The Story of the Great Depression Simply Told
The story of the Great Depression that plagued America beginning in 1929 can be better be understood by first considering the life in America during the 1920s, an Era which is often referred to as the roaring 20s in American history.
The roaring 1920s
For many Americans, the 1920s were a time of hope and a time for fun and enjoyment. They agreed with one of the most popular sayings of the time, “every day in every way, things are getting better and better”. It was a time when most people coming from the First World War wanted to relax and enjoy themselves.
These hopeful Americans pointed to signs of progress in around. Women’s new right to vote was one sign of this progress. Americans also were proud that technology was producing so many new wonders. Technology is defined in these terms as the use of tools and knowledge to solve practical problems and to help people live better. Americans were made better by technology.
They bought new products – refrigerators, vacuum cleaners, radios, electric washing machines, and cars which were being made more and more inexpensive. It was a general view that American workers had better job conditions. Jobs were plentiful and the pay was good.
It was a time when people listened to new sounds. People relaxed in the soothing sounds of jazz and the blues. Millions people were hooked to movie theatres and listened to the first talkie films. A new invention called radio brought news, sports, and comedy right into a family’s living room.
Radio, movies, and sports made new national heroes. Babe Ruth was baseball’s greatest hero. Swimming champion Gertrude Ederle became a sports hero too. It was an era where people appreciated sport. Gene Tunney and Jack Dempsey in boxing excited fans. Helen Wills and Bill Tilden in tennis did the same. Football fanatics enjoyed watching Red Grange and Jim Thorpe. And the Mickey Mouse cartoon character was born in 1928.
Clara Bow, popular film star of the 1920s best known as “The ‘It’ Girl,” was America’s first real sex symbol.
Bow grew up in a household of poverty, violence and mental illness. She escaped her circumstances by entering her photo and winning a movie magazine contest, with the top prize being the chance to appear in a small role in the film, “Beyond the Rainbow” (1922).
Despite her difficult beginning, Bow worked steadily in films through the 1920s, typically appeared in supporting roles in films that were described as “domestic melodramas,” with an occasional comedy.
The type of films she appeared in can best be described simply by listing some of the titles — “Enemies of Women” (1923), “Grit” (1924), “Poisoned Paradise”(1924), daughters of pleasure, (1924) empty sex (1925), “Eve’s Lover” (1925), “Lawful Cheaters” (1925), “Parisian Love” (1925), “Kiss Me Again” (1925), “Free to Love” (1925), “My Lady’s Lips” (1925), “Two Can Play” (1926) and “Mantrap” (1926).
Bow was known as “The It Girl,” with “it” usually meaning sex appeal. Bow also appeared in “Wings” (1927), which won the first Academy Award as Best Picture. Bow continued to appear in films as the often-wild women who knows what she wants, and gets it, including “Get Your Man” (1927), “The Fleet’s In” (1928), “The Wild Party” (1929), “Dangerous Curves” (1929), “Her Wedding Night” (1930), “No Limit” (1931) and “Call Her Savage” (1932). When sound films became popular in the early 1930s, Bow’s thick Brooklyn accent was a severe handicap. Her last film was “Hoopla” (1933).
Clara Bow personifies the attitudes and tastes of the 1920s. One website describes Clara Bow this way;
Clara Bow became a major star in 1925 and soon became the ‘It’ Girl. She was known to be wild and sexy and care free…the perfect flapper! Oddly she didn’t constantly go for the bow but the look became associated with her.
Before Clara it was the ‘Cupids Bow’. Now it was Clara’s (punny).
The Great Depression
The life of the Americans just described above meant that in order to have such lavish relaxation and have the power to buy such technological innovations in the form of radios, electric washing machines, cars, refrigerators it supposes that people had enough money than their parents had, but that was not always the truth in all respects. Since factories and businesses producing these technological innovations needed to have customers they were often working with the banks to grant people loans with some relaxed long term payment plans of the loans.
In 1929 many business in America started to hang new signs on their doors, announcing “out of Business”. Millions of workers were informed that the paycheck they were getting mostly at the end of the week was the last paycheck. Soon many people did not have enough money to pay for food, clothes, or housing. Many people joined long lines of jobless people, waiting to receive free meals given out by religious groups.
The 1920’s was the time when America went from prosperity, big time and fun that comes with better live brought by technology to a landslide depression. A depression is the time when business activity slows down and many people are out of work. The depression that started in 1929 in America was called the Great Depression. America had seen depression before but none of them was as severe as the Great Depression.
The Stock Market Crash
People disagree about what caused the Great Depression, however most people agree that the depression began around the time of the stock market crash. The stock market is the place where shares of stock are bought and sold. Stocks are certificates of ownership in a company. Stock owners share in the risks of the business they own. If the business makes money, the stock owners also share in the profits.
A form of stock ownership began in America in the early 1600 with the founding of Jamestown. The number of companies that issued stocks grew with the new industries of the 1800s. With the prosperous years of the 1920s, the stock market continued to grow. Up until the late 1920s, most stock owners tried to buy stocks that paid them the most money, in the form of payments called dividends, every year.
They bought stocks and owned them for years on end. In the late 1920s however the behavior of people who were buying stocks begun to change for the worse. Many people began to “play” the stock market for some quick money instead of long term investments. People wanted to get rich quickly. So how did this playing of stock market happen?
People who participated in the stock market watched stock prices carefully. They tried to buy stocks when the prices were low. They hoped to sell the stocks after the prices had gone up. The difference between the buying price and the selling prices was their profit. Some people made millions of dollars playing the stock market.
As the number of people playing the stock market increased, stock prices rose. By the summer of 1929, some stock owners thought that stock prices had climbed as high as they were going to go. These people sold their stocks. Stock prices began to level off.
When prices stopped rising, more and more people decided to sell their stocks. In the autumn of 1929, stock prices started to fall. With the falling prices, stock owners panicked. Soon just about everyone was trying to sell their stock. However, people had little hope that stock prices would go up again, so there were few buyers. Many people saw their fortunes fade before their eyes.
Where did all the money invested in the stock market go? In truth, a great deal of the money was not there in the first place. Many people had bought stocks on credit. Buying on credit means that buyers pay small amount of money when they purchase an item; they promise to pay the rest later. With credit buying, few people actually paid the full price for stocks. When prices began to fall, the broker demanded repayment of loans. Few stock owners had money to pay them. Brokers then sold the stock for whatever they could get.
And so the stock market crash marked the beginning of the Great Depression. However this may not have really caused the depression. Some people think the depression began because the industries produced more goods than people bought. Throughout the 1920s Americans eagerly bought vacuum cleaners, automobiles, and other factory goods. By the end of the 1920s, the demand for goods fell off. Warehouses were filled with unsold products.
When businesses could not sell their goods, they began to lay off or dismiss their workers. These unemployed people were not able to buy much more than the necessities of life. As more more people lost their jobs, even fewer goods were sold. Rising unemployment hurt business, leading to even more job layoffs.
Credit buying is another explanation for the Great Depression. As we have already discussed credit buying contributed to the stock market crash. However stocks were not only the items Americans bought on credit. Millions of people bought goods of all sorts by paying a small amount of their own money and borrowing the rest. Some people did not plan wisely and were not able to pay for what they bought on credit.
Other people lost their jobs and could not pay back their loans. Thousands of businesses closed when customers failed to pay their bills.
Certain banking practices also contributed to the Great Depression. Many people put their money into savings accounts. Savings accounts were not insured, or guaranteed against loss, in those days. Banks often used their customers’ savings to play the stock market. When the stock market crashed, many bank customers with savings accounts lost all their money.
Banks lost money in another way. Millions of Americans borrowed money from banks to buy goods or stocks. If these people were laid off from their jobs, they could not make loan payments to the banks. Then the banks lost money. Without this money, some banks had to close. People who had put money in the bank lost their savings when the banks closed – just like that! The government did not lend money to the banks to keep them from closing. Many people think that this lack of help from the government contributed to the Great Depression.
And so from the booming economy of America in the 1920s to the bust in 1929 – it all happened very quickly. People lost their homes, their farms, their businesses, and their jobs.
By 1932 nearly 12 million people were unemployed. Many unemployed people found themselves in long lines that covered city blocks moving slowly towards soup kitchens. These long queues or lines were called bread lines. Inside the soup kitchens were free food and, in the winter, warmth. One man described these common scenes of bread lines in Chicago. His words describe the sad story of many people in American cities and towns during the Great Depression.
In Garland Court back of the library, special garbage cans were set out by the thoughtful kitchen help of the restaurant. The garbage cans contained bread heels [crusty end slices of bread], and hundreds of starving men and women gratefully helped themselves. At the other garbage cans, people did their own sorting, stopping to chew on bones and bits of meat.
In warm weather, Grant Park was full with thousands of men and women sleeping atop newspapers on the wet grass. When it turned cold, a thousand shanties went up overnight along the lakefront… the shacks were made of tin signs and ancient boards, but they had chimneys and primitive heating systems.
At the Pixley and Ehlers cafeteria… I’d see a shabbily dressed man sit down with a 5 cent cup of coffee and put 10 spoons of sugar into it for nourishment. Then he might pour a fourth of a bottle of catsup into a glass of water and stir it until it became free ‘tomato juice’.
For many Americans, the Great Depression meant going from bad to worse. Farmers had faced hard times since the early 1920s. for most farmers, the hard times continued into the 1930s. Prices for farm products fell, because Europe’s demand for food crops decreased as European countries recovered from World War I. (Usually a decrease in demand leads to a drop in prices).
A drought a long period without rain – added to the farmers’ problems beginning in 1931. By the early 1930s, some farms in the Great Plains states were so dry that the soil began to blow away. Because of the great, swirling dust storms, the area became known as rthe Dust Bowl. Thousands of families left their farms. They travelled across the country, looking for new homes and new jobs.
And so it seemed to everybody that the American dream is no more. Listen to this popular song during the years of the Great Depression;
“They used to tell me I was building a dream,
And so I followed the mob –
When there was earth to plough or guns to bear
I was always there – right there on the job.
They used to tell me I was building a dream,
With peace and glory ahead –
Why should I be standing in the line
Just waiting for bread?”
Except for breadlines and soup kitchens, suffering Americans did not know where to turn for help in the early years of the Great Depression. Private charities, such as churches and local community groups, tried to help the poor, the sick, and the homeless. However, with so many people needing help, many charities soon ran out of money. And this brings us to the role of government in this situation. What was government doing or should have done.
Hoover and the Great Depression
Before the Great Depression, the national government had stayed out of matters such as helping the poor. The government also did not give aid to people who had lost their jobs. At first, Hebert C. Hoover, was president when the Great began. He did not change government policy of not intervening in the lives poor people.
Hoover felt sorry for people suffering because of the depression. However, he did not believe the national government really could do anything to end the hard times. His advisers told him that the depression would end on its own, as other depressions had. Hoover hoped Americans could find ways to help themselves and their neighbors without the aid of government.
Later Hoover realized the Great Depression was not going to end quickly on its own. He started some government programs to aid farms and businesses. However, the depression worsened and Hoover’s popularity dropped.
The Great Depression was the worst economic downturn in US history. It began in 1929 and did not abate until the end of the 1930s.
The stock market crash of October 1929 signaled the beginning of the Great Depression. By 1933, unemployment was at 25 percent and more than 5,000 banks had gone out of business.
Although President Herbert Hoover attempted to spark growth in the economy through measures like the Reconstruction Finance Corporation, these measures did little to solve the crisis.
Franklin Roosevelt was elected president in November 1932. Inaugurated as president in March 1933, Roosevelt’s New Deal offered a new approach to the Great Depression.
The stock market crash of 1929
The Great Depression
Hoover’s response to the crisis
What do you think?
The Great Depression, a worldwide economic collapse that began in 1929 and lasted roughly a decade, was a disaster that touched the lives of millions of Americans—from investors who saw their fortunes vanish overnight, to factory workers and clerks who found themselves unemployed and desperate for a way to feed their families.
Some people were reduced to selling apples on street corners to support themselves, while others lost their homes and were forced to survive in shanty towns that became known as “Hoovervilles,” a bitterly derisive reference to President Herbert Hoover, who in the early 1930s often claimed that “prosperity was just around the corner,” even as economic and trade policy mistakes and reluctance to provide government assistance to ordinary Americans worsened their predicament.
It’s not easy—even for people who’ve lived through the economic downturn caused by the COVID-19 pandemic—to grasp the depths of deprivation to which the economy sank during the Great Depression. When the unemployment rate peaked in 1933, 25.6 percent of American workers—one in four—found themselves unemployed. That’s a vastly higher rate than the 14.7 percent unemployment in April 2020, when the coronavirus forced businesses and factories to shut down.
Things were so bad that of all the days of unemployment experienced by individual American workers in American history, half occurred during the Great Depression, according to University of California, Irvine economics Professor Gary Richardson, who has done extensive research on that period and the subject of downturns in general.
“There have been a lot of ups and downs, but the Great Depression is really the biggest one,” he explains.
It’s not easy to explain exactly why such hard times happened. “For something to be as bad as the Great Depression, you really need multiple things going wrong, in the U.S. and around the world,” Richardson says.
Here are some of the things that historians and economists often point to as factors that combined to lead to the worst economic disaster in history.
1. Vulnerabilities in the Global Economy
In the 1920s, nations bounced back from the disruption and destruction caused by World War I, with factories and farms producing again, Richardson notes. But the nature of the economy in the United States and elsewhere shifted, as ordinary consumers buying durable goods such as appliances and cars—often on credit—became more and more important.
While that consumption created a lot of wealth for business owners, it also made them vulnerable to sudden shifts in consumer confidence. At the same time, nations that were producing a lot of products and exporting them became fierce competitors. “The war had eliminated a lot of the cooperation between nations that were required to run the international financial system,” Richardson says. That inability to work together at controlling problems meant that any one country’s efforts to control a downturn were less effective.
2. Financial Speculation
The 1920s economic boom helped breed a widespread belief that it was easy to get rich quick if you were bold enough to invest in the right opportunity at the right time. That’s one reason why so many ordinary Americans were fleeced by con artists who sold them on shady schemes, from Florida swampland and nonexistent oil deposits to the notion of buying Spanish mail coupons and redeeming them for U.S. stamps to profit on the weaker Spanish currency.
But the riskiest gambling took place on Wall Street. Investors increasingly bought stocks on margin, in which they put down as little as 10 percent of the price of a stock, and borrowed the rest of the money, with their stock itself as collateral. Corporate stocks soared, and brokers made huge commissions.
But the bubble eventually had to burst. It did that on Black Monday, October 28, 1929, when the Dow Jones average declined nearly 13 percent in one day. That started a period of catastrophic declines that destroyed almost half of the Dow’s value in a single month. By 1932, at the nadir of the financial crisis, the nation’s public companies had lost 89 percent of their value. Scores of investors were ruined, and companies found it difficult to finance their operations.
“The stock market crash did two things,” explains Mary Eschelbach Hansen, a professor of economics at American University. “It had a wealth effect on consumption (when people’s wealth falls, they consume less), and it also made consumers and firms pessimistic. Then came a series of banking panics and failures. Households lost more of their wealth, and the lines of credit that firms used were disrupted. Unemployment soared.”
3. Blunders by the Fed
The Federal Reserve System, created in 1913, was supposed to ensure the nation’s economic stability by controlling the money supply. But the still-new institution’s policies in the 1920s not only failed to stop the Great Depression but actually may have helped to cause it.
“There was a drastic 67 percent increase in the money supply between 1921 and 1929,” explains Daniel J. Smith, a professor of economics and finance and director of the Political Economy Research Institute at Middle Tennessee State University.
That policy led to declining interest rates, which encouraged people to borrow and overinvest. “It also led to unchecked speculation in the formation of a bubble in the stock market,” Smith says. “Normally, overinvestment would lead to rising interest rates, which would act as a natural break to prevent a bubble from forming. This didn’t occur due to the easy monetary policies of the young Fed.”
But eventually, in 1929, the Fed’s board worried that speculation was out of control, and abruptly slammed on the breaks by contracting the money supply and raising interest rates, Smith notes.
The Fed’s move to cool the stock market worked a little too well. “They got the stock market to come down,” Richardson explains. “But then it came down a lot, and it came down very quickly.”
4. The Gold Standard
Back in 1929, the United States—like many other countries at the time—was on the Gold Standard, with the dollar redeemable in gold and pegged to its value. But after the Wall Street crash, nervous investors began to trade their dollars for gold.
As former Fed chairman Ben Bernacke noted in a 2004 lecture, the Fed then moved to jack up interest rates higher to protect the dollar’s value. But those high-interest rates made it difficult for businesses to borrow the money that they needed to survive, and many ended up closing their doors instead.
5. The Smoot-Hawley Act
Trade protectionists in Congress enacted the Smoot-Hawley Act, which was written in early 1929, while the economy still seemed to be going strong. But after the Wall Street Crash weakened the economy, President Hoover still signed it into law in 1930. The law raised U.S. tariffs by an average of 16 percent, in an effort to shield American factories from the competition with foreign countries’ lower-priced goods. But the move backfired when other countries put tariffs on U.S. exports.
“If you’re a country and you impose tariffs that can be good for your domestic industries because your domestic energy might produce more for home consumption,” Richardson says. “But if other countries retaliate, then it could be bad for everybody.”
Combined: A Perfect Economic Storm
The really unlucky thing was that all those factors combined in a sort of perfect economic storm, whose devastating effects had long-lasting repercussions.
As Richardson notes, the U.S. economy didn’t again reach full employment until 1940—just in time for World War II to disrupt consumption with rationing needed to ensure that the military had enough resources. Life didn’t really get back to normal until after the war when the victorious United States emerged as the world’s leading economy.
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Author: Mohammed A Bazzoun
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