Exam preparation materials

Chapter 19. The Great Depression and the New Deal

The era of the Great Depression tested the character of the American nation as no previous crisis period in America had (with the obvious exception of the Civil War). The lives of those who struggled through the Great Depression were inexorably changed. The factions that came together to make up the Democratic party in the 1930s continued to control much of American political life for the next 50 years. The New Deal, Franklin Roosevelt’s series of experimental programs designed to tackle the monumental problems of the 1930s, greatly changed the role of the federal government in American society. The political, social, and cultural fabric of America was permanently altered by the events of the 1930s.

THE AMERICAN ECONOMY OF THE 1920s: THE ROOTS OF THE GREAT DEPRESSION

The vast majority of Americans in 1929 foresaw a continuation of the dizzying economic growth that had taken place in most of the decade. In his inauguration speech, newly elected president Herbert Hoover reemphasized his campaign promise that it was the goal of the Republican party to permanently wipe out poverty in America. In early September 1929, the average share of stock on the New York Stock Exchange stood near 350, a gain of nearly 200 points in a little over a year.

However, careful observers of the American economy noticed several disturbing trends that only seemed to be increasing. These included the following:

1. Agricultural problems. Farm prices were at a record high during World War I, dropped after the war, and never recovered. Many farmers were unable to pay banks back loans they had acquired to purchase land, tractors, and other equipment; many farms were foreclosed on and in farm states over 6200 banks were forced to close. Legislation to help farmers had been passed by the Congress, but bills to help the farmers were vetoed by President Coolidge on two occasions.

2. Installment buying. As stated in the previous chapter, large numbers of Americans purchased automobiles, refrigerators, vacuum cleaners, and similar household products on credit. Many Americans simply did not have anywhere near enough cash to pay for all they had purchased. The money of many families was tied up making installment payments for three or four big-ticket items; this prevented them from purchasing many other items available for sale. In 1928 and 1929 new goods continued to be produced, but many people could simply not afford to buy them. As a result, layoffs began occurring in some industries as early as 1928.

3. Uneven division of wealth. America was wealthy in the 1920s, but this wealth did not extend to all segments of society. The gains made by wealthy Americans in the 1920s far outstripped gains made by the working class. By the time of the stock market crash, the upper 0.2 percent of the population controlled over 40 percent of the nation’s savings. On the other hand, over three-quarters of American families made less than $3000 a year. Problems that could develop from this situation were obvious. The bottom three-quarters of families were too poor to purchase much to help the economy to continue to flourish. Furthermore, at the early signs of economic trouble, many of the wealthiest Americans, fearing the worst, curtailed their spending.

4. The stock market. There were cases in the late 1920s of ordinary citizens becoming very, very rich by purchasing stock. Some of these people were engaged in speculation, meaning that they would invest in something (like the previously mentioned Florida lands) that was very risky, but that they could potentially “make a killing” on. Another common practice in the late 1920s was buying shares of stock on the margin. A stockbroker might allow a buyer to purchase stock for only a percentage of what it was worth (commonly as low as 20 percent); the rest could be borrowed from the broker. As long as stock prices continued to rise, investors would have no trouble paying brokers back for these loans. After the stock market crash, brokers wanted payment for these loans. Countless numbers of investors had no way to make these payments.

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