Crisis of the Great Depression

herbert hoover …7

frances perkins …15

franklin d. roosevelt …23

Exciting, fascinating, entertaining, prosperous—all these terms describe the decade of the 1920s, commonly known as the Roaring Twenties. The U.S. population was entering a new era and enjoying a new lifestyle. U.S. soldiers had just helped the Allies win World War I (1914–18), which had been dubbed "the war to end all wars." Women had gained the right to vote. Henry Ford (1863–1947) made the amazing gasoline automobile affordable for many Americans. For the most part, Americans were employed and busy purchasing the array of new goods that flowed out of factories at an ever faster rate. City homes were being supplied with electricity, which enabled families to use laborsaving electric appliances such as washing machines and vacuum cleaners and to replace the ice box with an electric refrigerator. More and more Americans brought radios into their homes, and the silent moving pictures (movies) captivated audiences in extravagant movie houses. Stock speculation gripped the country. (Stock speculation is the practice of buying stocks, often using borrowed money, with the expectation that the stocks' value will rise and make vast profits for the investor. Stocks are shares in the ownership of a corporation.) Stock values had increased throughout the 1920s, going on a wild upward swing between 1926 and October 1929. Because of speculative buying, the price of a company's stock was often far above the real value of the company. For example, stock of Radio Corporation of America (RCA) sold for $94.50 a share in March 1928. By September 1929 it cost $505.00 to buy one share.

Causes of the Depression

The Great Depression began in October 1929 with the crash of the U.S. stock market, located on Wall Street in New York City. A common misconception is that the crash was the cause of the Great Depression. Actually, historians recognize a number of causes, and it is impossible to pinpoint which was the most important cause. The causes historians have identified include the following:

• The agricultural industry was overproducing farm products, and the surplus caused prices to drop. In addition, the European market did not need American farm goods as much as it had during World War I (1914–18).
• Manufacturing industries had produced more consumer goods than Americans could buy. By 1929 stores and warehouses bulged with goods, so manufacturers began cutting back production and laying off workers.
• Roughly 75 percent of Americans had no money to save after purchasing necessities. Most of America's wealth was in the hands of a very few. The very wealthy spent money on luxury items, but this spending could not counteract the increasing lack of spending on the part of the majority of people. Additionally, after the stock market crash in October 1929, the very wealthy, inorder to conserve their riches, quit investing in businesses and manufacturing industries.
• The U.S. banking system was weakening as thousands of small, rural, undiversified banks failed when farmers could not repay loans. The Federal Reserve (America's central bank) took little action.
• Holding companies had become a common part of U.S. business. These companies produced no real product, instead only managing other businesses. Americans who invested in holding companies were at risk, because such companies could collapse more easily in this "house of cards" structure.
• Investors were buying stocks with loaned money and assuming the stocks' value would continue to go higher and higher. For example, if an investor wanted to buy a $100 stock certificate, he could buy it with $10 of his own money and $90 borrowed from a stockbroker. If the stocks price increased to $120, the investor could sell, pay back the broker $90, and have $30 to reinvest. However, if the stock's value dropped to $80, the investor would have to come up with $10 of his own money just to pay back the broker. Of course, in reality, investors deal in hundreds, even thousands, of stock certificates, greatly multiplying the problem.

Despite the apparent economic boom, all was not well with the U.S. economy in the 1920s. Although largely ignored by the general public and politicians alike, ominous storm clouds were on the horizon. American farmers had been beset with economic troubles since the end of World War I, when demand for farm products declined as the European nations were again able to produce food for themselves. The farming families represented one-third of the U.S. population. Acutely affected by the farmers' lack of income, thousands of small rural banks had been forced to close. These rural bank closures were symptomatic of an overall weakening in the U.S. banking system. Manufacturing industries had overproduced consumer goods by 1929. Stores and warehouses bulged with more goods than Americans could buy, and factories had begun cutting back production and laying off workers. Even though many Americans still believed they could "get rich quick," in reality only a tiny percentage of Americans were truly wealthy. The top 0.1 percent of American families had a total income equal to the total income of the bottom 42 percent of the population. Nearly 78 percent of American families had almost nothing left over to put in savings after buying necessities.

All of these factors came together in October 1929 to create an uncontrollable slide of the U.S. stock market. The slide signaled the beginning of the Great Depression, the severest economic crisis in the history of the United States. Although the Depression lingered until the early 1940s, when the United States began preparing for World War II (1939–45), the worst years were from 1929 to 1933. Investors lost fortunes in the Wall Street crash. (The U.S. stock market was located on Wall Street in New York City.) The very wealthy acquired most of their money through decades of involvement in the banking industry and ownership of manufacturing companies, not in the stock market run-up of the 1920s. Although they did not lose all of their investments with the stock market crash as new investors had, they did guard their assets and quit investing in businesses and factories. Those businesses and factories, already suffering from an overstock of goods, began massive layoffs, leaving many families with no cash to buy necessities. Unemployment rose rapidly between 1929 and 1933. Less cash in peoples' hands led to less demand for goods that led to more layoffs. It was a vicious downward spiral. Those who managed to keep their jobs saw their salaries decrease—on average about 40 percent. Many Americans could no longer keep up with payments on bank loans they had accumulated in the good times of the 1920s. As a result, bank after bank collapsed. Depositors made "runs" on banks, demanding all their money at once, which caused even more banks to fail. With no jobs and little cash available, people became desperately hungry. They stood in city breadlines that snaked for blocks for a meal of bread, soup, and coffee.

Herbert Hoover (1874–1964) was inaugurated as president of the United States in March 1929, only a half year before the crash. Hoover (served 1929–33) held tightly to his belief that Americans should be self-reliant and not depend on government to solve their economic difficulties. Hoover viewed the Depression as a downturn in a regular business cycle of ups and downs. He called meetings of business and industry leaders, urging them to voluntarily cooperate to solve the economic woes. He urged people to be more optimistic and to be confident in the U.S. economy. Hoover repeatedly told them that the economy would turn upward within days or at worst a few months. He asked Americans to donate generously to private charities as people had historically done when the United States went through difficult times. In a news conference on February 3, 1931, the first excerpt of the chapter, later published as "Public vs. Private Financing of Relief Efforts" in Public Papers of the Presidents of the United States: Herbert Hoover, 1931, Hoover reaffirmed his belief that relief for the needy should be handled by each local community and funded by individual donations to private charities. Hoover did break new ground in government assistance by establishing a federal loan program for farmers and federally funded construction programs designed to relieve unemployment.

By 1932 and early 1933 the whole economy, including business, manufacturing, banking, and agriculture, continued to slide. Approximately one-quarter of the U.S. work-force was unemployed. The second excerpt in this chapter is from the famous "Roots of Social Security" speech given in 1962 by Frances Perkins (1880–1965), who had served as the secretary of labor throughout President Franklin D. Roosevelt's administration (1933–45). In the early part of the speech Perkins vividly recalled what had happened to Americans in the early 1930s.

Hoover's reliance on voluntary cooperation and his federal support programs failed to improve the economy. Desperate for new leadership, Americans elected Democrat Franklin D. Roosevelt (1882–1945) to the presidency by a landslide in November 1932. By the time he took office in March 1933, the public was exhausted. Many had lost homes and farms and had used up their lifetime savings. On the morning of Roosevelt's inauguration, the U.S. banking system was paralyzed. Thousands of bank failures across the United States had occurred over the past few years. By March 2, 1933, twenty-one states had declared "bank holidays," or suspension of bank operations. In the early hours of inauguration day the governors of two of America's most populous states, Illinois and New York, also declared statewide bank holidays.

On the campaign trail in July 1932, Roosevelt had pledged to Americans a "new deal." The third excerpt, Roosevelt's "Inaugural Address," delivered in his reassuring manner on the gray morning of March 4, 1933, gave Americans their first glimmer of hope in three years. The speech was later published in 1938 in The Public Papers and Addresses of Franklin D. Roosevelt: Volume Two, 1933. In the speech, Roosevelt proposed immediate government assistance to bring relief and recovery to the country. The government programs he instituted to accomplish this task became known as the New Deal.