Topic 13 - Prosperity and Depression (1919 - 1939)

Lesson 5 - Entering the Great Depression

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During his successful 1928 campaign for president, Herbert Hoover assured voters, “We in America are nearer the final triumph over poverty than ever before in the history of any land.” The voters had no reason to doubt that the good times would continue.

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Look at the photo of the man who lost everything during the Great Depression. Write three questions you would ask him.

Guiding Questions

What led to the stock market crash of 1929?
How did the early years of the Great Depression affect Americans?
How did President Hoover respond to the economic downturn?

Vocabulary

Academic Vocabulary

What Led to the Crash?

Most Americans had great confidence in President Hoover when he was inaugurated in March 1929. For most of the 1920s, Hoover had served in the cabinet as secretary of commerce. In that role, he had helped create the greatest prosperity the country had ever seen.

Then, only seven months after Hoover’s inauguration, the stock market crashed. The United States began a plunge into the worst economic depression in its history. Everywhere, stunned people asked: How could this have happened?

An Economic Slowdown

When Hoover took office in 1929, he saw a growing economy. Along with most of the nation’s leaders, he did not recognize the signs of trouble.

Hoover did realize that some Americans had not shared in the prosperity of the 1920s. As you have read, farmers already faced hardship in the 1920s. So did workers in the textile and coal industries. For workers in those industries, a booming economy was something they only read about in the newspapers. The words on a Pennsylvania mining town tombstone reflected their feelings of frustration.

Primary Source

For forty years beneath the sod With pick and spade I did my task The coal king’s slave, but now, thank God I’m free at last.

—Tombstone inscription, Pennsylvania

In the mid-1920s, the overall economy began to slow down. No one noticed the slowdown because at that time the government did not keep detailed statistics.

The Crash

By August 1929, some investors worried that the boom might soon end. They began selling their stocks. In September, more people decided to sell. The rash of selling caused stock prices to fall. Hoover reassured investors that the “business of the country … is on a sound and prosperous basis.” Despite the President’s calming words, the selling continued and stock prices tumbled.

Many investors had bought stocks on margin. Buyers of stocks on margin pay only part of the cost of the stock when they make the purchase. They borrow the rest from their stockbrokers. With prices falling, brokers asked investors to pay back what they owed. Investors sold their stock to repay their loans.

A panic quickly set in. Between October 24 and October 29, desperate people tried to unload millions of shares. As a result, stock prices dropped even further.

When the stock market opened on Tuesday, October 29, a wild stampede of selling hit the New York Stock Exchange. Prices plunged because there were no buyers. People who thought they owned valuable stocks were left with worthless paper.

After Black Tuesday, as it came to be called, business leaders tried to restore confidence in the economy. John D. Rockefeller told reporters, “My son and I have for some days been purchasing some common stocks.” Replied comedian Eddie Cantor, “Sure, who else has any money left?”

Analyze Images Newspapers around the country spread the word about the stock market crash.

Infer Why do you think the crash was international news?

READING CHECK

Identify Supporting Details What happened on Black Tuesday?

The Great Depression Begins

The period of economic hard times that followed the crash is known as the Great Depression. It lasted from 1929 to 1941.

The stock market crash did not cause the Great Depression, but it did shake people’s confidence in the economy. As the Depression worsened, people tried to understand how the prosperity of the 1920s had vanished.

Causes of the Great Depression

Among the chief causes of the Great Depression was overproduction. American factories and farms produced vast amounts of goods in the 1920s. Vast corporate profits made from increased production were not passed on to workers. As a result, the gap between rich and poor widened with the middle class slipping into poverty. In fact, over one third of American assets were owned by one percent of Americans—those with the most money.

Having such a small number of people in control of so much wealth contributed to an economic slump. First, the wealthy were more likely to save the money than spend it like those who were less wealthy. Second, those who were less wealthy saw their buying power fall.

Because wages did not keep up with prices, workers could not afford to buy the goods that corporations continued to produce. Factories and farms were producing more goods than people were buying. As orders slowed, factories laid off workers.

Another cause of the Depression was weakness in the banking system. During the 1920s, banks made unwise loans. For example, banks lent money to people who invested in the stock market. When the stock market crashed, borrowers could not repay their loans.

Because banks could not give depositors their money when they asked for it, many banks were forced to close.

More than 5,000 banks closed between 1929 and 1932. When a bank closed, depositors lost their money. Often, a family’s lifetime savings disappeared overnight.

Analyze Graphs American factories and farms increased production in the 1920s.

Use Visual Information What effect did the overproduction of goods have on prices?

A Series of Economic Problems

After the stock market crash, the economy slid downhill at a fast pace. One disaster triggered another. The stock market crash, for example, ruined many investors. Without capital, or money, from investors, businesses could no longer grow and expand. Businesses could not turn to banks for capital because the banks were also in trouble.

As factories cut back on production, they cut wages and laid off workers. Unemployed workers, in turn, had little money to spend, so demand for goods fell further. In the end, many businesses went bankrupt—they were unable to pay their debts. As bankrupt businesses closed, even more people were thrown out of work.

The Great Depression led to a worldwide economic crisis. In the 1920s, the United States had loaned large sums to European nations. When American banks stopped making loans or demanded repayment of existing loans, European banks began to fail. The depression spread from nation to nation. By 1930, a worldwide economic crisis occurred.

Analyze Charts A series of events led to the Great Depression.

Summarize How does the timeline show a relationship between the U.S. economy and the economies of other nations?

READING CHECK

Identify Main Ideas What were two main causes of the Great Depression?

Daily Life for Americans

The United States had suffered earlier economic depressions. None, however, was as severe as the Great Depression. In earlier times, most Americans lived on farms and grew their own food. In the 1930s, millions of Americans lived in cities and worked in factories. When factories closed, the jobless had no money for food and no land on which to grow it.

As joblessness multiplied during the Great Depression, an increasing number of people relied on charity for food.

The Jobless

As the Depression spread, the unemployment rate soared. By the early 1930s, one in every four workers was jobless. Millions more worked shortened hours or took pay cuts. Many of the jobless lost their homes. On city streets, people sold pencils and begged for money.

The chance of finding work was small. On an average day, one New York job agency had 5,000 people looking for work. Only about 300 found jobs. In another city, police had to keep order as 15,000 women pushed and shoved to apply for six jobs cleaning offices. Some of the jobless shined shoes on street corners. Others set up sidewalk stands and sold apples.

Challenges for Families

During the Depression, families suffered. Marriage and birth rates dropped. Hungry parents and children searched through city dumps and restaurant garbage cans for food. In one school, a teacher ordered a thin girl to go home to eat. “I can’t,” replied the girl. “This is my sister’s day to eat.”

The pressure of hard times led some families to split up. The scarcity of food and work caused fathers and even children as young as 13 or 14 years old to leave home to hunt for work. Their leaving meant the family had fewer people to feed, but it also came at a cost: there were fewer people to care for any young children or elderly at home.

Jobless men and women drifted from town to town looking for work. Some “rode the rails,” living in railroad cars and hitching rides on freight trains. Louis Banks, a young African American, later described what it was like to ride the rails.

Primary Source

“Twenty-five or thirty would be out on the side of the rail, white and colored. They didn’t have no mothers or sisters, they didn’t have no home, they were dirty, they had overalls on, they didn’t have no food, they didn’t have anything.”

— Louis Banks, Interview, 1970

Americans did their best to cope. They attempted to meet their basic needs by utilizing the scarce resources they possessed. Neighbors shared what little they had. Some families doubled up, taking in aunts, uncles, and cousins. Some families began to grow vegetables and can foods instead of shopping in stores.

The Great Depression shook Americans’ belief in themselves. Many Americans defined their self-worth partly on their ability to produce and consume goods and services. Without the opportunity to be productive members of the economy, many found their self-worth diminished. “No matter that others suffered the same fate, the inner voice whispered, ‘I’m a failure,’ ” one unemployed man wrote.

Analyze Images Like many others, this family faced huge challenges during the Depression.

Compare and Contrast Describe how rural and urban families dealt with the struggles of daily life.

READING CHECK

Identify Supporting Details How did urbanization worsen the effects of the Depression?

How Did the President Respond?

President Hoover was deeply concerned about the suffering. However, Hoover thought that government should not become directly involved in helping end the business crisis. He feared that government might become too powerful. It was up to businesses, he believed, to work together to end the economic downturn.

Aid for the Needy

At first, Hoover also opposed government relief programs—projects aimed at helping the needy. Instead, the President urged business leaders to keep workers employed and to maintain wages.

Hoover also called on private charities to help the needy. Churches set up soup kitchens, places where the hungry could get a free meal. Ethnic communities organized their own relief efforts. In San Francisco’s Chinatown, fraternal societies gave out food and clothing. Father Divine, an African American religious leader in New York’s Harlem, fed 3,000 hungry people a day. Mexican Americans and Puerto Ricans turned to aid societies. Still, the numbers of the needy soon overwhelmed private charities.

President Hoover’s strong belief in limited government affected his initial response to the economic crisis. Soon after taking office in 1930, he declared, “Prosperity cannot be restored by raids upon the public Treasury.” However, as the Depression continued, he adopted some policies that he hoped would help people help themselves and stimulate the economy.

He set up public works programs. Public works are projects built by the government for public use. The government hired workers to build schools, construct dams, and pave highways. By providing jobs, these programs enabled people to earn money.

Hoover also asked Congress to approve the Reconstruction Finance Corporation, or RFC, in 1932. The RFC loaned money to banks, railroads, and insurance companies to help them stay in business. Saving these businesses, Hoover hoped, would save thousands of jobs.

Analyze Images Public works projects, like the Hoover Dam, gave Americans jobs.

Cite Evidence Were public works projects a good idea? Why or why not?

A Deepening Depression

Hoover did more to reverse hard times than any previous President. However, his efforts were too little and came too late. In 1931, as the third winter of the Depression approached, more and more people joined the ranks of the hungry and homeless. “Men are sitting in the parks all day long and all night long,” wrote one man in Detroit.

Many people blamed the President for doing too little. He refused to establish a welfare system for those out of work, believing it would further devastate American morale. However, people were desperate for any help they could get. They gave the name Hoovervilles to the clusters of shacks where the homeless lived. People spoke of “Hoover blankets,” the newspapers used by the homeless to keep warm when they slept outside. A cardboard patch that covered a hole in a shoe was called “Hoover leather.” Men, women, and children lined up for “Hoover stew,” the name they gave to the thin soup they received in soup kitchens.

The Bonus Army

While people waited for the government to help, one group of Americans took action. After World War I, Congress had voted to give veterans abonus, to be paid in 1945. In 1932, more than 20,000 jobless veterans marched to Washington to demand the bonus right away. For two months, the Bonus Army, as the group of veterans were called, camped in a tent city along the Potomac River.

The House of Representatives voted to give the veterans the bonus at once, but the Senate rejected the bill. Senators thought that the cost would prevent government action to aid the country’s recovery. While many discouraged veterans went home, thousands stayed.

Local police tried to force the veterans to leave. Battles with police left four people dead. Hoover then ordered General Douglas MacArthur to clear out the veterans. Using cavalry, tanks, machine guns, and tear gas, MacArthur moved into the camp and burned it to the ground.

An editorial in the Washington News years later expressed the shock many Americans felt at the time.

In 1932, Bonus Army members occupied a portion of Washington, D.C., in this camp.

Primary Source

What a pitiful spectacle is that of the great American Government, mightiest in the world, chasing unarmed men, women, and children with Army tanks. . . . If the Army must be called out to make war on unarmed citizens, this is no longer America.

—Washington News, “The Summer of the BEF,” November 23, 1946

After the attack on the Bonus Army, Hoover lost what little support he still had. Convinced that the country needed a change, many Americans looked for a new leader.

READING CHECK

Compare and Contrast How do public works differ from private projects?

Lesson Check

When a business went bankrupt during the Great Depression, how did that affect the community?
What did Hoovervilles and the Bonus Army camp have in common?
Express Problems Clearly Why did buying on margin seem, to some investors, like an acceptable way to purchase stock, but turn out to be unwise?
Generate Explanations Why do you think President Hoover ordered the military to clear the Bonus Army out of Washington, D.C.?
Revisit the Essential Question Do you think President Hoover did enough to try to boost the economy and help Americans hurt by the Great Depression?
Writing Workshop: Support Ideas with Evidence Look at the list of ideas and evidence that you wrote earlier. Make sure your evidence fully supports your ideas and includes information such as statistics and direct quotations.

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