The 1920’s was a period of general prosperity for many Americans but the decade ended with the most serious depression in United States history.
When Herbert Hoover (31st president) took oath into office in March 1929, trade was booming, industry was flourishing. Unemployment was low, wages were up, prices were steady and corporations were making big profits and paying fat dividends.
Before the end of Hoover’s first year in office, the stock market had collapsed. The nation was beginning to slide into the worst depression in history. By the time Hoover left office in 1933, many citizens had lost faith in their business leaders. Some had begun to question the American economic system and even democracy itself.
The Roaring Twenties was an era dominated by Republican presidents: Warren Harding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover (1929-1933). Under their conservative economic philosophy of laissez-faire (“leave it alone”), markets were allowed to operate without government interference. Taxes and regulation were slashed dramatically, monopolies were allowed to form, and inequality of wealth and income reached record levels. The country was on the conservative’s preferred gold standard, and the Federal Reserve was not allowed to significantly change the money supply.
During October, 1929, the stock market had some bad days. Then, suddenly, on October 24 otherwise known as “Black Thursday”, prices began to fall, and buyers on margin had to sell their stocks. The rush to sell made prices fall even faster.
In the 1920’s, after World War I, danger signals were apparent that a great Depression was coming. A major cause of the Depression was that the pay of workers did not increase at all. Because of this, they couldn’t afford manufactured goods. While the factories were still manufacturing goods, Americans weren’t able to afford them and the factories made no money.
There were serious weaknesses in the economy that had hardly been noticed up to then. As we have seen, while the output of American workers in creased steadily during the twenties, their wages had not kept pace. At the same time, business profits and the incomes of the wealthy had shot up. In 1929, the 36,000 wealthiest families in America had a combine income equal to that of the nearly 12 million families with incomes of less than $1500 per year. Yet the cost of necessities for a family was $2000 a year.
This meant that “prosperity” – the whole economy – depended on the spending and reinvestment of their money by the wealthy and by business firms. When the stock market panic frightened them, they stopped spending and investing. As for the remaining mass of people, they could not pick up the slack. They had bought all they could on time, and they had no spare cash. Most consumers could no longer afford to buy the new cars and radios and refrigerators. Inventories piled up. Factories laid off more and more workers.
Another major cause related to farmers. Farmers weren’t doing to well because they were producing more crops and farm products than could be sold at high prices. Therefore, they made a very small profit. This insufficient profit wouldn’t allow the farmers to purchase new machinery and because of this they could not produce goods quick enough.
A new plan was created called the installment plan. This plan was established because many Americans didn’t have enough money to buy goods and services that were needed or wanted. The installment plan stated that people could buy products on credit and make monthly payments. The one major problem with this idea was that people soon found out that they couldn’t afford to make the monthly payments.
In 1929, the stock market crashed. Many Americans purchased stocks because they were certain of the economy. People started selling their stocks at a fast pace; over sixteen million stocks were sold! Numerous stock prices dropped to fraction of their value. Banks lost money from the stock market and from Americans who couldn’t pay back their loans. Many factories lost money and went out of business because of this great tragedy.
By the 1930’s, 25 % of all workers thirteen million workers, lost their jobs. The blacks and unskilled workers were always the first to be fire. Farmers had no money and weren’t capable of paying their mortgages. Americans traveled throughout the country looking for a place to work to support themselves and their families.
Another weakness in the economy lay in our relations with the rest of the world. As a result of the war, many nations owed the United States money. Yet our “tariff” walls kept them from trading with us. So we had to make loans and investments abroad if the foreign nations were to payt us. Once the flow of American money slowed down, these nations could not pay their debts. And they could no longer afford to buy American goods. This was another cause for factories to shut down, throwing still more Americans out of work.
The rise of “holding companies” had created special problems that did not quickly meet the eye. During the 1920’s more and more of these companies had been formed to hold the stock of other companies. Business power was being concentrated in fewer hands. Also, investment trusts were set up to seel their own stock and then invest the proceeds in the stock market. Naturally, the investment trusts and holding companies depended on the earnings of the companies they held. If anything happened to those, the holding companies and investment trusts would collapse. Then confidence in business throughout the nation would drop even more.
The worst flaw in the economy of the late 1920’s was the stock market itself. It provided a gambling arena where whims, unfounded fears, and unjustified hopes could trigger disaster. The stock market provided a stage where the whole nation could watch the price of Wall Street’s stocks go boon and the bust! This was hard for citizens to realize why the price and not the value of the nations product were “roller-coastering.” Doubt and fear spread across the nation.
The Great Crash became the Great Depression. The factory owners who could not sell their products slowed down their factories and laid off workers. Jobless workers who had lost their savings could not afford to buy anything. Still more factories closed down. The collapse of the stock market had signaled the collapse of industry and helped to bring on a severe economic depression not just in the United Sates, but in the developed nations around the world.
Before the end of 1932 there were 12 million able-bodies Americans who were unemployed. Many who had jobs were working only part-time. When they could not afford to pay their rent, they had to squeeze in with friends and relatives. Thousands took to the roads, drifting from place to place, desperately hoping that somehow in the next town they would find a job. Respectable Americans who only a few months before had lived in decent houses now had to seek shelter in shanty-towns of cartons and wood scraps on vacant lots. These were a called “Hoovervilles.” The young people with no money, no job, and no prospects did not dare marry. Within three years, the number of marriages dropped by one-quarter. College enrollments sank.
Millions went hungry. Children cried for the food their parents could not give them. Two-thirds of the children in New York City suffered from malnutrition. Some parents went wandering around through alleys, rooting in garbage pails for scraps to try to keep their families alive.
By the 1932 hundreds of banks had failed, hundreds of mills and factories had closed, mortgages on farms and houses were being foreclosed in large numbers, and more and more people were unemployed. The presidential campaign of 1932, in which the candidate was Franklin Delano Roosevelt, was wages on the issues of Prohibition and the economic crisis. The democratic platform declared for outright repeal of the 18th Amendment and promised a “new deal” in economic and social matters to bring about recovery from the Depression. The republicans did not call for outright repeal and, in regard to the Depression, warned against the danger to business and the nation finances if the social and economic philosophies of the Democrats were substituted for the sound of conservative ideas of the Hoover administration.
Secretary of the Treasury Andrew Mellon took the tradition approach that the government should do nothing to end the depression or ease its effects. But when the collapse came, President Hoover tried hard to help. He use all the familiar ways to relieve suffering. He called upon cities, states, and all private charities to help feed the hungry. He brought business and labor leaders together to the White House, where they promised to keep up wages and keep the factories going. He actually cut his own presidential salary by one-fifth.
In November 1929, Hoover even took the daring step for those days of persuading Congress to cut income taxes. He hoped this would leave people some money to buy goods to keep the factories going. But for most people income taxes were still so low that a tax cut made little difference. A family with a $4000 income saw its tax decline from $5.63 to $1.88. The wealthy, of course, saved much more. But they were frightened of the future and so did not dare to increase their spending.
President Hoover tried really hard to make the times better for the unemployed first by setting aside almost $800 million for public works like the now Hoover Dam. Conditions, however, failed to improve. His other policies , the “Reconstruction Finance Corporation (RFC)” and the Home Loan Bank Act, also didn’t make much difference.
When Franklin Delano won the election on the Democratic ticket, their was a hope for a change in lifestyle from the Depression. His promise of a “new deal” gave Americans hope for what he could do for them. Two days after his inauguration he ordered a “bank holiday” for all banks in the country to close. When they reopened, people felt more safe putting their money in banks with the government backing up. FDR’s “New Deal” became what started the nations turn around. With such programs as the CCC (employing single males from the ages of 17-28 to do community labor like road buildings), the FERA (used $250 million to aid the unemployed, elderly, and sick) and the AAA (paid farmers to grow less), the NIRA (set up price controls), the WPA (creating as many jobs as possible), and others, Franklin Roosevelt became one of the most successful leader this country has ever had. Throughout his presidency, he almost single-handedly changed the fate of America. He turned this country around so we could be a great nation again.
In May of 1933, the Agricultural Adjustment Act was passed. The aim of this act was to raise the farm prices by growing less. The farmers were paid not to use all of their land to plant crops. The money came from tax on millers, meat packers, and other food industries. In June of that same year, the Farm Credit Act was passed. This act helped farmers get low interest loans. With this act, farmers wouldn’t lose their farms to the banks that held the mortgages. The farmers who lost their farms already would also receive low interest loans.
A great novelist, born in 1902, by the name of John Steinbeck, grew up during the Depression near the fertile Salinas Valley and wrote many books of fiction based on his background and experiences during that time and area of the country. One of his greatest works would be the Grapes of Wrath. In this book, Steinbeck describes the farmers plight during the Great Depression and drought. When the rains failed to come, the grass began to disappear. As the farmers watched their plants turn brown and the dirt slowly turn to dust they began to fear what was to come. In the water-cut gullies the earth dusted down in dry little streams. AS the sharp sun struck day after day, the leaves of the young corn became stiff and erect; then it was June and the sun shone more fiercely. The brown lines on the corn leaves widened and move in on the central ribs. The weeds frayed and edged back toward their roots. The air was thin and the sky more pal; and every day the earth paled (Steinbeck, 2-3).The farmers worst fears were realized when their corn and other crops began to die. The dust became so bad, they had to cover their mouths with handkerchiefs so they could breath (Steinbeck, 3).
When the drought hit the Great plains and the soil turned to dust, many farmers moved to California because they could no longer farm their land. The drought began to affect other parts of the country. In 1930, Virginia’s belt of fertile land dried up. Ponds, streams, and springs all dried up and the great Mississippi River water level sank lower than ever recorded. Small farmers every where began to feel the drought. Their small gardens were ruined and their corn crops was cut almost down to nothing. The hay and grass needed to feed their livestock was no longer available. They now face a major problem – how to feed their livestock. The silos were rapidly emptying and the barns in many cases were empty. The farmers were terrified that the government feed loans wouldn’t be available to keep the livestock from dying. In many cases, the Red Cross was making allowances for deed to keep alive livestock.
The small farmers of fruit trees and vegetable plants depend on others who ran canneries to bottle and can their produce. The people they depended upon were the same people that hired scientists to experiment on the fruits and vegetables to come up with better tasting and yielding produce. Thus, the small farmers were dependent on these same rich landowners for almost everything. They couldn’t harvest their produce on their own so they sold it to the rich landowners and thus made very little money on their produce (Steinbeck 444-447)
The farmers found themselves in debt caused by the purchase of land, tools, animals and other items bought on credit. This credit was due to the bank and when the farmers found themselves unable to repay their debts the bank took away everything they had.
The Great Depression was the end result of World War I. It affected the rich and poor alike, factory workers and farmers, bankers and stockbrokers. In short, it affected everyone; no one was left untouched. But of all the people hurt, farmers were the worst off. John Steinbeck chose to write about farmers hoping that Americans would recognize their plight and correct the situation. The Great Depression is known to be the worst economic disaster in United States History. For this reason, the Depression caused many people to change their ideas about the government and economy. As a great man once said “Those who can not remember the past, are condemned to repeat it.” Let’s pray that the United States people and government never have to go through what the people of the 1920’s – 1930’s had to go through.