the great depression. how much to blame is hoover? hoover failed as president not because he sat...

The Great Depression

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How much to blame is Hoover?

• “Hoover failed as president not because he sat idly by and waited for market forces to right the economy, as many believed - mistakenly, at the time - but because he aggressively pursued policies that ran in a direction counter to what the nation and its economy needed.” - Steven Felzenberg

Hoover’s Policies

• Hoover falsely believes that high wages were the cause rather than the result of American prosperity. - Presses Corporate execs not to cut employees and wages. (Associationalism)

• Tied to “Real Bills” financial policy of loaning. short term bank loans to be repaid by production of goods and services hence no expansion of money supply - Under this theory central banks restrict credit during downturns and expand during boom times.

• After all his public works programs create a large deficit he pushes through the largest tax increase in U.S. History!! - Keynes would not approve.

Hoover’s Stubborness

• Famous economists like Yale’s Irving Fisher are begging Hoover to reinflate and expand the money supply and make the Fed be the lender of last resort but to no avail.

• 1,028 economists sign an open letter in the New York Times warning Hoover not to sign the Hawley-Smoot Tariff. Hoover signs the bill anyhow

Attempts to Help Farmers

• 1929 - Agricultural Marketing Act created bureaucracy to help farmers with prices– Required voluntary cooperation to reduce crops, give gvt no power to limit production

– Farm Board has budget of $500 million to loan to cooperatives, buy up surplus goods but lacks money to deal with the crisis

• Hawley-Smoot Tariff increases rates on 75 farm products from 26% to 50%– Also raises rates on 925 manufactured goods

Hawley - Smoot Tariff (1930)

• This was done in part to help farmers by increasing the tariff on agricultural imports.

• The farmers overproduction was due in large part to Hoover’s policies during WWI.

• The results of the tariff bear out economists’ warnings.

• U.S. imports decline from $7.034 billion in 1929 to $2.402 billion by 1933

• U.S. exports fell from $5.886 billion in 1929 to $2.044 MILLION in 1932!!

Hoover’s Efforts: Too little, too late

• 1932 - Home Loan Bank provides money to banks, insurance companies to give out low-interest mortgages

• 1932 - Glass-Steagall Banking Act allows paper currency to support the Federal Reserve System– Allows major banks to pay gold to European creditors

• Reconstruction Finance Corporation created to provide federal loans to banks, railroads, other businesses– Of $300 million for local relief, only gives out $30 million

– Only uses 20% of $1.5 billion for public works– Helps large corporations avoid collapse, gives no direct aid to small businesses

The Bonus Army

• June 1932, 20,000 WWI veterans camp out in DC– Want early payment of pension bonuses

• When Congress rejects the Bonus Bill, 2,000 veterans refuse to leave– Late July, Hoover orders the Army to remove the remaining veterans

• Troops drive veterans out with tanks, tear gas– Three killed, including a baby

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Hoover’s Place in History?

• Hoover will do a first round of public works programs that will be modeled by FDR. It won’t make a change but it was a model.

• Hoover would discretely funnel money to state and local governments but did not want people to know it was coming from government so they would not feel dependent on the federal government and stifle individual initiative.

• Hoover’s RFC is the new entity that will make the government the lender of last resort but most of its policies don’t kick in until FDR’s term begins.

• Hoover secretly took food and blankets to the Bonus Army protestors the night before MacArthur took harsh actions.

What is a Stock Market?

• System that allows the trading of company stocks, other securities, and derivatives

• Participants range from individuals to large hedge fund traders, who can be based anywhere– Stock orders usually end up with a professional at a stock exchange, who executes the order

• Some exchanges are physical locations where transactions are carried out on a trading floor

New York Stock Exchange• Largest stock exchange by dollar value

– Holds $14.2 trillion in market value of 2,317 companies– Began in 1792, when the 24 stock brokers outside of 68 Wall Street created a stock brokerage house

• NASDAQ (National Association of Securities Dealers Automated Quotations), has a value of $4.45 trillion market value listed with 2,872 companies (began 1971)

• Tokyo Exchange has $3.8 trillion, founded 1878• London Stock Exchange has 3.2 trillion, founded 1801

• Euronext Exchange has $2.93 trillion, founded 2000• Bombay Stock Exchange became biggest stock exchange with a company listing of 5,034 in August 2007– Value of shares is $1.63 trillion

Dow Jones Industrial Average

• Began in 1896 by Wall Street Journal editor and Dow Jones and Company co-founder Charles Dow– The value of the Dow is not the actual average of the prices of its component stocks, but the sum of the component prices divided by a divisor, which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the index

• Today, it consists of the 30 largest and most widely held public companies in the United States

• The "industrial" portion of the name is historical—most of the 30 companies have little to do with industry

• Only GE remains of the original 12 companies

Original Stocks in the DJIA

• American Cotton Oil Company, ancestor of Best Foods

• American Sugar Company• American Tobacco Company, broken by anti-trust action

• Chicago Gas Company, now part of Integrys Energy• Distilling and Cattle Feeding Company• Laclede Gas Light Company• National Lead Company• North American Company, an Edison electric company• TN Coal, Iron & Railroad, bought by US Steel in 1907

• US Leather Company, dissolved 1952• US Rubber Company, now part of BF Goodrich

Companies on the DJIA Today• 3M, Alcoa, American Express, AT&T, Bank of America,

Boeing, Caterpillar, Chevron, Cisco, Coca Cola• DuPont, Exxon Mobil, General Electric, Hewlett-

Packard, Home Depot, Intel, IBM, Johnson & Johnson, JP Morgan and Chase, Kraft Foods, McDonalds, Merck, Microsoft, Pfizer, Procter and Gamble, Travelers, United Technologies, Verizon, Wal-Mart, Walt Disney

• On June 8, 2009, GM and Citigroup were replaced by Travelers Companies and Cisco Systems.

• On September 22, 2008, Kraft Foods replaced AIG in the index

Growth of the Dow Jones

• Index began at 40.94, computed as direct average– Closed at 71.42 on July 30, 1914 for four months– When it reopened, it grew up to 381 by Oct. 1929

• Nov. 14, 1972 - closed above 1,000 for first time

• 1980s and 90s saw a rapid increase in the average

• Oct. 19, 1987 - largest one-day percentage drop since 1914, when the average fell 22.61%– Oct. 21, 1987 - Largest one-day gain since the 1930s, 10.15%, bringing the Dow above 2,000

Growth and Decline• Nov. 1995 - Closed above 5,000 for the first time

• March 1999 - Closed above the 10,000 mark• Sept. 17, 2001, third largest point drop ever, drops 684 points, 7.1%– By the end of that week, DJIA fell 1,369.70 points

• July 19, 2007 - Closes above the 14,000 level

• Sept. 15, 2008 - with collapse of Lehman Brothers, Dow drops 500 points in one day

• March 2009 - low of 6,547, lowest since April 1997

Dow Jones from 1900-2000



Dow Jones Growth from 1991-1999



Dow Jones from 2000-2010



Start of the Stock Market Crash

• Sept 3, 1929 - DJIA peaks at 381, value increases five-fold in five years– From March 1928-Sept. 1929, average price of stocks increased 40%, stocks on Dow double in value

– Trading goes from 2-3 million shares a day to 5-10 million shares a day

• Market fell after Sept. 3, losing 17% of its value by early October– Prices recovered more than half of the losses over next week, turn down immediately afterwards

• Oct. 21 - stock prices fall rapidly• Oct. 23 - brief recovery made, then steep decline

The Crash Continues• “Black Thursday” - Thursday Oct. 24 - DJIA lost 20% of its value

• Oct. 25 - JP Morgan attempts to save the market– With bankers' money, Morgan placed a bid to purchase a large block of shares in U.S. Steel at well above the current market price

– Placed similar bids on other industrial stocks, and succeeded in halting the slide that day

– A record number of 12.9 million shares traded

• Monday Oct. 28 - Dow closes down 13.5%

Immediate Impact of the Crash

• 10/29 - Members of Rockefeller family and other financial giants bought large quantities of stocks to demonstrate confidence in the market– DJIA lost another 12% that day, 16 million shares are traded

– Ticker did not stop running until 7:45 that evening

• By the market’s close on 10/29, Dow had lost 39.6% since its market value since Sept. 3– October losses are over $16 billion

The Continuing Fall of the Dow Jones

• Bottom seen on Nov. 13, with a close of 198.6– Dow reaches a secondary peak of 294 in April 1930

• Market took a steady slide in April 1931– Ended July 8, 1932 when Dow closed at 41.22, down 89% decline from the peak in Sept. 1929

• As late as April 1942, stock prices at 75% below the1929 peak and would not be at that level until November 1954—a quarter of a century later

The yearly chart shows the eventual market low in 1932.



Overall Causes of the Depression

• Economy too tied to construction and automobiles– Construction spending goes from $11 billion in 1926 to $9 billion in 1929

– Auto sales decrease by 1/3 in 1919

• Purchasing power not equally divided– Half of American families at or below poverty line– Income of wealthiest 1% increases by 63% from 1923-29– Income of 93% of Americans increases by 4% from 1923-29

• Factories and farmers produce more goods than needed

• Credit and banking structures flawed– No regulation over interest rates, lending policies, banks invest recklessly in stock market

International Causes of the Depression

• European demand for US goods declines• Many nations begin to default on WWI loans– US banks begin lending money to European nations to help them re-pay loans

– Only leads to more debt

• Increase in US tariffs leads European nations to increase their own tariff walls

Progress of the Depression

• Stock market crash triggers economic decline• 9,000 banks close/bankrupted in 1930-33

– Depositors lose at least $2.5 billion

• Money supply declines by 1/3 from 1930-33– Federal Reserve responds by raising interest rates in 1931

• GNP falls from $104 billion in 1929 to $76 billion in 1932

• Business investment falls from $16 billion in 1929 to 1/3 of a billion in 1933

• Wholesale price index falls 32% by 1933• Farm income falls from $12 billion to $5 billion

Unemployment during the Depression

• 1929, 1.5 million Americans unemployed– 1932 - 12 million unemployed

• Cities particularly hit - Cleveland has 50%, Toledo, 80%

• Farm income decreases 60% from 1929-32– 1/3 of farmers lose land

• Unemployment for black males higher than national average



Impact for African Americans

• By 1932, half of all blacks in South unemployed– Unemployment in NYC up to 50% for black men

• Supreme Court overturns conviction of Scottsboro boys

• NAACP supports formation of the Congress of Industrial Organizations– Over 500,000 blacks join labor movement



Hispanics and Women• Hispanic population increases dramatically in 20th century, due to no immigration restrictions, WWI– Over 500,000 return to Mexico during 1930s– Excluded from most relief programs, have few educational or social facilities

• Strong belief that no woman whose husband was employed should accept a job– From 1932-37, illegal for more than one family member to have a federal civil service job

– 22 states consider prohibiting women from working in paid jobs

• By end of Depression, 25% more women working than at start of Depression, mostly in non-professional jobs– 24% of white women, 38% of black women

Social Issues in the Great Depression

• Divorce rate declines due to cost of divorces– Marriage and birth rates both decline

• Some view Depression as the fault of individuals– Others see the Depression as a societal issue, not the fault of individuals, want a collective response

– Farm Security Administration documents plight of rural Americans

• Many writers focus on exposing social injustice– Agee describes lives of Southern families– Steinbeck’s The Grapes of Wrath, Cannery Row

• Other cultural products provide light entertainment– Movies are mostly lavish musicals, comedies

1932 Presidential Election



the great depression. how much to blame is hoover? hoover failed as president not because he sat...

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