The Causes and Effects of the Great Depression on the American People and Business
The Great Depression, which lasted from 1929 to 1939, was a very destructive event that tore down the American Economics system. It was not caused by just one event, many things combined helped to bring it about and the damage it caused seemed irreparable. The Great Depression wreaked havoc upon the economy and in the progress, destroyed the lives and businesses of the American people. There was no way to get away from the hurt of this tragic event. The Great Depression’s causes like the stock market crash, farming practices, bank failures, and The Smoot-Hawley Tariff effected the industries and businesses by people no longer buying products, unemployment being raised, and businesses closing; and it effected the everyday American people due to families losing their savings, their homes, and everyday needs not being met.
There were many causes that brought about the Great Depression. One huge cause of the Great Depression was the stock market crash of 1929. The stock market is an environment where investors of businesses can come together to buy and sell investments. They are often stocks, which means a portion of ownership in a particular company. Often stocks are purchased at a low price and held onto until they have become worth a lot more money, then they are sold at a much higher price making a profit for the original buyer of that stock. Many people became wealthy doing this and as word got around more and more people became interested in investing in the stock market. The stock market became so popular that it was taking over the economy. “The majority of available capital in the United States was put into the stock market, to the scary point that during the Bull Months of 1928 and 1929 the market was the actual economy.” (Watkins 38) Over time the stock market became known as the easy and quick way to become rich. Due to this fact, many newcomers came in to invest. These newcomers, wanting to make an easy buck, were inexperienced about the stock market and would often be taken advantage of. These inexperienced newcomers would invest lots of money on a stock only to have that stock worth plummet. These newcomers would then end up losing everything in the end. A great example of this is shown with Michael J. Meeghan. “Stock pool genius Michael J. Meeghan during one week in March 1928, drove the price of the Radio Corporation up from $90.00 to $109.00. This caused the share to completely sell out, which in turn made his his investors a total of 5 Million with himself being paid a handlers fee and the rest of the buyers making a loss as RCA’s stock dribbled back down to $7.00 before those not on the inside understood what was happening.” (Watkins 39) It was easy for these stock market professionals, that were obviously wealthy from this venture, to coax newcomers into investing all they had. It appears the truth was simply, that the stock market was there for those who were knowledgeable to take advantage of those who were not. It did not help that these lies of quick, easy, and rich money made through the stock market were also being spread in newspapers. “In August 1929 J. Raskels, who was known for being a Wall Street mogul, wrote an article for the Ladies Home Journal, “Everybody Ought to be Rich,” saying that anyone could be $80,000 richer in ten years if he or she invested only $15.00 a week in the stock market. Of course, he knew this was not really the case and had been selling his own stocks as quietly and quickly as possible. Unfortunately, This fact did not stop him from lying to the public so that people would continue to invest which helped keep prices high enough so that he could continue profit-making sales.” (Watkins 40) From the outside looking in it seemed like the money would be everlasting and everyone wanted a piece of it. It is understandable since easy money is naturally enticing to someone. This caused the Stock Market to explode in popularity, which of course raised the prices of all stock. “The Great Bull Market grew like wildfire in 1928 and 1929. 577 million shares had been traded on the stock exchange in 1927, and in 1928 this number had grown to 920 million. By 1929 transactions had reached 1.1 billion shares by the end of the year. Stock selling at $220, $300, $400 a share had multiplied tremendously. For this time such figures were extraordinary, magical, and intoxicating, more importantly any number could play and as many as a million did. The Majority of these players were inexperienced and very easily led by the insiders to invest all of their money. Most of the stock bought buy these inexperienced players were bought on margin, 10 percent down. By September 1929 the total amount loaned by brokers had leaped from 3.2 billion to 8.5 billion.” (Watkins 38). These inexperienced players would find themselves at the mercy of the brokers when the stock market would crash. Unfortunately, the rising prices would not go on forever and the inevitable crash is exactly what happened. “By the end of September 1929 prices began lowering, and by the end of the month the New York Stock Exchange had lost 2.8 million. By Thursday October 24, the New York Stock Exchange would receive so many sell orders that everything started dropping between ten and thirty points. 12.9 million shares would be traded for a loss of 14 billion and by the end of the month there was a total loss of 150 billion.” (Watkins 40). These losses caused great concern for the welfare of United States financially. There was so much concern over these losses that warnings were sent out. “Even the President of the United States, Herbert Hoover, issued a warning against stock speculation while having his own broker sell many of his own stocks because he knew possible hard times were coming” (Watkins 39). Of course, the president was correct because the stock market crash played a huge factor in starting the Great Depression and times could not get much harder than those of the Great Depression. “After the Stock Market Crash Americans would see and feel the hurtful effects of the Great Depression.” (Watkins 40). A second cause of the Great Depression could be found in the farming practices used in the United States. Farmers used the need for their products during the war time to take advantage. “The war years brought about a much larger need for farming products and American farmers enjoyed this boom and increase in money being made. Wheat production had the largest surge in value in farming products. In 1910 with prices at an average of 91 cents a bushel, 625 million bushels of wheat had been produced on 45.8 million acres. In 1915, a shade over 9 billion bushels had been produced, the largest yield in history, on 60.3 million acres. The Wartime Food Control Act also helped with this large prosperity in Wheat production. This act placed a minimum price of $2.00 per bushel, which was double what farmers were getting in 1910.” (Watkins 44). With farmers knowing they could make so much more per bushel it started a massive overproduction of wheat. Of course, the more something is available the less it is worth so over time this would only lower the value of the wheat. “Another agitator to the economic problem was that Europe had the ability to buy American Agricultural products, so when the food administrator set the price of wheat at an all-time high of $2.20 a bushel, farmers continued to grow more wheat acreage by 40%. This in turn meant chronic overproduction in the 1920’s.” (McElvaine 11) This Chronic over production in agriculture led to a further dislocation in the economic structure of the United States. Farmers also had to find a way to afford such a large growth of products. In order to do this, they financed everything they owned. “Farmers financed all this extra growth in products by mortgaging and remortgaging their land, home, vehicles and anything else they owned. The amount of debt rose from 3.2 billion in 1910 to 8.4 billion in 1920. Annual interest payments increased from 203 million to 574 million.” (Watkins 44) This put the farmers in a very weakened economic state with loans against everything they owned. They would have to make sales in order to maintain ownership, however with so much overproduction in products it was impossible to maintain the high sales that were needed. “The American Farmers weaknesses was made even worse by their large amount of debt load. The expansion of the war years had helped to double farm mortgages from 3.3 billion to 6.7 billion between 1910 to 1920. When this heavy amount of debt was added to the overproduction and the seasonal farmers, like bad weather, this alone was bad enough to threaten the American economy worse than it was before the overproduction.(McElvaine 36) Another thing to also consider is that overproduction is only a good thing if the producers have someone to sell to. This was not the case, because wages had increased too slowly during the decade and even the workers could not afford to buy what they grew. As if that was not bad enough, wheat prices began to drop. “Unfortunately, the price per bushel did not hold. From 2.19 per bushel in 1919, wheat prices dropped to less than $1.00 in 1922 and finished in 1929 at only $1.05.” (Watkins 44). There was no way for farmers to make back the money they had mortgaged with prices being so low. Also, with everyone hurting from the depression there was not extra money to be spent on agricultural goods causing the need for goods to drop significantly. Naturally, this played an important part in bringing about the Great Depression especially with the number farmers losing everything due to not selling there overproduced farming produce. A third cause of The Great Depression was bank failures. Banking had become a common idea with many people depositing all their earnings into checking and savings accounts. It was also the common place to go for loans whether for buying cars, homes, or businesses. “Between the years 1900 and 1920 national banks had grown from 14,054 to 30,909 and out of all of these banks only 1,789 had failed. This number continued to rise, until the end of 1929 which totaled 691 that year.” (Watkins 47) This, of course, would have been great if the banks followed better banking practices. Unfortunately, majority of banks were poorly run and managed. “The Great Depression breakdown worsened when a group of bank failures that started in 1930 took the money supply away.” (McElvaine 27) Sadly, there was poor management in running these banks. Not only was there poor management but also loans would be given without any check into how they would be repaid, money would also be loaned to risky companies that would soon go out of business, Remember also that the farmers were given loans to increase production. “A perfect example of shady practices in banks can be seen in 1925 when the Louisiana Banking Commissioner looked at failures in his state and it showed that that the entire system should have been shut down. ‘Gross and evil management,’ he said, ‘poor management, promotion of speculative enterprises, loans without security, too large of banks, loans to companies in which officers were interested’. These were all the major causes of bank failures” (Watkins 47). Of course, with these bank failures came complete money loss because none of it was insured. Everyone who deposited their money into savings and checking accounts simply lost everything. “The 1,352 banks that failed in 1930 represented more than 853 million in deposits. In 1931, 2,294 banks went under with deposits of nearly 1.7 Billion Dollars” (Watkins 55). Regretfully, this would not be the end of failed banks. “All told more than 9,000 banks failed across the country, nearly one-third of all banks were in the United States. In some areas the percentages were even higher. In Chicago more than 80% of all banks were wiped out during the Great Depression” (Favreau 19). Not only had all these banks failed, but everyone was scared to deposit what little money they had, if they had any, into the banks that were still standing. People were too fearful that what banks were left standing could be next in line to close. All of these reasons are what brought about the bank closures. A final cause of the Great Depression was The Smoot Hawley Tariff Act of 1930. “This act was brought in to prevent foreign goods from charging less than American goods on the market.” (Watkins 41) There was a lot promised to the people with this act. “Those who enacted the Smoot Hawley tariff were promised economic success and wealth, but what followed instead was plunging exports and a decline in profits” (Irwin 8). There were too many problems that prevented this tariff from working. “One huge problem with using tariffs to assist agriculture was that it simply did not help the large number of farmers who produced goods for export” (Irwin 9). As you can see, the tariff had no effect on prices the farmers received. “The United States was an exporter of certain crops such as cotton and tobacco that was produced in the South, and grains such as wheat, produced in the Midwest: the nation sold one-half of its cotton, one-third of its tobacco, and one-fifth of its wheat and flour to foreign markets. The price at which these items sold was decided by the world market. Imposing higher duties on the trivial amount of imports of these goods could not provide farmers with any relief because it had no effect on the prices that farmers were paid for their crops” (Irwin 19). Instead of helping it did the complete opposite especially with foreign traders. “A month after the Smoot-Hawley tariff was imposed, a pro-American Liberal government in Canada lost a general election to the pro-British Conservatives, who erected trade barriers designed to shift Canada’s imports from the United States to Britain. Other countries discriminated against the Unites States exports as well, and the nation’s share of world trade fell sharply. The higher sugar duties even helped spark a revolution in Cuba that overthrew a regime that had been friendly to the United States” (Irwin 8). These were all business opportunities with foreign countries that the United States lost thanks to the Smoot Hawley Tariff Act. This act caused America to lose more, greatly needed, income causing the United States to fall into an even deeper depression. “Harvard economist Richard Cooper has stated the growth in United States tariffs, the lack of concern from the U.S. authorities to the results of their acts towards the foreigners and the foreign response that ensued, helped transition a normal decrease in economic power into the depression it became” (Iwin 4). Each one of these events happening back to back brought about the Great Depression.
The Great Depression wreaked havoc on both industries and businesses. One way in which businesses were affected could be seen because people no longer had the money to shop freely. “During the Depression a vicious circle closed in on itself as fewer people working meant less money spent on the things that factories made, causing factories to close altogether, leading to more layoffs, month after month” (Favreau 2). People stopped making purchases and buying products in order to save money. “During the depression even those who kept their jobs reduced their spending out of fears that they were next in line to be laid off” (McElvaine 73). Which leads me to another way industries and businesses were affected by how unemployment raised. The more companies that went out of business, the more jobs that were lost, and the more jobs loss, the less people had to spend it really was a vicious cycle. “Thirteen to fourteen million able- Americans were out of work by March 1933” (Watkins 115). Growth of unemployment continued growing. “Five months after the Stock Market Crash, it grew from roughly 1.5 million to about 3.2 million.” (Watkins 51). With so many companies closing left and right no one could keep a job. “After the crash General Motors, one of the largest companies in the United States had laid off more than 100,000 workers. Ford Motor company closed its River Rough Plant in Detroit throwing 60,000 people out of work. By 1932 roughly one quarter of all-American Workers had lost their jobs” (Favreau 2). It would be impossible for these staggering numbers not to effect industries and businesses. A final way in which industries and businesses were affected could be seen in how many businesses closed and went under. It is important to understand that for every person that lost a job it was due to a company closing. “26,355 businesses fell through in 1930. This equaled to about 122 failures per 10,000 and was the largest amount ever recorded at that point in time.” (Watkins 55). Unfortunately, with people no longer spending money, unemployment raising, and businesses closing it was clear that no one could escape the Great Depression’s wrath.
Although businesses and industries suffered largely, it in no way compared to how the Great Depression effected the everyday American people. A huge effect to the everyday American people was that Americans had lost all their money when the banks collapsed. “26, 355 banks had failed in the first months of 1933” (Watkins 115). Once these banks shut down the money was simply gone. None of it was insured or covered by the government like it is today. People just simply came to the bank and the doors would be closed with their money gone. This would not be simple checking accounts, but total life savings lost. “Raymond Tarver of Dublin GA worked at the First National Bank, one of the largest businesses in town, Tarver had earned enough from this bank to afford his home, a Model T car, and to put extra earnings in a savings account at First National Bank. One morning he received a phone call from employees at the bank. The First National Bank had locked its doors. This bank was not only a pillar of Dublin Community, but was one of the last banks standing in town after a series of bank closes earlier that year. Everybody thought their money was safe, however they thought wrong and as far as Turner it was a double blow, both his savings and job were gone” (Favreau 17). A second effect the Great Depression had on Americans was with no more money, savings, or jobs families lost their homes. “The Francos from the wholesale fish market now lived in a world of uncertainty and fear, bills piled up and income shrank. James Franco came home one day to find a sign posted on his front yard. The note on the sign stated the Franco Family were going to be evicted and thrown in the streets. At the time the Francos were able to cobble together enough money to hold onto their house, but others weren’t so lucky” (Favreau 5). These Signs of eviction were popping up in yards everywhere across America. “By 1930 John Sparenga, a mills and factory worker had lost his job. 3 years later the banks foreclosed on his property and moved to evict John and his family. On July 28th, 1933 sheriff’s deputies showed up at the Sparenga’s door to carry their furniture and belongings out onto the street. Neighbors heard what was happening and felt fear and anger knowing this same thing could happen to them. A crowd formed to stop the deputies from carrying out the eviction, 5,000 angry people surrounded the house battling more than 150 police officers. In the end the police pushed the protestors back. The Sparenga’s family lost their home and there is no record of where they ended up” (Favreau 9). Events like these all over America left many people out in the cold without a home. “Transient armies moved from one place to another begging for money and food and even stealing from others when absolutely necessary. The homeless would cook up something called mulligan stews which contained anything slightly considered edible. The people who ere homeless that did not drift would sleep in lice and rat-infested cheap and rundown hotels. Of course, this was only when they could afford the fifteen cents it cost for a nasty urine stained mattress on the floor. When they could not afford that, they slept outside in parks, underneath bridges, in concrete pipes, stream tunnels, construction sites, and broken-down vehicles. They would use anything they could find to shield themselves from the sun, rain, and wind like cardboard and old wood. These were thrown together on the outskirts of cities and they were called Hooverville in honor of President Hoover.” (Watkins 61). The amount of people that were homeless was clearly an effect of the Great Depression, too many Americans lost everything during this time. A final way in which The Great Depression effected the American People was seen by the fact that food and everyday needs were no longer being met. The average American had lost everything, so how were they supposed to afford to meet their everyday needs, it was simply impossible. “Louis V Armstrong wrote in We, Too Are the People, ‘We saw the city at its worst, one vivid gruesome moment of these dark days we shall never forget. We saw a crowd of some fifty men fighting over a barrel of garbage which had been set outside the back door of a restaurant. American Citizens fighting for scraps of food like animals” (Watkins 56). Desperation seemed to follow the hungry, homeless, and sickly and it could be seen and felt around the United States. People would beg for food or eat things that would not normally be considered food, like rotten meat or trash. If that is not bad enough President Hoover would not even acknowledge how bad times were. “He was quoted saying ‘Nobodies actually starving.’ However, he was very wrong, hunger was spread across America. People took desperate measures to feed themselves. In some places people turned to eating weeds out of hunger. In the city men could be seen digging through the trash hunting food. It was even recorded that a Chicago woman would remove her glasses before eating so she could not see the maggots moving in her meat that was rotten with stench.” (McElvaine 80). It was not just adults starving and going without, but children as well. Naturally if the parents did not have enough to eat there was not enough for the children either. “This was seen at a school when a sick little girl went to the nurse for being sick. This little girl was student of an Appalachian School who was told by a teacher to go home and eat something, because she looked too sick, only to have the girl tell her she could not eat that night because it was her sisters turn to eat.” (Watkins 57). It was not just food that people were doing without either. People did not have the proper clothing for weather, or their shoes were falling apart with holes in them. Some families didn’t even have blankets to cover themselves at night from the cold. “The desperation from doing without grew worse. ‘My children have not got no shoes and clothing to go to school with,’ A West Virginia man complained in 1935 ‘and we haven’t got enough bed clothes to keep worn. They are cold and hungry but to do something desperate now they would never live down the disgrace. What is a man to do?’” (McElvaine 174) I am sure all these Americans felt as though there was nothing they could do. No matter how hard anyone tried there were no jobs, no money, no security, and it even felt as if there was no help out of this sunken hole called the Great Depression. It would take the government stepping in and a lot of hard work to undo all the damage the Great Depression caused.
The stock market crash, farming practices, bank failures, and The Smoot-Hawley Tariff causing the Great Depression had a great effect on the industries and businesses by people no longer buying products, unemployment being raised, and businesses closing; and it also effected the everyday American people due to families losing their savings, their homes, and everyday needs not being met. The stock market crashing caused huge losses for the people who had invested their money which helped to begin the great depression. Farming practices were also a cause for the Great Depression with over-production, farmers mortgaging everything, and having no one to purchase the excess produce. Bank failure was another major cause in the Great Depression due to so many Americans not only losing all their money, but also jobs at the banks. Finally, The Smoot Hawley Tariff caused the Great Depression by raising high tariffs on products causing America to lose business with foreigners and failing to help the American farmers as it had promised. The Great Depression effected industries and businesses when people no longer had money to purchase items and they lost business, unemployment was raised, and the businesses started to close. The Great Depression effected the American people by families losing all their money and lifetime savings when banks collapsed, families also losing their homes due to no longer being able to pay their mortgages, and lastly Americans no longer being able to meet every day needs like food, clothing, and health needs. The Great Depression would have lasting effects on Businesses and the American people that would never be forgotten.
- Favreau, Mark. Crash: The Great Depression and the fall and rise of America. New York New York, Little Brown and Company, April 2018.
- McElvaine, Robert. The Great Depression. New York New York, Times Books, 1984.
- Watkins, TH. The Great Depression America in the 1930’s. New York New York, Back Bay Books, October 29, 2009.
- Irwin, Douglass. Peddling Protectionism Smoot Hawley and The Great Depression. Princeton New Jersey, Princeton University Press, June 2011.