U.S. Hist. Ch. 9

stock market
a system for buying and selling stocks in corporations

bull market
a long period of rising stock prices

speculation
the act of buying stocks at great risk with the anticipation that the prices will rise

margin
buying a stock by paying only a fraction of the stock price and borrowing the rest

margin call
demand by a broker that investors pay back loans made for stocks purchased on margin

bailiff
minor officer of the courts

bank run
persistent and heavy demands by a bank’s depositors, creditors, or customers to withdraw money; when many depositors decide to withdraw their money at the same time, usually out of fear that the bank will collapse

installment
a monthly plan made to pay off the cost of an item when buying it on credit

relief
aid for the needy; welfare; money given directly to impoverished families

foreclose
to take possession of a property from a mortgagor because of defaults on payments

The Election of 1928
For the presidential election of 1928, the Democrats chose Alfred E. Smith, governor of New York. Smith was the first Roman Catholic to win a major party’s presidential nomination. He faced a tough challenger, as Herbert Hoover was secretary of commerce and former head of the Food Administration. Smith’s religious beliefs became a campaign issue. Some Protestants claimed the Catholic Church financed Smith’s campaign and would have inappropriate influence on American politics. The attacks embarrassed Hoover, a Quaker, and he tried to quash them, but the charges damaged Smith’s candidacy. The prosperity of the 1920s—for which the Republicans took full credit—was a bigger challenge to Smith’s candidacy. Hoover won in a landslide.

The Stock Market Soars
The optimism that swept Hoover into office also drove stock prices to new highs. Sometimes the stock market has a long period of rising stock prices, or a bull market. The bull market of the 1920s convinced many to invest in stocks. By 1929, approximately 10 percent of American households owned stocks.

Before the late 1920s, stock prices generally reflected their true values. In the late 1920s, however, many investors failed to consider a company’s earnings and profits. Buyers engaged in speculation, or betting the market would continue to climb, thus enabling them to sell stock and make money quickly.

Many investors bought stocks on margin, making only a small cash down payment (as low as 10 percent of the price). With $1,000, an investor could buy a sum of $10,000 worth of stock. The remaining $9,000 came as an interest-bearing loan from the stockbroker. Quick profits were possible if stock prices kept rising, but problems came when prices began to fall. To protect a loan, a broker could issue a margin call, demanding the investor repay the loan at once.

The Stock Market Crash
The bull market lasted only as long as investors continued putting new money into it. In September 1929, the market peaked. Prices then began an uneven downward slide. As investors decided the boom was over, they sold more stock, causing prices to decline even further. On October 24, a day that came to be called Black Thursday, the market plummeted further. The following week, on October 29, a day that was later dubbed Black Tuesday, prices took the steepest dive yet. That day, more than 16 million shares of stock were sold, and the value of the industrial index (a measure of the value of leading industrial companies) dropped by 10 percent. By mid-November, the market price of stocks had dropped by more than one-third. Some $30 billion was lost, a sum roughly equal to the total wages Americans earned in 1929. Although the stock market crash was not the major cause of the Depression, it undermined the economy’s ability to overcome other weaknesses.

Closing Banks
The market crash weakened the nation’s banks in two ways. First, by 1929, banks had lent billions to stock speculators. Second, many banks had invested depositors’ money in the stock market, hoping for high returns. When stock values collapsed, banks lost money on their investments, and speculators defaulted on their loans. Having suffered serious losses, many banks cut back drastically on loans. With less credit available, consumers and businesses were not able to borrow as much money, sending the economy into a recession. Some banks could not absorb the losses they suffered and had to close. The government did not insure bank deposits, so if a bank failed, customers, including even those who did not invest in the stock market, lost their savings. As a growing number of banks closed in 1929 and 1930, a severe crisis of confidence in the banking system further destabilized the economy. News of bank failures worried Americans. Some depositors made runs on banks, thus causing the banks to fail. A bank run takes place when many depositors decide to withdraw their money at the same time, usually out of fear that the bank will collapse. Most banks make a profit by lending money received from depositors and collecting interest on the loans. The bank keeps only a fraction of depositors’ money in reserve. Usually, that reserve is enough to meet the bank’s needs. If too many people withdraw their money, however, the bank will collapse. By 1932, about one in four banks in the United States had gone out of business.

The Uneven Distribution of Income
Overproduction was a factor leading to the onset of the Great Depression. More efficient machinery increased the production capacity of factories and farms. Most Americans did not earn enough to buy up the goods they helped produce. Manufacturing output per person-hour rose 32 percent, but the average worker’s wage increased only 8 percent. When prices fell, farmers tried to produce even more to pay their debts, taxes, and living expenses built up after WWI. Prices dropped so low that many farmers went bankrupt and lost their farms. During the 1920s, many Americans had purchased high-cost items, such as refrigerators and cars, on the installment plan. Purchasers could make small down payments and pay the remainder of the item’s price in monthly installments. Paying off such debts eventually forced some buyers to stop making new purchases. Because of the decrease in demand for their products, manufacturers in turn cut production and laid off employees. The slowdown in retail sales reverberated throughout the economy. When radio sales slumped, for example, orders for copper wire, wood cabinets, and glass radio tubes slowed. Montana copper miners, Minnesota lumberjacks, and Ohio glassworkers lost jobs. Jobless workers cut purchases, further reducing sales. This put even more Americans out of work. Unemployment insurance was nonexistent. Many families had little or no savings. Lost jobs often meant dire circumstances. In 1930 alone, about 26,000 businesses failed.

The Loss of Export Sales
Many jobs might have been saved if American manufacturers had sold more goods abroad. As the bull market of the 1920s sped up, however, U.S. banks made loans to speculators rather than loans to foreign companies. Loans from U.S. banks had helped European nations make war reparations and pay down war debts. They had also secured foreign markets for U.S. exports. Without these loans from U.S. banks, foreign companies purchased fewer American products. In 1929 Hoover wanted to encourage overseas trade by lowering tariffs. Congress, however, decided to protect American industry from foreign competition by raising tariffs. The resulting legislation, the Hawley-Smoot Tariff, raised the average tariff rate to the highest level in American history. In the end, it failed to help American businesses, because foreign countries responded by raising their own tariffs. This meant fewer American products were sold overseas. By 1932, exports had fallen to less than half the level that they had been in 1929. A decrease in exports hurt both American companies and farmers.

Mistakes by the Federal Reserve
Just as consumers were able to buy more goods on credit, access to easy money propelled the stock market. Instead of raising interest rates to curb excessive speculation, the Federal Reserve Board kept its rates low throughout the 1920s. The Board’s failure to raise interest rates significantly helped cause the Depression in two ways. First, by keeping rates low, the Board encouraged member banks to make risky loans. Second, the low interest rates led business leaders to think that the economy was still expanding. As a result, they borrowed more money to expand production. This was a serious mistake because it led to overproduction when sales were falling. When the Depression finally hit, companies had to lay off workers to cut costs. Then the Federal Reserve made another mistake: it raised interest rates, thus tightening credit. The economy continued to spiral downward.

Struggling to Get By
The jobless often went hungry. When possible, they stood in breadlines for free food or lined up outside soup kitchens set up by private groups. People who could not pay their rent or mortgage lost their homes. Some, paralyzed by fear and humiliation, did not move and were evicted. Court officers called bailiffs ejected them and their belongings. Throughout the country, newly homeless people put up shacks on unused or public lands. They built shantytowns, which they called Hoovervilles after the president they blamed for their plight. In search of work or a better life, many homeless, unemployed Americans began walking, hitchhiking, or, most often, “riding the rails” across the country. These wanderers, called hoboes, would sneak past railroad police to slip into open boxcars on freight trains. Hundreds of thousands of people, mostly boys and young men, wandered from place to place in this way. The Depression also caused many immigrants to return to their native countries. In some cases, this repatriation was voluntary as jobs became scarce. In other cases, repatriation was forced. The federal government launched repatriation drives to send poor immigrants back to their home countries. It also stepped up efforts to deport immigrants who had violated the law. In the Southwest, federal officials rounded up Mexicans (often without regard to their citizenship status) and forcibly returned them to Mexico.

The Dust Bowl
When crop prices dropped in the 1920s, farmers tried to make up the difference by planting more wheat. Then, a terrible drought struck the Great Plains, leaving the fields bare. The soil dried to dust. A vast “Dust Bowl” stretched from the Dakotas to Texas. Winds blew the arid earth aloft, blackening the sky for hundreds of miles. Dust buried crops and livestock. Humans and animals caught outdoors sometimes died of suffocation when the dust filled their lungs. During most of the 1930s, an average of 50 dust storms a year hit the Plains.
Some Great Plains farmers managed to hold on to their land, but others were not as lucky. If their land was mortgaged, they had to turn the property over to the banks. Then, nearly penniless, many families headed west, hoping for a better life in California. Because many migrants were from Oklahoma, they became known as “Okies.” In California, their struggles continued

Arts and Entertainment
The hard times of the 1930s led many Americans to want to escape their worries. Movies and radio programs grew increasingly popular. Child stars delighted viewers, and comedies provided a relief from daily worries. Serious films often celebrated ordinary people and the values of small town America. While movies captured the imagination, radio offered information and entertainment. Tens of millions of people listened to the radio daily. Programs such as The Guiding Light presented the personal struggles of middle-class families. The sponsors were often makers of laundry soaps, so the shows were nicknamed soap operas. Radio also exposed listeners to a variety of musical styles. Americans enjoyed hit songs from movies and Broadway musicals to swing music to country. Literature and the visual arts also flourished during the 1930s. Writers and artists tried to portray life around them, using the homeless and unemployed as their subjects in stories and pictures. Novelists developed new writing techniques. Images were also becoming more influential. Photographers roamed the nation with the new 35-millimeter cameras, seeking new subjects. In 1936 TIME magazine publisher Henry Luce introduced Life, a weekly photojournalism magazine that enjoyed instant success. The striking pictures of photojournalists Dorothea Lange and Margaret Bourke-White showed how the Great Depression affected average Americans. Painters of the 1930s included Thomas Hart Benton and Grant Wood, whose styles were referred to as the regionalist school. Their work emphasized traditional American values, especially those of the rural Midwest and South.

Hoover responds to the depression
On the day after Black Thursday, President Herbert Hoover declared that “the fundamental business of the country . . . is on a sound and prosperous basis.” On March 7, 1930, he told the press that “the worst effects of the crash upon employment will have passed during the next sixty days.” Critics derided his optimism as conditions worsened. Hoover hoped to downplay the public’s fears and to avoid more bank runs and layoffs. He urged consumers and business leaders to make rational decisions. In the end, Hoover’s efforts failed to inspire the public’s confidence, and the economy continued its downward slide. Hoover believed that American “rugged individualism” would keep the economy moving and that the government should not step in to help individuals. After World War I, many European countries implemented a form of socialism, which Hoover felt contributed to their lack of economic recovery. In 1922 Hoover had written a book, American Individualism, explaining why the American system of individualism was the best social, political, spiritual, and economic system. Thus, it was difficult for him to propose more government control. Despite public statements that the economy was not in trouble, Hoover was worried.

Hoover makes decisions
Hoover organized a series of conferences, bringing together heads of banks, railroads, and other big businesses, as well as labor leaders and government officials to strategize about solutions. Industry leaders pledged to keep factories open and to stop slashing wages, but by 1931, they had broken those pledges. Hoover increased funding for public works, or government-financed building projects. The resulting construction jobs employed a small fraction of the millions of unemployed. The only way the government could create enough new jobs was through massive spending, which Hoover refused to do. Someone had to pay for public works projects. If the government raised taxes, consumers would have less money to spend, hurting business. If the government kept taxes low and ran a budget deficit—spending more than it collected—it would have to borrow money, making less available for loans. As the 1930 congressional elections approached, most Americans blamed the party in power for the ailing economy. The Republicans lost 49 seats and their majority in the House of Representatives; they held on to the Senate by a single vote.

Trying to Rescue the Banks
To get the economy growing, Hoover wanted to increase the money supply to help banks make loans to corporations. They could then expand production and rehire workers. The president asked the Federal Reserve Board to put more currency into circulation, but the Board refused. To ease the money shortage, Hoover set up the National Credit Corporation (NCC) in October 1931. The NCC created a pool of money that allowed troubled banks to continue lending money in their communities. This program, however, failed to meet the nation’s needs. In 1932 Hoover requested Congress to set up the Reconstruction Finance Corporation (RFC) to make loans to businesses. By early 1932, the RFC had lent about $238 million to banks, railroads, and building-and-loan associations. Overly cautious, the RFC failed to increase its lending sufficiently. The economy continued its decline.

Direct Help for Citizens
Hoover strongly opposed the federal government’s participation in relief— money given directly to impoverished families. He believed that only state and local governments should dole out relief, with any other needs being met by private charity. By the spring of 1932, however, state and local governments were running out of money, and private charities lacked the resources to handle the crisis. Support for a federal relief measure increased, and Congress passed the Emergency Relief and Construction Act in July. Reluctantly, Hoover signed it. The new act called for $1.5 billion for public works and $300 million in emergency loans to the states for direct relief. For the first time in American history, the federal government was supplying direct relief funds. By this time, however, the new program could not reverse the damage that had been done.

Hunger Marches
In January 1931, about 500 residents of Oklahoma City looted a grocery store. The following month, hundreds of unemployed citizens smashed the windows of a Minneapolis grocery store and helped themselves to meat, produce, and canned goods. Crowds began showing up at rallies and “hunger marches” organized by the American Communist Party. On December 5, 1932, in Washington, D.C., a group of about 1,200 hunger marchers chanted, “Feed the hungry, tax the rich.” Police herded them into a cul-de-sac and denied them food and water. Some members of Congress insisted on the marchers’ right to petition their government. With that, the marchers made their way to Capitol Hill.

Protests by Farmers
During the agricultural boom that took place during World War I, many farmers had heavily mortgaged their land to pay for seed, equipment, and feed. After the war, prices sank so low that farmers began losing money. Creditors foreclosed on nearly one million farms between 1930 and 1934. They took ownership of the land and evicted families. Some farmers began destroying their crops, desperately trying to raise prices by reducing the supply. In Nebraska, farmers burned corn to heat their homes. Georgia dairy farmers blocked highways and stopped milk trucks, dumping the milk into ditches.

The Bonus Marchers
After World War I, Congress had enacted a $1,000 bonus for each veteran, to be distributed in 1945. In 1929 Texas congressman Wright Patman introduced a bill that would authorize early payment of these bonuses. In May 1932, several hundred Oregon veterans began marching to Washington, D.C., to lobby for passage of the legislation. As they moved eastward, other veterans joined them until they numbered about 1,000. Wearing ragged military uniforms, they trudged along the highways or rode the rails, singing old war songs. The press termed the marchers the “Bonus Army.” Once in Washington, the veterans camped in Hoovervilles. More veterans joined them until the Bonus Army swelled to an estimated 15,000. President Hoover acknowledged the veterans’ right to petition but refused to meet with them. When the Senate voted down the bonus bill, veterans outside the Capitol began to grumble. In a statement, Hoover said, “Congress made provision for the return home of the so-called bonus marchers who have for many weeks been given every opportunity of free assembly, free speech and free petition to the Congress.” Many returned home, but some marchers stayed on. Some lived in the camps; others squatted in vacant buildings downtown. In late July, Hoover ordered the buildings cleared. The police tried, but when an officer panicked and fired into a crowd, killing two veterans, the secretary of war asked if he could send in army troops. General Douglas MacArthur ignored Hoover’s orders to clear the buildings but to leave the camps alone. MacArthur sent in cavalry, infantry, and tanks to clear the camps. Soon, unarmed veterans were running away, pursued by some 700 soldiers. The soldiers teargassed stragglers and burned the shacks. National press coverage of troops assaulting veterans further harmed Hoover’s reputation and hounded him throughout the 1932 campaign.

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A Collapsing Economy – Industries such as coal mining, railroads,and colthing were in a decline – prices for industrial stocks doubled between May 1928 and September 1929 – October 23 six million shares of stocks changed hands – falling prices …

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