Economists and historians are still debating the causes of the Great Depression. While we know what happened, we have only theories to explain the reason for the economic collapse. In the United States, the Great Depression is associated with Black Tuesday, the stock market crash of 29 October 1929, although the country entered a recession months before the crash. Herbert Hoover was then President of the United States. (Kathy Gill) Toward the beginning of 1928 the Federal Reserve, worried about financial speculation and inflated stock prices, while interest rates began rising. Industrial production decreased in the spring of 1929, and overall growth turned negative in the summer. A recession had started. In the two months before the Wall Street crash, industrial production fell at an annual rate of 20%. When the crash came, however, it was savage: stunning drops on October 24th, 28th and 29th, then a rally, then another fall. A five-year bull market peaked on 3 September 1929. On Thursday 24 October, a record 12.9 million shares were traded, reflecting panic selling. On Monday 28 October, panicked investors continued to try to sell stocks; the Dow saw a record loss of 13%. On Tuesday 29 October 1929, 16.4 million shares were traded, shattering Thursday’s record; the Dow lost another 12%. By mid-November the market had declined by a half. The key question about the Great Depression is why a bad downturn just kept getting worse, year after year, not just in the United States but around the globe. As the demand for many products slowed, so did imports and exports, the balance of payments moved further into unused and -under the ordinary “rules of the game”- gold should have flowed into the country, expanding the money supply and buoying the economy. (The Economist)
There was worse to come. In 1930 American banks began failing. The Fed let them, again not out of neglect but as a deliberate act. Its policy was to insist on collateral before it would help out, but the kind it wanted (commercial bills) the banks didn’t have. As the crisis of confidence spread, more banks failed, and then more. By 1933 more than 11,000 of America’s 25,000 banks had failed. As people rushed to turn bank deposits into cash, the money supply collapsed. In 1939 the jobless rate was still 17%. In 1929, there were 25,568 banks in the United States; by 1933, there were only 14,771. Personal and corporate savings dropped from $15.3 billion in 1929 to $2.3 billion in 1933. Fewer banks, tighter credit, less money to pay employees, less money for employees to buy goods was the circle that was killing the economy. This is the “too little consumption” theory sometimes used to explain the Great Depression but it, too, is discounted as being the sole cause. (Kathy Gill)
There is thought to be 5 main reasons for the Great Depression. These being the stock market crash of 1929, bank failures, reduction in purchasing goods, American economic policy with Europe, and drought conditions. In fact, the stock market crash was one of the major causes that led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40 billion dollars. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not enough and America truly entered what is called the Great Depression. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concern for their own survival, stopped being as willing to create new loans. This exacerbated the situation leading to less and less expenditures. With the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. As businesses began failing, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation. While not a direct cause of the Great Depression, the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to sell their farms for no profit to themselves. (Kathy Gill)
It was the war, not the New Deal, which restored full employment in America. (The Economist) Worldwide, there was increased unemployment, decreased government revenue, a drop in international trade. At the height of the Great Depression in 1933, more than a quarter of the US labor force was unemployed. Some countries saw a change in leadership as a result of the economic turmoil. (Kathy Gill) By spring of 1933, when Roosevelt took the oath of office, unemployment had risen from 8 to 15 million (roughly 1/3 of the non-farmer workforce) and the gross national product had decreased from $103.8 billion to $55.7 billion. Forty percent of the farms in Mississippi were on the auction block on FDR’s inauguration day. Although the depression was worldwide, no other country except Germany reached so high a percentage of unemployed. The poor were hit the hardest. By 1932, Harlem had an unemployment rate of 50 percent and property owned or managed by blacks fell from 30 percent to 5 percent in 1935. Farmers in the Midwest were doubly hit by economic downturns and the Dust Bowl. Schools, with budgets shrinking, shortened both the school day and the school year. (Teaching Eleanor Roosevelt)
Those hurt the most were more stunned than angry. Many sank into despair and shame after they could not find jobs. The suicide rates increased from 14 to 17 per 100,000. Resistance to protest often turned violent. In 1932, four members of the Dearborn hunger march were shot and killed when 1,000 soldiers accompanied by tanks and machine guns evicted veterans living in the Bonus Army camp in Washington, D.C. (Teaching Eleanor Roosevelt) Across Virginia and the country, statistics indicate the crumbling economy is likely to spark growth in at least one arena during the new year: the national crime rate. A jump in property crimes seems to occur when unemployment or poverty rates increase, according to a statewide study by Debbie Roberts, a research data programmer and analyst for the Virginia Department of Criminal Justice Services. Violent and drug-related crimes also may escalate in times of recession, Roberts said, but less so than property crimes, including burglary, larceny and motor vehicle theft, according to her recent report covering a 28-year period. With the end of Prohibition in 1933, however, crime rates began to drop. The Great Depression would not end until the United States entered World War II, but there was a significant drop in property crimes. More people were spending time at home, making it more difficult for people to commit burglaries, McCrie said of that era. McCrie and Rosenfeld also suggested social programs, introduced by President Franklin D. Roosevelt during the Depression, were successful in keeping crime rates from escalating. “The public works programs were putting young men to work,” he said. “It provides a lesson for how we might address the current economic downturn.” (Pilot Online)
This leads me to believe that if we approach economic downfalls the same way people addressed in the 30’s the love of the community would be present and not the constant stress. People lived hard lives then and now, but the difference is how they reacted.