Causes and Consequences of the Wall Street Crash
The share boom
During the 1920s, many people invested in shares hence it became a regular feature in the daily life of the average citizen. Number of shares bought and sold rose from 451 million in 1926 to 1.1 billion in 1929. In the same 3 years, the average top rice for the 25 leading companies rose from $186 to $469 per share. Many ordinary people made decent profits from these shares.
The increase in the stock market relied on confidence – confidence that the US industry would continue expanding and make high profits. Most people bought shares “on the margin”, which meant that they paid only a 10 or 20 % deposit on their shares and relied on selling their shares at a high profit to cover the 80 or 90 % they owed to the stockbroker (a person who acts as a go-between for the company and the person who is buying the shares).
This system seemed to work. For instance, an investor who bought shares in Hershey Chocolate in August 1928 and sold in September 1929 made over 100% profit. These rises in share price could not continue although people were convinced it could. Speculators believed that they could make quick profits in the Stock Market – “get rich quick”. Nation’s leaders encouraged this and advised ordinary people to play the Stock Market and make their fortune. By 1929, there were signs that this will be ending.
Overproduction
By 1929, various industries began to suffer like the agricultural which suffered throughout the 1920s. The construction boom began to slow down and by 1929 it ended. Car manufacturers found it difficult to sell their cars as there were more cars than customers. Families that could afford a car had bought one in the early 1920s hence they didn’t need a new one. By August 1929, automobile factories had sacked thousands of employees due to the decrease in demand. This was the same case in industries such as textiles, lumber, mining and railroad. Electronic goods such as radios or refrigerators were stocking up at warehouses across the country and the USA was experiencing difficulties due to overproduction. The USA could not sell abroad either as other countries used the Fordney McCumber Tariff in their countries. Company sales dropped along with profits and shares. The ideas of share purchasing for high profits had died.
The Crash
During the summer of 1929, share prices in New York began to fall. In September 1929, there seemed to be a future problem for Wall Street when British banks sold many of their shares. Financial community continued its assurances on the Stock Market but panic endured when prices continued to drop. The panic forced people to sell their shares hence on 24th October 1929 (“Black Thursday”), nearly 13 million shares were sold.
On 29th October, 16.4 million shares were sold hence this was known as “The Wall Street Crash”. Wall Street is the home to the US Stock Exchange where shares and stocks are bought and sold daily. It is a street in New York. Shares after the Crash had become worthless and people who bought “on the margin” could not pay their debts. Americans, who prospered in the 1920s, now were forced to suffer poverty and bankruptcy.
Banks loaned money for investors and invested large amounts in the Stock Market themselves so they lost their money. They recalled the loans they granted to companies hence companies failed – led to extra unemployment.
Effects of the Crash
- Large scale bankruptcies.
- 20000 businesses collapsed in 1929, 30000 in 1932.
- 12 million unemployed citizens in 1932.
- The average family’s income dropped from $2300 to $1600 in 1932.
The Great Depression
The Crash was the beginning of the Great Depression. Depression lasted throughout the 1930s and was the worst economic decline in the history of the USA. Millions of Americans struggled to find jobs, thousands were homeless and many toured the city in rail freight cars. Banks failed hence people lost their life savings.
The Crash did not cause the Great Depression – there were other factors. One view is that wages were kept low in the 1920s thus people were unable to buy goods. Henry Ford claimed that “American production has come to surpass our people’s power to purchase”. Manufacturers were greedy hence refused to lower prices during the Depression. Another view is that the government did not use the correct strategy after 1929 – imports limited, prices of manufactured goods remained high hence demand was low and the US banking system was not improved.
The impact of the Depression on people’s lives throughout US society
Employment was hard to find as industries were cutting back on staff due to overproduction. Government made mistakes but did little to rectify their mistakes. For instance, taxes were reduced for the wealthy as the government hoping that they would invest in new factories and hire workers but this did not happen. Tariffs on imported goods increased but this caused other companies to strike back, reducing US exports and obstructing any hopes of economic recovery.
The government endured its policy of “laissez-faire” to deal with the consequences of the Crash. Hoover concluded that this policy may create wealth. Hoover believed in rugged individualism (an idea of people looking after themselves without help from government). He felt that help from the federal government would destroy US self reliance and self-esteem.
By the end of 1931, over 2.5 million people still in work had their wages reduced by up to 10%. Soon, staff that was discharged from work hence it replaced wage cuts. USA was becoming a land of unemployment, tramps, bread queues and soup kitchens. Many Americans found themselves homeless in a very short period of time (hence living at the edge of cities in shacks made of tine and old crates. These areas were named “Hoovervilles” as an insult to Hoover for his involvement in the Crash. 1 million people (including 200 000 children) became hoboes. Farm workers suffered as well. Those in jobs in the 1930s suffered one of the worst droughts in US history. Crops failed in Kentucky, Arkansas, Illinois, Missouri, Virginia, Ohio, Tennessee, Mississippi and Louisiana – almost 7 million suffered.
Depression bought misery to millions of people. Life savings disappeared and unemployment reached 14 million. Breadlines and soup kitchens formed in many cities but often there was little help for the unemployed. Farmers left their land and thousands drove west in search of work in California. American Dream became a nightmare. Thousands of American workers hunted for employment in Europe and there were 100 000 applications for jobs in the Soviet Union. Roosevelt showed concern for the individual thus he was a saviour (as a politician).
President Hoover
Herbert Hoover had an extremely bad press in US history. He was a President who claimed the USA would soon “be in sight of the day when poverty will be banished from this nation”. Hoover believed government interference would “stifle initiative and invention”. After the Crash, angry US citizens who became homeless sarcastically named their shacks “Hoovervilles” and wrapped themselves in “Hoover blankets” (newspapers) to keep warm. Hoover did not cause the Crash and there was little he could do to lessen its impact.
Government attempts at recovery, 1929-33
Hoover was forced to take action. By reducing taxes on the wealthy, he gained extra money to aid farmers through the Agricultural Marketing Act but this was not enough. Farmers needed help paying their mortgages hence despite the aid, they could not pay off their loans; bankruptcies endured.
Unemployment was increasing every month, charity funds were insufficient. For instance, Toledo (Ohio) could only afford 2 cents per relief meal per day. New York only gave $2.39 per week to each family on relief.
Hoover set up the Reconstruction Finance Corporation (RFC) which distributed $300 million to US state governments for unemployment relief. Extra assistance was provided when the Federal Home Loan Bank Act was passed in July 1932. This was formed to encourage home construction, increase employment and encourage home ownership. The Act set up twelve regional banks with a fund of $125 million to help fund discounted home loans.
Resentment among the people
Wages fell and unemployment rose, so people were offended in the Depression. Hoover became more in 1932 when he ordered the US army to split up the Bonus Marchers (veterans of WW1). The Bonus Marchers marched to Washington DC to ask for the economic bonus, which was due to them in 1945, but they wanted pay early because they suffered the Depression. These veterans were accompanied by other unemployed people (approx. 12,000 to 40,000). They even built a “Hooverville” at the edge of the capital. Over 100 people were injured when the army tried to clear the Bonus Marchers hence the incident did not please the US citizens. People wanted a change.
The nature of the New Deal: policies to deal with agriculture, industry, unemployment and welfare
The role of Roosevelt in recovery
In Roosevelt’s introductory speech (March 1933), Roosevelt claimed “the only thing we have to fear is fear itself”. Roosevelt believed that it was his job to restore the faith that most Americans lost in their country. He promised the “New Deal” for US people.
Roosevelt began by promoting his felling of friendliness by using informal language in his frequent radio broadcasts (“fireside chats”). These chats explained the legislation of the New Deal in simple terms. People felt as if they gained a President who can understand their problems.
Roosevelt once said “In order to preserve we had to reform” so this forced Roosevelt to introduce a series of proposals that tackled the problems of the US Depression in a revolutionary way. For the first time, the Federal government took responsibility for its citizens therefore it would release the USA from the problems caused by “laissez-faire” and “rugged individualism”. From Roosevelt’s first day in office, the USA began a time of exhaustive activities which is known as the Hundred Days. During this time, the Federal government tried to do something for everyone. Roosevelt sent 15 separate proposals to Congress and they were all accepted. The various organisations set up were called the “Alphabet Agencies”.
The Alphabet Agencies
The Emergency Banking Relief Act:
Before and during 1933, USA had experienced the collapse of many banks hence many people’s savings were lost hence there was little confidence in the banking system. On Roosevelt’s first day in office, he closed all the banks for three days. At the same time, Roosevelt stopped the export of gold, silver and currency. This Act stated that banks only in financial shape would be reopened. People’s faith in the banking system was immediately restored and within a few days, deposits overtook withdrawals. Banks were forbidden from investing their funds in the Stock Market. The Banking crisis was over.
The Civilian Conservation Corps (CCC):
Roosevelt persuaded Congress to provide money for public works projects and to set up a programme to put unemployed youths to work. The CCC was set up to improve the country’s natural resources. By early summer 1933, about 1300 CCC camps were set up and were providing work for young men between the ages of 18 and 25. Work involved reforestation, prevention of soil erosion, flood control, fire prevention, road building as well as park and recreational area development. CCC closed down in the 1940s but had employed 2.5 million young Americans.
The Federal Emergency Relief Act (FERA):
The FERA was authorised to distribute $500 million through grants to state and local agencies for employment relief. Later, this was replaced with the Civil Works Administration (CWA) to create public jobs. By January 1934, about 4 million Americans (mostly unskilled workers) were on the CWA payroll.
The Tennessee Valley Authority (TVA):
Set up by Roosevelt in April 1933. Organisation was responsible for flood/erosion control, the development of navigation, generation and sale of electric power and the manufacture/distribution of fertiliser. Activities of the TVA covered seven states, 64 000 sq km and affected 7 million people.
The Public Works Administration (PWA):
Motivated the economy by means of huge public works projects, such as dams, port facilities, sewage plants, bridges, roads, airports and hospitals.
The National Industry Recovery Act (NIRA):
Set up by Roosevelt to help factories recover. NIRA tried to establish a co-operative relationship between government, business and labour. One section of the Act set codes of fair practice for working conditions, wages and business practices. The codes were to be enforced by the National Recovery Administration (NRA). NIRA declared that workers should be allowed to organise the trade unions and to bargain collectively. The Act shortened an individual’s working hours, forcing businesses to hire more people hence creating an additional 2 million jobs. People accepted these new schemes hence it showed popularity for Roosevelt and the New Deal.
The Agricultural Adjustment Act (AAA):
Aimed to pay farmers’ incomes but to do this it paid farmers a financial support to reduce their production of rice, wheat, cotton, tobacco, dairy products and pigs. These cutbacks would help to bring the supply of agricultural products more in line with the demand of them, causing prices to rise. Farmers had to plough under portions of their crops and kill animals at a time when thousands of people were suffering from malnutrition. Increasing criticism as prices rose.
The Second New Deal
In January 1935, Roosevelt introduced his Second New Deal in his annual message to Congress. Roosevelt wanted to put people back to work as soon as possible.
The Works Progress Administration (WPA):
Between May 1935 and June 1943, WPA spent about $11 billion on around 1.5 million different projects. WPA workers built/improved 5900 schools, 1000 airfields, over 2500 hospitals, 69 000 km’s of road and almost 13 000 playing fields. In addition, there were schemes where artists, writers and actors were employed.
The National Labour Relations Act (1935) - also known as the “Wagner Act”:
This Act protected the right of workers to join unions. The National Labour Relations Board aimed to help workers take action against unfair employers who used unfair practices such as sacking workers who joined the union. The business community opposed this Act as they felt workers gained excessive power.
President Roosevelt was particularly concerned with providing security for the unemployed, the elderly and the disabled. He appointed a committee to deal with the issue and develop a policy that to meet the needs of these people. The Social Security Act of 1935 allowed the government to pay pensions for citizens over 65, unemployment benefits and aid to the disabled (including their children). The Social Security had a major affect on people’s lives so it showed that Hoover’s policy of lassiez-faire had been forgotten. It is said that Roosevelt has been most pleased by introducing this Act instead of any other Act in his New Deal.
Under the New Deal, the government took on many new areas of responsibility but this led to the creation of a complex bureaucracy which people hated. This action is revolutionary and was contrary to the ideals of the USA and the basis on which the USA had been created in 1776. The idea of the government being responsible for the economic and social welfare of its people was accepted. The work of Roosevelt had a positive turning point on US history.
Opposition to Roosevelt and the New Deal
In the 1936 Presidential Election, Roosevelt received 60.7% of the vote and won 523 out of 531 Electoral College votes (the college consists of representatives from each US state). The election was bitter due to Roosevelt having to endure personal and political attacks as well as attacks being made on his family.
Roosevelt won a landslide victory in 1936 but there was still opposition to the New Deal and the way in which he carried out his policies. The Republican candidate, Senator Alfred Landon, stated that the New Deal was undermining traditional US initiative and self-reliance. There were many sections of society who supported Landon because they saw the recent legalisation as limiting their own power.
Between 1933 and 1938, many government agencies were created, the number of civil servants rose from 500 000 to over 850 000 and many new federal buildings were constructed in Washington DC. The vast extension of federal government activity horrified Republicans, big businesses and the Supreme Court. The New Deal, and the associated extension of federal power, seemed to undermine the individualism which the USA prided itself on. Many believed the New Deal was Socialism (a political philosophy that aims to create a more equal society by distributing wealth from the rich to the poor, which was sometimes seen as “robbing the rich to pay the poor”).
The New Deal permitted workers to form and join unions. This resulted in a large number of strikes in 1934. Since ionisation increased strikes, business leaders and factory owners attempted to stop workers from joining unions. Although it was illegal, many employers sacked or intimidated workers who tried to start unions.
The famed Senator Huey Long of Louisiana opposed Roosevelt who believed that socialism should be taken further. He believed that there should be a redistribution of wealth so he developed a plan. His “Share Our Wealth” scheme called for the federal government to guarantee every family a minimum annual income of $5000. To pay for this, he planned to tax the property, inheritance and income of wealthy people. By 1935, he claimed to have about 27 000 “Share Our Wealth” clubs and a mail list of 7.5 million people.
Roosevelt and the Supreme Court
In 1935, Roosevelt encountered opposition from the US Supreme Court. The Court stated that NIRA was unconstitutional and then, in the following year, the Court judged that the AAA was also unconstitutional. Roosevelt decided to take action against the Supreme Court. He thought the judges were out of touch. Moreover, all nine were appointed before the start of his presidency in 1933.
In February 1937, he put forward a plan to reorganise the judiciary by arguing that the current judges are too old to keep up with the heavy workload. He intended to create another six judges. The plan was building bitter opposition, not only from anti-New Dealers, but also from Roosevelt’s own supporters.
Roosevelt’s action was seen as an attempt to “pack” (fill) the Supreme Court with pro- New Deal judges. This would destroy the independence of the judiciary and give more power to the President. It was seen as a measure that would upset the “checks and balances” of the constitution of the USA.
The plan failed and Roosevelt lost some popularity. The Wagner Act and the Social Security Act were upheld and, as judges retired during the next four years, Roosevelt appointed six of his supporters.
A view of the New Deal is that Roosevelt did not do enough for the needy USA. Farm labourers, the elderly, black workers in the South and women saw little improvement in the first years of Roosevelt’s presidency. Another view is that Roosevelt interfered excessively in business and spent excessively on relieving poverty and unemployment. Others believe that Roosevelt was undemocratic and tried to place too much power in his own hands, almost like a dictator. Opposition towards him, increased. The struggle with the Supreme Court can be used as evidence of the President’s power. The constitution of the USA stated that there must be clear separation between the President and the legal system.
The extent of recovery and success of the New Deal to 1941
At the height of the problem with the Supreme Court, Roosevelt saw the economy running into trouble again. Industrial production reduced, stocks and shares were sold in large capacities and unemployment increased by 5 million people within one year. The government was forced to spend large sums of money in order to stimulate the economy. In April 1938, Roosevelt, asked Congress to approve a $3.8 billion budget to help finance relief and recovery.
The aim of President Roosevelt had been to restore the US economy. The theory was that jobs would be created; there would be greater confidence in business and industry so more investment would result.
The New Deal restored the US broken economy. The TVA was proved to be successful and the New Deal bought relief, employment and hope back to Americans. Most Americans were better off by the end of 1938 than they had been in 1932.
In addition the New Deal strengthened US democracy. The faith was restored in each citizen by Roosevelt. The New Deal was not completely successful. As tension increased in Asia and Europe, Roosevelt concentrated on international issues so the New Deal came to a halt. The Second World War helped the USA to emerge from the Depression but there were still 6 million unemployed citizens in 1941.
One view of the New Deal is that Roosevelt did not restore the US economy and that the Second World War allowed recovery. This time the jobs were permanent and with the expansion of the armed forces and munitions, many people could return to work. Another view of the New Deal is that not only was it relatively successful in the 1930s in creating jobs; it gave hope and created a spirit of optimism in a time of crisis. It is viewed as a period when people of the USA might have resorted to fascism but were saved. Roosevelt was accused of resorting to fascism.
A popular joke of the 1930s linking two cows to political philosophy
Socialism: You own two cows you give one to your neighbour.
Communism: You give both cows to the government and the government gives you back the milk.
Fascism: You keep the cows but give the milk to the government who sells it back to you.
New Dealism: You shoot both cows and milk the government.