The USA in the 1930s

Kevin J. Benoy

Approaching Disaster• When Hoover became

president in 1928, he was seen as ideal for the job.

• His outstanding reputation was richly earned from such work as heading post-war relief of war-torn Europe.

• Even his future opponent, Franklin Delano Roosevelt earlier said of him “he is certainly a wonder and I wish we could make him president of the United States. There could be no better one.”

Approaching Disaster• Coolidge had been a

hands-off president.• Hoover was anything but.• He was a tireless worker

who saw government as having a role to play in creating business confidence and in maintaining a prosperity that was already slipping when he assumed office.

Approaching Disaster• He turned out to be the

right man at the wrong time.

• His belief in his own abilities rendered him inflexible.

• He noted of himself, “when you know me better, you will find that when I say a thing is a fact, it is a fact.”

• When a failing economy did not respond to his policies, he became increasingly frustrated.

Approaching Disaster• Slumping sales in 1928

reflected a basic problem. American prosperity was not broadly based enough. Many workers really could not afford to buy the products they made.

• Huge levels of productivity required widespread wealth, yet too few earned enough to sustain consumption and perceived wealth was often just paper.

The Crash• Despite the slump, stock

prices continued to rise, fueled by borrowing. In 1929 $2 of every $5 borrowed went into buying stocks.

• Markets peaked on September 3, 1929. Banks failed, steel production dropped, home construction tailed off – yet investors ignored it all.

• At the end of the trading day on October 23, prices plummeted.

The Crash• When trading opened the following day, the plunge

continued. Fear and panic set in.• 13 million shares changed hands – but at fire sale prices.

The market lost 11% of its value.• Herbert Hoover addressed the American public the

following day, saying: “The fundamental business of the country...is on a sound and prosperous basis.”

• Black Monday, October 28, made it clear that investors were not reassured.

• It is said that the opening bell the next day was not heard over the shouts of “Sell! Sell! Sell!” This was Black Tuesday. The market lost another 12% of its value. Big investors tried to pump the market with major purchases at inflated values. They failed.

Hoover’s Response• Hoover initially moved to

cut taxes and ease interest rates.

• Inflation should spur spending and increase business confidence.

• In addition, the infamous Smoot Hawley Tariff of 1930 was passed – raising tariffs and wrecking international trade.

• None of these moves were enough to staunch the business bloodletting.

Effect of the Smoot Hawley Tariff on US Trade

Hoover’s Response• US protectionism exported

the Depression to Europe.• In mid 1931, the largest

Austrian bank – Credit Anstalt – collapsed, triggering a chain reaction with other European financial institutions.

• The downward spiral gathered momentum.

• Unable to pay their American loans, Europeans defaulted and put US institutions at risk.

Bank run in Berlin

Hoover’s Response• In retrospect, Hoover seems to

have mishandled the crisis.• Easy credit fanned speculation

when the marked clearly needed a correction.

• The 40% drop in share prices in the first weeks of the panic was made worse by there not being a smaller drop earlier.

• His attempt to reflate the economy immediately seemed to deny that a correction was needed.

• His tax cuts only made it necessary to increase taxes more two years later after public works spending put the US into deficit spending with no apparent end in sight.

Unemployment• Unemployment rose from 3.2% of the workforce in 1929 to

24.9% in 1933.• 34 million people, roughly 28% of the US population, had

no income.• Tenants could not pay therir rent.• Mortgageholders defaulted.• Taxpayers couldn’t meet their obligations.• Authorities could not afford to pay their workers. In New

York 300,000 children went unschooled because there was no money to pay for schools. The city of Chicago owed $20 million in back pay to its teachers.

• The entire capitalist system teetered on the edge of total collapse – or so it seemed.

The Dust Bowl• If the crash did not make

things bad enough, nature conspired to increase human suffering.

• 150,000 square miles of Oklahoma, Texas, Colorado, Kansas and New Mexico saw light topsoil blown away when rains persistently refused to fall between 1934 and 1937.

• 60% of the population of these areas were turned into “exodusters,” refugees from environmental catastrophe.

A Banking Collapse• In 1931-32, 5,096

American banks collapsed (compared to 700 in a normal year).

• Industrial production dropped by half.

• Housing construction fell in value from $8.7 billion to $1.4 b. In 1933.

• Though real wages rose for those who had work, misery and deprivation fell to those who did not.

A Global Depression• The international system, so

dependent on America, fell also – in no small part because of America’s tariff offensive.

• In June, 1931 Hoover announced a moratorium on reparation and war debt payments – which likely saved the financial systems of several European countries, but was not enough to fix the problem.

• European and American investors sat on their money.

• Most countries abandoned the gold standard, seeking export relief by devaluing their currencies.

• It didn’t work. World trade shrank and so did the prospect of global recovery.

Bonus Expeditionary Force• Hoover’s tarnished image took

another hit when US war veterans, calling themselves the Bonus Expeditionary Force, numbering 20,000, camped out in the middle of Washington, calling for help in hard times.

• Hoover stood firm and called on the army to disperse the rabble.

• Cavalry major Patton, on the orders of General MacArthur, dispersed the crowd.

• Apocryphal stories spoke of bayonet charges into hungry, but peaceful, crowds while the President dined in luxury.

1932 Election• The cards were stacked

against Hoover in the election.

• His opponent and former admirer, Franklin D. Roosevelt masterfully outflanked him.

• Formerly the reformist party, FDR now called for dramatic action to deal with the crisis.

• Though both men now understood intervention was needed, Roosevelt packaged his ideas brilliantly in his New Deal.

1932 Election

• Roosevelt was no doubt aided by the Republican’s unfortunate choice of Rudy Vallee’s “Brother Can You Spare a Dime” as their campaign song.

• The Democrats used “Happy Days Are Here Again.”

The New Deal• The newly minted

President moved fast.• In the first hundred days

he restored business confidence by strengthening the banking system with his Emergency Banking Bill.

• He directly addressed the public with his “fireside chats” on American radio, convincing them to put their savings back into banks.

The New Deal• Hoover favoured creating

good credit conditions for banks and companies – a top-down approach.

• Roosevelt preferred to stimulate consumption from the bottom-up through government relief programmes.

• In the height of Depression, American were prepared to accept direct state intervention.

The New Deal• Not all of Roosevelt’s ideas

were accepted.• The Supreme Court rejected

his National Recovery Agency as unconstitutional, but the voters wanted action and felt they were getting it.

• The Tennessee Valley Authority and other so-called alphabet agencies – the Agricultural Adjustment Act, the National Industrial Recovery Act, the Works Progress Administration and others -- offered hope.

The New Deal• One of Roosevelt’s most

popular moves was to repeal the 18th Ammendment.

• On the 22nd of March, 1923, Roosevelt allowed the sale of 3.2% beer and wine – thought too weak to be very intoxicating.

• After securing the agreement of many states, the 21st Ammendment was passed – which repealed the 18th.

• It took some time before all states were “wet” again. Mississippi was the last, in 1966.

The New Deal

• Republicans railed against Roosevelt’s “big government” – some calling him socialist and others calling him fascist, but it was impossible to argue with his success.

• In 1936, he ran for re-election and won in a landslide.

Roosevelt’s Legacy• FDR inherited a mess and,

though he did not fix it, he did enough to win the confidence of the American public.

• The next 50 years would see government involvement in the economy grow – in the form of regulation and in providing services and programmes.

• Inequality would shrink.

Roosevelt’s Legacy• He was much reviled in his time,

as “that megalomaniac cripple in the White House” or that “swollen-headed nit-wit.”

• One Connecticut club forbade the mention of his name on their property, as a “health measure against apoplexy.”

• Today he is considered one of the top two or three presidents of all time.

• Even arch-conservative Conrad Black ‘s biography of the man was sub-titled “Champion of Freedom.”

Roosevelt’s Legacy• In the final analysis,

it was not Roosevelt’s New Deal that ended the Depression.

• Bad times were somewhat alleviated by government efforts, but the “ten lost years” continued.

• It took the massive spending of the World War II years to finally change things.

finis