The Great Depression
worldwide business slump of the 1930's
1929 - 1942
Great Depression was a worldwide business slump of the 1930's. It ranked as the worst and longest period of high unemployment and low business activity in modern times. The Great Depression began in October 1929, when stock values in the United States dropped rapidly. Thousands of stockholders lost large sums of money. Many of these stockholders were even wiped out. Banks, factories, and stores closed and left millions of Americans jobless and penniless. Many people had to depend on the government or charity to provide them with food.
President Herbert Hoover held office when the Great Depression began. The voters elected Franklin D. Roosevelt President in 1932. Roosevelt's reforms gave the government more power and helped ease the depression.
The Great Depression affected almost every nation. It caused a sharp decrease in world trade because each country tried to help its own industries by raising tariffs on imported goods. The depression caused some nations to change their leader and their type of government. The poor economic conditions of these times led to the rise of the German dictator Adolf Hitler and to the Japanese invasion of China. The German people supported Hitler because his plans to make Germany a world leader gave them hope for improved conditions.
The Japanese developed industries and mines in Manchuria, a region of China, and claimed this economic growth would relieve the depression in Japan. The militarism of the Germans and the Japanese helped bring on World War II (1939-1945).
The Great Depression ended after nations increased their production of war materials at the start of World War II. This increased level of production provided many jobs and put large amounts of money back into circulation.
The depression had lasting effects on the United States government and on many Americans. For example, the government took more responsibility than ever before for strengthening the nation's economy. In addition, many Americans who lived during the depression stressed the importance in later years of acquiring such material comforts as household appliances and an automobile.
Causes of the Great Depression
Many causes contributed to making the Great Depression as severe as it was. During the 1920's, many bank failures, together with low incomes among farmers and factory workers, helped set the stage for the depression. Uneven distribution of income among workers also contributed to the slump. Most economists agree that the stock market crash of 1929 started the depression.
The farm depression of the 1920's. Although the 1920's were a prosperous period for business, most farmers did not prosper. Prices of farm products fell about 40 percent in 1920 and 1921, and they remained low through the 1920's. As a result, some farmers lost so much money that they could not pay the mortgage on their farm. These farmers then had to either rent their land or move.
Bank failures increased during the 1920's. Most of them occurred in agricultural areas because farmers experienced such poor conditions. About 550 banks went out of business from July 1, 1928, to June 30, 1929, the period of greatest prosperity in the 1920's.
Uneven distribution of income. In addition to the farmers, workers in the coal, railroad, and textile industries failed to share in the prosperity of the 1920's. Industrial production increased about 50 percent, but the wages of industrial workers rose far more slowly. As a result, these workers could not buy goods so fast as industry produced them. Many people had to buy on credit. After a while, workers reduced their spending to hold down their debts. Then the amount of money in circulation decreased, and business became even worse.
The stock market crash. From 1925 to 1929, the average price of common stocks on the New York Stock Exchange more than doubled. Rising stock values encouraged many people to speculate -- that is, buy stocks in hope of making large profits following future price increases.
Stock values dropped rapidly on Oct. 24, 1929, now known as Black Thursday. Most stock prices remained steady on Friday and Saturday. But the next Monday, stock prices fell again. Then, on Tuesday, October 29, stockholders panicked and sold a record 16,410,030 shares of stock. Thousands of people lost huge sums of money as stock values fell far below the prices paid for the stock. Banks and businesses had also bought stock, and many lost so much that they had to close. Stock values fell almost steadily for the next three years.
The deepening depression
The Great Depression differed in both length and harshness from previous depressions in the United States. In earlier depressions, business activity had started to pick up after one or two years. But from October 1929 until Franklin D. Roosevelt became President in March 1933 the economy slumped almost every month. Business failures increased rapidly among banks, factories, and stores, and unemployment soared. Millions of people lost their job, savings, and home.
Economic breakdown. From 1930 to 1933, prices of industrial stocks fell about 80 percent. Banks and individuals with investments in the stock market lost large sums. Banks had also loaned money to many people who could not repay it. The deepening depression forced large numbers of people to withdraw their savings. Banks had great difficulty meeting the withdrawals, which came at a time when the banks were unable to collect on many loans. Between January 1930 and March 1933, about 9,000 banks failed. The bank failures wiped out the savings of millions of people.
Ben Isaacs, who lived in Chicago during the depression, described what happened to him: "I was in business for myself, selling clothes on credit. ... But ... banks closed down overnight. We lost everything. ... I couldn't pay the rent. ... I sold it [the car] for $15 in order to buy some food for the family. ... I would bend my head low [in the relief line] so nobody would recognize me. ..." (The quotations in this article are from Hard Times: An Oral History of the Great Depression (c) 1970 by Studs Terkel, published by Pantheon Books, a Division of Random House, Inc.)
Bank failures made less money available for loans to industry. The decline in available money caused a drop in production and a further rise in unemployment. From 1929 to 1933, the total value of goods and services produced annually in the United States fell from about $104 billion to about $56 billion. In 1932, the number of business closings was almost a third higher than the 1929 level.
In 1925, about 3 percent of the nation's workers were unemployed. The unemployment rate reached about 9 percent in 1930 and about 25 percent -- or about 13 million persons -- in 1933. Many people who kept or found jobs had to take salary cuts. In 1932, wage cuts averaged about 18 percent. Many people, including college graduates, felt lucky to find any job. In 1932, the New York City Police Department estimated that 7,000 persons over the age of 17 shined shoes for a living. A popular song of the 1930's called "Brother, Can You Spare a Dime?" expressed the nationwide despair.
Foreign trade also fell greatly during the Great Depression. The Smoot-Hawley Tariff Act of 1930 contributed to the drop. This law greatly increased a number of tariffs. President Hoover signed the law because he thought it would reduce competition from foreign products. But tariffs rose so high that other nations reacted by raising tariffs on U.S. goods.
From 1929 to 1933, prices of farm goods fell about 50 percent. This drop occurred partly because high tariffs made exports unprofitable. In addition, farmers produced a surplus of crops. The surplus pushed prices down because there was more food than people could buy.
Human suffering became a reality for millions of Americans as the depression continued. Many died of disease resulting from malnutrition. Thousands lost their home because they could not pay the mortgage. In 1932, at least 25,000 families and more than 200,000 young people wandered through the country seeking food, clothing, shelter, and a job. Many youths traveled in freight trains and lived near train yards in camps called hobo jungles.
The homeless, jobless travelers obtained food from welfare agencies or religious missions in towns along the way. Most of their meals consisted of soup, beans, or stew and had little nourishment. The travelers begged for food or stole it if they could not get something to eat in any other way. Sometimes they ate scraps of food from garbage cans.
The ragged travelers found clothing harder to obtain than food. Missions gave most of the clothing they had to needy local people. Some of the travelers became ill because they did not have proper food and clothing. Even the sick wanderers had trouble getting help because hospitals aided local residents first.
Many people who lost their home remained in the community. Some crowded into the home of a relative. Others moved to a shabby section of town and built shacks from flattened tin cans and old crates. Groups of these shacks were called Hoovervilles, a name that reflected the people's anger and disappointment at President Hoover's failure to end the depression.
Peggy Terry, who grew up in Oklahoma during the depression, recalled a visit to a Hooverville in Oklahoma City: "Here were all these people living in old rusted-out car bodies. ... One family ... [was] living in a piano box. This wasn't just a little section, this was maybe 10 miles wide and 10 miles long. People living in whatever they could junk together. ..."
In 1932, many farmers refused to ship their products to market. They hoped a reduced supply of farm products would help raise the price of these goods. Such farmers' strikes occurred throughout the country, but they centered in Iowa and the surrounding states.
Harry Terrell, who lived in Iowa during the depression, described the conditions among farmers: "Corn was going for 8 cents a bushel. One county insisted on using corn to heat the courthouse, 'cause it was cheaper than coal.... The people were desperate....[Farmers] stopped milk wagons, dumped milk...."
Severe droughts and dust storms hit parts of the Midwest and Southwest during the 1930's. The afflicted region became known as the Dust Bowl, and thousands of farm families there were wiped out. Many farmers went to the fertile agricultural areas of California to look for work. Most who found jobs had to work as fruit or vegetable pickers for extremely low wages. The migrant families crowded into shacks near the fields or camped outdoors. John Steinbeck's famous novel The Grapes of Wrath (1939) describes the hardships some migrant families faced during the depression.
Hoover's policies. President Hoover believed that business, if left alone to operate without government supervision, would correct the economic conditions. He vetoed several bills aimed at relieving the depression because he felt they gave the federal government too much power.
Hoover declared that state and local governments should provide relief to the needy. But those governments did not have enough money to do so. In 1932, Congress approved Hoover's most successful antidepression measure, the Reconstruction Finance Corporation (RFC). This government agency provided some relief by lending money to banks, railroads, and other large institutions whose failure would have made the depression even worse. However, most Americans felt that Hoover did not do enough to fight the depression. They elected Franklin D. Roosevelt President in 1932.
The New Deal. Roosevelt believed the federal government had the chief responsibility of fighting the depression. He called Congress into a special session, now called the Hundred Days, to pass laws to relieve the depression. Roosevelt called his program the New Deal.
The laws established by the New Deal had three main purposes. First, they provided relief for the needy. Second, they aided nationwide recovery by providing jobs and encouraging business. Third, the laws tried to reform business and government so that such a severe depression would never happen in the United States again.
Congress created several agencies to manage relief programs. The Civilian Conservation Corps (CCC), established in 1933, employed thousands of young men in conservation projects. The Federal Emergency Relief Administration (FERA), founded in 1933, gave the states money for the needy. The Works Progress Administration (WPA), created in 1935, provided jobs in building such public projects as highways and parks. In 1939, this agency's name was changed to Work Projects Administration.
Some New Deal agencies established and managed recovery programs. The Agricultural Adjustment Administration (AAA), set up in 1933, helped regulate farm production. The National Recovery Administration (NRA), established in 1933, set up and enforced rules of fair practice for business and industry. The Public Works Administration (PWA), founded in 1933, provided jobs in the construction of bridges, dams, and schools.
The government also aided recovery by spending large sums of money. This spending gave business leaders the confidence to also begin spending. The economy improved after money began to circulate. The government also increased trade by lowering tariffs on certain imported goods. In return, other nations lowered tariffs on some United States products that they imported.
Congress created several agencies to supervise banking and labor reforms. The Federal Deposit Insurance Corporation (FDIC), founded in 1933, insured bank deposits. The National Labor Relations Board (NLRB), established in 1935, worked to prevent unfair labor practices and aid the development of labor unions. The Securities and Exchange Commission (SEC), created in 1934, tried to protect investors from buying unsafe stocks and bonds. In 1935, Congress passed the Social Security Act to provide money for retired and unemployed individuals.
Some Americans who kept their jobs during the Great Depression managed to live comfortably. Many of those who had a steady income could afford to buy an automobile, clothes, and other products that were out of reach for most people. Steak cost about 29 cents a pound, and gasoline about 18 cents a gallon. People who had enough money found that, because of low prices, conditions were better during the depression than they had been in the 1920's.
The New Deal programs not only helped relieve the depression but also renewed the confidence of Americans in the government. But about 15 percent of the nation's working force still did not have a job in 1940. The Great Depression did not end in the United States until 1942, after the country had entered World War II. The great increase in production of war materials provided so many jobs that the U.S. unemployment rate fell to about 1 percent in 1944.
In Canada, the national economy depended on the export of grain and raw materials. Canadian farmers and exporters suffered huge losses after other countries increased tariffs on imported products. Many Canadian companies closed, and the unemployment rate rose from about 3 percent of the labor force in 1929 to about 23 percent in 1933.
Richard B. Bennett, who served as prime minister from 1930 to 1935, had little success in his efforts to relieve the depression in Canada. W. L. Mackenzie King succeeded Bennett and adopted programs similar to those of Roosevelt to fight the depression.
Effects of the depression
The Great Depression caused many changes in the United States. It brought new laws that gave the government far more power than at any previous time in the nation's history. It also changed the attitudes of countless Americans toward various aspects of life.
New government policies that resulted from the New Deal increased federal control over banks and the stock market. Laws of the New Deal also gave the government more power to provide money for the needy. Ever since the depression, both Democratic and Republican administrations have broadened the powers of the federal government. For example, the government now provides hospital and medical insurance for the aged. The government may also regulate price and wage increases to try to keep the cost of living from rising.
The depression also changed the basic philosophy of the United States government in spending money. Before the depression, the government tried to spend the same amount of money it collected. But to support the New Deal, the government used deficit spending -- that is, it spent more money than it collected. This policy greatly increased the national debt. The government has continued to rely on deficit spending during most years since World War II ended in 1945.
New public attitudes. The depression changed the attitudes of many Americans toward business and the federal government. Before the depression, most people regarded bankers and business executives as the nation's leaders. After the stock market crashed and these leaders could not relieve the depression, Americans lost faith in them. The government finally succeeded in improving conditions. As a result, many Americans decided that the government -- not business -- had the responsibility to maintain the national economy.
Many people changed their basic attitudes toward life because of the suffering they experienced during the depression. They previously had believed they would have a reasonably happy life if they worked hard, saved money, and treated others well. The depression shattered that belief. The situation seemed especially hard to understand because there appeared to be no reason for so many of the things that happened.
The depression probably affected young adults more than any other group from a psychological viewpoint. These men and women encountered great difficulty in finding a job and starting a career. If they did find a position, they had little chance for promotion because employers eliminated jobs throughout the depression. Consequently, many young adults lost confidence in themselves and lowered their ambitions.
Some people who lived through the Great Depression became more concerned with material possessions than did people born after that era. The depression forced people to worry about such necessities as food, clothing, and shelter. After the economy improved, many people wanted material comforts they had lost or they had never owned before, including appliances, a car, and a house. Other people sought financial security. They stressed the importance of having a job and saving money as a precaution against hard times in the future.
The importance of material comforts and financial security that developed among many people of the depression generation affected their relationship with their children. Most people who grew up during the 1950's and 1960's did not know the experience of being wiped out. They knew nothing about having to struggle for money and a job. They did not understand why their parents put such great importance on material possessions and financial security. Many young people criticized such attitudes of their parents. A lack of both understanding and communication helped create what became known as the "generation gap" of the 1960's and early 1970's.
Contributor: Robert Sobel, Ph.D., Lawrence Stessin Prof. of Business History, Hofstra Univ.
McElvaine, Robert S. The Great Depression. Times Bks., 1984. Reprint. 1993.
Stein, R. Conrad. The Great Depression. Childrens Pr., 1993. Younger readers.
Watkins, Tom H. The Great Depression. Little, Brown, 1993.
SOURCE: IBM 1999 WORLD BOOK
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