The Great Depression
I can explain the causes of the Great Depression, & I can describe its effects on ordinary Americans.
The Stock Market Crashes
In early September 1929, stock prices peaked and then fell. Confidence in the market started to waver, and some investors quickly sold their stocks and pulled out. On October 24, the market took a plunge. Panicked investors unloaded their shares. But the worst was yet to come. On October 29—now known as Black Tuesday—the bottom fell out of the market and the nation’s confidence. Shareholders frantically tried to sell before prices plunged even lower. The number of shares dumped that day was a record 16.4 million. Additional millions of shares could not find buyers. People who had bought stocks on credit were stuck with huge debts as the prices plummeted, while others lost most of their savings.
By mid-November, investors had lost about $30 billion, an amount equal to how much America spent in World War I. The stock market bubble had finally burst. One eyewitness to these events, Frederick Lewis Allen, described the resulting situation.
Financial Collapse
The stock market crash signaled the beginning of the Great Depression—the period from 1929 to 1940 in which the economy plummeted and unemployment skyrocketed. The crash alone did not cause the Great Depression, but it hastened the collapse of the economy and made the depression more severe. After the crash, many people panicked and withdrew their money from banks. But some couldn’t get their money because the banks had invested it in the stock market. In 1929, 600 banks closed. By 1933, 11,000 of the nation’s 25,000 banks had failed. Because the government did not protect or insure bank accounts, millions of people lost their savings accounts.
The Great Depression hit other businesses, too. Between 1929 and 1932, the gross national product—the nation’s total output of goods and services—was cut nearly in half, from $104 billion to $59 billion. Approximately 90,000 businesses went bankrupt. Among these failed enterprises were once-prosperous automobile and railroad companies.
As the economy plunged into a tailspin, millions of workers lost their jobs. Unemployment leaped from 3 percent (1.6 million workers) in 1929 to 25 percent (13 million workers) in 1933. One out of every four workers was out of a job. Those who kept their jobs faced pay cuts and reduced hours.
Not everyone fared so badly, of course. Before the crash, some speculators had sold off their stocks and made money. Joseph P. Kennedy, the father of future president John F. Kennedy, was one who did. Most, however, were not so lucky or shrewd.
Worldwide Shock Waves
The United States was not the only country gripped by the Great Depression. Much of Europe, for example, had suffered throughout the 1920s. European countries trying to recover from the ravages of World War I faced high war debts. In addition, Germany had to pay war reparations—payments to compensate the Allies for the damages Germany had caused. The Great Depression compounded these problems by limiting America’s ability to import European goods. This made it difficult to sell American farm products and manufactured goods abroad. In 1930, Congress passed the Hawley-Smoot Tariff Act, which established the highest protective tariff in United States history. It was designed to protect American farmers and manufacturers from foreign competition. Yet it had the opposite effect. By reducing the flow of goods into the United States, the tariff prevented other countries from earning American currency to buy American goods. The tariff made unemployment worse in industries that could no longer export goods to Europe. Many countries retaliated by raising their own tariffs. Within a few years, world trade had fallen more than 40 percent.
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Causes of the Great Depression
Although historians and economists differ on the main causes of the Great Depression, most cite a common set of factors, among them:
These factors led to falling demand for consumer goods, even as newly mechanized factories produced more products. The federal government contributed to the crisis by keeping interest rates low, thereby allowing companies and individuals to borrow easily and build up large debts. Some of this borrowed money was used to buy the stocks that later led to the crash.
At first people found it hard to believe that economic disaster had struck. In November 1929, President Hoover encouraged Americans to remain confident about the economy. Yet, the most severe depression in American history was well on its way.
The Depression Devastates People's Lives
Statistics such as the unemployment rate tell only part of the story of the Great Depression. More important was the impact that it had on people’s lives: the Depression brought hardship, homelessness, and hunger to millions. In cities across the country, people lost their jobs, were evicted from their homes and ended up in the streets. Some slept in parks or sewer pipes, wrapping themselves in newspapers to fend off the cold. Others built makeshift shacks out of scrap materials. Before long, numerous shantytowns—little towns consisting of shacks—sprang up. An observer recalled one such settlement in Oklahoma City: “Here were all these people living in old, rusted-out car bodies. . . . There were people living in shacks made of orange crates. One family with a whole lot of kids were living in a piano box. . . . People were living in whatever they could junk together.” Every day the poor dug through garbage cans or begged. Soup kitchens offering free or low-cost food and bread lines, or lines of people waiting to receive food provided by charitable organizations or public agencies, became a common sight. One man described a bread line in New York City.
Conditions for African Americans and Latinos were especially difficult. Their unemployment rates were higher, and they were the lowest paid. They also dealt with increasing racial violence from unemployed whites competing for the same jobs. Twenty-four African Americans died by lynching in 1933.
Latinos—mainly Mexicans and Mexican Americans living in the Southwest—were also targets. Whites demanded that Latinos be deported, or expelled from the country, even though many had been born in America. By the late 1930s, hundreds of thousands of people of Mexican descent relocated to Mexico. Some left voluntarily; others were deported by the federal government.
The Depression in Rural Areas
Life in rural areas was hard, but it did have one advantage over city life: most farmers could grow food for their families. With falling prices and rising debt, though, thousands of farmers lost their land. Between 1929 and 1932, about 400,000 farms were lost through foreclosure—the process by which a mortgage holder takes back property if an occupant has not made payments. Many farmers turned to tenant farming and barely scraped out a living. The Dust Bowl
The drought that began in the early 1930s wreaked havoc on the Great Plains. During the previous decade, farmers from Texas to North Dakota had used tractors to break up the grasslands and plant millions of acres of new farmland. Plowing had removed the thick protective layer of prairie grasses. Farmers had then exhausted the land through overproduction of crops, and the grasslands became unsuitable for farming. When the drought and winds began in the early 1930s, little grass and few trees were left to hold the soil down. Wind scattered the topsoil, exposing sand and grit underneath. The dust traveled hundreds of miles. One windstorm in 1934 picked up millions of tons of dust from the plains and carried it to East Coast cities. |