The Great Depression

By the end of this lesson, students will be able to:

• Account for the layered causes of the Great Depression, including stock-market speculation and margin buying, the weak banking sector, the long agricultural depression that preceded 1929, the concentration of wealth that limited consumer demand, and the global trade collapse worsened by the Smoot-Hawley Tariff of 1930.
• Describe the scale of the economic collapse between 1929 and 1933, using unemployment, gross domestic product, bank failures, and industrial production as evidence.
• Explain the assumptions behind President Hoover's voluntarist response and account for why measures such as the Reconstruction Finance Corporation and the Hawley-Smoot Tariff did not arrest the slide.
• Account for the social and cultural impact of the Depression by examining Hoovervilles, breadlines, the Bonus Army of 1932, and the Dust Bowl migration of the early 1930s.
• Connect the deepening crisis to the political realignment produced by the 1932 election, in which Franklin Roosevelt won a forty-two state landslide over Hoover.

The Great Depression was the deepest and longest economic contraction in modern American history. It was not produced by a single shock but by a stack of weaknesses that had been visible for most of the 1920s and that broke into the open in the autumn of 1929. The College Board CED groups the causes under KC-7.1.I.C and asks students to account for them rather than to memorize a single trigger. Five fault lines mattered most. First, stock-market speculation. Through the second half of the 1920s, share prices had risen far faster than corporate earnings; the Dow Jones Industrial Average roughly tripled between 1925 and the September 1929 peak even as industrial production grew only modestly. A growing share of trades was carried out on margin, with brokers lending small investors as much as ninety percent of the purchase price against the shares themselves as collateral. When prices reversed, those leveraged positions had to be liquidated, and forced selling fed on itself.

Second, a weak banking sector. The United States entered the 1930s with roughly twenty-five thousand small, undercapitalized, single-branch banks and no federal deposit insurance. A panic at one bank could spread to neighbors overnight as depositors withdrew savings to bury under the mattress. Roughly nine thousand banks failed between 1929 and 1933, taking with them an estimated seven billion dollars in deposits. Third, an agricultural depression that had been running since the early 1920s. Wartime demand had driven farmers into mortgaged expansion; once European agriculture revived after 1918, prices for wheat, cotton, and corn collapsed and never recovered. Roughly one farm in four had passed through foreclosure by 1929, and the rural credit system was already in distress when the urban credit system began to fail. Fourth, the concentration of wealth. By the end of the 1920s, the top one percent of households held more than a third of the country's wealth, and the bottom half held almost nothing. That distribution had supplied investment capital for the consumer-goods boom but had not produced enough purchasing power to absorb the decade's industrial output once credit tightened. Fifth, a fragile global economy held together by American loans to a Europe still paying down the cost of the First World War. When American capital pulled home in 1929 and 1930, the chain broke (KC-7.1.I.C).

The collapse began in late October 1929. After several days of heavy losses, the New York Stock Exchange fell roughly twelve percent on Monday, October 28, and another twelve percent on Tuesday, October 29, the day Wall Street remembered as Black Tuesday. Sixteen million shares changed hands, a volume the exchange's ticker could not keep up with; the closing tape did not finish printing until well after the markets had shut. Roughly fourteen billion dollars of paper wealth disappeared in a single day, and roughly thirty billion across the week. The crash itself did not produce the Depression, but it punctured the confidence that had held the speculative economy together and triggered the chain of bank runs, business failures, and consumer retrenchment that turned a recession into a contraction with no floor.

The numbers between 1929 and 1933 measure how far the floor receded. Unemployment rose from roughly three percent in 1929 to roughly twenty-five percent in 1933, leaving about thirteen million Americans out of work. Real gross domestic product fell about thirty percent. Industrial production halved. Farm prices fell so far that wheat in some districts was selling for less than the cost of producing it; Iowa farmers organized to dump milk in roadside ditches rather than haul it to market at a loss. A third of the country's banks closed their doors permanently. By the early weeks of 1933, every bank in thirty-two of the forty-eight states had been shuttered by state moratorium. The Smoot-Hawley Tariff Act, signed by President Hoover in June 1930, raised duties on more than twenty thousand imported goods to record levels, drew immediate retaliation from Britain, France, Germany, and Canada, and helped collapse world trade by roughly two-thirds between 1929 and 1933 at the very moment American producers most needed export markets.

President Herbert Hoover did not believe the federal government should provide direct relief to unemployed Americans. A self-made mining engineer who had run the wartime food relief of Europe and a celebrated Commerce Secretary in the 1920s, Hoover trusted what he called the principle of voluntary cooperation: the government should encourage business leaders, labor unions, and state and local officials to maintain wages and investment without federal compulsion. He convened a series of White House conferences in late 1929 at which industrialists and union officials pledged to hold the line on wages and to keep building. Within a year almost every signatory had broken the pledge under the pressure of falling demand. Hoover signed the Smoot-Hawley Tariff over the objections of more than a thousand professional economists who had petitioned him to veto it, in the belief that high tariffs would protect American industry; the bill instead became a textbook case of policy that worsened a global collapse. He also moved more aggressively than is sometimes remembered, signing the Reconstruction Finance Corporation Act in January 1932. The RFC made federal loans to banks, railroads, insurance companies, and state and local governments. The agency would later, under Roosevelt, be expanded into the New Deal's principal lending arm, but in 1932 contemporaries derided it as a trickle-down measure that helped corporations rather than the unemployed (KC-7.1.III).

The Depression's social weight became visible in the urban landscape. Encampments of homeless men and families, ironically named Hoovervilles after the president, sprang up on the fringes of every major city. Newspapers used as blankets were called Hoover blankets; an empty pocket turned inside out was a Hoover flag. Breadlines and soup kitchens, run by churches, settlement houses, and overwhelmed municipal relief offices, stretched for blocks in Chicago, New York, and Detroit. Two and a half million Americans were on the road by 1932, riding boxcars between cities in search of work. The mood is captured in the Yip Harburg song that became the unofficial anthem of the period, "Brother, Can You Spare a Dime?"

The summer of 1932 produced the political turning point. In May, roughly seventeen thousand veterans of the First World War, accompanied by their families, traveled to Washington to demand early payment of a service bonus that Congress had voted in 1924 but had scheduled for distribution in 1945. The marchers, who called themselves the Bonus Army, set up a Hooverville on the Anacostia Flats across the river from the Capitol. Congress voted down the early-payment bill in mid-June. Most of the veterans went home; several thousand stayed. On July 28, after a confused incident in which two marchers were shot and killed by Washington police, Hoover ordered the Army to clear the encampment. General Douglas MacArthur, exceeding his orders, led infantry, cavalry, and six tanks across the river and burned the camp to the ground. Newsreels of veterans being driven out of the capital by federal troops, with their wives and children fleeing through tear gas, produced one of the most damaging political images of the twentieth century.

The Depression had an environmental partner on the southern Great Plains. Decades of plowing native sod for wheat had stripped the land of the deep root systems that anchored topsoil in place; when severe drought arrived in 1931 and 1932, prevailing winds lifted millions of tons of dry topsoil into dust storms that blackened skies as far east as Washington, New York, and ships at sea. The 1930s gave the region the name the Dust Bowl. Roughly two and a half million people left the affected districts; about two hundred thousand of the displaced families, called Okies regardless of which Plains state they came from, migrated westward to the orchards and fields of California's Central Valley, where they were met by hostile local governments and starvation wages. John Steinbeck's 1939 novel The Grapes of Wrath turned the migration into the period's defining literary image, and Dorothea Lange's photographs for the Farm Security Administration turned it into the period's defining visual image (KC-7.1.I.C).

The election of 1932 closed the topic. The Democratic governor of New York, Franklin Delano Roosevelt, accepted his party's nomination in person at the Chicago convention, an unprecedented act, and pledged "a new deal for the American people." Hoover ran on the record. Roosevelt won forty-two of the forty-eight states, took the popular vote by seven million ballots, and brought into office a Congress with overwhelming Democratic majorities in both chambers. The realignment that followed, the New Deal coalition of urban ethnics, African Americans, organized labor, the white South, and farmers, would define national politics into the late 1960s. Lesson 10 picks up the story with the Hundred Days that began the morning after Roosevelt's March 4, 1933, inauguration (KC-7.1.III.A).

Four sources mark the political, economic, and human shape of the topic. Each one is hosted by a public archive and is in the public domain.

1. (Causation) Of the five layered causes of the Great Depression named in this lesson — stock-market speculation and margin buying, the weak banking sector, the agricultural depression of the 1920s, the concentration of wealth, and the global trade collapse worsened by Smoot-Hawley — which would you argue was the most important, and why? Defend your choice with specific evidence.
2. (Continuity and Change) Compare the assumptions about the proper role of the federal government in the economy that Hoover defended in his 1928 Rugged Individualism speech with the assumptions visible in the policies he signed into law in 1932, including the Reconstruction Finance Corporation. What had changed, what had not, and why was the change insufficient?
3. (Causation) Trace the chain of decisions that led from the May 1932 arrival of the Bonus Army in Washington to its eviction by federal troops on July 28. At which point in the chain do you think a different decision could have produced a different outcome, and what would the political consequences of that alternative have been?
4. (Comparison) Compare the urban experience of the Depression, captured by the breadline and the Hooverville, with the rural and migrant experience captured by the Dust Bowl and the Okie migration. What does the comparison reveal about how a national economic collapse takes regional shape?
5. (Causation) Account for the scale of Roosevelt's victory in November 1932. To what extent was the result a referendum on Hoover, and to what extent was it an endorsement of a specific Roosevelt program?

Draft alignment — pending educator review. AP USH codes correspond to the official College Board Course and Exam Description (Effective Fall 2023, Version 1). Statements below are paraphrased in the CountryReports voice; refer to the College Board's published CED for verbatim wording.