The Great Depression
Assignment
04.05 Assignment
In the lesson, you read about the causes of the Great Depression and how the U.S. government reacted to it. You also saw how Americans were affected by these hard times.
Write three paragraphs explaining the causes and effects of the Great Depression and reflecting on the experience of those who lived during this time.
Your well-developed response should thoroughly address each of the following in one paragraph:
the causes of the Great Depression and how people were affected by it the response by the Hoover administration to the distress
As you write your third paragraph, look at the photograph shown on this screen. It was taken by Dorothea Lange of two families on the side of a highway in Bakersfield, California in 1935.
Black and white photograph showing five adults and three children. There is a young woman in her late teens to early 20s on the far left. She is wearing a long plaid dress with an overcoat. She has short hair. The man behind her looks like he is in his early to mid-30s. He is wearing a long-sleeved shirt, dark pants, and a hat. There is a young girl about four years old in the front of the picture. She has short blonde hair. She is wearing a short dress and a long jacket. A boy, who looks to be about eight is standing behind the little girl. He also has blonde hair and is wearing long sleeves and pants. A man who is probably in his 40s sits on a crate in the middle of the picture. He is wearing long sleeves, pants, and a cowboy hat and cooking on a makeshift stove. A woman in her mid to late 30s is standing next to the seated man. She is wearing a dress in the same print as the young woman and also has on a coat. There is another woman standing next to her that looks to be about the same age. She is wearing a short-sleeved dress and holding a baby. The baby is less than a year old and is wearing short pants and a jacket. They are on the side of a road with a car behind them.
04.05 The Great Depression: Causes of Economic Decline
What Caused the U.S. Economy to Decline?
A document praising the Republican economic accomplishments in the 1920s. The visible slogans read, ‘A Chicken for Every Pot. Wages, dividends, progress, and prosperity say, Vote for Hoover.’
A campaign ad for Herbert Hoover made
a campaign promise that appealed
to middle-class voters.
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The Roaring Twenties are often considered economic boom times, and it is true that free enterprise ruled the nation’s economy. Economic policies under President Calvin Coolidge kept American businesses free of high taxes and government regulations.
However, the benefits of what was known as “Coolidge prosperity” were not widespread. According to studies, the wealthiest 0.1 percent of Americans in 1926 had a combined wealth equal to the poorest 42 percent of Americans. For example, Henry Ford earned $14 million in 1927 when the average American earned less than $1,500 per year.
As Coolidge’s term came to an end, Herbert Hoover began his campaign for the presidency. As the campaign ad shows, he based his appeal on the idea that the U.S. economy was strong. But while the media and politicians claimed the economy was healthy, by 1928 most American families spent their entire incomes on basic needs such as food, clothing, and housing.
Whether rich or poor, all Americans looked to one area of the economy to determine its health—the stock market. By 1929 stock prices had risen more than four times their 1921 value. Ironically, only about five percent of all Americans bought shares. But this long bull market convinced almost everyone that the U.S. economy was booming.
While making money in the stock market seemed certain, some financial experts worried that the prices exceeded the stocks’ actual value. They were concerned that the U.S. industry was producing more goods than could be sold. But at the time, there were no regulations about the number of shares a company could sell. In other words, business owners could sell more shares than their companies were worth.
Most investors were unaware of their risks. Stocks sold wildly. Those who could not afford the up-front investment were buying on margin, which means they were borrowing money to pay for stocks with the intention of paying the loans back when the price of the stock rose. The chart below shows an example of buying on margin that was common in the 1920s. By 1929, stockbrokers had loaned more than $8 billion to investors buying on margin. By that time, companies that were eager to sell shares began to invest their profits with stockbrokers instead of expanding their businesses. So companies began to act like banks.
A chart shows a hypothetical investment in one share of stock in the Radio Corporation of America (RCA) in 1928. In January, one share sold for $85. You (the investor) put down $10 of your own money and borrow $75 plus a 5% percent fee ($3.75). By December 1928, one share is worth $420. After the margin and fee are repaid ($78.75), the profit is $341.25.
Today, regulations prevent the margin for loans on stock purchases from exceeding a certain percentage of the total value of the stock. In the 1920s, however, stockbrokers
04.05 The Great Depression: Stock Market Crash
What Happened to the Stock Market in October 1929?
A photo shows the front page of the New York Times for October 30, 1929. The headlines read, ‘Stock Collapse in 16,410,030 Share Day But Rally At Close Cheers Brokers, Bankers Optimistic.’
Newspaper Headline October 30, 1929
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© Bridgeman Art Library /
Universal Images Group /
Image Quest 2015
As the amount of money invested in the stock market grew, the Federal Reserve Board expressed concern. These presidential appointees keep watch on the nation’s banks. Board members worried that banks had invested too much money with stockbrokers who in turn were loaning large sums to margin buyers. To help control the amount of these loans, the Federal Reserve raised interest rates in 1928 and 1929. They hoped this would reduce the number of money investors could afford to borrow.
The rise in interest rates had little effect on borrowing. Investors continued to buy stocks with little understanding of their value. To investors—and even to expert economists—a rising stock market meant a good economy. By September 1929, about 40 percent of stocks had values based solely on “expert” opinion.
In October, the stock market began to fall. Companies reported declining sales and smaller profits. A bear market had begun.
As stocks lost value, brokers issued margin calls. This meant that investors who had bought on margin had to repay all of the money—loan and fee—or face legal troubles. Investors began selling their stocks to try to get their money back, which caused stock prices to plummet. On Thursday, October 24, 1929, investors panicked. They began selling off everything in order to get their money back. Large companies and banks were the main purchasers, as many tried to keep the panic from spreading.
When the market opened the following Monday, the sell-off continued. The stock market value closed that day at 12.8 percent lower. Black Monday was followed the next day by Black Tuesday, October 29, 1929. On this day, the market lost an additional 12 percent. The stock market had crashed.
Government leaders, including President Hoover, tried to reassure the American public that the situation was only temporary. They said that business and the economy were sound. Hoover tried to calm Americans by using the word “depression” to describe the event.
But the stock market crash shook American confidence. People and businesses stopped spending and hiring. Those who had built up debt because of purchases on credit could no longer afford to buy manufactured goods.
A line graph shows the GNP from 1920 to 1940 in billions of dollars. The GNP rises from slightly over 500 to 1,000 by about 1928. It drops from 1,000 to about 700 by 1933, then rises again to about 1,000 by 1940.
Failing businesses and high unemployment rates caused the Gross National Product to fall.
Public Domain
Without consumer spending, businesses had to reduce output. The U.S. Gross National Product (GNP) fell dramatically. The GNP is the annual value of all goods and services produced in a country. Producing less meant that businesses needed fewer workers, so they started laying people off. Without regular wages, people spent even less. The cycle continued, as production dropped even further and larger numbers of people were laid off. The graph at the right shows how the GNP declined in the 1930s.
Banks were not immune to the economic disaster. After the stock market crashed, many Americans rushed to the banks to withdraw their money. When too many depositors withdraw their money from a bank, the bank can run out of funds. Banks suddenly found themselves without cash. Many had also lent money to stock purchasers who could no longer repay the loans.
Some banks had made stock market purchases themselves that now had little value. Banks began to fail as depositors made “runs” to withdraw their money. Across the nation, hundreds of banks were forced to close their doors. Widespread bank runs took place in late 1930 and again in 1931 and 1932.
By 1933, billions of dollars of Americans’ savings had been lost to bank failures. In addition, one-fifth of the nation’s banks had failed. The worsening economic situation was no longer just a stock market crisis. It had become the Great Depression, the worst economic downturn in American history.
4.05 The Great Depression: Government Reaction
How Did the Government React to the Great Depression?
The Federal Reserve
The Federal Reserve raised interest rates during 1928 and 1929 in an effort to curb rising stock prices. This move put pressure on consumers and caused them to borrow and spend less. After the banking crisis, consumers held on to their cash, which further reduced the amount of money in circulation.
The Federal Reserve raised interest rates again in 1931 to protect the value of the dollar in the international market. Raising interest rates kept people from spending too much and kept the money supply low.
But the result was that individuals and companies no longer made investments or purchased products. Not only were people worried about interest rates, they no longer trusted the U.S. financial system as a whole. They did not want to spend any money if they did not know if their next paycheck would be sufficient to pay their bills. The chart below shows the value of consumer spending on goods and services as part of the GNP during the Great Depression.
04.05 The Great Depression: Impact on Farmers
How Did the Great Depression and Dust Bowl Impact Farmers?
A photo shows a family of 2 parents and 5 children posed against the wall of their rundown home. They look very depressed.
Farm families such as this family had to move in search of temporary work as the Dust Bowl spread across the Midwest.
Library of Congress [LC USF 351-319]
Farmers were also hard hit by bank failures. In fact, most had been in financial crisis throughout the 1920s. During World War I, they had borrowed heavily to invest in farm machinery to increase their production to supply the war. After the war, demand for farm products decreased, as did prices for farm goods. Many farmers made less and had difficulty repaying their loans.
By 1933, prices for farm goods had dropped 50 percent from their values in 1929. Banks took thousands of farms because farmers could not repay their loans. In addition, the value of land had dropped below the loan value, so anything of value was also seized to help make up the difference.
Many farmers were left with nothing. If they wanted to continue farming, they had to rent the land—or move elsewhere to try to survive. The photograph shows a farm family of that time.
The crisis faced by farmers added to already high unemployment. In the years following the stock market crash, companies continued to lay off workers. By 1933, millions of people—some 25 percent of the population—were unemployed.
A map shows that the Dust Bowl affected the central part of the continental U.S. from North Dakota south to Texas. Areas in Colorado, Kansas, and the Dakotas show the most severe damage. Arrows leading out of the affected areas to the east and west show paths taken by those trying to escape the drought.
The Dust Bowl
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For those who lived on farmland in the Great Plains, the economic crisis of the Great Depression went from bad to worse in 1934. A severe drought hit the Great Plains and lasted for several years. During World War I, much of the grassland in the area had been plowed to grow wheat. The removal of the grass and the drought combined to dry out the topsoil. Then, huge windstorms whipped the dirt into the air, causing massive dust storms.
Parts of the Great Plains became known as the Dust Bowl. Huge dust storms almost buried houses and destroyed livestock and crops.
Around 2.5 million people who lived in the Dust Bowl fled the area during the mid-1930s. They became known as Okies, after the state of Oklahoma. Many headed to California with the hope of finding a job and a better life. There, they met with discrimination and fierce competition for agricultural jobs that barely paid a living wage. The map above shows the extent of the Dust Bowl and the routes the people took as they left the region. The photo story below shows the devastation brought on by the drought and by environmental damage.
04.05 The Great Depression: Bonus Army
What Was the Bonus Expeditionary Force?
A photo showing flames engulfing ‘Hooverville’ type structures. Water from a firehose is being sprayed on the flames. In the back is the Capitol building.
The Bonus Army encampment was burned by U.S. Army troops.
Note the Capitol Building in the background.
Public Domain
The final straw for Hoover’s administration occurred in May 1932 when a group of around 15,000 World War I army veterans set up camp in Washington, D.C. Many had traveled across the United States. Some moved into shacks near the Capitol, while others camped by the river.
The veterans demanded their bonus payments, which they had been promised as a result of service during the war. They were not supposed to be paid the bonus until 1945, but many were homeless and unemployed. They needed the money now.
A month passed, and more veterans joined the group. Some had brought along their families. Congress refused to grant their request, and most of the Bonus Expeditionary Force, as they had come to be known, left.
Several thousand stayed, however, and protests broke out. The Washington, D.C., police feared to riot and asked for federal assistance.
In July, the government ordered the Bonus Army to leave. Federal troops were sent to clear the area, using tanks and tear gas. Violence broke out, and the camps went up in flames. Hundreds of Bonus Army members were injured, and one veteran was killed. Several regular army troops were injured as well. The protesters then went home.
Americans were horrified that the U.S. government had used American troops against war veterans. The incident gave them an even greater reason to dislike President Hoover and disagree with his policies. During the 1932 presidential election, many showed their dissatisfaction by electing Democrat Franklin D. Roosevelt as the next president of the United States. It would now be up to Roosevelt to handle the crisis of the Great Depression.
04.05 The Great Depression: Assignment
What Do I Submit?
In the lesson, you read about the causes of the Great Depression and how the U.S. government reacted to it. You also saw how Americans were affected by these hard times.
Write three paragraphs explaining the causes and effects of the Great Depression and reflecting on the experience of those who lived during this time.
Your well-developed response should thoroughly address each of the following in one paragraph:
the causes of the Great Depression and how people were affected by it
the response by the Hoover administration to the distress
Photo of five adults and three children.
Select to Enlarge
As you write your third paragraph, look at the photograph shown on this screen. It was taken by Dorothea Lange of two families on the side of a highway in Bakersfield, California in 1935.
Explain how the photograph reflects the experience of those who lived during the Great Depression. Be sure to make connections between what you have learned in the lesson and specific details in the photograph.
Print iconPrint the assignment.
04.05: Objective
How Did the American Economy Change at the End of the 1920s?
A photo showing a line of men on a city sidewalk near a diner. A sign above the door reads, ‘Free Coffee and Doughnuts for the Unemployed.’
Unemployed men line up outside a soup kitchen in Chicago that was opened by Al Capone. In the Depression, even people who had jobs suffered. Weekly average wages fell from $25 to $17 between 1929 and 1933.
Public Domain
On New Year’s Day in 1929, an editorial in the New York Times stated, “It has been twelve months of … prosperity. If there is any way of judging the future by the past, this new year will be one of … hopefulness.”
At his inauguration in March, Herbert Hoover echoed that optimism. “Ours is a land … filled with millions of happy homes, blessed with comfort and opportunity … I have no fears for the future … it is bright with hope.”
By October, that optimism had given way to one of the darkest periods in American history. In one six-day period at the end of the month, stock prices in the sixteen largest U.S. companies dropped by $3 billion. That loss equaled the amount of the entire federal budget for the year.
By 1930, one in four Americans was unemployed. More than 4,000 banks had closed because they had run out of money. People who had saved for years to buy a home or educate their children lost their life savings.
Then, just when it seemed things could not get worse, one of the worst droughts in history hit the central United States. Between 1930 and 1934, more than one million families lost their farms.
In this lesson, you will learn about the Great Depression and its causes. At the end of the lesson, you will explain both the causes and effects of the Great Depression, describe the government’s response, and reflect on the conditions experienced by those who lived during this time.
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