The Great Depression



The 1920\'s was a period of general prosperity for many Americans but the decade ended with the most serious depression in United States history.

When Herbert Hoover (31st president) took oath into office in March 1929, trade was booming, industry was flourishing. Unemployment was low, wages were up, prices were steady and corporations were making big profits and paying fat dividends.

Before the end of Hoover\'s first year in office, the stock market had collapsed. The nation was beginning to slide into the worst depression in history. By the time Hoover left office in 1933, many citizens had lost faith in their business leaders. Some had begun to question the American economic system and even democracy itself.

The Roaring Twenties was an era dominated by Republican presidents: Warren Harding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover (1929-1933). Under their conservative economic philosophy of laissez-faire ("leave it alone"), markets were allowed to operate without government interference. Taxes and regulation were slashed dramatically, monopolies were allowed to form, and inequality of wealth and income reached record levels. The country was on the conservative\'s preferred gold standard, and the Federal Reserve was not allowed to significantly change the money supply.

During October, 1929, the stock market had some bad days. Then, suddenly, on October 24 [otherwise known as "Black Thursday"], prices began to fall, and buyers on margin had to sell their stocks. The rush to sell made prices fall even faster.

In the 1920\'s, after World War I, danger signals were apparent that a great Depression was coming. A major cause of the Depression was that the pay of workers did not increase at all. Because of this, they couldn\'t afford manufactured goods. While the factories were still manufacturing goods, Americans weren\'t able to afford them and the factories made no money.

There were serious weaknesses in the economy that had hardly been noticed up to then. As we have seen, while the output of American workers in creased steadily during the twenties, their wages had not kept pace. At the same time, business profits and the incomes of the wealthy had shot up. In 1929, the 36,000 wealthiest families in America had a combine income equal to that of the nearly 12 million families with incomes of less than $1500 per year. Yet the cost of necessities for a family was $2000 a year.

This meant that "prosperity" - the whole economy - depended on the spending and reinvestment of their money by the wealthy and by business firms. When the stock market panic frightened them, they stopped spending and investing. As for the remaining mass of people, they could not pick up the slack. They had bought all they could on time, and they had no spare cash. Most consumers could no longer afford to buy the new cars and radios and refrigerators. Inventories piled up. Factories laid off more and more workers.

Another major cause related to farmers. Farmers weren\'t doing to well because they were producing more crops and farm products than could be sold at high prices. Therefore, they made a very small profit. This insufficient profit wouldn\'t allow the farmers to purchase new machinery and because of this they could not produce goods quick enough.

A new plan was created called the installment plan. This plan was established because many Americans didn\'t have enough money to buy goods and services that were needed or wanted. The installment plan stated that people could buy products on credit and make monthly payments. The one major problem with this idea was that people soon found out that they couldn\'t afford to make the monthly payments.

In 1929, the stock market crashed. Many Americans purchased stocks because they were certain of the economy. People started selling their stocks at a fast pace; over sixteen million stocks were sold! Numerous stock prices dropped to fraction of their value. Banks lost money from the stock market and from Americans who couldn\'t pay back their loans. Many factories lost money and went out of business because of this great tragedy.

By the 1930\'s, 25 % of all workers [thirteen million workers], lost their jobs. The blacks and unskilled workers were always the first to be fire. Farmers had no money and weren\'t capable of paying their mortgages. Americans traveled throughout the country looking