Causes of The Great Depression

By

anon

HIS 112-003

2

Imagine witnessing the faces of pitiful starving young children, frantic men and

women lining up in front of closed banks that held their life savings, and/or the homeless

living in cardboard shantytowns. Unfortunately, these were just a fraction of some of the

horrific sights of everyday life during the Great Depression. For most people, it was a

very harsh time that was filled with despair, starvation, suicide, and suffering. 1 A boy

living in this era describes it well, “For a whole week one time we didn‟t have anything

to eat but potatoes. Another time my brother went around to grocery stores and got them

to give meat for his dog-only he didn‟t have a dog. We ate that dog meat with the

potatoes. I went to school hungry and came home to a house where there wasn‟t any

fire.” 2 This was a common scenario that was played out in many homes across the nation.

For the United States, it was one of the worst economic collapses of its time. 3 It began

soon after the stock market crash of October 1929, which sent Wall Street into a panic

and wiped out millions of investors. 4 Many people were out of work and poverty became

the norm after a decade of prosperity and good times. There were many contributing

causes to this catastrophe, which included the stock market crash, reduction in purchasing

after years of mass consumption, bank failures, the economic policy of the United States

with the rest of the world, and the severe drought. Even though Franklin Roosevelt

initiated many new programs in his New Deal such as the Civilian Conservation Corps

and Works Progress Administration, these only served to alleviate some of the problems

but not end the depression.

1 Ronald Reis, The Great Depression and The New Deal (New York: Chelsea House, 2011), 7.

2 Quoted in Studs Terkel, Hard Times: An Oral History of the Great Depression. (New York: Pantheon,

1970), 20. 3 . Habib, The Great Depression and The New Deal, 1.

4 . “The Great Depression” History.com http://www.history.com/topics/print/great-depression (Accessed

29 March 2012).

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There is always that incident that seems to define a pivotal point in history. For

the Great Depression, it was the stock market crash on Black Tuesday, October 29, 1929.

Prior to this time, the stock market had been booming. Many investors and brokers were

so confident of making huge sums of money that they had been buying stocks on margin,

a practice of buying stocks on credit. Then when money was made, the stock would be

paid in full and the rest would be profit. People viewed it as an easy way to get rich. This

increased the demand for stocks, which in turn, inflated the prices of stock unrealistically.

Unfortunately, this practice destabilized the stock market system of the 1920s and all

kinds of people from doctors to shoeshine boys lost everything in this speculation frenzy

as banks called in their loans. 5 Huge amounts of money were lost in a single day. The

New York Times reported, “…it was estimated that 880 issues on the New York Stock

Exchange, lost between $8,000,000,000 and $9,000,000,000 yesterday.” 6 This crash

shook the financial market of the United States and served to be a catalyst for the

economic calamity that followed. 7 It was one of the many contributing factors that played

a role in causing the Great Depression.

Just as stocks were purchased on credit before the crash, so were many other

consumer products. A whole attitude change occurred about purchasing goods in the

1920s where people went from paying in full and buying only what they could afford to

purchasing luxury goods on payment plans. A mass production of consumer goods was

occurring in the years prior to the crash and this meant that there had to be mass

consumption to maintain the economy. Advertisers had to combat the traditional views of

5 Dennis Nishi, Life During the Great Depression (San Diego: Lucent Books, 1998), 11.

6 “Stocks Collapse in 16,410,030-Share Day, But Rally At Close Cheers Brokers.” The New York Times.

30 October 1929, http://partners.nytimes.com/library/financial/103029crash-lede.html (Accessed 4 April

2012). 7 Habib, The Great Depression and The New Deal, 19

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saving and avoiding debt and so the merits of credit resonated throughout the media. 8

Nearly 15 percent of all retail sales in the United State were made on the basis of

installment purchases in the 1920s. 9 “By the end of the decade, credit was used to procure

up to 90 percent of all major durable goods.” 10

Prior to the installment plan, it would

take a typical American family five years to save enough money to pay cash for an

automobile. 11

This new way of buying worked for a time but there were not enough

people that could support the purchase of all the goods coming off the assembly lines

even with credit. “Yet with worker‟s wages in no way keeping up with increased

productivity, the question surfaced: Would the middle class be able to keep paying on the

installment plan as the bills kept arriving every month?” 12

The answer was no and mass

consumer consumption came to a screeching halt. Eventually, there were stockpiles of

unsold goods in factories and warehouses. 13

As the goods accumulated, production had to

decrease, and workers were laid off from their jobs. Unemployed workers meant that

there was less purchasing power and so this created a vicious cycle that sucked the entire

economy into a deepening whirlpool. 14

“Almost twelve million Americans were

unemployed in 1932, which amounted to one quarter of the population of the United

States. Most of them had been out of work for so long that their savings had run out.” 15

If

people still had a job, many were only working part-time so there was much less income.

This just further compounded the problem of the stock market crash and played a role in

further deepening the depression.

8 Robert Mc Elvaine, The Depression and New Deal (New York: Oxford University Press, 2000), 17.

9 Ibid.

10 Habib, The Great Depression and The New Deal, 13

11 Ibid.

12 Ibid. 14

13 Habib. The Depression and New Deal, 17

14 Ibid.

15 Jacqueline Farrell, The Great Depression (San Diego: Lucent Books, 1996), 13.

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Since people were unable to pay their bills due to unemployment and/or the stock

market crash, the banks that made the loans to these people began to feel the crunch and

were closing their doors. The trouble for the banks began before the stock market

crashed. During World War I, the farmers were having a boon as the need for wheat

increased to meet the demands for home and war-torn Europe. 16

Many farmers, in an

effort to increase production, had bought more farmland with money loaned from the

banks. Then when the war came to a close, the prices of farm crops decreased. In an

effort to make more money the farmers began buying even more land to increase

production but this only drove prices lower as crops began to stockpile. 17

As suburbia

grew, farmland began to be taxed at a higher rate because of the increased valuation of

the land. 18

Farmers were not able to make payment to the banks on their loans and

mortgages. Conditions worsened in the cities with more and more people out of work.

They could no longer pay their loans on homes and goods and this placed a further strain

on the banks. These issues combined with banks making some poor investments caused

many of them to fail and close their doors. There was no insurance for deposits so when

the banks closed many people lost their savings once the money ran out. The people were

quickly losing confidence in the whole banking system and began rushing to take their

money out. People began to hoard their money in mattresses, walls of their houses, and

tin cans buried in their yards, which in turn took it out of circulation. 19

“These „runs‟ as

they were called, drained what money a bank had left. 20

It forced the banks to liquidate

their assets for a fraction of what they were worth. “In 1929, there were 25,568 banks in

16

Habib, The Great Depression and The New Deal, 12. 17

Ibid. 18

Ibid. 19

Habib, The Great Depression, 21. 20

Habib, The Great Depression and The New Deal, 36.

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the United States; by 1933, there were only 14,771. 21

All of these closures meant less

money being fed into the economy, higher unemployment, and personal financial losses.

Bank failures gave more fuel to the fire in causing the Great Depression.

Not only did the economic policies at home cause the Great Depression, the

economic policy of the United States with the rest of the world was a major cause of this

event. “By the middle of 1932, American industry was operating at half its maximum

1929 volume.” 22

President Hoover, in an effort to fix this problem, took action by first

signing the Smoot-Hawley Tariff Act into law, which raised tariffs from 38 to 49

percent. 23

Over one thousand economists recognized that this act would be a disaster.

They knew it would cause increased prices at home and discourage trade with foreign

countries. As reported in the New York Times, “Our export trade, in general, would

suffer. Countries cannot permanently buy from us unless they are permitted to sell to us,

and the more we restrict the importation of goods from them by means of ever higher

tariffs, the more we reduce the possibility of our exporting to them.” 24

These economists

were correct in their predictions but President Hoover did not follow their advice. Foreign

counties retaliated and raised tariffs on American exports.” 25

Now the overstock of goods

and crops were not being sold at home or in foreign countries. This tariff shut the United

States sellers off from the world at a time when they needed customers.” 26

Fewer

customers from abroad meant more stockpiles in factories and warehouses at home and

21

Kathy Gill, “What Caused The Great Depression?” About.com US Politics,

http://uspolitics.abour.com/od/economy/tp/what_caused_great_depression.htm?p=1 (Accessed 29 March

2012). 22

Habib, The Great Depression and The New Deal, 26. 23

Ibid. 24

“1028 Economist Ask Hoover To Veto Pending Tariff Bill,” New York Times, 5 May 1930,

http://www.clubforgrowth.org/assets/files/smooth%20hawley%20ny%20times%2005%2005%2030.pdf

(Accessed April 5, 2012). 25

Habib, The Great Depression and The New Deal, 26. 26

Ibid., 27.

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farmers could not even afford to harvest their crops. Unemployment increased even more

as more and more businesses had to close their doors. This economic policy with foreign

countries was one more reason for the deepening depression.

It was bad enough that the economy was in such a dire state, but even Mother

Nature did not cooperate with the people, especially farmers, during the Great

Depression. A severe drought occurred during the 1930s in the Great Plains, which also

had a role in causing this disaster. “It was the beginning of what would be called the

„Dirty Thirties,” a seven-year period when the nation‟s Great Plains would experience the

worst drought in its history.” 27

Due to the lack of rain, farmers here could not produce

their usual crops of wheat and cotton. Without crops, they could not pay their loans

and/or mortgages. This drought was bad enough but unfortunately it was accompanied by

strong winds that would sweep over the dry plains and gather up the soil and bury the

area in a blizzard of dust. 28

This dust, coined the Dust Bowl, was so strong it would bury

the crops, suffocate the cattle and hogs, and carry yellow, hazy smog all the way to the

Atlantic seaboard. 29

Many Midwest farmers had no choice but to leave their farms

because they could no longer make a go it due to their seeds being ripped from the

ground and their belongings being blown down the street. 30

Many moved westward in

hopes of finding work but this just placed a further strain on the economy thus playing a

role in the depression that refused to end.

In an effort to bring the Great Depression to a close and relieve much of the

suffering, Franklin D. Roosevelt came up with several plans that combined were named

27

Ibid., 70. 28

Habib, The Great Depression, 50. 29

Ibid. 30

Habib, The Great Depression and The New Deal. 70.

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the New Deal. One of the more successful programs of the New Deal was the Civilian

Conservation Corps (CCC). It was designed to help the unemployed and at the same time

preserve the natural resources of the United States. 31

It put to work unemployed single

men between the ages of 18 to 25 to plant trees, construct reservoirs, build dams and

refurbish forests, parks, and beaches while paying each enrollee $30 a month of which

$25 would have to be sent home to their families. 32

It also provided each young man in

the program with food, clothing, and shelter. 33

During its nine years of operation, this

program put 3 million young men to work. 34

It has a long list of accomplishments that it

can brag about that includes “38,087 vehicular bridges, 26,368,296 rods of fencing,

83,548 miles of telephone lines, 23,725 water sources, 122,169 miles of truck trails and

minor roads, 2,246,1000,600 trees planted” 35

and provided many other positive

contributions to this country that people are still benefiting from today. As great as it was

to put young men back to work and improve the landscape and structure of the United

States, it also built character in the men that joined. As a mother of eleven children

explained:

When he went he had the idea that everybody wuz pickin‟ on him an‟ I

was scared he‟d get in with wrong crowd. He‟d wanta go to a show an‟ I wun‟t

have the money fur him or ta buy him a pack a cigarettes an‟ ya know how it is.

Now he‟s home an‟ how he changed. Don‟t go round lookin‟ fur a crowd to rob

31

Habib, Life During the Great Depression, 19. 32

Habib, The Great Depression and The New Deal, 57. 33

Habib, The Great Depression, 44. 34

Ibid 35

Habib, The Great Depression and The New Deal, 62.

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somebody‟s pear tree or something. And I cun‟t go round followin‟ after „leven.

So I wuz glad fur the CCC. 36

Even though the CCC did not end the depression, it was able to reduce the staggering

unemployment numbers, did major work to conserve the environment, and gave young

men a positive direction in their lives.

Another program of the New Deal that was designed to get people back working,

which was one of Roosevelt‟s main concerns, was the Works Progress Administration

(WPA). “Over the life of the program, the WPA gave jobs instead of handouts to 8.5

million people to build roads, bridges, and parks.” 37

This program also provided jobs for

unemployed artists, actors, and writers by hiring them to do sculpture, paintings and

statues for exhibit. 38

Lasting over an eight-year period, this dispensed nearly $11 billion

of government money. 39

Even though it put money in men and women‟s pockets, the

program drew criticism because some felt the projects the people worked on were

considered useless. 40

Yet much good did come out of these New Deal programs and they

helped many when they were at their lowest. Unfortunately these make-work programs

did not end the depression because they were not real jobs in productive and prosperous

industries. 41

Even though some were back at work, the economy had not been stimulated

enough to get business, factories, and warehouses booming again and so the depression

dragged on.

36

Habib, Life During the Great Depression, 20. 37

Ibid., 22. 38

Habib, The Great Depression, 58-59. 39

Habib, The Great Depression and The New Deal, 63. 40

Ibid., 63. 41

Habib, The Great Depression, 59.

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The Great Depression was a catastrophic event that shaped the 20 th

century. It did

not discriminate as it brought joblessness, hunger, despair, and suffering to all people, all

ages, all races, all gender, all economic backgrounds, all towns/cities whether rural or

urban. The depression was not caused by a single circumstance but rather a multitude of

circumstances that fed on each other much like a fire that is continuously fed wood.

These conditions included the stock market crash, reduction in purchasing after years of

mass consumption, bank failures, the economic policy of the United States with the rest

of the world, and the severe drought. Franklin Delano Roosevelt succeeded to decrease

the unemployment rate with his New Deal Programs of Civilian Conservation Corps and

Works Progress Administration. Yet these government made jobs did not end the

depression even with all the billions that were spent. They did minimal to stimulate the

economy enough to cause the growth of private businesses and to get the people back to

work in these types of jobs. It took another war to accomplish that feat.

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Bibliography

Farrell, Jacqueline. The Great Depression. San Diego: Lucent Books, 1996. This book

gave a good description of what life was like during this time using both primary

and secondary sources.

Gill, Kathy. “What Caused The Great Depression?” About.com US Politics,

http://uspolitics.abour.com/od/economy/tp/what_caused_great_depression.htm?p=1

(Accessed 29 March 2012). This Internet article gave a brief summary of the Great

Depression, its causes and effects.

McElvaine, Robert. The Depression and New Deal. New York: Oxford University Press,

2000. This book contained a collection of primary documents that told the history

of the Great Depression and the effectiveness of the New Deal.

Nishi, Dennis. Life During the Great Depression. San Diego: Lucent Books, 1998. This

author describes life for people living in the cities and rural area during the

depression using primary sources that included speeches, songs, interviews, and

pictures.

. “1028 Economists Ask Hoover To Veto Pending Tariff Bill,” New York Times, 5 May

1930,

http://www.clubforgrowth.org/assets/files/smooth%20hawley%20ny%20times%20

05%2005%2030.pdf (Accessed 5 April 2012). This primary source is the front page

newspaper article where leading economists of the depression era try to convince

Hoover to veto the Hawley-Smoot Tariff Act.

12

Reis, Ronald. The Great Depression and The New Deal. New York: Chelsea House,

2011. This author showed the many hardships of life during the Great Depression

by the use of primary sources of pictures, speeches and songs during this time.

“Stocks Collapse in 16,410,030-Share Day, But Rally At Close Cheers Brokers.” The

New York Times. 30 October 1929,

http://partners.nytimes.com/library/financial/103029crash-lede.html (Accessed 4

April 2012). This was a front-page article the day after Black Tuesday and gives an

account to just how many stocks were traded.

Studs, Terkel. Hard Times: An Oral History of the Great Depression. New York:

Pantheon, 1970. The book uses a collection of interviews with survivors of the

Great Depression to gain an insightful look at what life was like.

“The Great Depression.” History.Channel website,

http://www.higtory.com/topics/print/great-depression (Accessed 29 March 2012).

This article gives a short description of the Great Depression, its causes, and some

of Roosevelt‟s programs to end the many hardships of this era.