the usa 1929-1941

• wall street crash was one of the turning points of the 20th century for usa and for the world
• wall street crash - merely a sensational event that affected the stock market and caused ruin for many speculators
• the crash is less important than the years of economic depression that followed

reasons for the stock market crash and the subsequent depression

• financial boom & availability of easy credit led to a great bull market - doubling of stock prices between 1926 and 1929.
• september 1929 - sharp fall in prices but no real financial panic
• priced tumbled through the floor in the great crash - first on 24th october (black thursday) - paper value stocks lost $26 billion
• 1930 - great depression began in both the usa and across western europe
• many previous financial panics in the usa since 1873 and this one did not seem any worse
• no rush of bank failures which seemed to show that the financial system was able to cope with the crisis

• wall street crash is wideley regarded as the trigger for the global depression of the 1930s but not everyone agrees that it was the main cause
• in the late 1920s, buying of stocks and shares went out of control. the value of shares ran far higher thant he real worth of the economy. too many shares were bought 'on the margin' (loans). what goes up can always come down! investors forgot this and assumed that the great bull market would go on forever. wall street crash corrected the inflated stock market.
• only a few people saw this coming
• there was relatively little government regulation
• this was the decade of pro-business, laissez-faire policies under harding, coolidge and mellon - policies that assumed that the best thing to do was to interfere as little as possible with the markets - may explain why the government did not intervene more to prevent the stock market boom going over the top
• impact of policies to maintain the gold standard - system of trying a currency to fixed gold reserves

• key currency in internation finance was the british pound sterling
• 1925 - head of the federal reserve board, Strong, gave his support to britain's plan to return to the gold standard
• in order to help strengthen the pound, Strong kept interest rates in the USA low.
• 1927 - british economy still struggling so Strong lowered US interest rates again
• some experts claim that this is what led to the disastrous increase in speculation in the usa, because 'cheap money' made borrowing too easy
• rate of speculation and borrowing meant that loans could not be covered if there was a rush of selling.
• many seemingly rich people had little real money, only the paper value of their stocks and shares
• many investors relied on call loans which were liable to be repaid instantly on demand
• most important factors were psychological - what economists call 'confidence'. boom of the 1920s seemed unstoppable - boom in exports after the war, boom in construction and the motor industry and the low interest rates from 1925.

• june, 1929 - a new scheme - Young Plan - seemed to have sorted out the problems of german reparations payments and Allies war debts
• the feeling of prosperity and confidence in the rising market drowned out the few warning voices suggesting that something should be done to cool down the speculation.
• Strong's successor at the federal reserve pushed for higher interest rates and there was a 1% increase in august 1929 - however it was too late - late october, wall street crashed

origins of the freat depression

• symbol of the great depression - mass unemployment
• industrial investment and consumer spending slumped - workers were laid off
• unemployment soared - from 3% in 1929 to almost 25% in 1933 remained high until WW2 brought full employment after 1941
• more to the great depression than industrial stagnation and mass umemployment - usa was hit by a banking and credit crisis by the collapse of world trade and by an absoloute disaster for american agriculture
• the causes of the depression were numerous and complicated
• many of these causes were structural - long term problems that already existed by 1929 and were suddenly worsened by the economic crisis
• why the depression got steadily worse after 1930 - many people argue that it was due to the mistaken policies of the Hoover administration and that the worst of the depression in 1932-1933 could have been avoided by different policies, resulting in less deflation in 1929-1930.

• structural problems - dated back to WW1 and before - especially true in agriculture - which had experienced a golden age from 1900-1920. the trend was consistantly downward, even without the great crash. number of american people working in agriculture fell in every decade of the 20th century.
• several staple industries faced long-term difficulties in the 1920s - coalmining, shipbuilding, railroads, shoemaking and wool and cotton textiles were all stagnating or in decline. they were in trouble all over europe at the same time.
• weakness of the older industrial sector also undermined the trade unions. the united mine workers had 5 million members in 1920 but only 75,000 by 1928. the american federation of labor (afl) lost 1.7 million members from 1920-1929. a lot of this was due to technological unemployment - the impact of mechanisation which took away about 2 million jobs each year.

• short-term causes - construction boom of 1920s came to an end in 1928 which had a knock-on effect which slowed down spending and investment, the great boom in car ownership slowed sharply and by 1929 most americans who could afford a car already had one, industrial production fell in the 2 months before the wall street crash and there was also a fall in wholesale prices.
• the impact of the wall street crash was obviously a key cause in itself
• crash caused problems for industries and the banking sector
• it affected business confidence, slowing down comsumer spending and damaging production
• it did not become a 'great' depression until the middle of 1931
• important to look at the actions taken after the crash by hoover's government

responses to the great depression under herbert hoover

• herbert hoover - from 1921 he was an effective and well-respected secretary of commerce.
• became president in 1929, all the expectations were that he would be a great success
• hoover spent virtually all his time in office grappling with the crisis of the great depression
• his career ended in failure and disillusionment when he and the republicans in congress were heavily defeated in the 1932 election
• main cause of failure was little to do with himself, the problems of the great depression were so deep that all democratic governments in power before 1932 were swept away
• macdonald's labour government in britain collapsed in 1931.
• in 1932 and 1933 democracy itself collapsed in germany.
• whoever had been president of the usa from 1929 would almost certainly have gone down to defeat as hoover did in 1932

• people at the time made their minds up very quickly about hoover
• 1932 - widely ridiculed and his name became a term of abuse - 'hoover blankets' - newspapers homeless people slept under and 'hoovervilles' - the towns of the unemployed.
• negative perceptions of hoover lasted a long time, beyond the new deal and the liberal era of post-war america
• sympathising with hoover's position - by mid 1931 the whole system for the payments of reparations and war debts had collapsed. major european banks started to collapse and britain was forced to come off the gold standard - hoover was an innocent bystander. he was clearly unlucky but he was still responsible for  the decisions taken by his government in response to the economic crisis
• first response of hoover's administration - mostly passive - traditional conservative approach was to leave business to sort itself out.
• they thought deflation was the right answer and did not believe in the idea that governments should use deficit spending to counteract a recession
• later in 1931-32 hoover changed his mind and carried through a lot of interventionist policies - criticised for doing too little, too late.

• one important example of hoover's thinking was the issue of bank failures
• crisis of banking - was a key element of the great depression that eventually became so serious that the whole banking system had to be suspended by a banking holiday (complete freeze of banking activity)
• american banks were often small, local operations and bank failures were a regular occurence even in good times
• the area that the hoover administration did see as an urgent crisis in 1929-30 was agriculture.
• his 1928 election campaign had promised action to help the struggling rural economy and in april, 1929, hoover called a special session of congress to discuss farming. he was against giving farmers direct subsidies as these were expensive and would alienate europe but he passed the agricultural marketing act - this set up a federal farm board providing loands to help farmers' cooperatives and support the stabilisation of prices.
• the farm board was well intended but it could not solve the basic problem that international food prices were going down because producers in the usa, argentina and canada were producing massive surpluses.

• the grain stablisation corporation - set up in 1930, tried to guarantee fair prices for farmers by buying up wheat so that it could be stored until the price went back up again,but the priced plunged down to less than 40 cents a bushel. the farm board was a futile failure and many farmers went broke.
• situation of farmers was also harmed by protectionism. congress passed the hawley-smoot tariff act in june 1930, pushing import duties up to extremely high levels. this tariff was supposed to apply across industry as well. it did little to help farmers and had a harmful effect on international trade. hoover's advisers strongly urged him to stop the law by using his presidential veto - not doing this could have been hoover's greatest mistake.
• the agricultural situation continued to get worse - in 1930 to 1931, farmers across the mid-west were hit by terrible heat waves and drought. this was the first sign of the 'dust bowl' conditions which meant soil erosion ruined crop production. drought conditions continued throughout most of the 1930s and reached their absolute worst by 'black sunday' in 1935 (weeks of dust storms, but 20 dust blizzards occurred that day, causing widespread damage) hoover's reaction to the crisis was seen as inadequate.
• he was still following the idea of voluntarism rather than government intervention.

• situation of industry and business also worsened in 1931.
• hoover's policy was stll to rely on voluntarism and to try to balance the budget by reducing federal spending, which is why he was opposed to relief schemes demanded by congress
• by the second half of 1931, the full scale of the great depression was becoming plain to see
• in addition to the agricultural crisis, there was mass unemployment: 7 million people out of work and rising steadily.
• industry was at a standstill
• hoover began to change his way of thinking and accepted the need for much more government action to provide public works schemes and to help banks and businesses
• he took too long to realise the need for this and that even then he did not do enough.
• jan, 1932 - pushed through th reconstruction finance corporation (rfc) offering hundreds of millions of dollars in emergency loans to banks and corporations.

• later in 1932 this was followed by the glass-steagall act to provide community loans and the federal home loan bank act to get banks to provide more mortgages
• the emergency relief and construction act - 1932 - provided federal funding for states to run public works schemes to create more jobs, similar to later schemes in roosevelt's new deal
• these steprs were not enough to bring any immediate success and hoover's other actions in 1932 increased his unpopularity
• hoover's revenue act 1932 - increased taxes on businesses and corporations - this did not aid recovery because it slowed down comsumer spending.
• almost everyone in congress agreed with the idea of a balanced budget but the policy made life harder, not easier for struggling farmers and the unemployed.