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America's History Chapter 24: The Great Depression

America's History Chapter 24: The Great Depression

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Published by irregularflowers
Notes on America's History Chapter 24: The Great Depression
Notes on America's History Chapter 24: The Great Depression

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Published by: irregularflowers on Sep 14, 2009
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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—i 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 fa 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.
II.Certain basic industries also had experienced economic setbacks during the prosperous 1920s.A.Textile manufacturers, facing a steady market decline after the war, abandoned NE for cheaper labor markets in the South but continued to suffer from decreased demand and overproduction.B.Mining and lumbering, which had expanded in response to wartime demands, experienced thesame problem. Coal mining was especially battered by overexpansion, outdated technology, andcompetition from new energy sources.C.The railroad industry, damaged by stiff competition from track transportation on publiclysubsidized roads, faced shrinking passenger revenues and stagnant freight levels.
While these older sections of the economy faltered, newer and more successful consumer-basedindustries, such as chemicals, appliances, and food processing, proved not yet strong enough tolead the way to recovery.Unequal Distribution of WealthI.The country’s unequal distribution of wealth also contributed to the severity of the depression.A.During the 1920s the share of national income going to families in the upper and middle-income brackets increased. The tax policies of Secretary of the Treasury Andrew Mellon contributed tothat concentration of wealth by lowering personal income taxes, eliminating the wartime excess- profits tax, and increasing deductions that favored affluent individuals and corporations.B.Once the depression began, this skewed income distribution prevented people from spending theamounts of money needed to revive the economy.The Deepening Economic CrisisI.The GD became self-perpetuating. The more the American economy contracted, the longer peopleexpected the depression to last; and the longer they expected it to last, the more afraid they were tospend or invest their money—and spending and investing was exactly what was needed to stimulatethe economic recovery.A.The economy showed some improvement in the summer of 1931 when low prices encouragedconsumption, but in plunged again late in the fall.II.At that point the chronically depressed agricultural sector put pressure on the commercial bankingsystem, worsening the economic contraction. The nation’s banks had already been weakened by thestock market crash.A.When agricultural prices and incomes fell more steeply than usual in 1930, many farmers went bankrupt, causing rural banks to fail in alarming numbers.B.By December 1930 so many banks had defaulted on their obligations that urban banks also beganto fail. The wave of bank failures frightened depositors into withdrawing their savings, further deepening the crisis.III.A change in the nations monetary policy in 1931 added to the banking problems.A.During the first phase of the depression the Federal Reserve System had reacted cautiously. But inOctober 1931 the Federal Reserve Bank of NY significantly increased the discount rate—theinterest rate it charged on loans to member banks—and cut back the amount of money placed incirculation through purchase of government securities.B.This miscalculation squeezed the money supply, forcing prices down and depriving businesses of funds for investment.IV.In the face of the money, the country could have been pulled out of the depression only if American people spent at a higher rate. But because of falling prices, rising unemployment, and a troubled banking system, Americans preferred to hold on to their dollars. Economic stagnation set in.The Worldwide DepressionI.Hoover later blamed the severity of the depression on the international economic situation. Althoughdomestic factors far outweighed international causes of America’s protracted economic decline,Hoover was correct in surmising that economic problems in the rest of the world affected the US.
A.The international economic system had been out of kilter since WWI. In functioned only as longas American banks exported enough capital to allow European countries to repay their debts andcontinue to buy American goods.B.By the late 1920s European economies were staggering under the weight of large debts and tradeimbalances with the US, which undercut the recovery that had seemed possible earlier in thedecade. By 1931 most European economies had collapsed.II.The downturn of the American economy had enormous repercussions. When US companies cut bac production, they also cut back their purchases of raw materials and supplies from abroad, and thisdevastated many foreign economies. When American financiers sharply reduced foreign investmentand consumers bought fewer European goods, debt repayment became even more difficult.A.As European economic conditions worsened, demand for American exports fell dramatically; thisstrained the gold standard, which provided fixed standards against which the value of currenciescould be pegged.B.When the Hawley-Smoot Tariff of 1930 raised rates to an all-time high, foreign governmentsretaliated by imposing their own trade restrictions, further limiting the market for American goods —especially agricultural products.III.By 1933 the world economy was showing signs of recovery, although progress remained uneven. Noother major trading nations was hit as hard as the US.Hard TimesI.For most, the depression did not mean losing thousands of dollars in the stock market or pullingchildren out of boarding school, nor did it mean going on relief or living in a shantytown.Making DoI.The depression caused a private kind of despair that often simmered behind closed doors. The victimsof the depression were a varied group. The depression did not create poverty; it merely publicized theconditions of the poor.A.People who had always been poor were joined by the newly poor. Those formerly solid working-class and middle-class families strongly believed in the Horatio Alger ethic of upward mobilitythrough hard work but suddenly found themselves floundering in a society that no longer had a place for them.B.They were proud people who felt humiliated by their plight, and many blamed themselves for their misfortune.II.Hard times weighed heaving on senior citizens, many of whom faced utter destitution after losing their savings in bank failures. Children, by contrast, often escaped the sense of bitterness and failure thatgripped their elders; some youngsters thought it was fun to stand in a soup line. Yet hard times madechildren grow up fast.III.Downward mobility was especially hard for middle-class Americans because it challenged basicAmerican tenets of individualism and success.A.The key to surviving the depression was to maintain one’s self-respect. Keeping life as close tonormal as possible was an essential strategy.B.Camaraderie and cooperation helped many families and communities survive as people found thatthey were all in the same boat.IV.After their savings and credit had been exhausted, many families faced the humiliation of going onrelief. Seeking aid from state or local governments hurt people’s pride and disrupted the traditional pattern of turning to relatives, neighbors, churches and mutual-aid societies in times of need.
Even if families survived the demeaning process of being certified for state or local relief, theamount they received was a pittance.B.Such hardships left deep wounds. People feared losing control of their lives. The depression left alegacy of fear, but also a desire to acquire security.

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