The second telltale sign came from the stock market. During the Roaring 20s, the boom was dependent almost entirely upon confidence of the investors. Since the stock market was unregulated, many people bought and sold stocks of companies that never existed. More appalling was that many people bought stock on margin------ sometimes they only paid 10% price to buy a stock in the hopes that the stock value will increase and pay off their debt. These were certainly unhealthy practices. The hopes of quick wealth was all that matter in those booming times. The following quote from McElvaline neatly summarizes the attitudes of the investors before the Crash:
It was a telling analogy. Stock speculation provided a legal spirit of intoxication in a time when intoxicating spirits were prohibited by the Eighteenth Amendment. By the fall of 1929, those who were guiding the market were driving under the influence. A terrible crash, to be followed by unpleasant sobering experiences and an awful hangover were the likely results. (McElvaline 46)
The intoxicating confidence of the Roaring 20s certainly fared well in the stock market. Even before the black Tuesday and Friday of 1929, the market suffered breaks in December, 1928 and March, 1929 respectively. However, the market always came back “stronger than ever”. (McElvaline 46) Yet, many investors also realized that that the stocks were overpriced. Irving Fisher, an economist from Yale, noted that “Stock processes have reached what looks like a permanently high plateau”(McElvaline 47). Soon, some people began to sell to take in their profits. (McDuffie 168) In September, prices began to fall. At this time, fear came into play. The continuous falling prices shook even the confidence of many financial professionals, who joined in the ranks of the panicking sellers.
The loss of confidence was the key to exacerbating the Depression. “Among other things, the fragile economy was heavily dependent upon confidence and the spending and investment of the well to do. These were precisely the things that the Crash most effectively undercut.” (McElvaline 49) Adding to this crisis, Herbert Hoover insisted, “prosperity was just around the corner”(McDuffie 169), that there’s no need for direct aid. At the same time, hundreds of thousands of people became homeless and lived in shacks called Hoovervilles. (McDuffie 170)
Although Hoover’s confidence seemed undiminished, those of typical Americans were just the opposite. After the crash, millions of Americans rushed to their banks, demanding money back. Many banks had to call back their loans and caused many businesses to fail; and in the end, the bank themselves failed, leaving many others losing their savings. Businesses also started to cut budgets and lay off employees, during the Depression, about one-fourth of the population was unemployed. Everywhere, Americans were afraid; those people that had luckily retrieved their saving from the bank hid them under their mattresses; those that were currently employed feared unemployment. Those that had lost their jobs were hit the hardest psychologically. “A wide spread attitude of the unemployed early in the Depression was ‘There must be something wrong with a fellow who can’t get a job’” (McElvaline 172).
By 1932, Americans is ready to oust Hoover out of his unfruitful presidency and choose Franklin D. Roosevelt as their new leader. Unlike Hoover who emphasized trickle-down economics, Roosevelt emphasized direct aid and took more drastic measures to resolve the problems. First of all, he aimed to relieve Americans of fear. In his inaugural speech he prompted Americans to take their money out of their mattresses and put them into banks. To insure the Americans of the security of their money, FDR passed the Glass Steagall Acts, which created the Federal Deposit Insurance Corporation (FDIC), which insured individual deposits up to $5000. (Bailey 802) To relieve the growing unemployment, he created the Civilian Conservation Corps (CCC), which employed the nation’s youth in conservation projects. To help the farmers, he passed the Agricultural Adjustment Act, which paid farmers not to produce excesses in order to keep the crop prices reasonable. As for monetary policies, Roosevelt “instructed the Treasury to purchase gold at increasing prices” and purposefully induced inflation to relieve the debtors. (Bailey 801) He also declared “banking holidays” to slow down the downward spiral of failing banks. (McEachern 613)
In conclusion, fear played an important role in exacerbating the fall in output employment and income. It reduced the confidence of investors and caused panic in the banking industry; the stock market crashed, and one-third of all banks in the U.S. were forced to close. In the agriculture sector, fear did not play as much role as the improved technology, which too drastically increased supplies that there were a surplus and little profit. Americans were afraid of losing their jobs, their livelihood. They lost confidence in their economy, namely in the banks and the stock market that they foolishly withdraw their money and tried to sell their stocks. The stock prices were low, they should have been buying, not selling. The banks needed money; they shouldn’t withdraw money but should save more. But they were too afraid. During the Hoover administration, the government believed that all this is just a natural cycle of the economy, that everything will be okay and “prosperity is just around the corner”(McDuffie 169). Roosevelt administration took more drastic measures; although many still argue that it did not end the Great Depression, we can at least be sure that it did provide relief to hundreds of thousands of suffering people. Americans today do not have to worry as much about the economy because now everything is more regulated. With the FDIC, we can now be sure that our money in the banks is safe. We can no longer buy stocks on margin, thus we would not have such dramatic crashes as those in 1929. Finally, we understand the economy a lot more than we do in the 30s, with the passing of the Employment Act of 196, the president now have the expertise of the Council of Economic Advisors to instruct him. If anything similar to the Great Depression occurs in the future, we would know how to deal with it.
