Great Depression
The Great Depression was the worst economic
decline ever in U.S. history.
It began in late 1929 and lasted about a
decade. Throughout the 1920’s, many
factors played a role in bringing about
the depression; the main causes were the
unequal distribution of wealth and
extensive stock market speculation. Money was
distributed unequally between
the rich and the middle-class, between industry
and agriculture within the
United States, and between the U.S. and Europe. This
disproportion of wealth
created an unstable economy. Before the Great
Depression, the "roaring
twenties" was an era during which the United
States prospered
tremendously. The nation's total income rose from $74.3 billion
in 1923 to
$89 billion in 1929. However, the rewards of the "Coolidge
Prosperity" of
the 1920's were not shared evenly among all Americans. In
1929, the top
0.1 percentage of Americans had a combined income equal to the
bottom 42%.
That same top 0.1 percentage of Americans in 1929 controlled 34% of
all
savings, while 80% of Americans had no savings at all. Automotive
industry
tycoon Henry Ford provides an example of the unequal distribution of
wealth
between the rich and the middle-class. Henry Ford reported a personal
income of
$14 million in the same year that the average personal income was
$750. This
poor distribution of income between the rich and the middle class
grew
throughout the 1920's. While the disposable income per capita rose 9%
from 1920
to 1929, those with income within the top 1-percentage enjoyed an
extraordinary
75% increase in per capita disposable income. These market
crashes, combined
with the poor distribution of wealth, caused the American
economy to overturn.
Increased manufacturing output throughout this
period created this large and
growing gap between the rich and the working
class. From 1923-1929, the average
output per worker increased 32% in
manufacturing. During that same period of
time average wages for
manufacturing jobs increased only 8%. Thus, wages
increased at a rate one
fourth as fast as productivity increased. As production
costs fell quickly,
wages rose slowly, and prices remained constant, the bulk
benefit of the
increased productivity went into corporate profits. In fact,
from
1923-1929, corporate profits rose 62% and dividends rose 65%. The
federal
government also contributed to the growing gap between the rich
and
middle-class. Calvin Coolidge's administration (and the
conservative-controlled
government) favored business, and consequently those
that invested in these
businesses. An example of legislation to this purpose
is the Revenue Act of
1926, signed by President Coolidge on February 26,
1926, which reduced federal
income and inheritance taxes dramatically. Andrew
Mellon, Coolidge's Secretary
of the Treasury, was the main force behind these
and other tax cuts throughout
the 1920's. Even the Supreme Court played a
role in expanding the gap between
the social/economic classes. In the 1923
case Adkins v. Children's Hospital, the
Supreme Court ruled minimum-wage
legislation unconstitutional. The large and
growing disproportion of wealth
between the well to do and the middle-income
citizens made the U.S. economy
unstable. For an economy to function properly,
total demand must equal total
supply. In an economy with such different
distribution of income, it is not
assured that demand will equal supply.
Essentially, what happened in the
1920's was that there was an oversupply of
goods. It was not that the surplus
products of industrialized society were not
wanted, but rather that those
whose needs were not satisfied could not afford
more, whereas the wealthy
were contented by spending only a small portion of
their income. Three
quarters of the U.S. population would spend essentially all
of their yearly
incomes to purchase consumer goods such as food, clothes,
radios, and cars.
These were the poor and middle class: families with incomes
around, or
usually less than, $2,500 a year. The bottom three quarters of the
population
had a collective income of less than 45% of the combined national
income; the
top 25% of the population took in more than 55% of the national
income.
Through this period, the U.S. relied upon two things in order for the
economy
to remain even: luxury spending, investment and credit sales. One
solution to
the problem of the vast majority of the population not having enough
money to
satisfy all their needs was to let those who wanted goods buy products
on
credit. The concept of buying now and paying later caught on quickly. By
the
end of the 1920’s, 60% of cars and 80% of radios were bought on
installment
credit. Between 1925 and 1929 the total amount of outstanding
installment credit
more than doubled from $1.38 billion to around $3 billion.
Installment credit
allowed one to "telescope the future into the present", as
the
President's Committee on Social Trends noted. This strategy created
artificial
demand for products which people could not ordinarily afford. It
put off the day
of reckoning, but it made the downfall worse. By this
telescoping, when the
future arrived, there was little to buy that had not
already been bought. People
could no longer use their regular wages to
purchase whatever items they did not
have yet, because so much of their wages
went to paying back past purchases. The
U.S. economy was also reliant
upon luxury spending and investment from the rich
to stay afloat during the
1920's. The significant problem was based upon the
wealthy's confidence in
the U.S. economy. If conditions were to take a downturn
(as they did when the
market crashed in 1929), this spending and investment
would slow to a halt.
While savings and investment are important for an economy
to stay balanced,
at excessive levels they are not good. Greater investment
usually means
greater productivity. However, since the rewards of the
increased
productivity were not being distributed equally, the problems of
income
distribution were exacerbated. Poor distribution of wealth within our
nation was
not limited to only social/economic classes, but to entire
industries. In 1929,
a mere 200 corporations controlled approximately half of
all corporate wealth.
While the automotive industry was thriving in the
1920's, some industries,
agriculture in particular, were declining steadily.
In 1921, the same year that
Ford Motor Company reported record assets of
more than $345 million, farm prices
plummeted, and the price of food fell
nearly 72% due to a huge surplus. While
the average per capita income in 1929
was $750 a year for all Americans, the
average annual income for someone
working in agriculture was only $273. The
prosperity of the 1920's was simply
not shared among industries evenly. In fact,
most of the industries that were
prospering in the 1920's were in some way
linked to the radio industry or to
the automotive industry. The automotive
industry was the active force behind
many other booming industries in the
1920's. By 1928, with over 21
million cars on the roads, there was roughly one
car for every six Americans.
The first industries to prosper were those that
made materials for cars. The
booming steel industry sold roughly 15% of its
products to the automobile
industry. The nickel, lead, and other metal
industries capitalized similarly.
The new closed cars of the 1920's benefited
the glass, leather, and textile
industries greatly. And manufacturers of the
rubber tires that these cars
used grew even faster than the automobile industry
itself, for each car would
probably need more than one set of tires over the
course of its life. The
fuel industry also profited and expanded. Companies such
as Ethyl Corporation
made millions with items such as new "knock-free"
fuel additives for cars. In
addition, "tourist homes" (hotels and
motels) opened everywhere. With such a
wealthy upper class, many luxury hotels
were needed. Lastly, and possibly
most importantly, the construction industry
benefited tremendously from the
automobile. With the growing number of cars,
there was a big demand for paved
roads. While Americans spent more than a $1
billion each year on the
construction and maintenance of highways, and $400
million annually for city
streets, the construction industry grew by $5 billion
dollars, nearly 50%.
However, the automotive industry affected construction far
more than that.
The automobile had been central to the urbanization of the
country in the
1920's because so many other industries relied upon it. With
urbanization
came the need to build many more apartment buildings, factories,
offices, and
stores. Also prospering during the 1920's were businesses dependent
upon the
radio business. Radio stations, electronic stores, and electricity
companies
all needed the radio to survive. These businesses relied upon the
constant
growth of the radio market to expand and grow themselves. By 1930, 40%
of
American families had radios. In 1926, major broadcasting companies
started
appearing, such as the National Broadcasting Company. The advertising
industry
was also becoming heavily reliant upon the radio both as a product
to be
advertised, and as a method of advertising. Several factors lead to
the
concentration of wealth and prosperity into the automotive and radio
industries.
First, during World War I both were significantly improved
upon. Both had
existed before, but radio had been mostly experimental. Due to
the demands of
the war, by 1920 automobiles, radios, and the parts necessary
to build these
things were being produced in large quantities; the work force
in these
industries had been formed and had become experienced. Manufacturing
plants were
already in place. The foundation existed for the automotive and
radio industries
to take off. Second, due to federal government's easing of
credit, money was
available to invest in these industries. The federal
government favored the new
industries as opposed to agriculture. During World
War I the federal government
had subsidized farms, and paid absurdly high
prices for wheat and other grains.
The federal government had encouraged
farmers to buy more land, to modernize
their methods with the latest in farm
technology, and to produce more food. This
made sense during the war when
war-ravaged Europe had to be fed too. However as
soon as the war ended, the
U.S. bluntly stopped its policies to help farmers.
During the war the
United States government had paid an unheard of $2 a bushel
for wheat, but by
1920 wheat prices had fallen to as low as 67 cents a bushel.
Although
modest attempts to help farmers were made in 1923 with the
Agricultural
Credits Act, farm and food prices tumbled and farmers fell
into debt. The
problem with such heavy concentrations of wealth and such
massive dependence
upon essentially two industries is similar to the problem
with few people having
too much wealth. The economy was reliant upon the
radio and automotive
industries to expand, grow, and invest in order to
prosper. If those two
industries were to slow or stop, so would the entire
economy. The economy
prospered greatly in the 1920's. This prosperity was not
balanced between
different industries, when those industries that had all the
wealth concentrated
in them slowed, the whole economy did. The fundamental
problem with the
automobile and radio industries was that they could not
expand because people
could and would buy only so many cars and radios. When
the automotive and radio
industries went down all their dependents,
essentially all of American industry,
fell. Because it had been ignored,
agriculture, which was still a large segment
of the economy, was already in
ruin when American industry fell. Large-scale
international wealth
distribution problems was a last major uncertainty the
American economy
had to deal with. While America was prospering in the 1920's,
European
nations were struggling to rebuild themselves after the damage of
war.
During World War I the U.S. government lent its European allies $7
billion, and
then another $3.3 billion by 1920. By the Dawes Plan of 1924,
the U.S. started
lending money to Axis Germany. American foreign lending
continued in the 1920's
climbing to $900 million in 1924, and $1.25 billion
in 1927 and 1928. Of these
funds, more than 90% were used by the European
allies to purchase U.S. goods.
The nations to which the U.S. had lent
money (Britain, Italy, France, Belgium,
Russia, Yugoslavia, Estonia,
Poland, and others) were in no position to pay off
their debts. Their gold
had flowed into the U.S. during and immediately after
the war in great
quantity; they could not send more gold without completely
ruining their
currencies. There were several causes to this awkward distribution
of wealth
between U.S. and its European counterparts. Most obvious was the fact
that
World War I had devastated European business. Factories, homes, and farms
had
been destroyed in the war. It would take time and money to
recuperate.
Equally important to causing the improportionate distribution
of wealth was US
tariff policy. The United States had traditionally placed
tariffs on imports
from foreign countries in order to protect American
business. However, these
tariffs reached an all-time high in the 1920's and
early 1930's. Starting with
the Fordney-McCumber Act of 1922 and ending with
the Hawley-Smoot Tariff of
1930, the United States increased many tariffs
by 100% or more. The effect of
these tariffs was that Europeans were unable
to sell their own goods in the
United States in reasonable quantities. In
the 1920’s, the United States was
trying "to be the world's banker, food
producer, and manufacturer, but to
buy as little as possible from the world
in return." This attempt to have a
constantly favorable trade balance could
not succeed for long. The United States
maintained high trade barriers to
protect American business. If the United
States would not buy from its
European counterparts, there was no way for the
Europeans to buy from the
Americans, or even to pay interest on U.S. loans. This
weakness in the
international economy contributed to the Great Depression.
Europe was
dependent upon U.S. loans to buy U.S. goods, and the U.S. needed
Europe
to buy these goods to prosper. By 1929, 10% of American gross
national
product went into exports. When the foreign countries were no longer
able to buy
U.S. goods, U.S. exports fell immediately by 30 percent. Mass
speculation went
on throughout the late 1920's. In 1929 alone, a record
volume of 1,124,800,410
shares were traded on the New York Stock Exchange.
From early 1928 to September
1929 the Dow Jones Industrial Average rose
from 191 to 381. Company earnings
became of little interest; as long as stock
prices continued to rise, huge
profits could be made. One such example is RCA
Corporation, whose stock price
leapt from 85 to 420 during 1928, although it
had not yet paid a single
dividend. Through the miracle of buying stocks on
margin, investors’ greed
pushed them to search for even higher returns. With
such tremendous profits to
be made in the stock market nobody wanted to make
low interest loans. Investors'
excitement over the proposal of profits like
this drove the market to
ludicrously high levels. By mid 1929 the total of
outstanding brokers' loans was
over $7 billion; in the next three months that
number would reach $8.5 billion.
Interest rates for brokers’ loans were
reaching the sky, going as high as 20%
in March 1929. The speculative boom in
the stock market was based upon
confidence. In the same way, the huge market
crashes of 1929 were based on fear.
Prices had been drifting downward
since September 3, but generally people where
optimistic. Speculators
continued to flock to the market. Then, on Monday
October 21 prices
started to fall quickly. Investors became fearful. Knowing
that prices were
falling, but not by how much, they started selling quickly.
This caused
the collapse to happen faster. Prices stabilized a little on Tuesday
and
Wednesday, but then on Black Thursday, October 24, everything fell
apart
again. By this, time most major investors had lost confidence in the
market.
Once enough investors had decided the boom was over, it was over.
Partial
recovery was achieved on Friday and Saturday when a group of leading
bankers
stepped in to try to stop the crash. Then on Monday the 28 prices
started
dropping again. By the end of the day, the market had fallen 13%. The
next day,
Black Tuesday an unprecedented 16.4 million shares changed
hands. Stocks fell so
much, that at many times during the day no buyers were
available at any price.
This speculation and the resulting stock market
crashes acted as a trigger to
the already unstable U.S. economy. Due to the
poor distribution of wealth, the
economy of the 1920's was one very much
dependent upon confidence. The market
crashes undermined this confidence. The
rich stopped spending on luxury items,
and slowed investments. The
middle-class and poor stopped buying things with
installment credit for fear
of loosing their jobs, and not being able to pay the
interest. Consequently,
industrial production fell by more than 9% between the
market crashes in
October and December 1929. As a result jobs were lost, and
soon people
starting defaulting on their interest payment. Radios and cars
bought with
installment credit had to be returned. All of the sudden warehouses
were
piling up with inventory. The prosperous industries that had been
connected
with the automobile and radio industries started falling apart.
Without a car,
people did not need fuel or tires; without a radio, people had
less need for
electricity. On the international scene, the rich had
practically stopped
lending money to foreign countries. To protect the
nation's businesses the U.S.
imposed higher trade barriers (Hawley-Smoot
Tariff of 1930). Foreigners stopped
buying American products. More jobs were
lost. More stores closed. More banks
went under. More factories closed.
Unemployment grew to five million in 1930, up
to thirteen million in 1932.
The Great Depression had
begun.
Bibliography:
Building
America: FDR and the Great
Depression http://www.academic.marist.edu/ssp96/fdrhome.htm
Overview of
the great depression, and causes, includes primary source documents
and first
person accounts of market crash, wealth, and social, economic and
political
causes. dep.htm at tqd.advanced.org http://tqd.advanced.org/3050/dep.htm
this
site includes a variety of causes of the great depression. The
Great
Depression
http://trinculo.educ.sfu.ca/pgm/depress/greatdepress.html This great
internet
site includes an overview of the great depression pertaining to the
classes
in American society. There are sections on the upper class, lower class,
and
middle class. Popular culture and ethnicity’s are also covered in
detail.
This site includes links. Useful for learning about plight of
classes and
seperation of wealth. EH.RES: EH.R: FORUM: The Great
Depression
http://www2.eh.net/lists/eh.res/forum1/feb/0012.html This is a
forum, or
discussion group about the great depression. Here I will be able to
discuss my
ideas, find more sources, and communicate with others who have
studied the great
depression, or have interesting info/connections to add.
Overview: The Great
Depression – Social
http://www.academic.marist.edu/ssp96/ovs.htm This site
discusses how the
great depression changed family values, and lifestyles. It
describes the role
of different people in society. Franklin D. Roosevelt and the
New Deal
http://www.geocities.com/Athens/4545/ This page offers a list of
interesting
homepages and sites about Roosevelt and his New Deal. There is a lot
of
information, pictures and other educational material. Franklin D.
Roosevelt
http://www.whitehouse.gov/WH/glimpse/presidents/html/fr32.html this
site
includes a biography, and four primary source documents from FDR. They
are all
of his inaugural speeches. With these speeches, I can find out what
he was
thinking, how he was planning to address problems, and what he had
already done.
Presidential Gifts: Franklin D. Roosevelt
http://www.nara.gov/exhall/treasures/fdr.html
this site depict tokens and
treasures from the great depression. Chapter 24: The
New Deal
http://www.cwo.com/~guru/ushch24.html This site describes the new
deal.
Restoring hope, new challenges, life in the new deal era, and the
new deal and
the arts, are some of the topics covered in this in-depth look
at the new deal.
This site will be important in my research. New Jersey
During the Great
Depression http://whitetail.nji.com/~suejoe/ This web
site presents a brief
history of New Jersey leading into the depression, show
how two of FDR's New
Deal programs helped New Jersey's unemployed and
finally, present the
experiences of two family members during the depression.
Home of Franklin D.
Roosevelt National History...
http://www.nps.gov/hofr/links-txt.html this site
contains links to many of
the remaining programs created and enhanced through
the new deal. FDR’s
legacy remains in these important organizations. This will
give me a strong
understanding of the programs, and which ones have actually
created the
most/best change. Yahoo!
Arts:Humanities:History:U.S.
History:2...http://dir.yahoo.com/Arts/Humanities/History/U_S__History/20th_Century/1930s/Great_Depression__The/
this
yahoo stie includes links to numerous sites which address different
aspects
of the gtreat deppression, FDR and the new deal. Related Sites
http://whitetail.nji.com/~suejoe/related_sites.htm
this site has a collection
of links that will help me learn more about the great
depression’s causes,
FDR and the great depression. This site includes a
variety of topics from art
to politics. Home Page: American Memory from the
Library o...
http://lcweb2.loc.gov/ammem/ammemhome.html this site includes a
enormous
section of historical collections of digital libraries. This will
be
especially useful over break because I am traveling the entire time. New
Deal
Network http://newdeal.feri.org/index.htm this priceless site
includes hundreds
of documents in a document library as well as even more
photos in an organized
photo library. Document Library
http://newdeal.feri.org/texts/subject.htm this
site has more than two
thousand documents from the time of the great depression.
I will use this
site to conduct my research and collect accurate historical
facts from a
variety of point of views. 1930s Great Depression Gallery,
Michigan
Hist...
http://www.sos.state.mi.us/history/museum/explore/museums/hismus/1900-75/depressn/labnews1.html
this
site stresses the importance of labor unions during the great depression
as
well as indicating how they arose and became even stronger. Mr. Jerry
Fioravanti
http://whitetail.nji.com/~suejoe/jfioravanti.htm this is a web
page that details
the life of a man who lived during the great depression. In
addition it is
annotated with links and photographs. Branner, James M. Jr.
Understanding the
merican Experience Recent Interpretations. New York:
Harcourt Brace Jovanovich,
Inc., 1973. This book is a compilation of many
recent interpretations of major
issues in American society. Included are
essays and thoughts about the great
depression, a variety of suggestions of
different causes of the great depression
ranging from international afairs to
persoanl pligts. Upper-class, lower-class,
and middle-class. Also lots of
info on Franklin D. Roosevelt. Degler, Carl N.
Out of Our Past. New York:
Harper and Row, Publishers, 1970. Degler writes a
detailed, opinionated
analysis of the great depression, and the forces that
shaped it. This
includes the new deal, FDR, WW II. The cuase of the great
depression are
discussed, however, it is particularly opinionated, with
degler’s thoughts
and twist to the Great depression. Good ideas and lots of
thought though. The
very opinionated writing will give me an idea of my own
opinions, and I can
compare and contrast them. Keller, Morton. The New Deal What
Was It?. New
York: Holt Rinehart and Winston, Inc., 1963. This book of essays
written by
well known authors addresses many different points which led to the
new deal.
In this book, there are questions raised, and attempted to be
answered, such
as whether the new deal was effective at all. Morison, Samuel
Elliot. The
Oxford History of the American People. New York: 1965. This book
gives a
brief overview of the new deal and its effects on American
society.
Although it is not too detailed, it will be useful overall.
Briefly outlines
some causes of the great depression, as well as describing
what life was like
prior to the great depression and how the prior times led
to the crash. Nevins,
Allan. A Short History of the United States. New
York: Alfred A Knopf, 1976.
This book gives an overview of the entire
great depression, the causes, the new
deal, the president’s actions and what
came out of the entire ordeal. From the
roaring 20’s to W II. Short but many
good ideas, facts, and points, lots of
statistics too. Schlesinger, Arthur M.
Jr. The Cycles of American History.
Boston: Houghton Mifflin Company,
1986. Many people have recommended this author
to me. Schlesinger is known
for his writing style and his use of his knowledge.
This book gives a
detailed account of the great depression. It addresses many
issues of the new
deal, from the constitutionality to the goal, to the actual
effect on
Americans FDR and WW II are addressed too. Lots of the causes are
discussed
in deatail, however, this book does not focus on the causes of the
great
depression only, so there is not to much information and discussion
about
it.