On October 29, 1929, was "Black Tuesday", and the start of the great depression the New York Stock Exchange suffered massive reductions in stock-market prices. By 1933 stocks had fallen to about 20% of their value, A different banking crisis hit Britain in 1931. Here it was the central bank, the Bank of England no less, it culminated in Britain’s abandonment of the gold standard, Sterling now floated to become a floating currency (its value was no longer fixed) and its value dropped by some 30 per cent.
The worldwide economic downturn that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world. Although the Depression originated in the United States, it resulted in drastic declines in output, severe unemployment, and acute deflation in almost every country of the globe. But its social and cultural effects were no less staggering, especially in the United States, where the Great Depression ranks second only to the Civil War as the gravest crisis in American history.
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The initial decline in output in the United States in the summer of 1929 is widely believed to have stemmed from tight U.S. monetary policy aimed at limiting stock market speculation. The 1920s had been a prosperous decade, but not an exceptional boom period; wholesale goods prices had remained nearly constant throughout the decade and there had been mild recessions in both 1924 and 1927. The one obvious area of excess was the stock market. Stock prices had risen more than fourfold from the low in 1921 to the peak reached in 1929. In 1928 and 1929, the Federal Reserve had raised interest rates in hopes of slowing the rapid rise in stock prices.
These higher interest rates depressed interest-sensitive spending in areas such as construction and automobile purchases, which in turn reduced production. Some scholars believe that a boom in housing construction in the mid-1920s led to an excess supply of housing and a particularly large drop in construction in 1928 and 1929. By the fall of 1929, U.S. stock prices had reached levels that could not be justified by reasonable anticipations of future earnings. As a result, when a variety of minor events led to gradual price declines in October 1929, investors lost confidence and the stock market bubble burst. Panic selling began on "Black Thursday," October 24, 1929.
Many stocks had been purchased on margin, that is, using loans secured by only a small fraction of the stocks’ value. As a result, the price declines forced some investors to liquidate their holdings, thus exacerbating the fall in prices. Between their peak in September and their low in November, U.S. stock prices (measured using the Cowles Index) declined 33 percent. Because the decline was so dramatic, this event is often referred to as the Great Crash of 1929. The stock market crash reduced American aggregate demand substantially.
Consumer purchases of durable goods and business investment fell sharply after the crash. A likely explanation is that the financial crisis generated considerable uncertainty about future income, which in turn led consumers and firms to put off purchases of durable goods. Although the loss of wealth caused by the decline in stock prices was relatively small, the crash may also have depressed spending by making people feel poorer.
As a result of the drastic decline in consumer and firm spending, real output in the United States, which had been declining slowly up to this point, fell rapidly in late 1929 and throughout 1930. Thus, while the Great Crash of the stock market and the Great Depression are two quite separate events, the decline in stock prices was one factor causing the decline in production and employment in the United States.
On Tuesday, October 29, 1929, the stock market collapsed. Ten billion dollars in stocks were lost in very heavy trading in only a few hours that day. Stocks that had sold for $20-$40 a share just a few weeks before now sold for pennies. High rollers who had been speculating in the market were immediately bankrupt. President Hoover’s claim that the country’s business was "on a sound and prosperous basis" proved to be tragically incorrect.
In the weeks and months that followed, the effects were even more profound. Five thousand banks failed and closed their doors, causing over nine million people to lose their savings accounts. For the first three years following the stock market crash, an average of 100,000 jobs were lost each week.
Since so many people were out of work or in danger of losing their jobs, people began to economize and avoid unnecessary purchases. As demand for goods decreased, businesses were forced to lay off workers, adding to unemployment. Soon, people’s money ran out, and they were unable to pay their mortgages and other debts. They lost their homes, cars, and other valuables. Hardship became a way of life. Some families were forced to live in shacks made of discarded lumber and cardboard.
Given the key roles of monetary contraction and the gold standard in causing the Great Depression, it is not surprising that currency devaluations and monetary expansion became the leading sources of recovery throughout the world. There is a notable correlation between the time countries abandoned the gold standard (or devalued their currencies substantially) and a renewed growth in their output.
For example, Britain, which was forced off the gold standard in September 1931, recovered relatively early, while the United States, which did not effectively devalue its currency until 1933, recovered substantially later. Similarly, the Latin American countries of Argentina and Brazil, which began to devalue in 1929, had relatively mild downturns and were largely recovered by 1935. In contrast, the "Gold Bloc" countries of Belgium and France, which were particularly wedded to the gold standard and slow to devalue, still had industrial production in 1935 well below its 1929 level.
Devaluation, however, did not increase output directly. Rather, it allowed countries to expand their money supplies without concern about gold movements and exchange rates. Countries that took greater advantage of this freedom saw greater recovery. The monetary expansion that began in the United States in early 1933 was particularly dramatic.
The American money supply increased nearly 42 percent between 1933 and 1937. This monetary expansion stemmed largely from a substantial gold inflow to the United States, caused in part by the rising political tensions in Europe that eventually led to World War II. Worldwide monetary expansion stimulated spending by lowering interest rates and making credit more widely available.
It also created expectations of inflation, rather than deflation, and so made potential borrowers more confident that their wages and profits would be sufficient to cover their loan payments if they chose to borrow. One sign that monetary expansion stimulated recovery in the United States by encouraging borrowing was that consumer and business spending on interest-sensitive items such as cars, trucks, and machinery rose well before consumer spending on services. Fiscal policy played a relatively small role in stimulating recovery in the United States.
The most obvious economic impact of the Great Depression was human suffering. In a short period of time world output and standards of living dropped precipitously. As much as one fourth of the labour force in industrialized countries was unable to find work in the early 1930s. While conditions began to improve by the mid-1930s, total recovery was not accomplished until the end of the decade. The Depression and the policy response also changed the world economy in crucial ways.
The Great Depression hastened, if not caused, the end of the international gold standard. Although a system of fixed currency exchange rates was reinstated after World War II under the Bretton Woods system, the economies of the world never embraced that system with the conviction and fervour they had brought to the gold standard. By 1973, fixed exchange rates were abandoned in favour of floating rates.
Both labour unions and the welfare state expanded substantially during the 1930s. In the United States, union membership more than doubled between 1930 and 1940. This trend was stimulated both by the severe unemployment of the 1930s and the passage of the National Labour Relations (Wagner) Act (1935), which encouraged collective bargaining.
The United States established unemployment compensation and old age and survivors’ insurance through the Social Security Act (1935), which was passed in response to the hardships of the 1930s. It is uncertain whether these changes would have eventually occurred in the United States without the Depression.
Many European countries had experienced significant increases in union membership and had established government pensions before the 1930s. Both of these trends, however, accelerated in Europe during the Depression. In many countries, government regulation of the economy, especially of financial markets, increased substantially during the Great Depression.
The United States, for example, established the Securities and Exchange Commission in 1934 to regulate new stock issues and stock market trading practices. The Banking Act of 1933 (also known as the Glass-Steagall Act) established deposit insurance in the United States and prohibited banks from underwriting or dealing in securities. Deposit insurance, which did not become common worldwide until after World War II, effectively eliminated banking panics as an exacerbating factor in recessions in the United States after 1933.
[Oil City, Penna.
December 15, 1930]
... I have none of these things [that the rich have], what do they care how much we suffer,
how much the health of our children is menaced. Now I happen to know there is something can be done about it and Oil City needs to be awakened up to that fact and compelled to act. Now that our income is but $15.60 a week (their are five of us My husband Three little children and myself). My husband who is a world war Veteran and saw active service in the trenches, became desperate and applied for Compensation or a pension from the Government and was turned down and that started me thinking.... [There should be] enough to pay all world war veterans a pension, dysabeled or not dysabeled and there by relieve a lot of suffering, and banish resentment that causes Rebellions and Bolshevism.
Oh why is it that it is allways a bunch of overley rich, selfish, dumb, ignorant money hogs that persist in being Senitors, legislatures, representitives Where would they and their possessions be if it were not for the Common Soldier,
the common laborer that is compelled to work for a starvation wage. for I tell you again the hog of a Landlord gets his there is not enough left for the necessaries if a man has three or more children. Not so many years ago in Russia all the sufferings of poverty (and you can never feel them you are on the other side of the fence but try to understand) conceived a child, that child was brought forth in agony, and its name was Bolshevism.
I am on the other side of the fence from you, you are not in a position to see, but I, I can see and feel and understand. I have lived and suffered too. I know, and right now our good old U. S. A. is sitting on a Seething Volcano. In the Public Schools our little children stand at salute and recite a "rig ma role" in which is mentioned "Justice to all" What a lie, what a naked lie, when honest, law abiding citizens, decendents of Revilutionary heros,
Civil War heros, and World war heros are denied the priviledge of owning their own homes, that foundation of good citizenship, good morals, and the very foundation of good government the world over. Is all that our Soldiers of all wars fought bled and died for to be sacrificed to a God awful hideious Rebellion? in which all our Citizens will be involved, because of the dumb bungling of rich politicians? Oh for a few Statesmen, oh for but one statesman, as fearless as Abraham Lincoln, the amancipator who died for us. and who said, you can fool some of the people some of the time, But you can't fool all of the people all of the time. Heres hoping you have read this to the end and think it over. I wish you a Mery Christmas and a Happy New Year. Very Truly Yours
Mrs. M. E. B
The timing and severity of the Great Depression varied substantially across countries. The Depression was particularly long and severe in the United States and Europe; it was milder in Japan and much of Latin America. Perhaps not surprisingly, the worst depression ever experienced stemmed from a multitude of causes. Declines in consumer demand, financial panics, and misguided government policies caused economic output to fall in the United States.
The gold standard, which linked nearly all the countries of the world in a network of fixed currency exchange rates, played a key role in transmitting the American downturn to other countries. The recovery from the Great Depression was spurred largely by the abandonment of the gold standard and the ensuing monetary expansion. The Great Depression brought about fundamental changes in economic institutions, macroeconomic policy, and economic theory.
In the United States, the Great Depression began in the summer of 1929. The downturn became markedly worse in late 1929 and continued until early 1933. Real output and prices fell precipitously. Between the peak and the trough of the downturn, industrial production in the United States declined 47 percent and real GDP fell 30 percent. The wholesale price index declined 33 percent (such declines in the price level are referred to as "deflation"). Although there is some debate about the reliability of the statistics, it is widely agreed that the unemployment rate exceeded 20 percent at its highest point.
The severity of these declines becomes especially clear when they are compared with America’s next worst recession of the 20th century, that of 1981–82, when real GDP declined just 2 percent and the unemployment rate peaked at under 10 percent. Moreover, during the 1981– 82 recession prices continued to rise, although the rate of price increase slowed substantially (a phenomenon known as "disinflation"). The timing and severity of the Great Depression varied substantially across countries.
Great Britain struggled with low growth and recession during most of the second half of the 1920s, due largely to its decision in 1925 to return to the gold standard with an overvalued pound. Britain did not slip into severe depression, however, until early 1930, and the peak-to-trough decline in industrial production was roughly one-third that of the United States.
France also experienced a relatively short downturn in the early 1930s. The French recovery in 1932 and 1933, however, was short-lived. French industrial production and prices both fell substantially between 1933 and 1936. Germany’s economy slipped into a downturn early in 1928 and then stabilized before turning down again in the third quarter of 1929.
The decline in German industrial production was roughly equal to that in the United States. A number of countries in Latin America slipped into depression in late 1928 and early 1929, slightly before the U.S. decline in output. While some less developed countries experienced severe depressions, others, such as Argentina and Brazil, experienced comparatively mild downturns. The depression in Japan started relatively late (in early 1930) and was, by comparison, mild.
The general price deflation evident in the United States was also present in other countries. Virtually every industrialized country endured declines in wholesale prices of 30 percent or more between 1929 and 1933. Because of the greater flexibility of the Japanese price structure, deflation in Japan was unusually rapid in 1930 and 1931.
This rapid deflation may have helped to keep the decline in Japanese production relatively mild. The prices of primary commodities traded in world markets declined even more dramatically during this period. For example, the prices of coffee, cotton, silk, and rubber were reduced by roughly half just between September 1929 and December 1930.
As a result, the terms of trade declined precipitously for producers of primary commodities. The U.S. recovery began in the spring of 1933. Output grew rapidly in the mid-1930s: real GDP rose at an average rate of 9 percent per year between 1933 and 1937. Output had fallen so deeply in the early years of the 1930s, however, that it remained substantially below its long run
trend level throughout this period. In 1937–38 the United States suffered another severe downturn, but after mid-1938 the American economy grew even more rapidly than in the mid- 1930s. U.S. output finally returned to its long-run trend level in 1942. Recovery in the rest of the world varied greatly. The British economy stopped declining soon after Britain’s abandonment of the gold standard in September 1931, though genuine recovery did not begin until the end of 1932. The economies of a number of Latin American countries began to strengthen in late 1931 and early 1932.
Germany and Japan both began to recover in the fall of 1932. Canada and many smaller European countries started to revive at about the same time as the United States, early in 1933. On the other hand, France, which experienced severe depression later than most countries, did not firmly enter the recovery phase until 1938. Causes of the Great Depression .......The fundamental cause of the Great Depression in the United States was a decline in spending.
Many volumes have been written about the Great Depression of 1929-1941 and its impact on the lives of millions of Americans. Historians, economists, and politicians have all combed the wreckage searching for the "black box" that will reveal the cause of the calamity. Sadly, all too many of them decide to abandon their search, finding it easier perhaps to circulate a host of false and harmful conclusions about the events of seven decades ago.
Consequently, many people today continue to accept critiques of free-market capitalism that are unjustified and support government policies that are economically destructive. How bad was the Great Depression? Over the four years from 1929 to 1933, production at the nation’s factories, mines, and utilities fell by more than half. People’s real disposable incomes dropped 28 percent.
Stock prices collapsed to one-tenth of their pre-crash height. The number of unemployed Americans rose from 1.6 million in 1929 to 12.8 million in 1933. One of every four workers was out of a job at the Depression’s nadir, and ugly rumoUrs of revolt simmered for the first time since the Civil War.
This photograph became an icon of the Great Depression: a migrant mother with her children burying their faces in her shoulder. Katherine McIntosh was 4 years old when the photo was snapped. She said it brought shame -- and determination -- to her family. Katherine McIntosh holds the photograph taken with her mother in 1936. Katherine McIntosh holds the photograph taken with her mother in 1936. "I wanted to make sure I never lived like that again," says McIntosh, who turns 77 on Saturday. "We all worked hard and we all had good jobs and we all stayed with it. When we got a home, we stayed with it."
McIntosh is the girl to the left of her mother when you look at the photograph. The picture is best known as "Migrant Mother," a black-and-white photo taken in February or March 1936 by Dorothea Lange of Florence Owens Thompson, then 32, and her children.
Lange was traveling through Nipomo, California, taking photographs of migrant farm workers for the Resettlement Administration. At the time, Thompson had seven children who worked with her in the fields. Photo See Lange's photos of the migrant family "She asked my mother if she could take her picture -- that ... her name would never be published, but it was to help the people in the plight that we were all in, the hard times," McIntosh says. "So mother let her take the picture, because she thought it would help." The next morning, the photo was printed in a local paper, but by then the family had already moved on to another farm, McIntosh says.
"The picture came out in the paper to show the people what hard times was. People was starving in that camp. There was no food," she says. "We were ashamed of it. We didn't want no one to know who we were." The photograph helped define the Great Depression, yet McIntosh says her mom didn't let it define her, although the picture "was always talked about in our family." "It always stayed with her. She always wanted a better life, you know."
Her mother, she says, was a "very strong lady" who liked to have a good time and listen to music, especially the yodeler named Montana Slim. She laughs when she recalls her brothers bringing home a skinny greyhound pooch. "Mom, Montana Slim is outside," they said. Don't Miss Thompson rushed outside. The boys chuckled. They had named the dog after her favorite musician. "She was the backbone of our family," McIntosh says of her mom. "We never had a lot, but she always made sure we had something. She didn't eat sometimes, but she made sure us children ate. That's one thing he did do." Her memories of her youth are filled with about 50 percent good times, 50 percent hard times.
It was nearly impossible to get an education. Children worked the fields with their parents. As soon as they'd get settled at a school, it was time to pick up and move again. Her mom would put newborns in cotton sacks and pull them along as she picked cotton. The older kids would stay in front, so mom could keep a close eye on them. "We would pick the cotton and pile it up in front of her, and she'd come along and pick it up and put it in her sack,"
They lived in tents or in a car. Local kids would tease them, telling them to clean up and bathe. "They'd tell you, 'Go home and take a bath.' You couldn't very well take a bath when you're out in a car [with] nowhere to go." She adds, "We'd go home and cry." McIntosh now cleans homes in the Modesto, California, area. She's proud of the living she's been able to make -- that she has a roof over her head and has been able to maintain a job all these years. She says her obsession to keep things clean started in her youth when her chore was to keep the family tent clean. There were two white sheets that she cleaned each day.
"Even today, when it comes to cleaning, I make sure things are clean. I can't stand dirty things," she says with a laugh.
Given the key roles of monetary contraction and the gold standard in causing the Great Depression, it is not surprising that currency devaluations and monetary expansion became the leading sources of recovery throughout the world. There is a notable correlation between the time countries abandoned the gold standard (or devalued their currencies substantially) and a renewed growth in their output.
For example, Britain, which was forced off the gold standard in September 1931, recovered relatively early, while the United States, which did not effectively devalue its currency until 1933, recovered substantially later. Similarly, the Latin American countries of Argentina and Brazil, which began to devalue in 1929, had relatively mild downturns and were largely recovered by 1935. In contrast, the "Gold Bloc" countries of Belgium and France, which were articularly wedded to the gold standard and slow to devalue, still had industrial production in 1935 well below its 1929 level.
Devaluation, however, did not increase output directly. Rather, it allowed countries to expand their money supplies without concern about gold movements and exchange rates. Countries that took greater advantage of this freedom saw greater recovery. The monetary expansion that began in the United States in early 1933 was particularly dramatic. The American money supply increased nearly 42 percent between 1933 and 1937. This monetary expansion stemmed largely from a substantial gold inflow to the United States, caused in part by the rising political tensions in Europe that eventually led to World War II.
Worldwide monetary expansion stimulated spending by lowering interest rates and making credit more widely available. It also created expectations of inflation, rather than deflation, and so made potential borrowers more confident that their wages and profits would be sufficient to cover their loan payments if they chose to borrow.
One sign that monetary expansion stimulated recovery in the United States by encouraging borrowing was that consumer and business spending on terest-sensitive items such as cars, trucks, and machinery rose well before consumer spending on services. Fiscal policy played a relatively small role in stimulating recovery in the United States. Indeed, the Revenue Act of 1932 increased American tax rates greatly in an attempt to balance the federal budget, and by doing so dealt another blow to the economy by further discouraging spending. Franklin Roosevelt’s New Deal, initiated in early 1933, did include a number of new federal programs aimed at generating recovery.
For example, the Works Progress Administration (WPA) hired the unemployed to work on government building projects, and the Agricultural Adjustment Administration (AAA) gave large payments to farmers. However, the actual increases in government spending and the government budget deficit were small relative to the size of the economy.
This is especially apparent when state government budget deficits are included, because those deficits actually declined at the same time that the federal deficit rose. As a result, the new spending programs initiated by the New Deal had little direct expansionary effect on the conomy.
Whether they may nevertheless have had positive effects on consumer and business sentiment remains an open question. United States military pending related to World War II was not large enough to appreciably affect total spending and output until 1941. The role of fiscal policy in generating recovery varied substantially across other countries. Great Britain, like the United States, did not use fiscal expansion to a noticeable extent early in its recovery. It did, however, increase military spending substantially after 1937.
Those of us long in tooth have difficulty understanding why folks these days worry so much about an economic recession. The Great Depression of 1930-34 that we lived through was a genuine wide-wasting foot-stomping calamity. The historic designation of "great" - as in large -- is totally inadequate. It was a defining event that totally rearranged our concepts of government, social responsibility and employer-employee relations.
United States population at that time was 123 million, a little less than half that of today. Fortune Magazine estimated that 34 million men, women and children (28 percent) were without any income what so ever. In the absence of unemployment compensation programs, the federal government had no way of determining actual figures. Average weekly pay for those who had jobs was $16.21. Purchasing power of money was three times that of today, but pay was less than today's government-mandated minimum wage.
Five thousand banks failed during the Great Depression. More than 237,000 families were evicted from their homes. Two million men were "bumming around" the country at any given time searching for work. Many cities patrolled the roads to prevent transients from seeking work where long-term residents were jobless. Those that sneaked by were arrested -a practice that was ineffective because men broke windows or accosted strangers in order to get a meal and bed in jail.
Every city had a "soup kitchen" where long lines of hungry people - mostly men - waited. Women with children went to the head of the lines. Shantytowns of scrap lumber and tents -- without water or sewers -- sprang up in wasteland near cities. They were called Hooverville's after President Herbert Hoover who took office in 1929 as the world economy collapsed. Laid off workers formed labor unions to bargain "job security." My first assignment as a high school newspaper reporter was to cover the bitter 1936 "sit-down strike" at General Motors factories in Flint, Michigan.
I was a nine-year-old boy at Flint, when the Depression was heralded by the stock market crash of 1929. Men abandoned their families to the charity of working relatives, 60 cents a day in city welfare and once-a-month handouts of surplus farm products. Farmers were in equally dire straits because foreign markets had collapsed. A devastating three-year drought compounded their miseries. It is with great pain that I recall those days. My father abandoned my mother, me and two younger sisters. Once in awhile we got a $5 bill in a letter from him without message or return address. Fortunately there were three uncles nearby with jobs who helped us out. Mother waited tables for a dollar a day plus tips - 50 cents on a good night. I peddled handbills and caddied at a golf course on weekends.
My right shoulder today is an inch lower than my left as a result of toting a golf bag before my growth stopped. We lost our home, moved to cheap rent places, then attic apartments. Mother gave up her possessions for back rent. She would not "go on welfare." That was a disgrace. Finally - when we were really starving - she went to the "surplus depot" and brought home a peck-sack of dried peas. For ten days we had nothing but pea soup for breakfast, dinner and supper. I still hate pea soup.
Finally the landlord ordered us to leave - he needed money also -- and kept Mother's cherished piano for back rent. She never played again. We moved our beds into the basement of an uncle's home, and his family set us at their own meager table. My mother, maternal grandmother and three aunts pooled resources. Our rented house was crowded - but home. Our meals were sparse, yet we all laughed when we read in a discarded newspaper the menu for prisoners at the county jail.
They had the same meal that day - not much - as we were eating. A morning ritual was everyone assembling to make cardboard inserts for shoes whose soles had worn through. By the end of day the inserts would be worn through also. The point of this depressing tale is that it was not unusual back then. Today's generation cannot comprehend the demoralizing impact that a deep, economic depression has on a nation -- thank God.
Some economists believe that the Federal Reserve allowed or caused the huge declines in the American money supply partly to preserve the gold standard. Under the gold standard, each country set a value of its currency in terms of gold and took monetary actions to defend the fixed price. It is possible that had the Federal Reserve expanded greatly in response to the banking panics, foreigners could have lost confidence in the United States’ commitment to the gold standard. This could have led to large gold outflows and the United States could have been forced to devalue. Likewise, had the Federal Reserve not tightened in the fall of 1931, it is possible that there would have been a speculative attack on the dollar and the Unites States would have been forced to abandon the gold standard along with Great Britain.
While there is debate about the role the gold standard played in limiting U.S. monetary policy, there is no question that it was a key factor in the transmission of the American decline to the rest of the world. Under the gold standard, imbalances in trade or asset flows gave rise to
international gold flows. For example, in the mid-1920s intense international demand for American assets such as stocks and bonds brought large inflows of gold to the United States. Likewise, a decision by France after World War I to return to the gold standard with an
undervalued franc led to trade surpluses and substantial gold inflows. (Τ balance of trade.) Britain chose to return to the gold standard after World War I at the pre-war parity. Wartime inflation, however, implied that the pound was overvalued, and this overvaluation led to trade deficits and substantial gold outflows after 1925. To stem the gold outflow, the Bank of England raised interest rates substantially. High interest rates depressed British spending and led to high unemployment in Great Britain throughout the second half of the 1920s.
Once the U.S. economy began to contract severely, the tendency for gold to flow out of other countries and toward the United States intensified. This took place because deflation in the United States made American goods particularly desirable to foreigners, while low income reduced American demand for foreign products.
To counteract the resulting tendency toward an American trade surplus and foreign gold outflows, central banks throughout the world raised interest rates. Maintaining the international gold standard, in essence, required a massive monetary contraction throughout the world to match the one occurring in the United States. The result was a decline in output and prices in countries throughout the world that also nearly matched the downturn in the United States.
[Mr. Harry Hopkins
Washington, D. C.]
[Dear Mr. Hopkins:]
Will you please investigate the various relief agencies in many cities of the United States. The cities where there are a large foreign and jewish population. No wonder the cities are now on the verge of bankruptcy because we are feeding a lot of ignorant foreigners by giving them relief. And, they are turning against us every day. I would suggest to deport all foreigners and jews who are not citizens over the United States back to any land where they choose to go and who will admit them.
As America is now over crowded with too much immigration and it can not feed even its own citizens without feeding the citizens of other foreign nations. I have found out after careful investigation that we are feeding many foreigners who send out their wives to work and who have money in the bank. While the men drink wine and play cards in saloons and cafes. I have spoken to one Italian whom I met. And I ask him what he was doing for a living.
He said me drinka da dago red wine and play cards and send the wife out to work. Isn't a very good thing for us to support them. No wonder the taxpayers are grumbling about taxes. Most of them are a race of black hands murders boot leggers bomb throwers.
While most of the sheeney jews as they are called are a race of dishonest people who get rich by swindling, faking and cheating the poor people. Besides the jews are responsible by ruining others in business by the great amount of chisling done. And selling even below the cost prices, in order to get all the others business. The foreigners and jews spend as little as they can to help this country. And, they live as cheap as they can. And, work as cheap as they can, and save all the money they can.
And when they have enough they go back to their country. Why don't we deport them under the section of the United States Immigration Laws which relates to paupers and those who become a public charge. The Communist Party is composed mostly by foreigners and jews. The jews are the leaders of the movement and urge the downfall of this government....
It is unclear exactly when hobos first appeared on the American railroading scene. With the end of the American Civil War in the mid 19th Century, many soldiers looking to return home took to hopping freight trains. Others looking for work on the American frontier followed railroads westward aboard freight trains in the late 19th Century.
In 1906, Prof. Layal Shafee, after an exhaustive study, put the number of tramps in America at 500,000 (about 0.6% of the U.S. population). The article citing this figure, "What Tramps Cost Nation", was published by The New York Telegraph in 1911 and estimated the number had surged to 700,000.
The population of hobos increased greatly during the Great Depression era of the 1930s. With no work and no prospects at home, many decided to travel for free via freight trains and try their luck elsewhere.
Life as a hobo was a dangerous one. In addition to the problems of being itinerant, poor, far from home and support, and the hostile attitude of many train crews, the railroads employed their own security staff, often nicknamed bulls, who had a reputation for being rough with trespassers. Also, riding on a freight train is a dangerous enterprise.
The British poet W.H. Davies, author of The Autobiography of a Super-Tramp, lost a leg falling under the wheels whilst trying to jump a train. One could easily get trapped between cars, or freeze to death in bad weather. When freezer cars were loaded at an ice factory, any hobo inside was likely to be killed.It's hard to get a handle on a hobo. That's part of his character: he's hard to pin down, no address, no strings attached, free as the wind at his heels.
The hobo exists as a literary and cultural character, part of our western mythology and our enduring romance with freedom: he's a singer of song, a ribald teller of tales, riding the rails with the boxcar blues. While he exists in that mythology as well as in a hobo culture maintained in contemporary hobo conventions and literature, the formation of his character came in the years between The Civil War and World War Two. This site seeks the hobo: who he was and where he came from, what he means and where he went.
Media has both vilified and mythologized the hobo. As a vagrant and a social pariah, he was legislated against and imprisoned; more benevolent citizens considered him in need of reform and public assistance. Images in cartoons and early film portrayed a comical - if not desperate - character, always optimistic but terminally unlucky. Meanwhile, tramp autobiographies romanticized his life on the road and his quintessential American pioneer spirit. In sum, the public has been made quite aware of the hobo, but has perhaps remained by and large ignorant to the reality of his existence.
By most serious study, the hobo was an unskilled migratory laborer, an itinerant and seasonal worker. He was mostly white, American born, and able bodied. He was born of the American drive westward, the opening of industry in the West in the latter half of the 19th century. He was born on the railroads that carried him from cities where he congregated to the far reaches of the country where he worked to earn a "stake". The hobo was a member of the 'bottom end' of the industrial work force, filling the gaps in industrial and seasonal labor's stops and starts. In reality, the hobo was a by-product of the rapid industrialization of the country in the half-century beginning at the close of the Civil War.
One of the myths about the Black Tuesday crash was that many bankrupt investors committed suicide that day. A London newspaper reported erroneously that 11 busted-brokers jumped from their office windows in despair. The rumor started as the result of the suicide -- witnessed by Winston S. Churchill on a visit to New York City -- two weeks before the crash. A vice-president of the Earl Radio Corp. jumped to his death from the Savoy-Plaza Hotel.
His suicide note read: "We are broke. Last April, I was worth $100,000. Today, I am $24,000 in the red." A week after the crash, J.J. Riordan, president of the County Trust Company, took a pistol from a teller's cage at his bank, went to his home in downtown Manhattan, and shot himself. The news was suppressed until after the bank closed at noon Saturday to avoid causing a run on the bank. There is no record of jumpers during the pair of crashes, and none ever in the New York financial district. Nonetheless, Will Rogers, a popular humorist, quipped, "When Wall Street took that tail spin, you had to stand in line to get a window to jump out of."
Ironically, Congress adjourned in November 1929 without action on the suspect Smoot-Hawley Tariff Act and did not return until the spring of 1930. By this time the Great Depression was well underway.
Still unaware of the damaging effect of tariffs, Congress completed action on Smoot-Hawley and passed it in the Senate on June 13 by just two votes. Inasmuch as it passed after the Depression was well underway, it was not realized that the debate and certain passage spooked the forward-looking stock market. Passage of the act continued to hamper recovery. A hundred thousand companies closed. It took years for a new science of economics to realize that tariffs, the uneven distribution of gold and Federal Reserve inaction had done the damage - not the stock market.
President Franklin D. Roosevelt took office in 1933. He closed all banks for ten days to stem panic withdrawals, outlawed gold coinage, set farm quotas and established government make-work programs (who can forget the WPA and the CCC?) to pump confidence and money into the U.S. economy. Yet, it was not until Smoot-Hawley was scrapped -- and America armed for World War II -- that the U.S. economy regained vitality and that unemployment returned to normal.
Mr. and Mrs. Roosevelt.
Wash. D. C.
Dear Mr. President:
I'm a boy of 12 years. I want to tell you about my family. My father hasn't worked for 5
months. He went plenty times to relief, he filled out application. They won't give us anything. I don't know why. Please you do something. We haven't paid 4 months rent, Everyday the landlord rings the door bell, we don't open the door for him. We are afraid that will be put out, been put out before, and don't want to happen again. We haven't paid the gas bill, and the electric bill, haven't paid grocery bill for 3 months.
My brother goes to Lane Tech. High School. he's eighteen years old, hasn't gone to school for 2 weeks because he got no carfare. I have a sister she's twenty years, she can't find work. My father he staying home. All the time he's crying because he can't find work. I told him why are you crying daddy, and daddy said why shouldn't I cry when there is nothing in the house. I feel sorry for him. That night I couldn't sleep. The next morning I wrote this letter to you. in my room. Were American citizens and were born in Chicago, Ill. and I don't know why they don't help us Please answer right away because we need it. will starve Thank you.
God bless you.
May 19/ 34.
Mrs Franklin D. Roosevelt
Washington, D. C.
Dear Mrs Roosevelt;
Will you be kind enough to read the following as it deals with a very important subject which you are very much interested in as well as my self. In the Presidents inaugral adress delivered from the capitol steps the afternoon of his inaugration he made mention of The Forgotten Man, and I with thousands of others am wondering if the folk who was borned here in America some 60 or 70 years a go are this Forgotten Man, the President had in mind, if we are this Forgotten Man then we are still Forgotten. We who have tried to be diligent in our support of this most wonderful nation of ours both social and other wise, we in our younger days tried to do our duty without complaining.
We have helped to pay pensions to veterans of some three wars, we have raised the present young generation and have tried to train them to honor and support this our home country. And now a great calamity has come upon us and seemingly no cause of our own it has swept away what little savings we had accumulated and we are left in a condition that is imposible for us to correct, for two very prominent reasons if no more. First we have grown to what is termed Old Age, this befalls every man.
Second as we put fourth every effort in our various business lines trying to rectify and reestablish our selves we are confronted on every hand with the young generation, taking our places, this of corse is what we have looked forward to in training our children. But with the extra ordinary crises which left us helpless and placed us in the position that our fathers did not have to contend with.
Seemingly every body has been assisted but we the Forgotten Man, and since we for 60 years or more have tried to carry the loan without complaining, we have paid others pensions we have educated and trained the youth, now as we are Old and down and out of no reason of our own, would it be asking to much of our Government and the young generation to do by us as we have tried our best to do by them even without complaint.
We have been honourable citizens all along our journey, calamity and old age has forced its self upon us please do not send us to the Poor Farm but instead allow us the small pension of $40.00 per month and we will do as we have done in the past (not complain) I personally Know of Widows who are no older than I am who own their own homes and draw $45,00 per month pension, these ladies were born this side of the civil war the same as I, therefore they never experienced war trouble.
Please do not think of us who are asking this assistance as Old Broken down dishonourable citizens, but we are of those borne in this country and have done our bit in making this country, we are folk in all walks of life and business
For example I am an architect and builder I am not and old broken down illiterate honourableness man although I am 69 years old, but as I put forth every effort to regain my prestige in business I am confronted on every side by the young generation taking my place, yes this is also the case even in the effort of the government with its recovery plan, even though I am qualified to suprentend any class of construction but the young man has captured this place also, What are we to do since the calamity has swept our all away,?
We are just asking to be remembered with a small part as we have done to others $40,00 a month is all we are asking. Mrs. Roosevelt I am asking a personal favour of you as it seems to be the only means through which I may be able to reach the President, some evening very soon, as you and Mr. Roosevelt are having dinner together privately will you ask him to read this. and we American citizens will ever remember your kindness.
Yours very truly.
R. A. [male]
The initial decline in output in the United States in the summer of 1929 is widely believed to have stemmed from tight U.S. monetary policy aimed at limiting stock market speculation. The 1920s had been a prosperous decade, but not an exceptional boom period; wholesale goods prices had remained nearly constant throughout the decade and there had been mild recessions in both 1924 and 1927. The one obvious area of excess was the stock market. Stock prices had risen more than fourfold from the low in 1921 to the peak reached in 1929. In 1928 and 1929, the Federal Reserve had raised interest rates in hopes of slowing the rapid rise in stock prices.
These higher interest rates depressed interest-sensitive spending in areas such as construction and automobile purchases, which in turn reduced production. Some scholars believe that a boom in housing construction in the mid-1920s led to an excess supply of housing and a particularly large drop in construction in 1928 and 1929. By the fall of 1929, U.S. stock prices had reached levels that could not be justified by reasonable anticipations of future earnings.
As a result, when a variety of minor events led to gradual price declines in October 1929, investors lost confidence and the stock market bubble burst. Panic selling began on "Black Thursday," October 24, 1929. Many stocks had been purchased on margin, that is, using loans secured by only a small fraction of the stocks’ value. As a result, the price declines forced some investors to liquidate their holdings, thus exacerbating the fall in prices. Between their peak in September and their low in November, U.S. stock prices (measured using the Cowles Index) declined 33 percent. Because the decline was so dramatic, this event is often referred to as the Great Crash of 1929.
The stock market crash reduced American aggregate demand substantially. Consumer purchases of durable goods and business investment fell sharply after the crash. A likely explanation is that the financial crisis generated considerable uncertainty about future income, which in turn led consumers and firms to put off purchases of durable goods. Although the loss of wealth caused by the decline in stock prices was relatively small, the crash may also have depressed spending by making people feel poorer. As a result of the drastic decline in consumer and firm spending, real output in the United States, which had been declining slowly up to this point, fell rapidly in late 1929 and throughout 1930. Thus, while the Great Crash of the stock market and the Great Depression are two quite separate events, the decline in stock prices was one factor causing the decline in production and employment in the United States.
Banking panics and monetary contraction The next blow to aggregate demand occurred in the fall of 1930, when the first of four waves of banking panics gripped the United States. A banking panic arises when many depositors lose confidence in the solvency of banks and simultaneously demand their deposits be paid to them in cash. Banks, which typically hold only a fraction of deposits as cash reserves, must liquidate loans in order to raise the required cash. This process of hasty liquidation can cause even a previously solvent bank to fail. The United States experienced widespread banking panics in the fall of 1930, the spring of 1931, the fall of 1931, and the fall of 1932.
The final wave of panics continued through the winter of 1933 and culminated with the national "bank holiday" declared by President Franklin Roosevelt on March 6, 1933. The bank holiday closed all banks, permitting them to reopen only after being deemed solvent by government inspectors. The panics took a severe toll on the American banking system. By 1933, one-fifth of the banks in existence at the start of 1930 had failed.
Black Thursday shook Michigan harder than almost any other state. Stocks of auto and mining companies were hammered. Auto production in 1929 reached an all-time high of slightly more than five million vehicles, then quickly slumped by two million in 1930. By 1932, near the deepest point of the Depression, they had fallen by another two million to just 1,331,860 — down an astonishing 75 percent from the 1929 peak.
Thousands of investors everywhere, including many well-known people, were hit hard in the 1929 crash. Among them was Winston Churchill. He had invested heavily in American stocks before the crash. Afterward, only his writing skills and positions in government restored his finances.Clarence Birdseye, an early developer of packaged frozen foods, had sold his business for $30 million and put all his money into stocks. He was wiped out.
William C. Durant, founder of General Motors, lost more than $40 million in the stock market and wound up a virtual pauper. (GM itself stayed in the black throughout the Depression under the cost-cutting leadership of Alfred P. Sloan.)
Hornell, New York
March 7, 1934
My Dear Senator:
It seems very apparent to me that the Administration at Washington is accelerating it's pace towards socialism and communism. Nearly every public statement from Washington is against stimulation of business which would in the end create employment.
Everyone is sympathetic to the cause of creating more jobs and better wages for labor; but, a program continually promoting labor troubles, higher wages, shorter hours, and less profits for business, would seem to me to be leading us fast to a condition where the Government must more and more expand it's relief activities, and will lead in the end to disaster to all classes.
I believe that every citizen is entitled to know the policy of the Government, and I am so confused that I wish you would write me and advise me whether it is the policy of this Administration, of which you are a very important part, to further discourage business enterprise, and eventually set up a program which eliminates private industry and effort, and replaces it with Government control of industry and labor, —call it what you will: socialism, facism, or communism, or by any other name.
I am not addicted to annoying public office holders with correspondence, but if there are any private rights left in this country, then I would appreciate an early reply to this letter, so that I may take such action as is still possible, to protect myself and family. With kindest personal regards,
W. L. C. [male]
After World War I, the United States enjoyed a prosperous decade called the Roaring Twenties. Interrupting the period of prosperity was the stock market crash in October of 1929. This, along with several other causes, led to the world wide economic depression known as the Great Depression. Historian Studs Terkel said that the Great Depression was a "holocaust" . Terkel said the Great Depression was a "holocaust" because of the numerous families who were left jobless and poverty stricken by the economic disaster.
Much like a holocaust, the Great Depression scarred its survivors – physically and mentally – with memories of the "Hard Times" (Terkel 83). The Great Depression lasted through the presidencies of Herbert C. Hoover and Franklin Delano Roosevelt. While Herbert Hoover was the president during the beginning of the Great Depression, Franklin D. Roosevelt, and his New Deal, was instrumental in repairing and reforming the United States economy during the Great Depression.
The Roaring Twenties was accurately described by Charles Dickens, in his book A Tale of Two Cities, as the "best of times and the worst of times." The decade was a Second Gilded Age because of the new technology that allowed people like Charles Lindbergh to fly across the Atlantic Ocean in the Spirit of St. Louis. Henry Ford was also part of the technological revolution, when he created the Ford Model-T and revolutionized the assembly line. He was also the first businessman to pay his assembly
line workers five dollars a day. Along with technology, there was also a cultural revolution during the Second Gilded Age. In athletics, Babe Ruth became an all American symbol as baseball grew into a national pastime. The writers of the decade, known as the "Lost Generation," highlighted the end to Victorianism, and the start of naturalism and the realistic interpretations of war. Ernest Hemmingway, F. Scott Fitzgerald, Sinclair Lewis, T.S. Elliot, and Robert Frost were some of the "Lost Generation" writers.
The writers of the period focused on the effects and reality of World War I, the southern culture, and the women’s rights movement. Included in this cultural revolution was the Harlem Renaissance. Langston Hughes, Zora Neale Hurston, Marcus Garvey, and Louis Armstrong led this revival of African American culture and civil right’s movement. Langston Hughes wrote about the racial struggle of African Americans to gain equal rights. Zora Neale Hurston was also a writer who supported
African American women as they looked for a better position in society. Marcus Garvey believed that African Americans and Caucasian Americans were equal. He also believed that the United States was meant for Americans and that African Americans should return to their country of Liberia, in Africa. Louis Armstrong and the Jazz influence on the Harlem Renaissance brought about a new age in music as well a revival in the African American culture.
Together the cultural revolution and the technological revolution created a prosperous time in the United States. Yet, everything has an opposite, and during the 1920’s there were many disillusioning events, such the wave of fear of Communism, known as the Red Scare. During World War I, in 1917, the Bolshevik Revolution overthrew the czar of Russia and V.I. Lenin came to power, bringing communism to Russia.
With the rise of communism, democratic countries – such as the United States – feared that they would loose their existing government. Moreover, African Americans and immigrants did not enjoy the social improvements of the 1920’s due to the growth of the Klu Klux Klan (KKK) and the immigration restrictions, such as the Immigration Act of 1924. In 1915, one of the first films made was Birth of a Nation by D.W. Griffith. The film supported the KKK and degraded African Americans and Northern Reconstruction supporters (Kennedy 451). The Emergency Quota Act of 1921, and the Immigration Act of 1924, limited the
percent of immigrants entering the United States. The acts especially limited the immigration of Northern Europeans and completely closed off the immigration of Japanese persons to the United States. Americans also feared that communist or anarchist immigrants would try to change the government. In one case, Italian immigrants Nicola Sacco and Bartolomeo Vanzetti were charged with being anarchists and murdering two personnel at a shoe factory in Milford, Massachusetts. After being
found guilty and imprisoned, they were sentenced to be executed in 1927. In their last speech, Sacco said that the United States is divided between "the oppressed class and the rich class, and there will be always collision between one and the other" (Sacco). This division of the classes and even nationalities was further widened during the late 1920’s. The Great Depression was a result of several factors, including the failure of leadership of the presidents during the 1920’s, the farm depression, and the stock market crash. The presidents during the 1920’s, Warren G. Harding, Calvin Coolidge and Herbert Hoover, followed the laissez-faire government policy. Even when the depression
occurred, Hoover believed in his "Rugged Individualism" and that America would eventually work itself out of the depression without any government interference. He also believed that, "the primary cause of the Great Depression was the war of 1914 to 1918."
There were parts of the country were people were less affected than in others. People still went to the movies, listened to the radio, played golf and tennis, took vacations, and went about their lives as though nothing was wrong, trying to ignore the desperate looks of people they often passed on the streets, sitting on benches, too proud to beg, but still hoping for a handout of a dime or a quarter that might buy a sandwich and a cup of coffee.
In the Roaring 20s nobody thought an economic disaster of such proportion could ever touch the United States. In the aftermath of the Great War, while Europe was still cleaning up the mess, caring for the wounded and mourning the dead, Americans felt a sense of disdain for the rest of the world, a European-centered world that could not manage its affairs any better than it had done in the past. America had problems of its own to be sure: racism, religious differences, adjustments to the post-industrial age. But the mood of the 1920s was upbeat and positive, and as President Coolidge said, the business of America was business.
Then it hit in October 1929. The Depression was caused by many factors, but it was triggered by the stock market crash. The sudden loss of wealth had a snowball effect. Banks found themselves short of funds as margin buying had eaten up credit, and now those margins could not be met because the value of stocks had plunged so rapidly.
As people stop buying, merchants found they could not sell their wares, so orders to factories dried up, and people were laid off. Income continued to fall, and the cycle repeated over and over in a downward spiral. The country produced 8 million cars in 1928 and 2 million in 1932. Unemployment percentages varied from 15% to 25% and even higher in some areas. In hard hit regions, entire towns seemed hopelessly stuck in poverty.
Aside from war, the United States government had never faced a crisis of such magnitude. And because government's traditional relationship with business had been one of laissez-faire, tempered by relatively mild regulation that began in the Progressive Era, many people could not envision the government providing solutions for problems which government had not apparently caused.
Furthermore, Communism had engulfed Russia, and Socialist parties were strong all across Europe, but America had been through a red scare, and labor agitation and hints of "socialistic solutions" were seen by many as un-American, unnecessary, even dangerous. The income tax was relatively new, and government revenues were ample for most needs. But the burden of caring for the unemployed and unemployable soon became so large that local, state and national government, let alone charitable organizations, lacked funds to deal forcefully with the problem. And as wages and incomes fell, raising taxes hardly seemed the solution.
To make things worse, the middle of the United States went through an era known as the dust bowl, as farmlands dried up primitive irrigation projects were unable to keep the growing. Farmers discovered that with the falling prices they could not earn enough from the sale of their produce to cover the costs of getting it to market, so farmers burned their corn to keep warm, slaughtered their livestock for their own food and dumped milk in the streets.
President Hoover, a man who had been responsible for the food production program during the Great War, and whose activities in saving the Belgians from starvation had been recognized far and wide, ironically found himself in a position which seemed hopeless, and which in which the government itself seemed helpless. President Hoover did not do nothing, however. The actions he took were unprecedented, far more than government had ever taken before in interfering with the affairs of private business. But it was far too little to stem the tide of depression that was sweeping across the country.
In 1928, the year in which President Hoover had been elected by a huge landslide, Franklin Roosevelt, whose political career had apparently been ended by infantile paralysis in 1921, was elected governor of New York, one of the few bright spots for Democrats during that year. Having learned progressive politics under President Wilson, Roosevelt began to address problems of depression aggressively from the governor's mansion in Albany. By 1932 his willingness to experiment seemed appealing to Democrats, who nominated him for president in that year.
Franklin Roosevelt was not capable of ending the depression by himself. But he was willing to try almost anything, and try he did. What he brought to Washington, and what he gave to the American people, was a sense of hope, even as those on the left accused him of being a closet capitalist, and those on the right accused him of being a betrayer of his patrician class, if not an outright socialist. Roosevelt took it all in stride, commenting that since he was being attacked from both sides of the political spectrum, then he must be doing something right.
What FDR tried to do was called the New Deal, and although it did not in it of itself end the Depression, it changed the relationship between the government and the American people forever, and its legacy is still with us. Memories of the Great Depression have all but disappeared except among the very old, but the effects of the Depression have never completely gone away.
WW1 had ended in 1919. The Great War had been particularly good for American farmers: since European farms were unable to produce while the war was being fought on their territory, many American farmers increased their own production, cultivating more land for crops and buying new equipment to help them with their work. With less competition and higher prices for their goods, American farmers prospered. But after the war was over, when the demand for their produce eclined
and European farms returned to work, prices began to fall, leaving American farmers with er-cultivated fields, unnecessary equipment, no market for their crops and enormous loans and mortgages, with no money to pay them off. Throughout the 1920’s, American farmers faced loss of income, bankruptcy, foreclosure. They were already in a depression by October 1929. The stock market crash now meant not only lost savings from stocks or the bank, it also drove produce prices even lower. With unemployment at an all time low, no one in the country was working enough to earn the money to buy what the farmers grew.
It often cost more to grow, harvest and sell the crops than the prices they sold for; in some cases in California, it was cheaper to destroy the crops than to pay the workers to pick them. Meanwhile, many Americans, especially children, were living below poverty level, tarving. President Hoover, the nonpolitical humanitarian Quaker inaugurated only 7 months earlier, made numerous efforts to contain the crisis, such as tax reductions, stabilization of wages and prices including agricultural prices through the Federal Farm Board), and maintained or increased spending on public projects. Unfortunately, these efforts were not enough to rescue America from its downward spiral, and soon the makeshift shelters erected around the country by citizens who had lost their homes were being called "Hoovervilles."
The Bonus Army Riot only solidified this public opinion. In 1932, 20,000 WW1 veterans and their families marched from Portland, Oregon to Washington, DC, seeking immediate payment on wartime bonuses they were to be awarded in 1945. After two months of encampment, protests and growing violence, President Hoover ordered a peaceful evacuation of the Bonus Army. Instead, Chief of Staff MacArthur led an army attack against the men, women and children of the Bonus Army camp. When Hoover accepted public responsibility for the riot, his presidential fate was sealed. That November, Franklin Delano Roosevelt was elected President.
In contrast with Hoover, FDR was a gregarious and popular candidate, winning a landslide election victory. Americans were desperate for change and they believed FDR could and would deliver on his promises of relief and reform. During the first few weeks of his presidency, known as the Hundred Days, the Roosevelt administration set more legislation into action than any other comparable period in history, before or since.
Over the coming years, Roosevelt’s New Deal established a steady stream of welfare and work relief programs, including the Federal Emergency Relief Administration (FERA), Civil Works and Public Works Administrations (CWA/PWA), Works Progress Administration (WPA), National Youth Administration (NYA), and the Civilian Conservation Corps (CCC), a program employing young men ages 17-24, whose impact on national forests and state parks can still be seen today.
Born an early Baby Boomer, I grew up hearing stories about the Great Depression. Not a great deal has ever been written about the effects the Depression had on Brantford, Ontario, which I now call home. Having been raised on a farm outside of the city, I heard stories of the hardships that country folk endured during that bleak period but not much about the city. Country folk fared pretty well during that bleak decade. Though there were many things they could not buy, they grew their own food and traded with neighbors. Even in Brantford the years of 1929 to 1939 were not as bad as they were in the larger cities.
Some say they remember few hardships while others remember food shortages and the lack of work available. Some people’s lives were touched forever by those ten years that seemed like an eternity. The drought in the Prairie Provinces seems to have been one factor that affected Brantford. The city’s industries such as Massey’s and Cockshutts manufactured farm equipment. Suddenly, there was no demand for these products. At Cockshutt’s a lay off resulted. Only a skeleton crew of foreman, assistant foremen and maintenance workers were kept on. All laborers were laid off with the hope that when the economy picked up they would be called back to work. But the economy didn’t pick up.
Of those men laid off, some found work but many didn’t. Some of the men left town, hoping to find work elsewhere. Some men created their own work. One local man told of buying vegetables from local farmers and walking door-to-door selling them. Others pulled weeds for ten cents an hour.
There was one significant factor that helped some of the men through the Depression. In 1932, the erection of the Cockshutt Bridge helped to relieve the unemployment situation. Though the construction company had its own crew, it needed men to haul supplies and dig ditches. They received twenty-five cents an hour for the backbreaking labor.
The men didn’t complain about low wages nor long hours for they knew there was always someone willing to take their place. Often, men were standing on the sidelines in hope that someone would either get fired or quit. Being in the right place at the right time often paid off.
Unemployment and lack of money were everyone’s troubles. It is said that even the mayor couldn’t make his house payments for some time. The mayor didn’t allow his personal troubles keep him from the people. It is said he walked the streets of the downtown, talking to unemployed men who lined the streets. As a result, he came to know their needs and concerns and was sympathetic to their problems.
There came a time when putting food on the table became a major cause of concern. Most residents relied on the wages from their jobs to pay the mortgage and provide the necessities of life. When the cash run out, city residents could not rely on their garden or slaughter a cow to provide meat as the country folks did.
During that era, there was a small privately owned grocery store in every neighborhood. The proprietor often knew his customers on a first name basis. Many people bought groceries during the week and paid for them when they got paid on Friday. Credit was readily available.
[Dear Mrs. Roosevelt]
I... was simply astounded to think that anyone could be nitwit enough to wish to be included in the so called social security act if they could possibly avoid it. Call it by any name you wish it, in my opinion, (and that of many people I know) is nothing but downright stealing.... Personally, I had my savings so invested that I would have had a satisfactory provision for old age. Now thanks to his [FDR's] desire to "get" the utilities I cannot be sure of anything, being a stockholder, as after business has survived his merciless attacks (if it does) insurance will probably be no good either. ... [She goes on to complain about the lack of profits.]
Then the president tells them they should hire more men and work shorter hours so that the laborers, who are getting everything now raises etc. can have a "more abundant life." That simply means taking it from the rest of us in the form of taxes or otherwise.... Believe me, the only thing we want from the president, unless or if you except Communists and the newly trained chiselers, is for him to balance the budget and reduce taxes. That, by the way, is a "mandate from the people" that isn't getting much attention.
I am not an "economic royalist," just an ordinary white collar worker at $1600 per. Please show this to the president and ask him to remember the wishes of the forgotten man, that is, the one who dared to vote against him. We expect to be tramped on but we do wish the stepping would be a little less hard. Security at the price of freedom is never desired by intelligent people.
M. A. [female]
Various countries around the world started to recover from the Great Depression at different times. In most countries of the world, recovery from the Great Depression began in 1933. In the U.S., recovery began in the spring of 1933. However, the U.S. did not return to 1929 GNP for over a decade and still had an unemployment rate of about 15% in 1940, albeit down from the high of 25% in 1933.
There is no consensus among economists regarding the motive force for the U.S. economic expansion that continued through most of the Roosevelt years (and the 1937 recession that interrupted it). The common view among mainstream economists is that Roosevelt's New Deal policies either caused or accelerated the recovery, although his policies were never aggressive enough to bring the economy completely out of recession. Some economists have also called attention to the positive effects from expectations of reflation and rising nominal interest rates that Roosevelt's words and actions portended.
However, opposition from the new Conservative Coalition caused a rollback of the New Deal policies in early 1937, which caused a setback in the recovery. According to Christina Romer, the money supply growth caused by huge international gold inflows was a crucial source of the recovery of the United States economy, and that the economy showed little sign of self-correction.
The gold inflows were partly due to devaluation of the U.S. dollar and partly due to deterioration of the political situation in Europe. In their book, A Monetary History of the United States, Milton Friedman and Anna J. Schwartz also attributed the recovery to monetary factors, and contended that it was much slowed by poor management of money by the Federal Reserve System. Current Chairman of the Federal Reserve Ben Bernanke agrees that monetary factors played important roles both in the worldwide economic decline and eventual recovery.
Bernanke, also sees a strong role for institutional factors, particularly the rebuilding and restructuring of the financial system, and points out that the Depression needs to be examined in international perspective. Economists Harold L. Cole and Lee E. Ohanian, believe that the economy should have returned to normal after four years of depression except for continued depressing influences, and point the finger to the lack of downward flexibility in prices and wages, encouraged by Roosevelt Administration policies such as the National Industrial Recovery Act.
Jan. 18, 1937
For the people who experienced the "Great depression "in 1929, they consider it as a nightmare that they want to remember anymore. For a lot of people who do not yet understand the meaning of this what you call great depression, this is actually the time when the most powerful and prosperous nation in the world experienced a big drought in terms of food, clothing, jobs and other necessities.
It all started after the World War 1. Americans became more relaxed and they tried to enjoy every moment of their lives after the war. They are expecting that after that, their lives will keep on getting better as time goes by. They also focused on buying new technological innovations at that time such as electric washing machines, refrigerators and cars.
During these times, the manufacturers of the said devices needed customers. They produced innovative devices and they hire workers to do it but they have no customers as of that time. Because of this, the factories and manufacturers decided to work hand in hand with banks. These banks granted people with loans that they can use to buy these devices. However, people became relaxed because of the long term payments offered for the loan.
When 1929 came, the great depression started in America. A lot of businesses in America announced that they are closing their businesses. Millions of workers were also left with no jobs because of the closing of businesses. Soon enough, you can already see a lot of people joining long lines just to have free meals from religious groups.
Also during this time, the stock market crashed. This is actually the place where you buy and sell stocks. In the 1920s, people tried to play with the stock market. They buy stocks when the prices are low and sell them when the stocks gone up. They gain profit because of the difference between the selling and buying price. Because of this, almost all the people on the stock market tried to play with it. When summer of 1929 came, people think that it is the highest price that the stocks will go.
Because of this, they began selling their stocks. When autumn of 1929 came, it is the time when stock owners panicked. Almost everyone are already trying to sell their stocks but most of the people think that the prices will not go up any more so there are only few buyers. This is the time when the stock owners see that the thing that caused the people fortunes is taking everything from them.
The Great Depression was the worldwide economic depression of the 1930's. It was the longest and most widespread depression of the 20th century affecting the whole of the western world.
It originated in the United States when stock prices began to fall at the beginning of September 1929. The 29th October became known as Black Tuesday and was the point where the financial crises spread worldwide. This eventually led to a lack of consumer confidence. The general public were expecting deflation and didn't want to spend until prices fell, which contributed to a struggling economy. People were also reluctant to borrow so they didn't have as much to spend as they might have otherwise.
The Great Depression had a big effect on jobs. Businesses failed and new businesses weren't starting up so there weren't replacement jobs for those who became unemployed. Major industries such as automobiles and farming struggled, which resulted in mass unemployment. It also meant people had less money further increasing the economic downfall. Initially it was the US that suffered but it quickly impacted other areas.
Between 1929 and 1932 the United States' foreign trade declined by 70% and industrial production fell by 46%. Unemployment increased massively; by 607%. Other countries such as Great Britain, France and Germany also suffered a lot, although not quite as much as the United States.
There are a number of things that may have caused or contributed to the beginning of the Great Depression. The main ones are outlined below:
Too much debt meant that the cost of debt increased. People and businesses who were in debt were put into spiralling problems as interest rates on borrowing increased. This had the eventual impact of banks failing because loans could not be paid back.
The economy was producing more than it was able to sell because consumers didn't have enough income to purchase everything that was being made. This was in part because of unequal distributions in wealth, meaning that many had no, or very little, disposable income. Although much was being produced there wasn't an adequate market for these products. Large factories were producing endless product that they could not sell.
Banks and other financial institutions were not well positioned to cope with the financial crises. Much of this was connected to farming. Farm prices fell drastically in the late 20's and interest rates went up just as dramatically. This put farmers, as well as the institutions they owed money to, in real trouble. Many, mostly small, banks specialised in farming and had major problems. It was not only small banks who were to blame though. Large banks failed to maintain adequate reserves. Too much lending and investing heavily in the stock market proved a major mistake. All this meant that in a tough economic situation banks were badly positioned.
After the First World War, many European nations owed large sums of money to the US. Despite much pressure, the US refused to forgive or reduce the debts. The only way these could be repaid was for these countries to borrow further. The US banks started loaning large amounts to Europe so they could repay their own debts to the US government. Once the Great Depression hit it was no longer possible for these countries to borrow from US banks meaning the whole situation got more out of control. This caused the European economies to collapse further.
The Smoot-Hawley Tariff Act raised tariffs on many goods imported into the United States, meaning higher taxes for importers. Many were against it, including Henry Ford. President Hoover was initially oppose but was convinced by his party and some business leaders. Franklin D. Roosevelt spoke out against the policy in his presidential campaign. The aim was to raise money and improve the economic situation in the US, but it had the opposite effect.
Importers unsurprisingly began to pull out as it was no longer worth the cost. Other countries were unhappy with the policy with many boycotting the US and retaliating with their own policies by increase taxes on their own imports from America. All this meant fewer business exchanges between the US and other countries. Global trade was impacted and the world's economy went further down hill.
Not everyone agrees as to the main cause of the Great Depression and it is likely that is was a combination of reasons. It began in late 1929 and it lasted throughout the 1930's and it wasn't until the early 1940's that its affect was over.
When the stock market crashed in 1929, it did not happen in just one day. Instead, the stock market kept plummeting over the course of a few days setting in motion one of the most devastating periods in the history of the United States.
The most crucial events started on Black Thursday, October 24, 1929. On that day, almost 13 million shares of stock were traded. It was a record number of stock trades for the U.S. and marked the end of an upward trend on stock costs. On Black Thursday, the stock prices dropped so rapidly, the stock ticker could not keep up. As the day progressed, the stock ticker fell behind, failing to show the most up to date stock prices.
On the next day, Friday, October 25, several of the nation's biggest bankers met to chose what to do about the situation. Among the attendees were the heads of Morgan Bank, Chase National Bank, and National City Bank. The bankers ultimately decided to purchase a number of U.S. Steel shares above market price.
In those days, the stock market traded 6 days a week rather than 5. The bankers' move led to a small rise in stock cost on Saturday, October 26. But over the weekend many investors lost faith in the stocks and decided to sell their shares. When the markets reopened on Monday, October 28, 1929, another record number of stocks were traded and the stock market dismissed more than 22%. The situation worsened yet again on the infamous Black Tuesday, October 29, 1929 when more than 16 million stocks were traded. The stock market ultimately lost $14 billion that day.
In the years leading up to the stock market crash of 1929, the stock market had acquired a lot of popularity as a way of making money. Because stocks prices had been on the rise, they gained the reputation of being a safe way to invest. Many investors believed stocks were their ticket to riches.
Even after Black Tuesday, stock prices continued to fall until November 23, 1929 when there was a brief period of stabilization. Though it looked like the worst had passed, there was more decline to follow. After that, the stock market continued to decline until it reached its lowest point on July 8, 1932.
The stock market crash devastated the American economy because not only had individual investors put their money into stocks, so did businesses. When the stock market crashed, businesses lost their money. Consumers lost their money too, because many banks had invested their money without their permission or awareness.
The Great Depression came shortly after. Even though the stock market crash of 1929 was one of the contributors to The Depression, it was not the only cause. Companies had begun to overproduce consumer goods, but demand for those items didn't go up at the same rate. Prices of those goods began to fall, but once the stock market crashed, few people could afford to buy products.
In 1930, Hoover signed the Smoot-Hawley Tariff, which increased the tariff amount on items that were imported. Foreign nations answered by boycotting American products. This severely hurt American producers who were in dire need of sales.
After the stock market crash of 1929, the government took several measures to prevent a similar crash from occurring. The Securities and Exchange Commission (SEC) was created on October 1, 1934 to regulate stocks, bonds, and other commissions. The Federal Deposit Insurance Corporation (FDIC) was also created to insure consumers' deposits in FDIC-enrolled financial institutions. The Federal Crop Insurance Corporation (FCIC) was established to insure crops planted by farmers.
Also know as the "Big Board" the New York Stock Exchange (NYSE) was created by a merger of the NYSE and Archipelago Holdings, which is fully electronic, and became known as the New York Stock Exchange Group.
The NYSE is made up of 5 rooms used for trading and is found on 18 Broad Street, New York City. The NYSE can trace its roots to 1792, however it did not become known as the New York Stock Exchange until 1817 when the organization drafted a constitution.
It is the largest stock exchange in the world in the amount of dollars that flows through it each day and has the second largest number of company listing, exceeded only by NASDAQ. The global capitalization of the exchange is $2.1 trillion with $1.7 trillion of that being companies not based in the U.S.
The NYSE works similar to that of an auction. Each company listed trades in one location. A specialist broker employed by each of the listed companies has the duty of acting as an auctioneer at the company post.
Buyers and sellers of a certain stock come together around a particular post and an auction takes place. This form of trading helps produce a price for stocks that is efficient and fair for both buyers and sellers. The human interaction and the expert judgement helps differentiate the New York Exchange from other stock exchanges that are fully electronic.
In recent times orders for stocks are increasingly being delivered to the trading floor electronically. The development for a Hybrid market bringing together the elements of human interaction and electronic markets is currently in the works.
The NYSE has been made famous by a number of big budget Hollywood movies. Its history has also been a very interesting one. In 1920 a bomb was planted on Wall Street right outside the NYSE building. When it exploded it killed 33 people, injured more than 400 and caused considerable damage to the surrounding buildings. The terrorists who planted the bomb were never captured.
There was also a decided bias and cultural view that "women didn't work" and in fact many who were employed full time often called themselves "homemakers." Neither men in the workforce, the unions, nor any branch of government were ready to accept the reality of working women, and this bias caused females intense hardship during the Great
The 1930's was particularly hard on single, divorced or widowed women, but it was harder still on women who weren't White. Women of color had to overcome both sexual and racial stereotyping. Black women in the North suffered an astounding 42.9% unemployment, while 23.2%. of White women were without work according to the 1937 census. In the South, both Black and White women were equally unemployed at 26%. In contrast, the unemployment rate for Black and White men in the North (38.9%/18.1%) and South (18%/16% respectively) were also lower than female counterparts.
The financial situation in Harlem was bleak even before the Great Depression. But afterward, the emerging Black working class in the North was decimated by wholesale layoffs of Black industrial workers. To be Black and a woman alone, made keeping a job or finding another one nearly impossible. The racial work hierarchy replaced Black women in waitressing or domestic work, with White women, now desperate for work, and willing to take steep wage cuts.
At the start of the Depression, while one study found that homeless women were most likely factory and service workers, domestics, garment workers, waitresses and beauticians; another suggested that the beauty industry was a major source of income for Black women. These women, later known as "survivalist entrepreneurs," became self-employed in response to a desperate need to find an independent means of livelihood."
Replaced by White women in more traditional domestic work as cooks, maids, nurses, and laundresses, even skilled and educated Black women were so hopeless, ''that they actually offered their services at the so-called 'slave markets'-street corners where Negro women congregated to await White housewives who came daily to take their pick and bid wages down'' (Boyd, 2000 citing Drake and Cayton, 1945/1962:246). Moreover, the home domestic service was very difficult, if not impossible, to coordinate with family responsibilities, as the domestic servant was usually on call ''around the clock'' and was subject to the ''arbitrary power of individual employers.''
Two occupations were sought out by Black women, in order to address both the need for income (or barter items) and their domestic responsibilities in northern cities during the Great Depression: (1) boarding house and lodging house keeping; and (2) hairdressing and beauty culture.
During the "Great Migration" of 1915-1930, thousands of Blacks from the South, mostly young, single men, streamed into Northern cities, looking for places to stay temporarily while they searched for housing and jobs. Housing these migrants created opportunities for Black working-class women,-now unemployed-to pay their rent.
According to one estimate, ''at least one-third'' of Black families in the urban North had lodgers or boarders during the Great Migration (Thomas, 1992:93, citing Henri, 1976). The need was so great, multiple boarders were housed, leading one survey of northern Black families to report that ''seventy-five percent of the Negro homes have so many lodgers that they are really hotels. Women were usually at the center of these webs of family and community networks within the Black community:
"They ''undertook the greatest part of the burden'' of helping the newcomers find interim housing. Women played ''connective and leadership roles'' in northern Black communities, not only because it was considered traditional "woman's work," but also because taking in boarders and lodgers helped Black women combine housework with an informal, income-producing activity (Grossman, 1989:133). In addition, boarding and lodging house keeping was often combined with other types of self-employment. Some of the Black women who kept boarders and lodgers also earned money by making artificial flowers and lamp shades at home." (Boyd, 2000)
In addition from 1890 to 1940, ''barbers and hairdressers'' were the largest segments of the Black business population, together comprising about one third of this population in 1940 (Boyd, 2000 citing Oak, 1949:48).
"Blacks tended to gravitate into these occupations because "White barbers, hairdressers, and beauticians were unwilling or unable to style the hair of Blacks or to provide the hair preparations and cosmetics used by them. Thus, Black barbers, hairdressers, and beauticians had a ''protected consumer market'' based on Whites' desires for social distance from Blacks and on the special demands of Black consumers. Accordingly, these Black entrepreneurs were sheltered from outside competitors and could monopolize the trades of beauty culture and hairdressing within their own communities.
Black women who were seeking jobs believed that one's appearance was a crucial factor in finding employment. Black self-help organizations in northern cities, such as the Urban League and the National Council of Negro Women, stressed the importance of good grooming to the newly arrived Black women from the South, advising them to have neat hair and clean nails when searching for work. Above all, the women were told avoid wearing ''head rags'' and ''dust caps'' in public (Boyd, 2000 citing Drake and Cayton, 1945/1962:247, 301; Grossman, 1989:150-151).
These warnings were particularly relevant to those who were looking for secretarial or white-collar jobs, for Black women needed straight hair and light skin to have any chance of obtaining such positions. Despite the hard times, beauty parlors and barber shops were the most numerous and viable Black-owned enterprises in Black communities (e.g., Boyd, 2000 citing Drake and Cayton, 1945/1962:450-451).
Black women entrepreneurs in the urban North also opened stores and restaurants, with modest savings ''as a means of securing a living'' (Boyd, 2000 citing Frazier, 1949:405). Called ''depression businesses,'' these marginal enterprises were often classified as proprietorships, even though they tended to operate out of ''houses, basements, and old buildings'' (Boyd, 2000 citing Drake and Cayton, 1945/1962:454).
"Food stores and eating and drinking places were the most common of these businesses, because, if they failed, their owners could still live off their stocks."
"Protestant Whites Only"
These businesses were a necessity for Black women, as the preference for hiring Whites climbed steeply during the Depression. In the Philadelphia Public Employment Office in 1932 & 1933, 68% of job orders for women specified "Whites Only." In New York City, Black women were forced to go to separate unemployment offices in Harlem to seek work. Black churches and church-related institutions, a traditional source of help to the Black community, were overwhelmed by the demand, during the 1930's. Municipal shelters, required to "accept everyone," still reported that Catholics and African American women were "particularly hard to place."
No one knows the numbers of Black women left homeless in the early thirty's, but it was no doubt substantial, and invisible to the mostly white investigators. Instead, the media chose to focus on, and publicize the plight of White, homeless, middle-class "white collar" workers, as, by 1931 and 1932, unemployment spread to this middle-class. White-collar and college-educated women, usually accustomed "to regular employment and stable domicile," became the "New Poor." We don't know the homeless rates for these women, beyond an educated guess, but of all the homeless in urban centers, 10% were suggested to be women. We do know, however, that the demand for "female beds" in shelters climbed from a bit over 3,000 in 1920 to 56,808 by 1932 in one city and in another, from 1929 -1930, demand rose 270%.
F.Scott Fitzgerald's the Great Gatsby can be considered as a sort of prequel to the Great Depression. Its tale of social-climbing Midwesterners, illicit money making activities, lavish parties and economic class distinctions makes the novel appear as a critical study of the wealth and excess that largely defined the 1920s before the infamous stock market crash. For the most part, Fitzgerald's novel is taught to high schoolers in conjunction or as an introduction to the 1920s and the eventual Great
The character Jay Gatsby can seen somewhat to be a foreshadowed symbol of the excess that characterized pre-Depression times. Yet, by the time we meet the title character Gatsby—the bootlegging Gatz who builds a illegal bootlegging empire arguably in attempt to win back his true love, the high class but married Daisy—he has already been dead for a while.
The narrator Nick Carraway's purpose in telling this story is largely to admonish high society for its cold cruelty and to ponder the downsides of the mythical American Dream—all told through a post-mortem of the final weeks leading up to Gatsby's death. Gatsby, with his unbridled affluence and attempt for social ascension, has come to be our tragic hero of 1920s boom and the eventual bust.
We can see this idea in Fitzgerald's critical construction of the Great Gatsby setting. Set in the wealthy "West Egg" and "East Egg"—respectively, that's Long Island and New York City to you—we as readers are emerged in a social setting characterized as wealthy, educated and socially exclusive and restrictive. The characters do not dare to associate with others considered to be below them socially, particularly in geographical locations. In fact, social status is everything and that status is usually tied to one's financial worth. But even then, one's social status—such as the case for Gatsby—is not as held in much high regard if it's just money and lavish parties you have.
Despite his big bucks, Gatsby lives in the less prestigious West Egg, implying he has not fully ascended to the level of his love Daisy, a distance symbolically and geographically represented in the span water between their respective houses. The novel is obsessed with such rigid class distinctions and the inability for most people in the novel to reach a level of equality with the higher class, making 1920s America almost like feudal Europe.
No matter how many colored shirts, champagne-fueled parties or fancy-shmancy, people-killing cars he had, he could never be an equal worthy of Daisy in her eyes, even with his excess. His death is also largely symbolic. The wealthy Gatsby ends up murdered by a blue-collar automechanic while kicking back at his personal pool. This event, interpreted post-Depression, suggest an equalization of classes.
In fact, the status quo represented in this novel was effectively up-ended with the onslaught of the Great Depression. Of course, reading The Great Gatsby today with the hindsight and knowledge that four years after its publication, the world's economies would implode, certainly colors readers' interpretations. Yet, if Fitzgerald had been an economist, perhaps The Great Depression may have never happened.
He seemed to know what kind of ruin that the extravagance typified by Gatsby was heading to. The Great Gatsby, therefore, becomes this ominous book with impeccable foresight that not only criticizes the stratified society pre-Depression, but in its own way, also argues for the type of equality or equal status that the Depression eventually brings, however destructively.
The ‘roaring twenties' were characterized by gross consumerism. There were more women in white collar jobs than ever before. Women also had more freedoms than ever before. They could vote, own businesses, use birth control, let a machine do the laundry and a vacuum do the sweeping. From one end of the nation to the other socio-economic barriers fell as the nation doubled its total wealth. For many young women in the big cities of America the twenties were roaring indeed. This decade of decadence for the masses was bought on credit and when the debts were called it was followed soon after by a decade of hardship.
The Great Depression was marked by the enormous population of unemployed that riddled the Nation's towns and cities in communities called shantytowns or "Hoovervilles". Because of the many lost jobs and widespread angst against big businesses who received government bailouts strikes breakout across the nation. At the Ford Motor Company plant, 3,000 workers marched against guards and police and were attacked resulting in the deaths of four and multiple injuries.
One of the many changes that took place during the depression was the Election of President Franklin Delano Roosevelt. His aggressive attack on the affects of the depression began immediately after his swearing in. Within the first 100 days of his presidency, FDR had stabilized the banking system and announced his New Deal to win back Americans' lifestyles.
Although many see the cause of the Depression as the crash of the stock market and the resulting consumer distrust, Milton Friedman throws the whole blame at the feet of the Federal Reserve. The beginning of 1929 marked a normal recession like many others that the United States had experienced and survived before but now policies had changed and practices that were expected to be carried out by the Reserve never happened, leading to widespread bank failures across the nation.
Before 1913 during a recession or banking panic, most often only smaller banks were affected and larger banks would step in and save the little ones. When the Federal Reserve was formed and founded its purpose to help mediate and prevent panics and failures but in 1930 it failed to do just that.
Survivors from the Great Depression learned to live lives of frugality and independence. Purchasing on credit became taboo. Banks learned to regulate loans and the granting of them. The government created regulatory authorities to watch and protect the stock market and stock holders. The FDIC was founded to protect consumers' deposits and savings to give them instant access to their money. The Great Depression changed the lives of everyone in the world in one way or another.
Starting in 1929, the world would witness one of the greatest economic downturns ever recorded. Originating in the United States, the Great Depression began in late October with an unprecedented stock market crash. How could a twentieth century economy nearly collapse? The Great Depression provides an example of falling markets and widespread poverty. However, one significant outlier existed in the market at the time: gold price. Exemplified through a brief analysis of Homestake Mining, gold industry stocks experienced extraordinary gains in share price and dividend payouts.
During the 1920s, the United States experienced a remarkably bullish equity market. However, gold stocks, in general, were not participants; instead, they underwent a downward trend. Gold companies had been afflicted by a bearish market since the late 1880s. This would all change with the onset of the Great Depression. Gold price stocks would prove to thrive during this global economic slowdown. Our central illustration will focus on the Homestake Mining Company, one of the world's largest gold producers in the early twentieth century.
Homestake's main operation was in the heartland of the United States, mining gold from the hills of South Dakota. Most gold sector historians agree that Homestake serves as a fair representation for the entire gold mining industry at the time. One must note that the U.S. government passed the Gold Standard Act in 1900 which placed the entire country on the gold standard, creating a fixed exchange rate with all other countries whose currencies were fixed to the gold price. With a fixed gold price, gold stocks fluctuated around production levels, growth rates, cash costs, and net asset value. Changes in the gold price were unable to affect the stock price when the country entered the Great Depression.
Homestake stock sold for about $65 per share in 1929. By 1933, the average stock price for Homestake was around $370. This represents a gain of more than 450% over the course of four years. The Dow Jones Industrial Average fell 89% over the three years between its 1929 peak to its 1932 bottom. Not only did stock prices increase for Homestake, but dividends also skyrocketed. In 1929, Homestake paid dividends of about $7 per share. By 1935, dividends had increased to $56, a staggering rate of 800% over six years. During these deflationary times, gold stocks not only retained their values but provided significant returns for investors.
Deflation, the underlying crisis during the Great Depression, results in heightened gold stock prices. The reason why is that deflation diluted the value of the U.S. dollar while the price of gold was fixed by the government. While some would argue that this fixed gold price ensured the rise for gold stock prices, this fallacy is simple to debunk by examining the positive effects on gold stocks after the removal of the gold standard in 1971.
Even though the gold price was no longer fixed, gold stocks performed normally. Interestingly, Congress passed the Gold Reserve Act of 1934 and gave the government permanent title to all gold assets. Most importantly, it increased the gold price to $35 and further devalued the dollar. This certainly contributed to the spike in Homestake's share price from 1934 to 1935.
Looking forward, gold stocks are very promising under the current market as deflation is likely. Should deflation enter the 2009 economic crisis, gold stocks will be set to perform at record highs. Gold prices would cross the $1000 barrier and further elevate gold company shares. The magnitude could be far greater than what was witnessed during the Great Depression when Homestake had annualized gains of more than 100%. Gold will no longer be seen as a placeholder for value, but as an investment for an uncertain future.
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