The Great Depression

Megan Boardman

The Causes of the Great Depression

     Herbert Hoover was nominated by the Republicans in the election of 1928. He won against Alfred E. Smith by more than 6 million votes and won the Electoral College 444 to 87.

    In the late 1920s a prolonged bull market convinced people to invest in stock. Several investors started to buy stocks by making a small down payment then using loans to pay for the rest. Several investors had to sell their stock quickly because brokers issued a margin call demanding the investor to repay the loan at once. If a company made a profit its stock price rose but fell when earnings dropped.  In the late 1920s many investors bid prices up but failed to consider a company's earnings and profits, and buyers bet the market would continue to grow allowing them to sell the stock and make money quickly. On October 21, 1929 the stock market went down hill and stocks were selling for less than what they were payed for. October 24 became known as Black Thursday because the stock market dropped even further. Then on October 29 prices dropped more becoming known as Black Tuesday. Almost 16 million shares of stock were sold and the stock market lost $10 to $15 billion. By the middle of November prices dropped more than one third and $30 billion was lost, equal to the total wages Americans earned in 1929.

     By 1929 banks had loaned $6 billion in stock speculators. Banks also lent out more money than they had to lend. This is called debt deflation. Banks were lending $9 for every $1 and investor had deposited. Banks cut back on loans and with less credit consumers and businesses were not able to borrow as much money. Customers lost their savings because the banks closed. Americans were worried about banks closing so they made runs on banks. This is when many depositors decide to withdraw their money at one time which caused banks to collapse. By 1932 more than 10 percent of nations banks closed.      

     Overproduction was another cause of the Great Depression. More efficient machinery increased the production for both factories and farms but Americans couldn't earn enough to buy goods. The output of manufacturing per person an hour rose 32 percent but their wages increased by only 8 percent. About 2/3 of families earned less than $2,500 a year so during the 1920s American bought high cost items on the installment plan. the installment plan allowed buyers to make a small down payment then pay the rest monthly. Paying off this debt forced buyers to stop buying which decreased sale so manufacturers had to lay off workers. Jobless people couldn't buy as much so sales were cut even more and in 1930 about 26,000 businesses collapsed.

     Banks started making loans to speculators rather than to foreign companies because the bull market sped up. In 1929 Hoover wanted to encourage overseas trade by lowering tariffs but the Republicans wanted to raise tariffs. the Hawley-Smoot Tariff raised the average tariff rate to the highest level in history but failed to help American businesses because foreign countries also raised their tariffs. By 1932 export had fallen 1/5 of what they were in 1929.

     Instead of raising interest rates the Federal Reserve Board kept its rates low throughout the 1920s. This encouraged member banks to make risky loans and led business leaders to think the economy was still expanding. They borrowed more money to expand production leading to overproduction when sales were failing. Then the Federal Reserve raised interest rates which tightened credit.


Howarth, David, and Megan Becker. "Causes of the Great Depression." Causes of  

     the Great Depression. N.p., 2009. Web. 03 Mar. 2013.

Appleby, Joyce Oldham., Alan Brinkley, Albert S. Broussard, James M. McPherson,

    and Donald A. Ritchie. The American Vision: Modern times. New York, NY:

    Glencoe/McGraw-Hill, 2006. Print

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Life During the Great Depression

     Starving people would line up for free food from the New York City's YMCA and by 1933 more than 12,000 people were fed daily. People could no longer pay so they lost their homes and were forced to stay in shacks on public grounds and formed communities called shantytowns. These towns were also called Hoovervilles because they blamed the president. The homeless and unemployed people were called hobos and they wandered around the country by sneaking past railroad police and getting on open boxcars. Unemployment rose from 5 million in 1930 to almost 13 million by the end of 1932.

     Homesteading had begun on the Great Plains and farmers plows uprooted the wild grass which held the soils moisture. Many farmers left their crops uncultivated once prices dropped causing drought and the soil dried to dust. The Dust Bowl was then created from the Dakotas to Texas. Wind blew dust causing the skies to turn black. Humans and livestock died of suffocation from dust filling their lungs. During the worst of the Dust Bowl days, students were either sent home to prevent “dust pneumonia” or were kept at school overnight. Many Great Plains farmers suffered to hold on to their land and many families headed west to California and lived in roadside camps and were homeless.

     During the 1930s more than 60 million Americans went to movies each week. Comedies became popular because they provided release form daily worries but also serious films became popular. Walt Disney also introduced Mickey Mouse in 1928.

     Tens of millions of people started listening to the radio daily. Radio comedians and radio dramas became popular along with radio adventures and soap operas. Radio created a new type of community where even strangers discussed radio characters.

     Writers and Artists during the 1930s used homeless and unemployment as their subjects trying to capture the life around them. Writings were very powerful but images grew more effective. Photos showed how the Great Depression affected the lives of average Americans and painters works highlighted traditional American values.

Hoover Responds to the Depression

     Hoover hoped to erase the public's fears and wanted to escape more bank runs and layoffs by urging consumers and business leaders to make reasonable decisions. His attempts failed to encourage confidence to the public and the economy continued to go down. Hoover believed the Americans system of "rugged individualism" would keep the economy moving and he thought the government should not help people out after WW1. Hoover organized a chain of conferences with the banks, railroads, other big businesses, labor leaders and government officials. He increased the funding for public works which are government financed projects that produced some jobs for a few of the unemployed. To pay for the public works the government could either raise tax causing the people to have less money but if the government kept tax low then it would have to borrow money meaning less money available for businesses to expand and for consumer loans. Citizens blamed the party in power for the failing economy. The Republicans lost 49 seats and their majority in the House of Representatives. They held on to the Senate by one vote.

     Hoover focused on expanding the money supply and he believed the government had to help. Hoover set up the National Credit Corporation (NCC) in October 1931.  NCC created a bunch of money that allowed failing banks to continue lending money in their communities but didn't meet the nation's needs. In 1932 Hoover requested Congress to set up the Reconstruction Finance Corporation (RFC) to make loans to businesses and lent over $238 million to banks, railroads and building-on-loan organizations. The RFC failed to lend enough and the economy kept going down.

     Hoover believed state and local government should help out relief and other needs should be met by private charity. By the spring of 1932 the state and local governments were running out of money and private charities didn't have enough resources to handle the crisis. Congress then passed the Emergency Relief and Construction Act in July. This act called for $1.5 billion for public works and $300 million in emergency loans to the states for direct relief. This new act could not change the failing economy.

     Farmers that mortgaged their land in the WW1 lost money because prices dropped very low. Between 1930 and 1934, creditors foreclosed on almost 1 million farms. Farmers tried to raise prices by destroying their crops to decrease the supply. Farmers also burned their corn to provide heat in their homes. Dairy farmers stopped their milk trucks blocking the highways and dumped their milk into the ditches.

     Congress enacted $1,000 bonus for each veteran to be distributed in 1945 and in 1931 Texas congressman, Wright Patman, introduced a bill to authorize early payment of these bonuses. In 1932 hundreds of Oregon veterans began marching to Washington to lobby for passage of the legislation. Other veterans joined and marched along highways or rode the rails. They became known as the Bonus Army. In Washington, the marchers camped in Hoovervilles. The veterans' largest camp was located at Anacostia Flats across the river from the Capitol. Their number had grown to 15,000 and the Senate voted down the bonus bill so several veterans went home but some stayed. They stayed in empty buildings downtown but the police tried to clear them out. The city government called in the army and sent in cavalry infantry and tanks to clear the buildings. 700 soldiers forced the veterans out and Hoover's reputation was harmed. Hoover failed to recover the economic crisis but he expanded the Federal Government's economic role.  


"The Bonus Army." The Bonus Army. EyeWitness to History, 2000. Web. 03 Mar.


Appleby, Joyce Oldham., Alan Brinkley, Albert S. Broussard, James M. McPherson,

    and Donald A. Ritchie. The American Vision: Modern times. New York, NY:

    Glencoe/McGraw-Hill, 2006. Print

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