Herbert Hoover and The Great Depression 1928-1932
Herbert Hoover World famous for organizing relief of Europe after WWI. Was Sec. of Commerce under Harding and Coolidge. Ran for Pres. In 1928 as the Republican nominee vs. Al Smith (the first Catholic to run for Pres. & Smith was also a “wet”). Hoover won in a landslide (although Smith won most of the big cities).
What Hoover Was For Hoover had been an orphan who worked hard and eventually went to Stanford. He made millions as a mining engineer. He believed in “rugged individualism.” Rugged Individualism = If the govt. stayed out of the way, individuals could succeed through hard work. He was not as conservative as Harding or Coolidge but still believed in a limited Govt. “A chicken in every pot.”
The Stock Market Crash During the 1920s, many investors bought stocks on margin. –The customer only put 5% down and borrowed the rest from the broker. –The broker financed the loans by borrowing from banks. –The banks loaned $ from their customers accounts. –THE PRICES ONLY STAY HIGH AS LONG AS INVESTORS KEEP PUTTING $ INTO THE MARKET. –OPEN BOOK TO PAGE 419.
Speculation drove the prices of stocks up artificially. Some investors began to sell their stocks and prices began to drop. Brokers began calling in their margins which many people could not pay. Brokers than started to sell large amounts of stock to recoup their loses. This caused a Panic.
Review 1. Explain buying stocks on “margin” and how this led to the stock market crash. 2. What year did the stock market crash? A = 1929 3. Who was President when the stock market crashed? A = Herbert Hoover 4. What was the name of Hoover’s political philosophy and what did it mean? A = “Rugged Individualism” 5. What was historic about the 1928 election? A = 1 st in which ha Catholic ran (Al Smith—he lost to Hoover).
Black Tuesday Tuesday, October 29, 1929 was what many have called, “the most devastating day in the history of markets.” This was the day that began the panic— people trying to unload their stocks. When it (the Crash) was all over, over $30-billion in stock value was wiped out.
Bank Failures When the brokers couldn’t re-pay the $ they had borrowed from the banks, the banks couldn’t give money to all of their customers. Soon more and more people began demanding their $ from banks at the same time and this caused banks to fail (go out of business). When a bank goes under, people loose their $. By 1933, more than 9,000 banks had closed.
Stock Market Crash did NOT cause the Great Depression 1. Overproduction—too many goods =Depressed farms and industry. And as people earn less (or loose their jobs), they have less $ to buy things. 2. Unequal Wealth Distribution —Still a lot of poor people which meant that they can’t buy goods. 3. Govt. chose restrictive monetary policy —high interest rates and curtailed the amount of money in circulation. 4. Decline in Foreign Trade —High tariffs and no loans to foreign countries meant that those countries couldn’t buy American goods..
Causes of Great Depression 1. Lack of Diversification —Construction & Automobiles. 2. Unequal distribution of wealth=imbalance between supply and demand (overproduction). 3. Credit structure of economy —Farmer’s debts & investment in stock market & too many people buying on creidt what they could not afford.
4. Declining Exports: A. High tariffs (Smoot-Hawley Tariff). B. Less demand C. European financial difficulties. 5. International Debt Structure — Countries like Germany needed more loans to pay of war reparations.
Federal Reserve Board’s Response Raised interest rates in 1931. = less money in circulation. Severe Contraction.