The Real Causes of the Depression

1
The Real Causes of the Depression

• 20th Century American History
• Mrs. Rounds

Cartoon "Going Into A Huddle" by Ding Darling
published in the Des Moines Register, November
21, 1929
2
Depression did not start from Stock Market Crash

• A study by the National Bureau of Economic
  Research states Several countries entered the
  phase of recession in 1927 and 1928, long before
  the date usually taken as marking the crisis in
  the United States, that of the Wall Street crash
  of October, 1929.
• Willard L. Thorp, The Depression as
  Depicted by Business, National Bureau of
  Economic Research News Bulletin, No. 43, Sept.
  19, 1932.

http//www.ecommcode.com/hoover/ebooks/pdf/FULL/B1
V3_Full.pdf
3
Hoovers warning on January 1, 1926

• There are some phases of the situation which
  require cautionreal estate and stock speculation
  and its possible extension into commodities with
  inevitable inflation the overextension of
  installment buying the extortion by foreign
  government-fostered monopolies dominating our raw
  material imports the continued economic
  instability of certain foreign countries the lag
  in recovery of certain major agricultural
  products the instability of the coal industry
  the uncertainties of some important labor
  relationships all these are matters of concern
  .

4

• This fever of speculation is also widespread in
  real estate and, unless our financial policies
  are guided with courage and wisdom, this
  speculation may yet reflect into the commodity
  markets, thereby reversing the cautious buying
  policies of recent years. Psychology plays a
  large part in business movements, and
  overoptimism can only land us on the shores of
  overdepression. Not since 1920 have we required
  a better informed or more capable administration
  of credit facilities than now if we are to
  continue an uninterrupted high plane of
  prosperity. In any event there should be no
  abatement of caution in the placing of forward
  orders, particularly in view of the great
  increase in sales of a great variety of
  merchandise on the installment basis.

http//www.ecommcode.com/hoover/ebooks/pdf/FULL/B1
V3_Full.pdf
5
Even before Hoover took office

• He was faced with the farm bill that Coolidge
  vetoed, saying Farmers have never made money.
  I dont believe we can do much about it.
• Adding to the countrys infrastructure (we have
  cars and trucks now).
• Helping tame the waterways to curb flooding.

Ding Darling Cartoon, Hoover Presidential
Library http//hoover.archives.gov/education/carto
ons.html
6
Wages affect buying power, affecting wages,
affecting buying power, etc.

• Wages had not completely recovered from the
  Depression of 1921.
• Less money to spend, therefore less demand for
  goods.
• http//hdl.loc.gov/loc.gdc/amrlg.lg42

7
Key basic industries not making a profit

• Railroads lost business to other forms of
  transportation
• Mining had competition from new forms of energy
  (hydroelectric, fuel oil, natural gas)
• Industries such as automobile, construction, and
  consumer goods weakened.
• Housing starts declined and affected lumber and
  furniture manufacturing industries.

8
Sooo, what is one of the first things industries
will do when they dont make a profit?

• Cut hours
• Lay people off
• Close plants

http//hdl.loc.gov/loc.pnp/fsa.8b31768
9
Circular Effect

• The Depression was collective insanity
• -J. Bradford DeLong

10
Stock Market Crash

• October 24, 1929 is known as Black Thursday.
• End of the great bull market what goes up must
  come down.
• 12.9 million shares changed hands that day.

11
Black Tuesday

• Tuesday, October 29, 1929
• A new record of 16.4 million shares were traded
  and the ticker tape fell behind by two and a half
  hours
• Seattle Times reporting of Black Tuesday
• A veritable bedlam of activity reigned in
  leading stock brokerage houses in Seattle today
  as the greatest avalanche of security selling
  known to history was launched on New York
  exchanges. Executives and clerks, worn by almost
  constant application to duty for days past, and
  with little respite gained by the Saturday
  afternoon and Sunday intermission breasted the
  great tide of buying and selling orders with
  philosophical resignation Curiosity seemed to
  prompt attendance of the greater part of the
  milling throngs in the board rooms." (The Seattle
  Times, October 29, 1929)

http//mutualfunds.about.com/cs/history/l/bl1929gr
aph.htm
12
Stock Market terms

• Speculation an involvement in risky business
  transactions in an effort to make a quick or
  large profit.
• Buying on margin the purchasing of stocks by
  paying only a small percentage of the price and
  borrowing the rest.
• Bull market - a market characterized by rising
  prices for securities
• Bear market - a market characterized by falling
  prices for securities 

13
Editorial Comments

• There is nothing in the latest antics of the
  exchanges that requires modification of the views
  expressed last week by President Hoover and the
  Treasury Departmentnamely, that business
  conditions in the United States are basically
  sound and that the trend of industry and trade is
  likely to continue upward.
• Chicago Daily News, October 30, 1929

14
State of the Union Address, December 3, 1929

• The country has enjoyed a large degree of
  prosperity and sound progress during the past
  year with a steady improvement in methods of
  production and distribution and consequent
  advancement in standards of living. Progress has,
  of course, been unequal among industries, and
  some, such as coal, lumber, leather, and
  textiles, still lag behind. The long upward trend
  of fundamental progress, however, gave rise to
  over-optimism as to profits, which translated
  itself into a wave of uncontrolled speculation in
  securities, resulting in the diversion of capital
  from business to the stock market and the
  inevitable crash. The natural consequences have
  been a reduction in the consumption of luxuries
  and semi-necessities by those who have met with
  losses, and a number of persons thrown
  temporarily out of employment. Prices of
  agricultural products dealt in upon the great
  markets have been affected in sympathy with the
  stock crash.
• http//www.presidency.ucsb.edu/ws/index.php?pid22
  021

15
State of the Union Address, December 3, 1929

• The sudden threat of unemployment and especially
  the recollection of the economic consequences of
  previous crashes under a much less secured
  financial system created unwarranted pessimism
  and fear. It was recalled that past storms of
  similar character had resulted in retrenchment of
  construction, reduction of wages, and laying off
  of workers. The natural result was the tendency
  of business agencies throughout the country to
  pause in their plans and proposals for
  continuation and extension of their businesses,
  and this hesitation unchecked could in itself
  intensify into a depression with widespread
  unemployment and suffering.
• http//www.presidency.ucsb.edu/ws/index.php?pid22
  021

16
Farm Crisis

• McNary Haugen Farm Relief Bill
• Federal farm board was to be created to purchase
  surplus farm production at pre-World War I
  prices the surpluses were to be stored until
  domestic conditions improved or until a decision
  was made to offer them on the world markets.
• If the farm board incurred a loss in marketing
  the surpluses, the equalization fees were to be
  charged back to the farmers.
• Passed finally, but not under this name.
• http//www.u-s-history.com/pages/h1439.html

Photograph of Herbert Hoover signing the
agricultural relief bill (record.php?id32)
http//presidentialtimeline.org/html/educators/HCH
/stockmarket_kac/task.php
17
Definition of terms

• The thousands of packers, millers and processors
  buying the product were to collect from farmers
  an "equalization fee," to cover the losses
  incurred on the exported portions. If the wheat
  price at home were to be 1.50, and the grain
  brought 1.00 a bushel abroad, a farmer's 1,000
  bushels were to bring him 1,500 less 12-1/2
  cents a bushel tax, or 1,375.

Hoover Presidential Library, Ding Darling
Cartoons 1918 1930, Box 1, Hoover Library
18
Debenture clause in bill

• Quote from the Christian Science Monitor
• The one now approved by the Senate would guard
  against speculation in the certificates by
  permitting the Secretary of the Treasury to
  redeem them at not less than 98 per cent of their
  face value.
• The certificates would be issued by the
  Treasury on recommendation of the Federal Farm
  Board whenever, in the Boards opinion, the
  farmers were entitled to them. They would be
  issued only on exports and in an amount equal to
  half the tariff on similar imported products.

19

• Debenture -The plan's essential principle was
  government payment of a bounty on exports of
  certain farm products in the form of negotiable
  instruments, called debentures, which could
  satisfy customs duties. Farm products could then
  be sold to domestic purchasers for no less than
  the export price plus the bounty, and farmers
  could thus sell the whole of their marketed crop
  at above-market prices.

20
1930s drought led to Dust Bowl

• Parts of Texas, Oklahoma, Kansas, Colorado, and
  New Mexico
• Region made worthless for farming by drought and
  dust storms during the 1930s.

http//hdl.loc.gov/loc.pnp/fsa.8b38703
21
How Industrial Leaders consulted by the
Administration see things

• A banking and credit situation, thoroughly sound,
  and with the cost of money definitely becoming
  cheaper.
• Employment 2.5 per cent, above even the good
  level of a year ago and pay-roll total 3.3 per
  cent, higher than last year.
• Farm prices generally higher than last year,
  indicating no diminution in agricultural
  purchasing power.
• Industrial production higher than last year, and
  other previous years since 1919, despite some
  declines in the past few months.
• Wholesale and retail trade above last year, with
  inventories generally at the lowest point in
  history for this season of the year.

The Hoover Panic Cure, The Literary Digest,
Vol. CIII, No. 9, November 20, 1929, pp. 7-9.
Hoover Presidential Library Reprints 1929
November to 1929 December 5, Box 55, Hoover
Library
22
Hoovers Programs

• Hoovers responses to the depression are on the
  parachutes.
• Farm Mortgage loans
• Reconstruction Finance Corporation
• National Credit Stabilization
• Unemployment Relief Fund
• Welfare Relief Fund
• Home Loan Banks
• Wage Scale Agreement
• Seed Loans
• Drought loans
• As bad as it was, could it have been worse?

23
So, what went wrong?

• Farmers burned crops and dumped milk on highways
  rather than sell it at a loss.
• Reconstruction Finance Corporation money did not
  trickle down to the average citizen through job
  growth and higher wages.
• National Credit Corporation could not prevent all
  banks from failing
• 1929 600 banks closed
• By 1933 11,000 of the nations 25,000 banks had
  closed.

24
So, what about today?

• Using this cartoon as a starting point, compare
  and contrast the situation the United States is
  in today with the situation the United States was
  in during the Great Depression.
• Use at least 3 resources
• One from the Library of Congress website,
  www.loc.gov
• One book
• One or more websites

http//www.loc.gov/rr/print/swann/herblock/sand.ht
ml