SECTION 1 The Nation's Sick. lost busi biles, fo Mir in high tition f ural gas had on constri tor the dwelli tries, Economy MAIN IDEA Identifying Problems Terms & Names A What industrial weakness signaled WHY IT MATTERS NOW • speculation • price support • credit • Alfred E. Smith • Dow Jones Industrial Average The Great Depression has had lasting effects on how Americans view themselves and their government. a declining economy in the 1920s? • Black Tuesday • buying on margin • Great Depression FARM War I soare How or m MAIN IDEA • Hawley-Smoot Tariff Act As the prosperity of the 1920s ended, severe economic problems gripped the nation, One American's Story depr from ficul seiz loar Gordon Parks, now a well-known photographer, author, ban Mc suc crc ne FORNIA STANDARDS Discuss the policies of Presidents and filmmaker, was a 16-year-old high school student in Harding, Calvin Coolidge, and Hoover. the fall of 1929. He supported himself as a busboy at the escribe the monetary issues exclusive Minnesota Club, where prosperous club mem- te nineteenth and early twen- turies that gave rise to the bers spoke confidently about the economy. Parks, too, ment of the Federal Reserve looked forward to a bright future. Then came the stock eaknesses in key sectors of my in the late 1920s. market crash of October 1929. In his autobiography, Parks erstand the explanations ipal causes of the Great recalled his feelings at the time. and the steps taken by Reserve, Congress, and erbert Hoover and A PERSONAL VOICE GORDON PARKS no Roosevelt to combat crisis. “I couldn't imagine such financial disaster touching my che human toll of the small world; it surely concerned only the rich. But by the tural disasters, and first week of November ... I was without a job. All that ural practices and their =population of rural next week I searched for any kind of work that would pre- olitical movements of vent my leaving school. Again it was, 'We're firing, not hir- ing.'. . . I went to school and cleaned out my locker, knowing it was impossible to stay on. A piercing chill was uct cost-benefit in the air as I walked back to the rooming house. со bc Gordon Parks, shown here in 1968 discussing with particular Dust Bowl refugees d economic impacts the movie version of his autobiographical novel, The Learning Tree. -A Choice of Weapons Dasic economic the aggregate f the U.S. The crash of 1929, and the depression that followed, dealt a crushing blow to the hopes and dreams of millions of Americans. The high-flying prosperity of the 1920s was over. Hard times had begun. Economic Troubles on the Horizon As the 1920s advanced, serious problems threatened economic prosperity. Though some Americans became wealthy, many more could not earn a decent living. Important industries struggled, and farmers grew more crops and raised more livestock than they could sell at a profit. Both consumers and farmers were steadily going deeper into debt. As the decade drew to a close, these slippages in the economy signaled the end of an era. that MAIN IDEA INDUSTRIES IN TROUBLE The superficial prosperity of the late 1920s shroud- ed weaknesses that would signal the onset of the Great Depression. Key basic industries, such as railroads, textiles, and steel had barely made a profit. Railroads lost business to new forms of transportation (trucks, buses, and private automo- biles, for instance). Mining and lumbering, which had expanded during wartime, were no longer in high demand. Coal mining was especially hard-hit, in part due to stiff compe- tition from new forms of energy, including hydroelectric power, fuel oil, and nat- ural gas. By the early 1930s, these sources supplied more than half the energy had once come from coal. Even the boom industries of the 1920s—automobiles, construction, and consumer goods—weakened. One important economic indica- tor that declined during this time was housing starts—the number of new dwellings being built. When housing starts fall, so do jobs in many related indus- tries, such as furniture manufacturing and lumbering. FARMERS NEED A LIFT Perhaps agriculture suffered the most. During World War I, prices rose and international demand for crops such as wheat and corn soared. Farmers had planted more and taken out loans for land and equipment. However, demand fell after the war, and crop prices declined by 40 percent Identifying Problems A) What industrial weakness signaled a declining economy in the 1920s? or more. Farmers boosted production in the hopes of selling more crops, but this only depressed prices further. Between 1919 and 1921 annual farm income declined from $10 billion to just over $4 billion. Farmers who had gone into debt had dif- ficulty in paying off their loans. Many lost their farms when banks foreclosed and seized the property as payment for the debt. As farmers began to default on their loans, many rural banks began to fail. Auctions were held to recoup some of the banks' losses. Congress tried to help out farmers with a piece of legislation called the McNary-Haugen bill. This called for federal price-supports for key products such as wheat, corn, cotton, and tobacco. The government would buy surplus crops at guaranteed prices and sell them on the world market. President Coolidge vetoed the bill twice. He commented, “Farmers have never made money. I don't believe we can do much about it." CONSUMERS HAVE LESS MONEY TO SPEND As farmers' incomes fell, the bought fewer goods and services, but the problem was larger. By the late 1920 SECTION 1 The Nation's Sick. lost busi biles, fo Mir in high tition f ural gas had on constri tor the dwelli tries, Economy MAIN IDEA Identifying Problems Terms & Names A What industrial weakness signaled WHY IT MATTERS NOW • speculation • price support • credit • Alfred E. Smith • Dow Jones Industrial Average The Great Depression has had lasting effects on how Americans view themselves and their government. a declining economy in the 1920s? • Black Tuesday • buying on margin • Great Depression FARM War I soare How or m MAIN IDEA • Hawley-Smoot Tariff Act As the prosperity of the 1920s ended, severe economic problems gripped the nation, One American's Story depr from ficul seiz loar Gordon Parks, now a well-known photographer, author, ban Mc suc crc ne FORNIA STANDARDS Discuss the policies of Presidents and filmmaker, was a 16-year-old high school student in Harding, Calvin Coolidge, and Hoover. the fall of 1929. He supported himself as a busboy at the escribe the monetary issues exclusive Minnesota Club, where prosperous club mem- te nineteenth and early twen- turies that gave rise to the bers spoke confidently about the economy. Parks, too, ment of the Federal Reserve looked forward to a bright future. Then came the stock eaknesses in key sectors of my in the late 1920s. market crash of October 1929. In his autobiography, Parks erstand the explanations ipal causes of the Great recalled his feelings at the time. and the steps taken by Reserve, Congress, and erbert Hoover and A PERSONAL VOICE GORDON PARKS no Roosevelt to combat crisis. “I couldn't imagine such financial disaster touching my che human toll of the small world; it surely concerned only the rich. But by the tural disasters, and first week of November ... I was without a job. All that ural practices and their =population of rural next week I searched for any kind of work that would pre- olitical movements of vent my leaving school. Again it was, 'We're firing, not hir- ing.'. . . I went to school and cleaned out my locker, knowing it was impossible to stay on. A piercing chill was uct cost-benefit in the air as I walked back to the rooming house. со bc Gordon Parks, shown here in 1968 discussing with particular Dust Bowl refugees d economic impacts the movie version of his autobiographical novel, The Learning Tree. -A Choice of Weapons Dasic economic the aggregate f the U.S. The crash of 1929, and the depression that followed, dealt a crushing blow to the hopes and dreams of millions of Americans. The high-flying prosperity of the 1920s was over. Hard times had begun. Economic Troubles on the Horizon As the 1920s advanced, serious problems threatened economic prosperity. Though some Americans became wealthy, many more could not earn a decent living. Important industries struggled, and farmers grew more crops and raised more livestock than they could sell at a profit. Both consumers and farmers were steadily going deeper into debt. As the decade drew to a close, these slippages in the economy signaled the end of an era. that MAIN IDEA INDUSTRIES IN TROUBLE The superficial prosperity of the late 1920s shroud- ed weaknesses that would signal the onset of the Great Depression. Key basic industries, such as railroads, textiles, and steel had barely made a profit. Railroads lost business to new forms of transportation (trucks, buses, and private automo- biles, for instance). Mining and lumbering, which had expanded during wartime, were no longer in high demand. Coal mining was especially hard-hit, in part due to stiff compe- tition from new forms of energy, including hydroelectric power, fuel oil, and nat- ural gas. By the early 1930s, these sources supplied more than half the energy had once come from coal. Even the boom industries of the 1920s—automobiles, construction, and consumer goods—weakened. One important economic indica- tor that declined during this time was housing starts—the number of new dwellings being built. When housing starts fall, so do jobs in many related indus- tries, such as furniture manufacturing and lumbering. FARMERS NEED A LIFT Perhaps agriculture suffered the most. During World War I, prices rose and international demand for crops such as wheat and corn soared. Farmers had planted more and taken out loans for land and equipment. However, demand fell after the war, and crop prices declined by 40 percent Identifying Problems A) What industrial weakness signaled a declining economy in the 1920s? or more. Farmers boosted production in the hopes of selling more crops, but this only depressed prices further. Between 1919 and 1921 annual farm income declined from $10 billion to just over $4 billion. Farmers who had gone into debt had dif- ficulty in paying off their loans. Many lost their farms when banks foreclosed and seized the property as payment for the debt. As farmers began to default on their loans, many rural banks began to fail. Auctions were held to recoup some of the banks' losses. Congress tried to help out farmers with a piece of legislation called the McNary-Haugen bill. This called for federal price-supports for key products such as wheat, corn, cotton, and tobacco. The government would buy surplus crops at guaranteed prices and sell them on the world market. President Coolidge vetoed the bill twice. He commented, “Farmers have never made money. I don't believe we can do much about it." CONSUMERS HAVE LESS MONEY TO SPEND As farmers' incomes fell, the bought fewer goods and services, but the problem was larger. By the late 1920 Americans were buying less mainly because of rising prices, stagnant wages, unbalanced distribution of income, and overbuying on credit in the preceding years. Production had also expanded much faster than wages, resulting in an Vocabulary stock: a share of ownership in a company ECONOMIC ever-widening gap between the rich and the poor. BACKGROUND LIVING ON CREDIT Although many Americans appeared to UNEVEN INCOME be prosperous during the 1920s, in fact they were living DISTRIBUTION, 1929 beyond their means. They often bought goods on credit- The 1920s were an era that favored big business. Life was an arrangement in which consumers agreed to buy now good for the rich. They made up and pay later for purchases. This was often in the form of just 0.1 percent of the population and had yearly incomes of more an installment plan (usually in monthly payments) that than $100,000. Conversely, included interest charges. much of the population had to By making credit easily available, businesses encour- scrape to get by. Many earned so little that everyone in the family, aged Americans to pile up a large consumer debt. Many including children, had to work. people then had trouble paying off their growing debts. Nearly 80 percent of all families Faced with debt, consumers cut back on spending. had no savings. $1,999 and under UNEVEN DISTRIBUTION OF INCOME During the 1920s, 65% the rich got richer, and the poor got poorer. Between 1920 and 1929, the income of the wealthiest 1 percent of the increase for Americans as a whole. population rose by 75 percent, compared with a 9 percent MAIN IDEA Analyzing Events C How did speculation and margin buying cause stock price to rise? and over 1% 5% MAIN IDEA 29% $10,000 More than 70 percent of the nation's families earned less than $2,500 per year, then considered the minimum amount needed for a decent standard of living. Even fami- $5,000 - $9,999 lies earning twice that much could not afford many of the $2,000 - $4,999 household products that manufacturers produced. Economists estimate that the average man or woman bought a new outfit of clothes only once a year. Scarcely half the homes in many cities had electric lights or a furnace for heat. Only one city home in ten had an electric refrigerator. This unequal distribution of income meant that most Americans could not participate fully in the economic advances of the 1920s. Many people did not have the money to purchase the flood of goods that factories produced. The perity of the era rested on a fragile foundation. B Source: Historical Statistics of the United States, Colonial Times to 1970 Forming Generalizations B) What did the experience of farmers and consumers at this time suggest about the health of the economy? pros- Analy Hoover Takes the Nation ( * DAY OF After the prepared This carto crumbling “day of w Although economic disaster was around the corner, the election of 1928 took place in a mood of apparent national prosperity. This election pitted Republican candidate Herbert Hoover against Democrat Alfred E. Smith. THE ELECTION OF 1928 Hoover, the secretary of commerce under Harding and Coolidge, was a mining engineer from Iowa who had never run for public office. Smith was a career politician who had served four terms as governor of New York. He was personable and enjoyed being in the limelight, unlike the quiet and reserved Hoover. Still, Hoover had one major advantage: he could point to years of prosperity under Republican administrations since 1920. Many Americans believed him when he than ever before." declared, “We in America are nearer to the final triumph over poverty in America nearer to the triumph overty than efore. SKILLB 1. What beca 2. How shoc 3. What impa DOVER SEE PTER 14 It was an overwhelming victory for Hoover. The message was clear: most Americans were happy with Republican leadership. DREAMS OF RICHES IN THE STOCK MARKET By 1929, some econ- omists had warned of weaknesses in the economy, but most Americans ising eme, ion Vocabulary stock: a share of ownership in a an company to bo 1340 v maintained the utmost confidence in the nation's economic health. In increasing numbers, those who could afford to invested in the stock market. The stock mar- Then, as now, the Dow Jones Industrial Average was the most widely used ket had become the most visible symbol of a prosperous American economy. prices of 30 representative large firms trading on the New York Stock Exchange. barometer of the stock market's health. The Dow is a measure based on the stock Through most of the 1920s, stock prices rose steadily. The Dow had reached a high of 381 points, nearly 300 points higher than it had been five years earlier. Eager to take advantage of this "bull market"-a period of rising stock prices- Americans rushed to buy stocks and bonds. One observer wrote, "It seemed as if and prosperity could be had without knowledge or industry." By 1929, about 4 all economic law had been suspended and a new era opened up in which success million Americans-or 3 percent of the nation's population-owned stocks. Many of these investors were already wealthy, but others were average Americans who hoped to strike it rich. However, the seeds of trouble were taking root. People were engaging in MAIN IDEA Analyzing Events How did speculation and margin buying speculation—that is, they bought stocks and bonds on the chance of a quick profit , while ignoring the risks. Many began buying on margin-paying a small percentage of a stock's price as a down payment and borrowing the rest. With easy money available to investors, the unrestrained buying and selling fueled the market's upward spiral. The government did little to discourage such buying or to regulate the market. In reality, these rising prices did not reflect com- panies' worth. Worse, if the value of stocks declined, people who had bought on margin had no way to pay off the loans. C cause stock prices to rise? MAIN IDEA The Stock Market Crashes rming neralizations What did the rience of ers and umers at this Suggest the health economy? In early September 1929, stock prices peaked and then fell. Confidence in the market started to waver, and some investors quickly sold their stocks and pulled out, On October 24, the market took a plunge. Panicked investors unloaded their shares. But the worst was yet to come. Analyzing Political Cartoons OCT 29 Dies RAS DAY OF WRATH After the apparent prosperity of the 1920s, virtually few were prepared for the devastating effects of the stock market crash. This cartoon by James N. Rosenberg, which shows Wall Street crumbling on October 29, 1929, is titled Dies Irae, Latin for "day of wrath." SKILLBUILDER Analyzing Political Cartoons 1. What does the cartoonist suggest will happen to individuals because of the crash? 2. How does the cartoonist convey the sense of fear and shock? 3. What do the looks on people's faces indicate about the impact of the crash? ay eiro cies SEE SKILLBUILDER HANDBOOK, PAGE R24. TURBO The Great Depression By mid-November, investors had lost about $30 billion, an amount equal to how much America spent in World War I. The stock market bubble had finally burst. One eyewitness to these events, Frederick Lewis Allen, described the resulting situation. A PERSONAL VOICE FREDERICK LEWIS ALLEN With the Big Bull Market gone and “The Big Bull Market was dead. Billions of dollars' worth of profits and paper profits-had disappeared. The grocer, the window cleaner, and the seamstress had lost their capital (savings]. In every town there were families which had suddenly prosperity going, Americans were soon to find themselves living in an altered world which called for new adjustments, new ideas, new habits of thought, and a dropped from showy affluence into debt. new order of values. -Only Yesterday skyrocketed. The crash alone did not cause the Great Depression, but it hastened ता.. Bila 14. Financial Collapse The stock market crash signaled the beginning of the Great Depression-the period from 1929 to 1940 in which the economy plummeted and unemployment the collapse of the economy and made the depression more severe. BANK AND BUSINESS FAILURES After the crash, many people panicked and withdrew their money from banks. But Smokeless Chimneys and some couldn't get their money because the banks had invest- ed it in the stock market. In 1929, 600 banks closed. By 1933, ANXIOUS 11,000 of the nation's 25,000 banks had failed. Because the MOTHERS! government did not protect or insure bank accounts, millions of people lost their savings accounts. The Great Depression hit other businesses, too. Between 1929 and 1932, the gross national product—the nation's total output of goods and services—was cut nearly in half, from $104 billion to $59 billion. Approximately 90,000 businesses went bankrupt. Among these failed enterprises were once-prosperous automobile and railroad companies. As the economy plunged into a tailspin, millions of workers lost their jobs. Unemployment leaped from 3 per- cent (1.6 million workers) in 1929 to 25 percent (13 mil- lion workers) in 1933. One out of every four workers was out of a job. Those who kept their jobs faced pay cuts and reduced hours. Not everyone fared so badly, of course. Before the crash, some speculators had sold off their stocks and made money. Joseph P. Kennedy, the father of future pres- ident John F. Kennedy, was one who did. Most, however, were not This Bri so lucky or shrewd. D electio WORLDWIDE SHOCK WAVES The United States was not the only country shows gripped by the Great Depression. Much of Europe, for example, had suffered Great throughout the 1920s. European countries trying to recover from the ravages of even World War I faced high war debts. In addition, Germany had to pay war repara- tions-payments to compensate the Allies for the damages Germany had caused. The Great Depression compounded these problems by limiting America's ability to import European goods. This made it difficult to sell American farm products and manufactured goods abroad. THE RELED MAIN IDEA Analyzing Effects D What happened to ordinary workers during the Great Depression? was T! Great Depression
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