Chapter 24: The Great DepressionThe Coming of the Great Depression
Since the beginning of the Industrial Revolution early in the 19
century the US had experiencedrecessions or panics at least every 20 years. But none was as severe or lasted as long as the GreatDepression. Only as the economy shifted toward war mobilization in the late 1930s did the grip of thedepression finally ease.The Causes of the DepressionI.The downturn began slowly and almost imperceptibly. After 1927, consumer spending declined andhousing construction slowed. Inventories piled up, and in 1928 and 1929 manufacturers began to cut back on production and lay off workers; reduced buying power and incomes in turn reinforced thedownturn.Stock Market Speculation and the Great CrashI.Among the causes of the GD, a flawed stock market was an important but not dominant influence.A.By 1929 the market had become a symbol of the nation’s prosperity and an icon of American business culture.B.4 million Americans, or 10% of the nation’s households, played the stock market in 1929.
Stock prices had been rising steadily since 1921, but in 1928 and 1929 they surged forward, with the price of stocks rising over 40%. All this economic activity was essentially unregulated.A.Easy credit lured more speculators and less creditworthy investors into the market.B.The Federal Reserve Bank warned member banks not to lend money for stock speculation—if prices dropped, many investors would not be able to repay their debts—but no one listened.III.The stock market began to slow in early Sep, but people ignored the warning. Then on “Black Thursday” and again on “Black Tuesday,” the bubble burst.A.Overextended investors, suddenly finding themselves heavily in debt, began to sell their stocks.Waves of selling panic ensued, during which stocks found no buyers.IV.The precipitous decline of stock prices became known as the Great Crash, and its impact was felt far beyond the trading floors of Wall Street. Speculators, who had borrowed from banks to buy their stockscould not repay their loans because they could not sell the stocks. These defaults caused bank failures.A.Since bank deposits were uninsured before the 1930s, a bank failure meant that all the depositor’smoney was lost. This sudden loss of their life savings was a shock to members of the middle class,many of whom had no other resources with which to cope with the crisis.V.The stock market crash intensified the course of the Great Depression in several ways. Besides wipingout the life savings of thousands of Americans, in hurt commercial banks that had invested heavily incorporate stocks.
Less tangibly, it destroyed the optimism of people who had regarded the stock market as thecrowning symbol of American prosperity, causing a crisis of confidence that prolonged theDepression.Structural WeaknessesI.Although the stock market crash and its immediate consequences contributed to the Great Depression,longstanding weaknesses in the American economy accounted for its length and severity, especially inthe deep plunge between 1931 and 1933.A.Agriculture, in particular, had never recovered from the recession of 1920-21. Farmers faced highfixed costs for equipment and mortgages incurred during the inflationary war years.B.At the same time prices fell due to overproduction, forcing farmers to default on mortgage payments and risk foreclosure.C.Because farmers accounted for about ¼ of that nation’s gainfully employed workers in 1929, their difficulties weakened the general economic structure.