The Great Depression

Ø      Causes of the Depression:

1.      Poverty in the midst of plenty: Not every one was getting rich in the roaring 20s. The top 5% of wealthy Americans earned one third of all personal income. This meant that only the wealthy could afford to buy goods manufactured in the factories. Once they had bought all the goods, then demand fell, so the factories had to make fewer of them. This would lead to a rise in unemployment.

2.      The problems of farmers: they produced more food than the population could eat, so they were left with a surplus. This causes food process to drop, which meant lower incomes for farmers and farm workers. Thousands of farmers tried to get out of their difficulties by borrowing money from banks. But since they could not repay their loans due to falling prices, many farmers lost their land when the banks foreclosed their mortgages.

3.      Trade problems: in 1923, the government had put tariffs or duties on goods coming into America. They did this to help American industries from any foreign competition. The disadvantage of this is that other countries did the same, so the Americans could not sell their surplus products abroad.

4.      Speculation on the Stock Market: people were buying stock on the margin. Too many people were buying shares with borrowed money. Speculation worked only when the shares were expected to rise in value. In 1928, fear of falling share prices began to arise, as company’s profits began to decline. Some rich investors began to sell their shares in high volumes. Suddenly in 1929, everybody was trying to sell his or her shares. Panic spread on the Wall Street Stock Exchange in New York, as share prices fell rapidly.

Black Thursday – Oct 24, 1929 – Rapid fall in share prices. The major banks met to discuss what to do and decided to buy large numbers or stock to restore confidence in the market. If the market crashed, the banks would not get back their loans. This stopped the problem for a short time.

The Final Crash – Black Tuesday Oct 29, 1929 – The banks now wanted their loans from the brokers, the brokers then asked for their loans from the shareholders, the only way to pay was to sell more stocks. Panic ensued as massive selling took place, and the bottom of the market fell out.

Post Market Crash

Ø      1929-1933 – breadlines, unemployment, homelessness, Hoovervilles, farm evictions, banks going bankrupt, protests were all happening across the country.

Ø      12 million people were unemployed

Ø      President Hoover believed that government help for the needy was too close to Socialism, and not American. As a result he did not provide much help, and kept talking about “rugged American individualism” or a “chicken in every pot”, and how times will get better.

Ø      But because of his inaction, Hoover lost the 1932 elections to Franklin D. Roosevelt, who promised a New Deal for the people of America.