The Great Depression in two minutes
- The 1920s boom rested on consumer credit, stock speculation and buying on margin, while farm prices stayed low and wages lagged behind production, which left the economy fragile.
- The market crashed on Black Thursday, October 24, and Black Tuesday, October 29, 1929; by mid-November the Dow had lost almost half its value, though most Americans owned no stock.
- Falling demand brought layoffs, and about 9,000 banks failed from 1930 to 1933 with no deposit insurance, while the Federal Reserve let the money supply shrink by about a third.
- The Hawley–Smoot Tariff (1930) raised duties, other nations retaliated and world trade shrank; unemployment rose from about 3 percent in 1929 to about 25 percent in 1933.
- Hoover trusted voluntary cooperation and local relief, though his Farm Board (1929) bought surplus crops and the Reconstruction Finance Corporation (1932) lent to banks and railroads; critics called this too little.
- In July 1932 troops under General Douglas MacArthur drove the Bonus Army of veterans out of Washington; that November Franklin Roosevelt, promising a new deal, won 42 of 48 states.
- On the exam: Topic 7.9 asks for causes and effects of the Depression, separating the crash as a trigger from underlying causes; connect it to 1920s credit and the New Deal.
Topic 7.9 key terms
- Bonus Army
About 20,000 jobless First World War veterans, many with their families, who camped in Washington in the summer of 1932 to demand early payment of their bonus. They called themselves the Bonus Expeditionary Force. Army troops drove them out on July 28.
- The bonus (1924)
In 1924 Congress voted First World War veterans a bonus, paid as certificates worth about $1,000 on average that could not be cashed until 1945. By 1932, with jobs gone, veterans wanted the money right away.
- Great Depression
The worst economic collapse in U.S. history, lasting through the 1930s. Between 1929 and 1933, unemployment rose from about 3 percent to about 25 percent, and from 1930 to 1933 about 9,000 banks failed.
- Installment buying
Buying something now and paying for it over months: a small down payment, then fixed monthly installments. In the 1920s it let families own cars, radios and appliances they couldn't pay for up front. It also meant the boom ran partly on borrowed money. AP calls this the excessive use of credit.
- Rugged individualism
Hoover's phrase for the idea that Americans do best by their own effort and private enterprise. He argued that government should help business organize itself, then stay out of the way. In 1928 he used it against government running industry.
- Dow Jones Industrial Average
An index that tracks the stock prices of 30 large American companies, used as a quick measure of how the market is doing. It stood above 381 in September 1929, more than four times its mid-1924 level.
- Buying on margin
Buying stock with borrowed money. You put down part of the price and your broker lends you the rest, holding the shares as security. Rising prices made you rich fast. Falling prices left you owing the loan. In the early 1920s a down payment could be as low as 10 percent.
- Black Thursday
October 24, 1929: the day the panic selling began. A record 12.9 million shares changed hands.
- Margin call
A broker’s demand for more cash when the shares behind your loan fall in price. Pay up, or the broker sells them.
- Black Tuesday
October 29, 1929: the worst day of the crash. The Dow fell almost 12 percent, and 16,410,030 shares traded.
- Lay an egg
Show-business slang for flopping on stage.
- Trigger vs. underlying causes
The trigger is the event that sets a crisis off, like the 1929 crash. Underlying causes are the long-running conditions that made the crisis possible.
- Excessive use of credit
Buying cars, appliances and stocks with borrowed money. It made the boom look richer than it was and left families and banks owing more than they could repay.
- Uneven distribution of income
Profits and top incomes grew much faster than wages. Most families could not keep buying what the factories made.
- Overproduction and underconsumption
Factories and farms made more than customers could afford to buy. Unsold goods meant layoffs, and laid-off workers bought even less, so the slump fed itself.
- Bank run
Many depositors demanding their money at once. A bank keeps only part of its deposits as cash, so a rush can sink even a sound bank. With no federal deposit insurance, fear alone could cause bank failures.
- Federal Reserve
The central bank, created in 1913 to steady the banking system. It controls the money supply. Between 1929 and 1933 the supply fell by about a third, and many economists blame that for making the Depression so deep.
- Hawley–Smoot Tariff (1930)
A 1930 law that raised U.S. tariffs on thousands of imports to one of the highest levels in the country's history. Other countries answered with their own tariffs, and world trade shrank.
- Hooverville
A shantytown of scrap-wood and tin shacks where families lived after losing their homes or jobs. The name blamed President Hoover; Democratic publicity chief Charles Michelson probably coined it. Newspapers used as blankets were called “Hoover blankets,” and empty pockets turned out were “Hoover flags.”
- Voluntarism
Hoover's belief that businesses, charities and local governments should fight the Depression by choice rather than by federal order. He asked employers to hold wages and keep workers on, and he asked private groups to give relief.
- Farm Board
A federal agency created by the Agricultural Marketing Act of 1929. It lent money to farm co-operatives and bought surplus crops to prop up prices. Farmers kept growing more than the market could absorb, prices kept falling, and its funds ran out.
- Debt moratorium (1931)
In June 1931 Hoover proposed a one-year pause on payments of war debts and reparations between governments. He hoped it would ease Europe's banking crisis and protect American exports. It calmed markets briefly, but banks in Europe kept failing.
- Self-reliance
Hoover's principle that Americans, their families and their communities should take care of themselves and each other, with Washington as a last resort. He feared a direct federal dole would weaken people's independence and give the government too much power.
- Reconstruction Finance Corporation (RFC)
A federal agency created in January 1932 to lend money to banks, railroads, insurance companies and other large businesses. The idea was to steady the credit system so that jobs would follow. Critics said it helped those at the top and left those at the bottom to charity.
- Bonus Army (Bonus Expeditionary Force)
Jobless First World War veterans and their families who marched on Washington in 1932 to demand early payment of their service bonus. Army troops drove them out on July 28, and newsreel images of the eviction badly damaged Hoover's reputation.
- A new deal
Roosevelt's 1932 pledge to use federal action against the Depression. It became the name for his programs of relief, recovery and reform in the 1930s.
- Election of 1932
A landslide for Franklin Roosevelt over President Hoover. Voters blamed the party in power for the Depression, and Democrats also won both houses of Congress, so Roosevelt took office with a mandate to try something new.
- Pecora Investigation
A Senate inquiry, led by chief counsel Ferdinand Pecora, into how banks and brokers had behaved before the crash. Its headlines fed public demands for stronger federal regulation of banking and the stock market.
- Bank holiday
A legal closing of the banks, ordered to stop depositors from draining them. Michigan's governor closed every bank in the state on February 14, 1933, and other states followed. Roosevelt would order a national one two days after taking office.
Transcript
Quotes are from the historical record and name their source. Lines marked Dramatized are reconstructions.
Anacostia
July 28, 1932
Key terms: Bonus Army, The bonus (1924), Great Depression
Washington, D.C. July 28, 1932 · night
The men who built this camp were veterans of the First World War. They had come to collect a bonus Congress had promised them. It wasn't due until 1945.
Tonight their own army drove them out, and the camp burned within sight of the Capitol.
Herbert Hoover
We in America today are nearer to the final triumph over poverty than ever before in the history of any land.
He said it to seventy thousand people in a football stadium. He meant it. Most Americans believed him.
Four years apart. How does the richest economy on Earth fall this far, this fast?
Everybody Ought to Be Rich
1928–1929
Key terms: Installment buying, Rugged individualism, Dow Jones Industrial Average, Buying on margin
Big companies had filled American homes with cars, radios and refrigerators. Families bought on installment: a little down, the rest in monthly payments.
Republican businessmen ran an ad: a chicken in every pot, and a car in every backyard. Hoover never said it. The ad did.
Herbert Hoover
We were challenged with a peace-time choice between the American system of rugged individualism and a European philosophy of diametrically opposed doctrines.
Meanwhile, the stock market more than quadrupled in five years. The Dow closed at 381 on September 3, 1929.
John Raskob of General Motors said everybody ought to be rich. Put fifteen dollars a month in stocks. In twenty years, eighty thousand.
Twenty years is a long wait. Buy on margin instead. Put down as little as a dime. Your broker lent you the rest.
Brokerage offices filled up. Customers sat in rows and watched the prices climb. Some offices even had a separate room for women.
On March 4, 1929, Herbert Hoover took the oath in the rain. The radio carried his speech.
Herbert Hoover
I have no fears for the future of our country. It is bright with hope.
By September, the people who borrowed most looked like geniuses.
Wall St. Lays an Egg
October 1929
Key terms: Black Thursday, Margin call, Black Tuesday, Lay an egg
Irving Fisher
Stock prices have reached what looks like a permanently high plateau.
Irving Fisher of Yale was one of the best-known economists in America.
Nine days later, on Thursday, October 24, everyone tried to sell at once. The board boys couldn’t keep up. In the corner of your screen, your Radio stake was falling.
At 1:30, Richard Whitney bid 205 a share for U.S. Steel, well above the market. The big banks had sent him. Prices steadied. In 1938, he went to Sing Sing for embezzlement.
At seven, the ticker was still printing, four hours behind. Brokers began wiring everyone who had bought on margin. Over the weekend, thousands of calls like this one went out. On Monday and Tuesday, the forced sales hit all at once. That’s how borrowed money turned a fall into a crash.
On Tuesday, October 29, more than sixteen million shares changed hands. That record stood for decades.
By mid-November, the Dow had lost almost half its value.
Show business took it personally. Variety’s front page said: “Wall St. Lays an Egg.”
Brokers had borrowed the money they lent: about eight and a half billion dollars, from banks and corporations.
Legend says ruined bankers leaped from windows that fall. The records show no such wave. The real damage came slower.
Most Americans owned no stock at all. To see how the crash reached them, go somewhere that never saw a ticker.
Middletown
October 30, 1929 → late 1932
Key terms: Trigger vs. underlying causes, Excessive use of credit, Uneven distribution of income
In 1929, two sociologists, Robert and Helen Lynd, published a study of one small American city. They called it Middletown, because it seemed so typical. It was Muncie, Indiana.
A lifelong resident had a shorter version.
A lifelong Midwesterner
I can tell you what's happening in just four letters: a-u-t-o!
A Muncie newsboyDramatized
Extra! Stocks crash in New York!
The morning after Black Tuesday, Muncie went to work. The crash was a headline from New York.
But the cracks were already here. Three years later, every crack had split open.
By late 1932, General Motors had stripped its Muncie plant and left town. One family in four was on relief.
Historians call the crash a trigger. The cracks were the causes underneath.
A boom built on debt, and on paychecks that couldn't keep up.
Cents on the Dollar
1930–1932
Key terms: Overproduction and underconsumption, Bank run, Federal Reserve, Hawley–Smoot Tariff (1930), Hooverville
Herbert Hoover
I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover.
He was wrong, and so were most experts.
A slump feeds itself. Laid-off workers stop buying, so stores order less, so factories lay off more.
Then the banks. In December 1930, the Bank of United States closed on more than 400,000 depositors. It wasn't the government's bank. It just sounded like one.
From 1930 to 1933, about nine thousand banks failed. No federal insurance covered the savings inside.
The Federal Reserve existed to stop bank panics. It let the money supply shrink by about a third.
In 2002, Fed governor Ben Bernanke said it out loud.
You're right, we did it. We're very sorry.
In 1930, Congress raised tariffs on imports. More than a thousand economists urged Hoover to veto the bill. He signed it.
Other countries answered with tariffs of their own. World trade shrank by about two-thirds. Economists still argue about how much each cause mattered.
In July 1932, the market hit bottom: about eleven cents on the 1929 dollar.
In 1929, about one worker in thirty had no job. By 1933, one in four.
Families who lost their homes built shacks from scrap. People called them Hoovervilles.
In 1932, an Oklahoma editor told a House subcommittee he had seen apples rotting in Oregon orchards.
Oscar Ameringer
The farmers are being pauperized by the poverty of industrial populations and the industrial populations are being pauperized by the poverty of the farmers.
In 1932, some farmers burned corn for heat.
Los Angeles County paid for trains to send Mexican families to Mexico. Officials called it “repatriation.” Many of the children were U.S. citizens.
Black workers were often the last hired and the first fired.
The Great Engineer
1929–1932
Key terms: Voluntarism, Farm Board, Debt moratorium (1931), Self-reliance, Reconstruction Finance Corporation (RFC), Bonus Army (Bonus Expeditionary Force)
Hoover was no do-nothing. In the First World War, he had fed millions in occupied Belgium. Now the shantytowns carried his name.
Weeks after the crash, he asked business leaders to hold wages steady. For a while, many did.
He sped up public works, bought surplus crops through his Farm Board, and paused Europe's war-debt payments.
He believed federal handouts would weaken people. Relief was for charities, towns and states.
Herbert Hoover
…if the time should ever come that the voluntary agencies of the country,
Herbert Hoover
together with the local and State governments, are unable to find resources with which to prevent hunger and suffering in my country,
Herbert Hoover
I will ask the aid of every resource of the Federal Government.
By 1932, many cities had run out of relief money.
In 1932 he created the Reconstruction Finance Corporation to lend to banks, railroads and insurance companies. Help at the top, he hoped, would trickle down.
That July, he agreed to lend the states $300 million for relief. A loan, and a late one.
Congress had promised Great War veterans a bonus, payable in 1945. In 1932, jobless veterans came to Washington to ask for it now.
By June, about twenty thousand veterans were camped around the city.
Families came too. In a segregated city, the camp was mostly integrated. Roy Wilkins wrote in The Crisis:
…there was one absentee: James Crow.
On June 17, the Senate voted the bonus down. Outside, the veterans sang “America” and walked back to camp.
On July 28, police tried to clear veterans out of buildings downtown. Police shot two of them.
William Hushka. Eric Carlson. Both were buried at Arlington.
The government said police had lost control. Hoover called out the Army. General Douglas MacArthur sent cavalry, tanks and tear gas. That night the soldiers crossed to the camp, and the shacks burned.
MacArthur told reporters the marchers had the spirit of revolution. Newsreels showed soldiers gassing veterans in the capital. Hoover took the blame.
Fear Itself
July 1932 – March 4, 1933
Key terms: A new deal, Election of 1932, Pecora Investigation, Bank holiday, Bank run
That summer, the Democrats picked New York's governor, Franklin Roosevelt.
Franklin D. Roosevelt
I pledge you, I pledge myself, to a new deal for the American people.
That fall's hit song was about a veteran who once built a railroad. Now he had to ask a stranger for a dime.
In November, Roosevelt won forty-two of the forty-eight states. Hoover carried six.
In February 1933, lawyer Ferdinand Pecora questioned banker Charles Mitchell. Mitchell paid no income tax for 1929. He'd sold bank stock to his wife at a loss, on paper.
Charles E. Mitchell
I sold this stock, frankly, for tax purposes.
Americans began demanding rules for banks and the stock market.
That month, the bank runs came back. Michigan shut every bank on February 14. By March 4, most states had closed or limited theirs.
Cracks under the boom. A crash on borrowed money. Failing banks, a shrinking money supply, walls around trade. And fear. If people think a bank will fail, they pull out their money, and it fails.
On Hoover's last night in office, his press secretary wrote down what he said.
Herbert Hoover
We are at the end of our string.
Franklin D. Roosevelt
So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself…
In a bank run, fear is the thing doing the damage. Roosevelt knew it.
Franklin D. Roosevelt
This Nation is asking for action, and action now.
What that action was, and how far it would go, is the next story.