Transcript The First Years of the Great Depression: 1929

THE FIRST YEARS OF THE
GREAT DEPRESSION: 1929-1932
Timing

In the United States, the Great Depression began in the summer of 1929.

The downturn became markedly worse in late 1929 and continued until early 1933.

Real output and prices fell. Between the peak and the trough of the downturn,
industrial production in the United States declined 47 percent and real GDP fell 30
percent.

The wholesale price index declined 33 percent (such declines in the price level are
referred to as “deflation”).

Although there is some debate about the reliability of the statistics, it is widely
agreed that the unemployment rate exceeded 20 percent at its highest point.
Government
 the government helped to cause the Great Depression
not by acting, but by failing to act.
 Once the Depression started, some government actions
also helped to make it worse.
 The most common critique of the government in the
1920s is that it was excessively laissez faire. This line of
criticism holds that the government let the economy run
unregulated. By doing this,
it allowed the stock market to
boom excessively and it
allowed production to rise
too high.
Continued….
 Once the Depression started, the government is said to have made it
worse by what it did and by what it failed to do. If failed to provide
enough stimulus spending to get the economy going again.

It acted wrongly by setting up tariffs that stifled trade. By doing
these things, it helped to make the Depression worse.
Hawley-Smoot Tariff Act
 Passed by Congress in 1930.
 President Hoover desired a limited upward revision of tariff rates.
 General increases on farm products and adjustment of a few
industrial rates.

U.S. foreign trade suffered a sharp decline.
 Depression deepened.
 Named after representative Willis C. Hawley and Senator Reed
Smoot.
Revenue Act of 1932
 increased American tax rates greatly in an attempt to balance the
federal budget.
 Created another blow to the economy by further discouraging
spending.
 Signed on June 6, 1932.

Rate on top incomes increased from 25 percent to 63 percent.
Revenue Act of 1932
 188 - Statement on Signing the Revenue Act of 1932.
June 6, 1932 Herbert Hoover
THE PRESIDENT said:
 "The willingness of our people to accept this added
burden in these times in order impregnably to
establish the credit of the Federal Government is a
great tribute to their wisdom and courage. While
many of the taxes are not as I desired, the bill will
effect the great major purpose of assurance to the
country and the world of the determination of the
American people to maintain their finances and their
currency on a sound basis."
Glass- Steagall Act
 act separated investment and commercial banking activities.
 Commercial banks took on too much risk with depositors' money.
 Reasons
 Commercial banks were accused of being too speculative in the preDepression era.
 Banks became greedy, taking on huge risks in the hope of even bigger
rewards.
 Unsound loans were issued to companies in which the bank had
invested, and clients would be encouraged to invest in those same
stocks.
Effects
 Henry Bascom Steagall agreed to support the Act with
Senator Carter Glass after an amendment was added
permitting bank deposit insurance.
The GSA, however, was considered harsh by most in the financial
community, and it was reported that even Glass himself moved to
repeal the GSA shortly after it was passed, claiming it was an
overreaction to the crisis.
Impact of foreign issues
 International trade fell 30 percent as nations tried to protect their
industries by raising tariffs on imported goods
 Military dictatorship--a response that could be found in Argentina
and in many countries in Central America.
 Germany, Adolph Hitler and his Nazi Party promised to restore the
country's economy and to rebuild its military.

After becoming chancellor in 1932, Hitler outlawed labor unions, restructured
German industry into a series of cartels, and after 1935, instituted a massive
program of military rearmament that ended high unemployment.
 Italy, fascism arose even before the Depression's onset under the
leadership of Italian dictator Benito Mussolini.
 Japan, militarists seized control of the government during the 1930s.
In an effort to relieve the Depression, Japanese military officers
conquered Manchuria, a region rich in raw materials, and coastal
China in 1937.
Impact of the RFC
 Reconstruction Finance Corporation
Objective
 providing liquidity to, and restoring confidence in
the banking system.
 make loans to banks and financial institutions.
Outcome
People could not apply for RFC loans
 Hoover refused to lower steep tariffs or support any
“socialistic” relief proposals such as the Muscle Shoals
Bill, which Congress drafted to harness energy from the
Tennessee River.

Hoovervilles
They used Hoover's name
because they were
frustrated and
disappointed with his
involvement in the relief
effort for the Depression.
popular name for
a shanty town
The name
Hooverville has
also been used
to describe the
Tent Cities
commonly found
in America.
a drought in the
Mississippi
Valley forced
farmers to
auction their
land for taxes
and reside in
Hoovervilles.
Primary Source
Letter, October 24, 1932
My dear Mr. O’Brien:
In extension of my recent verbal instruction as to the necessity for investigation of certain tariff
schedules due to depression of currencies in foreign countries, I enclose herewith a list furnished me by
the Department of Commerce of industries and localities where there has been actual increase of
unemployment or alternatively where it is inevitable that it will increase from importations arising out
of this cause unless they can be halted.
You recognize that currencies in thirty countries have now depreciated from 5 to 55%, which has
reduced the standards of living in those countries and greatly widened the difference in cost of
production between the United States and those localities.
I would therefore be obliged in order to afford all possible relief to unemployment in these
communities. I urge this expedition because of this possible retardation of increasing employment of
our people. If it shall prove that the differences in cost of production between here and abroad in these
industries have altered the basis of the tariff duties, I wish to receive recommendations of the Tariff
Commission at the earliest possible moment.
Yours faithfully,
Herbert Hoover
Hon. Robert L. O’Brien
United States Tariff Commission
Washington, D. C.
 Origin- Letter, October 24, 1932
 Purpose- Letter from President Hoover to
Unitd States Tarrif Comission explaining
that many countries are in need of relief
support in order to maintain their current
standard of living and cost of production.
 Value- President Hoover’s intention to stop
the increase the unemployment in other
countries as well as the U.S.
 Limitation- biased towards the U.S.
because he only wants to give relief to the
other countries so the production in the
U.S. doesn’t seem to be that expensive.
Works Cited
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