Cause and Effect in the Great Depression Essay
Unchecked Optimism and the Resulting Lack of Government-Funded Relief Infrastructure
The decade leading up to the stock market crash of 1929 and the following Great Depression is typically remembered as one of great prosperity; everybody, it seemed, was getting wealthier. While the rich added to their riches, even the working class was beginning to earn a little bit of money to put away. The middle class was inching closer to luxury with the money it had made in investment markets. All signs were pointing up. It was precisely this shared spirit of unbridled optimism, however, that led to the crash and the subsequent depression; the Thirties were particularly horrific specifically because few, in their boom-era delirium, had foreseen that the wave, so long cresting, must eventually break. When, on that Black Monday, the stock market did actually crash, and when bankruptcies and layoffs followed on its heels, the country was unprepared—due to ideology as well as limited governmental infrastructure—to deal with the economic repercussions.
All signs pointed to a booming American economy in the 1920s. Between the years of 1925 and 1929, the number of factories, shops, and other establishments of production rose from 183,900 to 206,700, better than a ten percent increase; the value of the products coming out of those establishments rose similarly, from $60.8 billion to $68 billion (Galbraith, 2). In addition, the number of new cars rolling off the assembly line rose from 4,301,000 in 1926 to 5,358,000 in 1929 (Galbraith, 2). The power of the American dollar was such that it was in constant circulation; Americans were making money at a faster rate than ever, and they were spending it at a faster rate as well. In addition to the unprecedented growth in the production factor, the question for many middle-class Americans came to be what they should do with their newfound surplus.
The Twenties provided no shortage of opportunities in this regard. Marketers were busy trumping up the tourist value of Florida, the chic off-season destination of the decade for the vacationing affluent. As John Kenneth Galbraith put it in The Great Crash, “Florida had a better winter climate than New York, Chicago, or Minneapolis. Higher incomes and better transportation were making it increasingly accessible to the frost-bound North. The time indeed was coming when the annual flight to the South would be as regular and impressive as the migration of the Canada Goose” (Galbraith, 3). Indeed the potential for making money was so great in Florida that speculation ran rampant; properties, often swamp land and nowhere near the ocean, could be purchased for a mere 10% down payment, and by 1925, empty lots were trading for many thousands of dollars, based exclusively on the assumption that they would some day be worth a great deal to developers (Galbraith, 4-5).
The stock market was another popular investment opportunity. The New York Times securities index averaged, at the time, the prices of twenty-five “good, sound stocks with regular price changes and generally active markets,” usually industrials (Galbraith, 7). The average price for those stocks rose steadily and dramatically throughout the Twenties, from $106 in May of 1924 to $245 at the end of 1927, and they continued rising (Galbraith, 7-9). The culmination of these factors lulled Americans into a sense of false security. Somehow, it seems, the prevailing opinion was that success and prosperity would continue; it was seen as the ultimate fulfillment of the American dream. Only the markets could not support the growth; investment and speculation had overvalued stocks, commodities, and real estate. Production would wane, layoffs would occur, and America, precisely because of its blind adherence to this dogma of optimism, would find itself stricken and unprepared to deal with the consequences.
In the aftermath of the stock market crash, it became apparent quite quickly that the country was not ready for an economic disaster of this magnitude. This unpreparedness was two-fold, with practical and ideological causes: On one hand, the government infrastructure for unemployment relief was simply not there; on the other hand, the Hoover administration, in following the conservative brand of social thinking, considered economic relief to be a task of the populace at large rather than a charge of the government. As Milton Meltzer writes in Brother, Can You Spare a Dime?, “…in the early thirties there was no planned relief, and poverty was considered a disgrace you had only your own shiftlessness to blame for. When the crash of 1929 came, fewer than 200,000 workingmen were able to look to organized unemployment funds for help” (Meltzer, 63). The executive branch of the government had convened the President's Organization on Unemployment relief, whose purpose it was—in theory—to provide food, services, and money to the unemployed. However, when Senate hearings sought to assess the efficiency of the program, director Walter Gifford “was obliged to admit that he did not know, nor did his organization know, how many people were out of work or in need of assistance in the United States. He did not even know how many were receiving relief at that time” (Meltzer, 64).
The National Industrial Conference Board, however, would later gather that data. In 1930, those 200,000 workers on relief pay represented roughly ten percent of the nation's 1.9 million unemployed. By 1931, unemployment had more than doubled to 3.9 million, and relief had risen accordingly, though only now extending to 540,000 out-of-work individuals, a modest increase to 14%. Slowly, relief gained through New Deal initiatives, rising to 26% at the peak of Depression-era unemployment—in 1933, aid was available to 1,580,000 of the 6.1 million unemployed—but the disastrous effects of poverty had already been felt (Singleton, 11).
The primary reason that the government infrastructure for relief did not exist in the first place was an ideological one. President Hoover’s initial reaction to the severe problems of the Depression followed a typically conservative line of thinking. Rather than hand out huge amounts of money from the government’s savings, Hoover said, “a voluntary deed by a man impressed with the sense of responsibility and brotherhood of man is infinitely more precious to our national spirit than a thousandfold poured from the treasure of government” (Singleton, 57). Of course, this was the same hands-off approach to government that had served Coolidge well earlier in the ‘20s, and it was the same approach to government that had fostered the unprecedented boom of the decade; but while local and regional charities did have some effect on easing the burden of unemployment, hunger, and poverty, the country as a whole was simply too overwhelmed by the crisis—and furthermore, it was too fractured—to bear the whole weight of recovery. Ultimately, the country would vote with this sentiment in mind when it elected Roosevelt in 1932.
The link between the pre-Depression atmosphere of optimism is clear, but perhaps it was also unavoidable; the same conservative ideals that led to such ineffective disaster-response efforts after the stock market crash were the same conservative ideals that had bolstered the economy and led to the boom in the first place. In that regard, it’s hard to say there is much that could have been done to prevent the catastrophe. The American populace tends to correct itself, however; the conscience of the country shifted after 1929, and as a consequence they elected a Roosevelt to the presidency at their next opportunity. To be sure, also, they learned from their mistake, and have since been more skeptical of rampant economic optimism, well aware of the tragedy and unpreparedness it can provoke.
Galbraith, John Kenneth. The Great Crash. New York: Houghton Mifflin, 1954.
Meltzer, Milton. Brother, Can You Spare a Dime?. New York: Facts on File, 1991.
Singleton, Jeff. The American Dole: Unemployment Relief and the Welfare State in the Great Depression. Westport: Greenwood Press, 2000.
Great Depression Outline
A. The United States fell victim to the Great Depression because its economic and social environment was one of unbridled optimism. When struck by the stock market crash and the subsequent economic bust, the country was then unprepared to deal with the effects.
II. Unbridled Optimism
A. Production and employment
1. Between 1925 and 1929, the number of production establishments rose from 183,900 to 206,700 (Galbraith, 2)
i. Their output rose from $60.8 billion to $68 billion (Galbraith)
2. The number of new cars rose from 4,301,000 in 1926 to 5,358,000 in 1929
B. Florida real estate boom
1. “Florida had a better winter climate than New York, Chicago, or Minneapolis. Higher incomes and better transportation were making it increasingly accessible to the frost-bound North. The time indeed was coming when the annual flight to the South would be as regular and impressive as the migrations of the Canada Goose” (Galbraith, 3).
2. Speculation ran rampant, with lots available for purchase at a 10% down payment in 1925 and seaside properties trading for up to $75,000 at the end of the year
C. Securities gains
1. The New York Times index measured the average prices of twenty-five “good, sound stocks with regular price changes and generally active markets,” usually industrials (Galbraith, 7).
2. Averages rose steadily throughout the Twenties, from $106 in May of 1924 to $245 at the end of 1927, and they continued rising (Galbraith, 7-9).
III. The Unprepared Country
A. Lack of planned relief
1. “For in the early thirties there was no planned relief, and poverty was considered a disgrace you had only your own shiftlessness to blame for. When the crash of 1929 came, fewer than 200,000 workingmen were able to look to organized unemployment funds for help” (Meltzer, 63).
2. “…when a Senate committee tried to find out what else the President's Organization [on Unemployment Relief] had done, its director, Walter Gifford (also President of American Telephone and Telegraph), was obliged to admit that he did not know, nor did his organization know, how many people were out of work or in need of assistance in the United States. He did not eve know how many were receiving relief at that time” (Meltzer, 64).
3. Singleton statistics:
a. 200,000 of 1.9 million in 1930, 10%
b. 540,000 of 3.9 million in 1931, 14%
c. 1.58 million of 6.1 million in 1933, 26% (Singleton, 11)
1. Hoover’s reaction conservative
2. “a voluntary deed by a man impressed with the sense of responsibility and brotherhood of man is infinitely more precious to our national spirit than a thousandfold poured from the treasury of the government” (Singleton, 57)