THE GREAT DEPRESSION AND THE NEW DEAL 1929—1939
HARD TIMES IN HOOOOVERVILLE
The prosperity of the 1920s ended in a stock-market crash that revealed the flaws
honeycombing the economy. As the nation slid into a catastrophic depression,
factories closed, employment and incomes tumbled, and millions lost their homes,
hopes, and dignity.
During the preceding two years, the market had hit record highs, stimulated by optimism,
easy credit, and speculators’ manipulations.
But after peaking in September, it suffered several sharp checks, and on October 29,
“Black Tuesday,” panicked investors dumped their stocks, wiping out the previous year’s
gains in one day.
The market hit bottom in July 1932. By then, the stock of U.S. Steel had plunged from
$262 to $22, Montgomery Ward from $138 to $4. Much of the paper wealth of America
had evaporated, and the nation sank into the
The Wall Street crash marked the beginning of the depression, but it did not cause it. The
depression stemmed from weaknesses in the New Era economy. Most damaging was the
unequal distribution of wealth and income.
With more than half the nation’s people living at or below the subsistence level,
there was not enough purchasing power to maintain the economy.
A second factor was that oligopolies dominated American industries.
Their power led to
“administered prices,” prices kept artificially high and rigid rather than determined
by supply and demand.
Banking presented other problems. Poorly managed and regulated, banks had contributed
to the instability of prosperity; they now threatened to spread the panic and depression.
International economic difficulties spurred the depression as well. Shut out from U.S.
markets by high tariffs, Europeans had depended on American investments to manage
their debts and reparation payments from the Great War.
Government policies also bore some responsibility for the crash and depression. Failure
to enforce antitrust laws had encouraged oligopolies and high prices; failure to regulate
banking and the stock market had permitted financial recklessness and irresponsible
Reducing tax rates on the wealthy also encouraged speculation and contributed to
the maldistribution on income.
Opposition to labor unions and collective bargaining
helped keep workers’ wages and purchasing power low.
11. The demand for cash caused banks to fail, dragging the economy down further. And the
Federal Reserve Board prolonged the depression by restricting the money supply.
C. The Depression Spreads
Unemployment skyrocketed, as an average of 100,000 workers a week were fired in the
first three years after the crash.