The Great Depression

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The Depression had both short-term and long-term causes. Until October 1929, the value of stock grew steeply and investors naively believed the rise could continue indefinitely. When the stock market crashed on "Black Thursday," October 24, 1929, the worst downturn of the stock market in US history, panic spread. Investors, fearing losses, sold stock, which of course deepened the decline.

Chart of the Dow Jones Industrial Average, October 1929-July 1933. Continuous drop from Fall 1929 to April 1933 and thereafter a slow increase.

Over the next few years, not only did the value of stock continue to fall, but thousands of banks failed, in part because they had loaned large sums of money to stock speculators who couldn't repay their bank loans. When a bank failed, its depositors' savings were essentially gone, so millions of middle- and working-class people — most of whom had not speculated in the stock market — lost their life savings. Credit dried up, and businesses began laying off workers

As unemployment rose, consumer spending plummeted, which led to further layoffs. Home and farm foreclosure rates skyrocketed, and many Americans became homeless. By the time FDR was inaugurated in March 1933, the unemployment rate was 25 percent, while the GDP (Gross Domestic Product) had dropped by 27 percent between 1929 and 1933.

Depositors Standing Outside Bank of United States After It Failed, 1931
Photograph of the people with signs in front of a failed bank.

Despite this crisis, Hoover and many Americans believed the downturn was temporary and would soon right itself. And why not? During the 1920s wealth in the US doubled and average income rose by 30 percent. For the first time many could purchase new, modern products. With the application of the assembly line to auto manufacturing, auto prices fell and the percentage of households owning cars rose from 30 to 80 percent. In 1921 there were five radio stations, in 1923, over 550. In 1925, 19 percent of households had a radio, but by 1929, 35-40 percent did. Through radio, advertising boomed and encouraged listeners to buy products.

When World War I ended in 1918, European countries, with economies devastated by the war, were dependent on US loans and agricultural produce. American agricultural and industrial productivity rose. By the 1920s a majority of Americans, for the first time, lived in towns and cities. And in cities, most had access to electricity, which increased the demand for electrical appliances and thus further stimulated industrial production. Most Americans felt comfortable with the pro-business views of leading politicians who joined the corporate elite in opposing regulations of corporations and banks. As Calvin Coolidge famously remarked, the "chief business of the American people is business."

We can now see that this unprecedented growth was not sustainable because the majority of the population didn't share in the prosperity. Even though unemployment was low and wages for many increased, millions of Americans still lived entirely outside this economic boom. Forty percent of the population lived in poverty even during the supposedly prosperous 1920s. Much production was controlled by a handful of large corporations. By 1929 the 200 largest corporations controlled 50 percent of corporate wealth.

As oligopolies, their control of the market enabled them to keep prices high rather than let them rise and fall with demand. People increasingly bought on credit, which at the time took the form of the "installment plan." General Motors sold automobiles this way: you would make a down payment on a car and "own" it, paying monthly installments with high interest rates. A single missed payment led to repossession. Soon buying began to slow, so industries cut back on production, laid off workers, and ceased to invest in expanding or maintaining their factories. But not many noticed these warnings.

Thus, even without the precipitous stock market crash, a vicious cycle was developing by which each contraction in the cycles of production and consumption led to further contractions. In addition, the naive faith in endlessly rising profits led many to get-rich-quick schemes, and they turned to speculation in real estate and in the stock market.

Meanwhile, American agriculture sank. As European countries recovered from the war, their demand for American products declined. In addition, small farmers, who could not afford expensive new farm machinery — tractors and combines, for example — lost out to corporate agriculture.

Table with stock market gains in various countries from 1921-1929.

It's not that President Herbert Hoover's Administration had done nothing to help end the economic crisis. Much was expected of him because he had worked on humanitarian relief during World War I. But he turned out to be timid, trapped by the old conservative maxim that helping the unemployed would make them lazy. Congress did create the Reconstruction Finance Corporation and a farm loan system to lend capital to failing businesses, but these programs helped only owners, not workers, and the funds appropriated were far too little anyway.

Herbert Hoover and Private Relief

Instead of stimulating the economy, the Hoover government did the opposite. Acting on the belief that the budget must be balanced, it raised taxes. Hoover and his advisors retained a fundamentally outdated faith in "rugged individualism" and the myth of independence, failing to understand how the majority of Americans depended on wages and had no way of earning a living independently. So the depression steadily deepened.

Soup Kitchen, 1932; Breadline, 1932
Two images, men at a soup kitchen and a long breadline.

By 1932, millions of Americans were clinging desperately to subsistence. Sixty percent earned less than the official poverty line. One-quarter of the labor force was out of work, 50 percent in several major cities; millions had their hours cut back, and thus their wages fell.

During the 1920s, some 1.6 million African Americans had migrated to the north, driven out of southern states by racism and eviction from sharecropping land. Now they suffered the worst unemployment, 30 to 60 percent higher than that among whites.

The leading telephone company, Western Electric (owned by AT&T), laid off 85 percent of its workforce. The suicide rate climbed rapidly. Existing sources of aid — or relief, as it was called at the time — had dried up. For example, Detroit's Emergency Relief Fund aimed to collect $3.5 million in 1931 but took in only $645,000.

The only public aid came from town, county, or state governments whose tax income had also plummeted. In fact many local governments were bankrupt, unable to pay the wages their employees were due. Thousands were sleeping on the streets and "riding the rails" across country in search of work. As often happens in hard times, minority groups were scapegoated. Jews were blamed for the crash, and approximately 500,000 Mexican Americans, many of them citizens, were driven out of the US

Unemployed Men on Park Bench, 1934; Unemployed Man Rides the Rails, 1935
Two images of unemployed men, hitting the trains and sleeping on a park bench.

Unsurprisingly, the economic disaster produced large-scale social protest movements. Large numbers of Americans demanded help, objected to the economic inequalities that generated the disaster, and proposed remedies for it.

Councils of the unemployed, with a membership peaking at nearly half a million, not only demanded unemployment benefits but also engaged in direct action. Most dramatically, they blocked evictions or simply stood by and then moved the family's belongings back inside.

Farm Foreclosure in Iowa, Early 1930s
Photograph of people standing around a barn during a farm foreclosure in Iowa.

In 1932 the "Bonus Army," some 17,000 World War I veterans, asking for immediate payment of the service bonuses they were scheduled to receive in 1945, set up camp in the nation's capital. Although the House of Representatives voted in favor of a bill that would permit early payment of the service bonuses, the Senate rejected it. Frustrated but not undaunted, many members of the Bonus Army decided to remain encamped in Washington, DC.

Press coverage and public opinion about the Bonus Army were generally sympathetic. But its presence was an embarrassment to President Hoover, particularly during a re-election campaign. His attorney general, William D. Mitchell, ordered the protesters to leave the encampment, but they refused to leave. Ultimately, the US Army used tanks, tear gas, and armed soldiers to evict the protesters and set fire to their camp. It was a public relations disaster for President Hoover.

Bonus Army on Steps of US Capitol; Bonus Army Encampment Burning After Federal Troops Set It On Fire, 1932
Two images of members of the Bonus Army sitting on the steps of the US Capitol and the federal troops burning down the Bonus Army encampment.

The largest Depression-era movement was that for old-age pensions, called by the name of its founder, Dr. Francis Townsend. The Townsend Plan's purpose was twofold: help the elderly to retire and, thereby, make more jobs available for younger people. It claimed 3.5 million members and 30 million signed its petitions. After waging a grass-roots movement, it created pressure on the government for some type of national pension plan. The Townsend movement helped make the Social Security bill possible.

Dr. Francis Townsend; Townsend Supporter in Kansas, 1936
Two images, Dr. Francis Townsend in front of a microphone and a supporting sign for Townsend on a car.

Some of these social movements catapulted demagogic leaders into stardom. Starting in 1932, Louisiana Senator Huey Long led a "Share Our Wealth" campaign that called for a guaranteed minimum annual wage, a shorter work week to boost employment, and universal free education. He even soft-pedaled his usual racist rhetoric in order to win some black support.

By contrast, Detroit Catholic priest Charles Coughlin, a radio preacher who reached an estimated 30 million each Sunday, combined welfare demands with hate-talk toward Jews and admiration for Hitler. The pro-Hitler German-American Bund attracted some 100,000 members. The Black Legion, a Ku Klux Klan offshoot, and the Silver Legion espoused deporting Jews and blacks, and attracted more tens of thousands. Among elites, many quietly supported Nazi Germany and fascist Italy, admiring their suppression of the labor movement and political dissent.

Huey Long, 1935; Father Charles Coughlin, 1936; German-American Bund Parade in New York City, 1937
Three images of Hue Long, Father Charles Coughlin, and a marching German-American Bund in New York City.

The Depression produced big gains for Left-wing groups. Their strong stands against fascism, both domestic and foreign, and for government action to help the majority rather than the wealthy, attracted millions. An informal coalition, known as the Popular Front, brought together the small Socialist and Communist Parties with Roosevelt supporters. The Socialists won 885,000 votes for their presidential candidate in 1932, but that declined to 187,000 in 1936 as its supporters were won over by FDR.

Communists reached a membership peak in 1944, at about 80,000. But Communists exerted influence far beyond their numbers. Most American Communists were oriented toward democratic activism, supporting unemployment relief and labor unions, and challenging sexism and, above all, racism.

In 1931, nine black teenagers were framed for raping two white girls in Scottsboro, Alabama, and were almost lynched. The Communist Party defended them, winning admiration not only from African Americans but also from many liberals. As FDR's administration acceded to southern segregation and the exclusion of blacks from benefits and refused to support an anti-lynching law, the Communist Party was the only white-led, national organization to press for racial equality.

The Communist, 1930
Image of The Communist with a man holding a sign reading work or wages.

The biggest steps away from racism took place in the labor movement, thanks to a new, breakaway labor union federation, the CIO (Congress of Industrial Organizations), which set out to organize workers on a mass basis. The older American Federation of Labor (AFL) had traditionally opposed government provision and regulation, for fear workers would no longer need trade unions to fight for them.

Rejecting the AFL's turf-protecting approach, the CIO pulled together a wide variety of grassroots unionizing movements — among miners, auto workers, steelworkers, electrical workers, machinists, movie actors, newspaper reporters, clothing workers, textile workers, teamsters, store clerks, and dock workers. In many of these organizing drives, as in the unions they created, blacks and whites worked together as never before.

AFL leaders referred to this activism among workers as the "uprising." By the end of World War II, the CIO would have six million members and had won major pieces of federal legislation. CIO competition also forced the AFL into increased organizing, and the resulting unions raised standards of living for tens of millions of working families through the 1960s.

Chart showing declining Union Membership between 1930-2000.

Conservatives and the wealthy panicked because the economic disaster was swelling the Left. Liberals worried because the Right was growing, and in Germany and Italy, the Depression had led to fascist governments and expansionist nationalism. Some Americans were calling for the president to assume dictatorial powers. By March 1933, the time of Roosevelt's inauguration, Raymond Moley, one of the new president's advisors, wrote that "terror held the country in its grip.”