p.20

18. Ibid. p.21

19. Ibid. p.22

20. Robert S. McElvaine, The Great Depression America 1929-1941, (New York,

NY.: Times Books 1984) p.122

21. Current Opcit. p.21

22. David A. Shannon, The Great Depression, Englewood Cliffs, NJ.: Prentice

Hall Inc. 1960) p.93

23. Ibid. p.94

24. Peter Fearon, War Prosperity and Depression The U.S. Economy 1917-45,

Lawrence, KA.: University Press 1987) p.89

25. Current Opcit. p.9

26. Ibid. p.3

27. Ibid. p.17

28. John A. Garraty, The Great Depression, San Diego, CA.: Harcourt Brace

Jovanovich 1986) p.4-5

29. Ibid. p.4

30. Thomas C. Cochran, The Great Depression and World War II 1929-1945,

(Glenview, Il.: Scott Foresman and Co. 1968) p.1

17

Bibliography

Cochran Thomas C., The Great Depression and World War II 1929-1945, Glenview,

Ill., Scott Foresman and Co., 1968

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Carlsbad California, Compton’s New Media Inc. & McGraw-Hill, 1995

Editors of TIME-LIFE BOOKS, This Fabulous Century 1930-1940, New York, NY.,

Time-Life Books, 1985

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KA., University Press, 1987

Garraty John A., The Great Depression, San Diego, CA., Harcourt Brace Jovanovich, 1986

McElvaine Robert S., The Great Depression America 1929-1941, New York, NY., Times

Books, 1984

Parrish Michael E., Anxious Decades America in Prosperity and Depression 1920-1941,

New York, NY., W. W. Norton & Company, 1992

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Watkins T. H., The Great Depression America in The 1930’s, Boston MA., Little Brown

and Co., 1993

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Macmillan Co., 1948