Unfortunately the speculators did not realise that the real secret to doing well in the stock market was to stay in the market, to persevere with the shares and keep faith with their investments even when times were difficult. Of course the speculators were the first to back out of the market. And in 1929, the banks that had invested a total of 9 billion dollars, lost most of the money they had invested to the collapsed stock market. Those who maintained their shares until the ultimate crash of the market and who had invested everything lost everything. The vital ingredient that was missing was confidence in the success of their shares.
Another factor that contributed to the collapse was the over production of the companies in the stock market. The problem was that the companies were spending money on producing large amounts of stock, but because of a lack of customers, were not selling all of their produce, and they were therefore losing their investors money. This was partly because the middle classes were still the main consumers of these sorts of goods, despite the fact that wages were up and that people could buy on credit. It was also because of the fact that exports were expensive due to British tariffs. One such industry that was overproducing was that of the farmers. The problem was that with their new combine harvesters and more efficient machinery they found themselves managing, in some cases to produce two sets of harvest. They then suffered after having enjoyed success during and just after the war because they found the costs of their produce going down as farmers fought to offer the cheapest prices they could to keep themselves selling to the city dwellers who now led far more lucrative life styles than the workers of the rural areas.
The construction industry had been showing signs of depletion since 1926, and had gradually been getting worse for most of the decade. Unfortunately, the construction industry had employed a very large work force, mostly because more and more people were starting their own businesses and there own family homes because there was more money available.
Almost all the industries suffered as a result of European tariffs on their exports to the U.K. and the rest of Europe. The European tariffs had been laid down in retaliation and defence to the American Tariffs on their exports to America. The reluctance between the two groups to trade with each other after that had caused a down turn for most of the businesses in the number of people they could sell to. These taxes were known as the Fordney- McCumby taxes. It was America’s unrealistic wish to sell and make profit from the people of the UK and the rest of Europe but not to let them sell and make profit from America which caused the taxes essentially to be introduced.
So, in conclusion there were very large and yet subtle problems with the American economy but which the people were not able to notice and respond to in time. During the day of Thursday 24th 1929 13 million were sold and on Tuesday the 29th 16 and a half million shares were sold for a total price of 10 million dollars. This was a pathetic sum compared to what was supposed to have been in the market.
What were the causes of the great Depression?
The Wall Street crash was fundamentally the factor which caused the beginning of the great depression in the US. This awesome economical slump did occur as a very direct result of the crash and was responsible for the initial loss of value in shares and company. The depression did not begin immediately after the wall street crash. It took a time for the economic mishap to escalate into the most incredibly unhappy time experienced by the population as whole for the entire century.
The first effect of the crash was that several panics were triggered amongst banks in 1932. The fact that banks seemed to be in upheaval and chaos about the situation in the stock market made people lose faith in their banks. People started to fear for the well faire of their money and so they started to withdraw their money from their bank accounts. They did so in trust of good, hard currency. They believed that they would soon not be able to withdraw their money because of the bankruptcy of their banks. This in turn did not stop the banks from going bankrupt anyway and soon many were out of business. This lead to many financial institutions being shut down and many people to stop depositing their money which made the situation of the banks even worse. Without many of the banks, the whole financial situation in much of the country was instable and organisation of businesses was reduced severely. The crash however was not the only factor involved in the depression but was simply the beginning of the end for many businesses and even some people’s livelihoods.
The amount of money the country made (gross national product) fell dramatically during the 30’s. In one year the GNP fell by 9.4 percent and the rate of unemployment had grown from 3.2 percent to 8.7 percent. This was a very large loss considering it had only occurred in one year. This was just the start of the heavy economical troubles though as there were still a large number of losses to be sustained. Throughout the 1930’s the depression took its toll upon the people of America. The price of their foreign trade dropped from an astounding 9 billion to 3 billion dollars. This was largely down to the tariffs that had been placed on American goods by the Europeans that had been retained despite America’s financial difficulties. The fact that there was no longer a European export sales market to turn to in times when the American public could not buy enough goods to keep many businesses alive because they had to either lower their production levels which obviously include sacking many workers and adding to the number of unemployed in the country, or they could risk over production and would probably end up going out business. Most were not willing to take this risk and in the year of 1932 the unemployment level had dropped to a level of 40 million out of a population of 140 million people. Much of the economic trouble arose as a result of the troubles, which the farmers had endured over the previous decade as well as the greater, more recent troubles following the Wall Street crash. They had been suffering gradually worse during the time before the Wall Street crash, even during the years of supposedly universal happiness. The years when the European farmers were largely incapable of producing their own agricultural goods due to the devastation of many of the fields during the war by trench digging and because of the amount of lead sown into the ground from bullets and missiles. At this stage they were quite willing to buy the American products for very large prices. When this time had passed it meant that the Europeans were no longer dependant upon American goods as their agriculture rapidly recovered with the aid of German reparations. The other factor in the demise of European exports was the tariffs applied to American goods being brought to be sold in the European market. The tariffs arose in retaliation to the Americans applying the same tariffs to European goods entering the American market. When this time passed it meant that the farmers still had a very large production rate, but no body to sell their products to. Obviously this caused a lack of profit and a lot of poverty in the countryside. During the post World War 1 farming boom their lands had expanded because the government had encouraged them to buy more lands and to modernise their methods. What further contributed to the farmers’ was the fact that many of their farms especially in the Arizona area had been turned into “Dust bowl farms”. This meant that the modern farming procedures and technology which sped up the farming process had drained the soil and reduced the fertile, lush ground to being baron wasteland where nothing could be grown well. Though small attempts were made in 1923 to help the farmers’ situation, but these were not particularly helpful, as the government seemed to be more concerned with the welfare of the newer, more active businesses such as the automobile industry which at this stage was creating more money. They did not appreciate the fact that the agricultural industry would be an ever-reliant source of business. Because of the fact that though the people can reach a stage where they do not and will not need a new washing machine, car or radio, they will never stop needing food produced by the farms. This was why it would have been a very good idea for the American government to have stepped in and done something about steering the farming businesses off the path towards recession. When the thirties came they were already in debt and so it was even harder for them to repay their debts as they were making very little profits out of their businesses. The troubles in agriculture were definitely a major long-term cause of the depression because the farmers made up a very large proportion of the population and the economy. The farming business remained this way for two decades, so effectively the depression started for the farmers not by the Wall Street crash but by ten years early when their trouble started.
Another problem, which the Americans were faced with, was that the distribution of international wealth was very uneven. While the 20’s had been a time of pleasure and financial gain for the Americans, they had been a time of relative hardship in much of Europe because countries were finding it hard recovering from the war. During the war America had lent its allies 7 billion dollars and then another 3.3 billion during the 20’s. These Europeans were buying American goods using American money. 90 percent the loans made were used to buy US goods. The Europeans still were in no position to pay back the money they had been leant. Countries such as Germany who had been lent money under the Dawes plan were not willing to repay America. The result of this was that America lost vast amounts of money. America’s money lending continued during the 1920’s with 900 million in 1924, and anther 1.25 billion in 1927. America had entered the war with admirable intentions, but now it wanted its money back at a time when it was essential to the well being of the American people.
In my opinion, the main mistakes which the Americans made in the years between the years of the war and the Wall Street crash were that they tried to be the producer for the whole of the world. It seems as though they believed that they could sell their cars and other such technologies as well as their food produce, but not expect to buy from other countries as well. In this way they caused financial hostility in the form of tariffs which were the source of so many of their problems. They also put too much of their money into singular industries such as the auto-mobile and the radio, this of course left the country’s market open to disaster if these businesses took a blow as they did. The Americans were reliant upon the business opportunities supplied by the European community, while they were reliant upon the loans from America to buy American products, and America, who at this stage could not afford to supply loans Europe, and who could not afford to pay back their loans. The whole commotion caused an inevitable down turn in the American stock-market, and to quote Mr. Mark Peel, “When America sneezes, the whole world catches a cold.” Through alienation of other nations through their Republican Laiser faire regime they neglected global wealth and concentrated only upon their own, they did not appreciate that if the country lost its exports, it would be heading very briskly for trouble. The fact that the government left the businesses to their own design may have helped the economy to begin with but in the end, the government should have and could have intervened to stop the demise of the American stock market. I believe they were careless in their decisions to lend the amount of money they did to the European countries and to allow them to purchase so much of their own produce back from them.
How did the great depression affect the lives of the American people?
There is no doubt in my mind that the great depression did have very great effects upon the way in which the very vast majority of the American people led their lives. The depression was a source of poverty and unhappiness for the whole population of the USA for many years. But who were the most and least damaged socially and economically by the depression and what were some of the ways in which people were affected?
Most historians would agree that the Farming population of the USA did have an extremely bad time during the depression. This was mainly down to the fact that they had been suffering gradually worse during the previous decade before the Wall Street crash, even during the years of supposedly universal happiness. The years when the European farmers were largely incapable of producing their own agricultural goods due to the devastation of many of the fields during the war by trench digging and because of the amount of lead sown into the ground from bullets and missiles. When this time had passed it meant that the Europeans were no longer dependant upon American goods as their agriculture rapidly recovered with the aid of German reparations. The other factor in the demise of European exports was the tariffs applied to American goods being brought to be sold in the European market. The tariffs arose in retaliation to the Americans applying the same tariffs to European goods entering the American market.
Subsequently the farmers found themselves with only the American people as customers, which unfortunately would not be enough to keep all the farm businesses alive. The lack of customers and the same production rate being kept up meant that overproduction occurred which obviously caused a lack of profit. The trouble was that the production rate was so high that twenty five percent of the population were employed within the industry. For such a large decrease in production, jobs had to be lost and salaries had to be reduced to accommodate the lack of business and profit for the American farmers to make any sort of living. Much like the agricultural industry is toiling today in Britain, so too was that of the Americans to an even greater extent, and even before the Wall Street crash and the great depression had set in to the rest of America.
Even worse was to come as the great depression set in to the remainder of the population. As other Americans got poorer, so too did they and they found themselves with less and fewer customers, as the public could no longer afford luxury goods. They had to make do with as little as possible in an attempt to save as much they could to avoid starvation and homelessness. The poverty of the nation meant that rival farming companies waged price wars upon each other to try and sell the most food they could to an economising nation. Many felt that it was not even worth the effort of harvesting their crops because of the extremely low prices. This meant that the economy of the entire industry was reduced. So gradually the poor in the farming areas continued to get poorer as the great depression demolished the American economy.
Another factor that contributed to the immense poverty of the farming states was the fact that much of the once lush countryside had been rendered utterly infertile. This happened as a result of desertification. This occurred because of over farming, a lack of preservation and a number of droughts, which created ‘Dust bowl farms’, areas of little or no water and minerals where raising animals or growing large amounts of vegetation was impossible. The reason most of the fields became so irresolute to drought was the fact that new farming methods of the twenties which farmed the land quicker and more efficiently but which left the ground tired and dry. In nineteen twenty- five some farmers had found that they were harvesting three sets of crops every year.
When they were no longer capable of paying their rent on their land, police forced them from their homes. Many people defended their homes, brandishing pitchforks and hanging nooses to prevent officials from coming near. Most vacated from their probably life-long homes and many took up a life of riding freight trains across the whole country in search of work. These people were known as hoboes.
Within the cities, there was also a great deal of extreme poverty and homelessness. Shantytowns sprung up all over the country, normally around the edges of the cities. These were places where people would go and live because they could not afford to pay for rent anywhere, these were most commonly known as ‘Hoovervilles’ after the president whom they believed had brought this misery upon them. These people of extreme poverty spent most of their days looking for ways to obtain money. Begging and stealing were very common occurrences in cities like New-York, where there was extremely large number of homeless and unemployed people, and where they were left with no other choice but to do so or let their families starve.
With all this poverty occurring all over the country, President Edgar Hoover still preached about how adamant he was of a return to prosperity. While people sat starving on the sides of roads and streets, waiting for somebody more fortunate than himself or herself to help them, others scoured the dumps to find any thing of value to them. Metal, plastics or food discarded by the rich was taken in the hope that they might sell it or use it for themselves in some way. Such was the desperation of many Americans that they were reduced to consuming rotten pieces of meat. The government also produced soup for the homeless, this was known as “slush”, and was repulsive even by the low standards of the occupants of the hoovervilles.
‘Last summer, in the height of the hot weather, when the smell was sickening and the flies were thick, there were a hundred people or more coming to the dump each day…A widow who used to do housework and laundry, but now had no work at all, fed herself and her fourteen year old son on garbage. Before she picked up the meat she would take off her glasses so that she couldn’t see the maggots.’
New republic magazine, February 1933
This was the situation for much of the population, but what was the situation for some particular city dwelling groups in the USA at this point? The working classes found themselves facing one major problem, unemployment. Many of those who had worked in the great factories of the cities, like that of Henry Ford in Detroit found that many of them were being laid off from their work places, or that their salaries were being drastically reduced. The unemployment arose as a result of the fact that the amount that people were now spending in the cities was depleting due to their own businesses being plagued by the same problem. The whole depression was caused by, and affected the people in a chain reaction which eventually affected everyone in the USA.
The problems seemed to occur as a result of each other. The fact that people had less money meant that they could not spend as much. This meant that businesses made less profit and often overproduced, the owners of these businesses were then forced to sack many of their workers to avoid going completely out of business, this obviously increased the level of poverty in the country and less and less expenditure came as a result. It was a never-ending chain of events which was hard to escape. It even got to the stage where the farms and other producers could not sell the food they were producing because workers wages were too low. The trouble was that the longer they remained in the process, the harder it was to escape. The government also needed to spend more on the public sobl
that they also continued to get poorer. According to one historian, Henry Steel Commager, “The orchards were heavy with fruit and granaries were bursting with grain. Yet people were starving.”
The middle classes also suffered a lot during this time because they were so unaccustomed to living on the poverty line or below. Due to their unwise investments, they had been reduced to extreme poverty very quickly. Often they were not accepted into Hoboe society. This made survival difficult.
Blacks and Hispanic people also suffered terribly as a result of the depression. Because people were generally prejudiced towards blacks and Hispanics to an extent, they were unwilling to keep black workers earning a living working on their farms or in their factories, when they could have offered jobs to whites who might not have been as capable as the ethnic minorities anyway. Also most blacks were employed in the farming industry which was obviously in turmoil at the time. Especially in the Bible belt states where farming had taken its biggest hit due to much desertification of the once lush land.
Most people suffered very badly as a result of the depression. Many of those who belonged to the upper class were not so badly affected because they had greater knowledge of the stock exchange and therefore had known not to invest too much in the market, and had kept back money for when the bad times began. Those with savings were very lucky. There was no inflation (the value of money did not go down with the costs of food), this made living costs very cheap and made for a time when it was easy to economise. Also the interest rate went down, which meant that debts were lowered. The rich were capable of paying of these debts for very cheap, which was a good prospect for them, and one which most of the upper class jumped at.
Many stockbrokers had anticipated the crash as early as 1928. They saw that they could avoid the losses by selling their shares as soon as they could. They then kept the money and enjoyed seeing the value of their money increase during the depression. These people were able to live their sumptuous through the depression and for a far cheaper price. Unlike most speculators, these men emerged from the crisis as winners, having gained sometimes in huge proportions from the whole experience.
The depression was an incredibly unhappy time for many who loved their work. There were large numbers of very skilled workers who were laid off during the depression. They spent many years standing in lines outside soup kitchens waiting for free morsels of food just to keep them alive, when they felt that they should have been earning their living, instead of being charity cases on the streets of America. This must have been an incredibly depressing time for many of the Americans who had seen their hopes for a long career go up in flames as they were sacked from their jobs one by one. This, as well as the basic need for food for survival was the main reason behind the increase in crime during this time.
To summarise, the Depression was a time when millions suffered as a result of the Wall Street crash and the general deprivation of the welfare of the stock market as well as the neglect of other industries on a long-term basis. The Crash was obviously the most final trigger, which caused the beginning of 10 years which symbolised the unhappiest days the American population had seen for the few hundred years before it occurred. The institution I feel is most responsible for the incident was the republican party who were in power at the time of the disaster and whose policies of not taking too much interest in the state of all of the industries resulted in the party’s eventual down fall. Edgar Hoover, though he did his best was not able to revive the nations economy and industry from its troubles and despite having spent only a fairly small amount of time in power, none the less was not successful during his term of office. I cannot help but feel that the depression could have been avoided had it not been for the selfish, money hungry way in which the stock market and other industries were handled during the 20’s.
