Handout 10: The Great Depression
American national politics during the 1920s were dominated by the Republican Party, which controlled the White House and Congress throughout the decade. Many Americans felt that the 1920s were a very prosperous period, and they gave the Republican Party credit for this. Presidents Warren Harding (in office 1921-23) and Calvin Coolidge (1923-29) were very conservative men who believed strongly in laissez-faire and in the primary role of business in American life. In 1928, another Republican, Herbert Hoover, was elected president in a landslide over Democrat Al Smith. Hoover had made a name for himself during World War I, when he was in charge of providing food relief to hungry Europeans, so he was viewed as a humanitarian. He had also been Secretary of Commerce under Harding and Coolidge, so he in particular was given a great deal of credit for the decade’s seeming prosperity. Hoover confidently took office in March 1929, and in his inaugural address he proclaimed that "I have no fears for the future of our country. It is bright with hope." Seven months later, the stock market crashed and the worst depression in American history began. It would last for over ten years.
During the late 1920s, there had been an enormous amount of stock purchasing. Newspapers and magazines were filled with stories of people becoming rich overnight by dabbling in the stock market, and so thousands of Americans rushed to buy stocks, even if they had to borrow money to make the purchases. This pushed the prices of stocks higher and higher, until they reached a fantasy realm totally cut off from reality. But instead of looking for danger signs, most people assumed that prices would just keep on rising, indefinitely. The market peaked on Sept. 3, 1929, but then it began to waver. On Oct. 24, a dramatic fall of stock prices began, culminating in the crash of Black Tuesday, Oct. 29, 1929, when $10 billion worth of wealth disappeared in a few hours. The value of RCA stock, for example, fell from a peak of $450 a share before the crash, to $32 a share after the crash.
The stock market crash did not "cause" the Great Depression – historians and economists still disagree on exactly what forces came together to bring about the catastrophe. But the crash did stunningly bring home the fact that all was not well with the economy, and had not been for some time. Beneath the surface, even during the "prosperous" twenties, there had been significant weaknesses in the economy that ultimately helped bring about the depression. Agriculture, for instance, was already in a deep slump during the 20s, with big crop surpluses and falling prices. Some important industries suffered in the 20s, such as textiles and coal mining. There was also an increasingly uneven distribution of income in the U.S., with more and more of the nation’s wealth falling into the hands of the rich, leaving less for other Americans. What all this meant was a gradual decline in purchasing power: U.S. factories were churning out more and more goods, but many Americans had less and less money to purchase these goods. So even as stock investors were sending prices up into the stratosphere, down here on earth troubles were brewing, troubles which eventually came to a boil in the form of the Great Depression.
The Depression wiped out individuals, businesses, and banks. Ultimately, 5,000 banks failed, and 9 million savings accounts simply disappeared. Unemployment snowballed disastrously. During the first three years of the Depression, an average of 100,000 workers were fired every week. In 1929, 2 million Americans were unemployed. In 1930, this doubled to 4 million, then doubled again in 1931 to 8 million. By the end of 1932 approximately 13 million Americans (25% of the workforce) were unemployed, with millions more working shortened hours or for reduced wages. This was at a time when most households had only one wage earner, so many millions more Americans were directly affected by unemployment. Local unemployment figures also help reveal the extent of joblessness. By 1932, one million people were unemployed in New York City alone. Fifty percent of Cleveland’s workforce was unemployed, and 80 percent of Toledo’s. In Sonora, Pennsylvania, only 277 out of 13,900 workers had regular jobs. Even the workers who held onto their jobs often worked fewer hours at reduced wages. Farmers, many of them already suffering in the 1920s, were also devastated by the Great Depression. Total farm income fell from $12 billion in 1929 to only $5 billion in 1932.
Hoover believed in laissez-faire, but he was much more flexible than Harding and Coolidge had been, especially given the depth of the crisis that confronted him. He had the government buy up surplus crops, for example, in an effort to stabilize crashing crop prices. He also created the Reconstruction Finance Corporation (RFC), a government agency that would use taxpayer dollars to provide aid to struggling banks, factories, and railroads. No president had ever gone this far to fight the effects of a depression. But Hoover was unwilling to go farther – in particular, he was not willing to give direct federal aid to the unemployed – and many Americans increasingly saw his responses to the crisis as woefully inadequate. Crop purchases did nothing to stop falling prices, and the RFC failed to get the economy rolling again. In fact, many Americans resented Hoover’s creation of the RFC – why was he willing to provide aid to bankers and industrialists, they asked, but not to unemployed individuals? Ironically, Hoover – the "great humanitarian" – was increasingly seen by hard-pressed Americans as a cold, callous man who cared little about their sufferings. Thus "Hoovervilles" such as Woody Guthrie described sprang up as homeless people desperately struggled for shelter. As Hoover and the economy foundered, the Democrats effectively took control of Congress in the 1930 elections, and looked ahead to the next presidential election, in 1932.
Things only got worse in the meantime. Farmers were angry and desperate as they faced the loss of their land. Some joined organizations like Milo Reno’s Farmers Holiday Association, which was willing to use force to keep farmers from delivering crops to market (they hoped that this would decrease supply and raise prices). Things were particularly bad for farm families in the Great Plains region, as nine years of drought helped create what was known as the Dust Bowl. Beginning in the late nineteenth century, farmers had moved into this region and begun plowing up the sod that had held down the soil for millions of years. When the drought hit – along with high temperatures and the high winds typical of the Plains – the crops died and there was nothing left to hold down the soil. The result were terrible dust storms. The combination of the Depression and the drought ruined many farmers and drove them out of the region in search of a better life elsewhere.
Another desperate group was composed of World War I veterans. In 1924 Congress had promised veterans a bonus for their service (to be paid in 1945), but with the onset of the Great Depression many veterans decided that they needed and deserved the bonuses right away. In the spring of 1932, thousands of them converged on Washington, D.C. from all over the country. They became known as the Bonus Army, and they camped out in vacant government buildings and in a shanty town on the Anacostia Flats, hoping that their presence would convince Congress to pay out the bonuses. The House agreed to pay the bonuses, but the Senate rejected the idea, at which point thousands of disappointed veterans returned home. But thousands remained in Washington and were a great source of anxiety for Hoover, who feared that they might become violent and threaten the government. When local police attempted to clear veterans out of the abandoned buildings, fighting broke out and two veterans were killed. The U.S. Army was called in to take control, under the command of Gen. Douglas MacArthur. MacArthur defied Hoover’s orders (which were that the Army simply seal off the Anacostia Flats and keep the veterans away from town) and used teargas and heavily armed troops to rout the veterans out of their shanty town, after which their shacks were burned. One baby – who had been born in the veterans’ camp – was accidentally killed in the process. The spectacle of troops violently dispersing unarmed American veterans was deeply disturbing to many Americans and did still further damage to Hooover’s rapidly sinking reputation.