Chapter 26, Section 1: The Great Crash

Main Idea: The prosperity of the 1920s hid weaknesses in the

economy that led to the Great Depression of the 1930s.

A. Signs of Economic Trouble

When Hoover took office, he, along with most others, did not recognize the signs of trouble.• Some industries, such as textiles

& coal mining, had been depressed throughout the 20s.

• Prices for farm goods stayed low due to overproduction (supply & demand) & farmers were in debt.

• Demand for new homes and buildings slowed by the mid-20s.

• Consumers were buying less. Most failed to see the trouble, or

chose to ignore the warnings that good times wouldn’t last forever (like water off a duck’s back).

B. The Crash By late August 1929, some investors started to sell their stocks,

which led others to sell, too. As more & more began selling, stock prices fell due to lower values.

Many investors had bought their stocks on margin, which meant they only made a small down-payment at the time, & borrowed the rest from their stockbroker. As prices fell, brokers asked for their money back, which caused more investors to sell in order to come up with the money.

This caused a panic, as desperate people tried to unload millions of shares, causing prices to plummet.

Stock Market Crash - On October 29, 1929 (Black Tuesday), prices plummeted because everyone was selling & there were no buyers. “Millionaires” (on paper only)went broke instantly.

Big business leaders tried to minimize the damage by buying stock, but it was too late … the damage was already done.

The crash, along with what followed, sent the nation into a severe depression as people lost confidence in the economy.

Unquestioned faith in the “bull market” helped lead to the Great Depression!

C. The Great Depression Begins The Great Depression – the period of

economic hard times following the stock market crash, from 1929 - 1941.

Causes of the Great DepressionCauses of the Great Depression Overproduction in Twenties

• too many goods & too few buyers • wages did not rise as much as prices,

so workers could not afford things• this decrease in demand caused many

factories to lay off workers or close Run on the Banks

• many banks loaned $ to stock market investors in the Twenties

• when the market crashed borrowers could not pay back their loans

• without this $, banks could not give depositors their $ when they asked for it, and many banks had to close

– Over 5,000 banks closed between 1929 & 1932.

– Many depositors lost their life’s savings as a result.

The Downward SpiralThe Downward SpiralOnce the market crashed, other areas of the economy slid downhill fast. One disaster led to another.

• With investors ruined, businesses could no longer expand, and they couldn’t turn to banks, because they were in trouble too.

Cycle of disaster - With no investors and banks in trouble, businesses had to cut back production, which led to layoffs and lower wages, which led to less spending, which led to lower demand for goods, which led to more cutbacks, which led to more layoffs and bankruptcies …Because the economies of other countries were tied to the U.S. economy (especially after WWI), they collapsed as well. The Great Depression became worldwide as it spread from nation to nation.

Farms and factories overproduced beyond the demand.

The Cycle of Disaster: A Downward Spiral

People had little or no money to spend.

Demand forgoods fell.

Businesses cut production

Workers sufferedfrom wage cutsand lay offs.

D. Hard TimesRising UnemploymentRising Unemployment

By 1932, 1 in every 4 workers was jobless. Those that kept their jobs had to take pay cuts &/or had their hours reduced.Many lost their homes & had to resort to begging &/or picking through garbage for food.Others sold apples or pencils on the street or shined shoes.

The Human CostThe Human CostFamilies in Crisis - Marriage & birth rates dropped, some families split up to find workHomeless - drifters looked for work, some “rode the rails”, shack villages, shame & low self-esteem were common

E. Hoover Responds Rugged Individualism – Hoover believed

hard work & a positive attitude would get us out of Depression. If people relied on the government for help, they’d become lazy.

Government AidGovernment Aid Hoover believed that business would take

care of itself, and the economy would recover on its own. At first, he opposed government relief programs.

He called on private charities to help the needy. They organized bread lines and soup kitchens, but the needy outnumbered them.

Eventually, Hoover set up public works programs (schools, highways) to create jobs.

Reconstruction Finance Corporation (RFC) loaned $ to banks, insurance companies, & RRs to save them & help stimulate economy.

The Depression DeepensThe Depression DeepensHoover’s policies were too little & came too late to help the economy. It got worse each year he was in office (1932 was the worst year). Many viewed him as heartless & uncaring, & blamed him for doing too little, causing their problems.

• Hoovervilles - communities of shacks where the homeless lived

• Hoover blankets - newspapers that bums covered up with at night

• Hoover leather – piece of cardboard used to patch a hole in a shoe

• Hoover stew – thin, watery soup that was usually served in soup kitchens

• Hoover flag - empty pocket turned inside out to show you had no money

“Hoovervilles”

Here were all these people living in old rusted-out car bodies. ... One family ... [was] living in a piano box. This wasn't just a little section, this was maybe 10 miles wide and 10 miles long. People living in whatever they could junk together. ..."

A Most Vicious CircleNo leadership? Fiddlesticks! It’s following that is a lost art.

“It seems there wasn’t any depression at all!”

The Understanding Heart

F. The Bonus Army In 1932, jobless WWI veterans (over 20 thousand) came to Washington, DC to demand immediate payment of a bonus that was promised to them by Congress back in 1918. • The bonus was not supposed to

be paid until 1945, however. The “Bonus Army” camped in a

tent city for two months, waiting for Congress to act.• The Senate rejected paying

them early due to the poor economic shape of the country.

When some wouldn’t leave, Hoover called in General Douglas MacArthur to clear out the remaining veterans & destroy the camp.• He used tanks, guns, & tear gas,

then burned it to the ground.

The US Army burned camps to the ground after routing the thousands of protestors that were camped out in the nation’s capitol with tanks, tear gas, and armed soldiers. (July 28, 1932)