The Great Depression (1929-1938)
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On October 24, 1929, the American economy crashed. Nobody understood why, at the time. Just yesterday, they had put money into the stock market or their local banks. Now, almost half of it was gone. This day is appropriately called Black Thursday. Elliot V. Bell writes for The New York Times, describing the first day on Wall Street and the New York Stock Exchange: “The market opened steady with prices little changed from the previous day, though some rather large blocks, of 20,000 to 25,000 shares, came out at the start. It sagged easily for the first half-hour, and then around eleven o'clock the deluge broke. It came with a speed and ferocity that left men dazed. The bottom simply fell out of the market.” Traffic stopped around the street; people in cars paying witness to hundreds of men and women not knowing what to do. “The streets were crammed with a mixed crowd - agonized little spectators, walking aimlessly outdoors because they feared to face the ticker and the margin clerk; sold-out traders, morbidly impelled to visit the scene of their ruin; inquisitive individuals and tourist, seeking by gazing at the exteriors of the Exchange and the big banks to get a closer view of the national catastrophe; runners, frantically pushing their way through the throng of idle and curious in their effort to make deliveries of the unprecedented volume of securities which was being traded on the floor of the Exchange.” Seeing the initial recession of stocks falling 15-20%, a group of bankers started buying a lot of stocks to help the market. But, that does not stop the torrent of selling by panicked Americans. If you look at the graph of the Dow Jones Industrial Average over the course of 3 months, from September 1929-November 1929, it’s just dismal. Below it, there is another graph comparing the Dow Jones Industrial Average with the price/earning ratio earned. As the average plunged down, the ratio also grew. The prices were getting higher than when what was earned.
In the beginning, the average peaked at 381 on September 3, 1929, 300 more than it was the same time last year. By November 13, the Dow had dropped to 198, a little more than half of the September 3rd average. To just put this all in perspective, the Dow Jones average today, February 24, 2007, is 12647.38. Obviously, we can’t use this as a scale for the average in 1929. But, this number just goes to show how big the market can get.
Bell goes on to conclude that Black Thursday is “…the most terrifying day and unreal day I have ever seen on the Street, and it constitutes an important financial landmark, for that day marked the great decline in the prestige and power of Wall Street over national affairs.” This recession didn’t just affect stock brokers. It affected everyone: women, men, and children. Every single person in the United States felt the financial blow on their country. President Herbert Hoover believed otherwise. It took him 1 whole month before actively reacting to the situation and endorsing an economic survey in New York State proposed by Merwin K. Hart. On November 29, 1929, he wrote in his letter to Mr. Hart, chairman of the Committee of 25, a group formed by leading businessmen to increase industry in the U.S., “This larger view of the problems within the state and their relation to public questions is sure to produce the most constructive results, and I wish the committee every success in its efforts.” Look at Hoover’s choice of wording. He acknowledges the problems in New York, but calls the other problems in the U.S just “questions”. This ignorance of his country starts with the results shown in the Hoover Economic Survey. In an article published in TIME magazine, according to Hoover the stock market recession only affects “…some 17 million U.S. citizens engaged in playing the stock market. Most of these investors are new, small, and ignorant. They speculated to double their capitol rather than invest to get a steady increase. They are motivated by faith.” The survey concludes with the statement that “all is well”. Little did Hoover know that in a few short months, the reality would become much harsher. More and more banks failed, the stock market continued falling, the unemployment rate continued rising, yet Hoover still did not do anything. Notice in the graphs below how things continued rising (bank failures, unemployment rates) and falling (stock market prices) even after the initial shock of Black Thursday.
Stock Prices during the Great Depression
Many economists today believed that if Hoover had tried to alleviate the problem, the simple recession in the economy would not turn into a depression. It seems that what got Hoover elected is now biting him in the back.
In the aftermath of World War I, which many Americans believed to be a mistake to get involved in, the general consensus was one of a hands-off attitude. Republican presidents preceding Hoover, Harding and Coolidge, both advocated this attitude. Harding, the first of this string of Republican presidents, said in one of his radio broadcasts in May of 1920, “America’s present need is not heroics, but healing; not nostrums, but normalcy…If we put an end to false economics which lure humanity to utter chaos, ours will be the commanding example of world leadership today…excess of government offer no substitute for quality of citizenship.” In his eyes, “normalcy” was an almost laissez-faire attitude that allowed citizens of the United States to go about their business without government interference, especially with the economy. On October 28, 1928, President Herbert Hoover gave a speech, ironically, in New York City, to emphasize this point: “I should like to state to you the effect that this projection of government in business would have upon our economic system. That effect would reach to the daily life of every man and woman. It would impair the very basis of liberty and freedom not only for those left outside the fold of expanded bureaucracy but for those embraced within it.” He got elected into office with a pretty high majority.
In his inaugural address on March 4, 1929, he reiterates this point: “The election has again confirmed the determination of the American people that regulation of private enterprise and not Government ownership or operation is the course rightly to be pursued in our relation to business.” Andrew Mellon, Treasury secretary under President Herbert Hoover claimed that, “People will work harder, live a more moral life… Enterprising people will pick up the wrecks from less competent people." Only a few months afterward, disaster struck the nation’s economy, affecting everyone. From successful businessmen to little children of farmers, whether they remained rich or lost everything, lives changed. Eileen Barthe, a social worker at the time, talks about her first Great Depression family she had to help, "I'll never forget one of the first families I visited. The father was a railroad man who had lost his job. I was told by my supervisor that I really had to see the poverty. If the family needed clothing, I was to investigate how much clothing they had at hand. So I looked into this man's closet -(pauses and has difficulty speaking) - he was a tall gray haired man, though not terribly old. He let me look in the closet -he was so insulted. (She weeps angrily) - He said, " Why are you doing this ? I remember this feeling of humiliation....this terrible humiliation....He said " I really haven't anything to hide, but if you really must look into it...." I could see he was very proud. He was so deeply humiliated. And I was too."
http://euphrates.wpunj.edu/faculty/kearneyr/bergen/family.jpg http://www.murphsplace.com/crowe/braddock/depression/depression-menu.jpg, http://www.thegreatdepression.co.uk/images/thegreatdepressionr.jpg
The Depression was everywhere: rual and urban areas. Melt White, survivor of the Dust Bowl and John Talkman, who lived in Chicago, recount their experiences below:
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Not everybody experienced the hard times shown above. When asked about the current economic situation, Martin, a successful businessman, said, “It's like many people on the bread lines - I certainly felt sorry for them. But many of them hadn't lived properly when they were making it. They hadn't saved anything. Many of them wouldn't have been in the shape they were in, if they had been living in a reasonable way.” Someone like him shouldn’t be affected, but he is. He sees these people every day, on the streets, and they become a part of his life. Between 1930 and 1939 U.S. unemployment averaged 18.2 percent. The economy's output of goods and services (gross national product) declined 30 percent between 1929 and 1933 and recovered to the 1929 level only in 1939, as evidenced below:
| Year | GDP |
| 1870 | 7.4 |
| 1880 | 11.2 |
| 1890 | 13.1 |
| 1900 | 18.7 |
| 1910 | 35.3 |
| 1920 | 91.5 |
| 1930 | 90.4 |
| 1940 | 99.7 |
| 1950 | 284.8 |
Prices of almost everything (farm products, raw materials, industrial goods, stocks) fell dramatically. Farm prices, for instance, dropped 51 percent from 1929 to 1933 ( http://www.amatecon.com/greatdepression.html ; March 4, 2007) . With these things, Hoover’s popularity continued dropping. The homeless set up small shantytowns of cardboard houses that they called “Hoovervilles”. Their flimsy blankets they called “Hoover Blankets”. He had become the nation’s scapegoat. The breaking point was the Bonus March on Washington D.C. in the summer of 1932. On July 5, 1932, over 60,000 veterans blocked Capitol Hill (see picture below) in an effort to get their bonuses.
This request was shot down by the Senate with a vote of 62-18. Most of the Bonus Army went home at that point, aided by Hoover’s offer of free rail transportation. Ten thousand men remained behind. On the morning of July 28, forty protesters tried to reclaim an evacuated building in downtown Washington scheduled for demolition. The city's police chief, Pellham Glassford, sympathetic to the marchers, was knocked down by a brick. Glassford's assistant suffered a fractured skull. When rushed by a crowd, two other policemen opened fire. Two of the marchers were killed. At this point, the District of Columbia asked for federal troops to preserve order. Hoover agreed and enlisted the help of Major General Douglas MacArthur, who basically burned down the entire shantytown where the Bonus Army was living in. Two children and their mother were killed.
BEFORE:
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AFTER:
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This all conveniently happens during Hoover’s reelection campaign. On hearing this, Franklin D. Roosevelt, the Democratic Party’s candidate, said to a friend, “Well, this elects me.” Hoover, in response to these negative feelings, said in a speech made during his campaign trail, “We are opposed by six million unemployed, 10,000 bonus marchers, and 10 cent corn." The trail doesn’t get any better for him. Everywhere, he could detect bitter feelings. He was jeered outside a Detroit arena and hooted at in Oakland. After tomatoes were thrown at his train in Kansas, he reportedly said dejectedly, "I can't go on with it anymore." Roosevelt won in a landslide victory, the biggest one at the time. (see map below) Everyone was happy. What Roosevelt proposed: economic stability was a relief and an enticing offer for all.
“Happy Days”
Campaign song for FDR
Happy days are here again,
The skies above are clear again
Let us sing a song of cheer again --
Happy days are here again
All together, shout it now --
There's no one who can doubt it now
So let's tell the world about it now
Happy days are here again
Your cares and troubles are gone --
There'll be no more from now on!
Happy days are here again,
The skies above are clear again
Let us sing a song of cheer again --
Happy days are here again
So how does the Great Depression in the United States lead to the rise of the totalitarian states?
Economist Charles Kindleberger wrote in his book The World in Depression 1929-1939 that by America having a depression, the whole world is affected. The depressions started around October of 1929 (same time America’s began) and continued throughout most of the 30s. The revenue for farming and rural areas fell 40-60%. Kindleberger believed that the reason for this is because there was no strong leadership in the different countries affected. According to Kindleberger, Great Britain showed leadership in world economics before World War I. It fostered global trade by keeping its markets open, promoted expansion by making overseas investments, and prevented financial crises with emergency loans. After World War II, the United States showed that same kind of leadership. Between the wars, no country stepped up to the task. Some even hindered this positive action. With the Smoot-Harley Tariff Act in 1930, Hoover raised tariffs on dutiable items by 52%, putting brakes on world trade when it should have been promoted. World trade shriveled: between 1929 and 1933 it shrank 65 percent in dollar value and 25 percent in unit volume. Most nations suffered. In 1932 Britain's unemployment was 17.6 percent. Democracy was weakened, and helped cause the rise of dictators Mussolini in Italy and Stalin in Russia. Germany's depression also hastened the rise of Hitler. The Japanese economy shrank by 8% between 1929 and1931. Some even argue that if the United States had tried to involve itself further in world affairs, instead of refusing to do many things like join the League of Nations and practicing isolationism, maybe depression could be avoided. The division between the isolationists and the interventionists (those who wanted a role in world affairs) also became a major problem in the 30s.
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May 15, 1941