2How much to blame is Hoover? “Hoover failed as president not because he sat idly by and waited for market forces to right the economy, as many believed - mistakenly, at the time - but because he aggressively pursued policies that ran in a direction counter to what the nation and its economy needed.” - Steven Felzenberg
3Hoover’s PoliciesHoover falsely believes that high wages were the cause rather than the result of American prosperity. - Presses Corporate execs not to cut employees and wages. (Associationalism)Tied to “Real Bills” financial policy of loaning. short term bank loans to be repaid by production of goods and services hence no expansion of money supply - Under this theory central banks restrict credit during downturns and expand during boom times.After all his public works programs create a large deficit he pushes through the largest tax increase in U.S. History!! - Keynes would not approve.
4Hoover’s StubbornessFamous economists like Yale’s Irving Fisher are begging Hoover to reinflate and expand the money supply and make the Fed be the lender of last resort but to no avail.1,028 economists sign an open letter in the New York Times warning Hoover not to sign the Hawley-Smoot Tariff. Hoover signs the bill anyhow
5Attempts to Help Farmers Agricultural Marketing Act created bureaucracy to help farmers with pricesRequired voluntary cooperation to reduce crops, give gvt no power to limit productionFarm Board has budget of $500 million to loan to cooperatives, buy up surplus goods but lacks money to deal with the crisisHawley-Smoot Tariff increases rates on 75 farm products from 26% to 50%Also raises rates on 925 manufactured goods
6Hawley - Smoot Tariff (1930) This was done in part to help farmers by increasing the tariff on agricultural imports.The farmers overproduction was due in large part to Hoover’s policies during WWI.The results of the tariff bear out economists’ warnings.U.S. imports decline from $7.034 billion in 1929 to $2.402 billion by 1933U.S. exports fell from $5.886 billion in 1929 to $2.044 MILLION in 1932!!
7Hoover’s Efforts: Too little, too late Home Loan Bank provides money to banks, insurance companies to give out low-interest mortgagesGlass-Steagall Banking Act allows paper currency to support the Federal Reserve SystemAllows major banks to pay gold to European creditorsReconstruction Finance Corporation created to provide federal loans to banks, railroads, other businessesOf $300 million for local relief, only gives out $30 millionOnly uses 20% of $1.5 billion for public worksHelps large corporations avoid collapse, gives no direct aid to small businesses
8The Bonus Army June 1932, 20,000 WWI veterans camp out in DC Want early payment of pension bonusesWhen Congress rejects the Bonus Bill, 2,000 veterans refuse to leaveLate July, Hoover orders the Army to remove the remaining veteransTroops drive veterans out with tanks, tear gasThree killed, including a baby
11Hoover’s Place in History? Hoover will do a first round of public works programs that will be modeled by FDR. It won’t make a change but it was a model.Hoover would discretely funnel money to state and local governments but did not want people to know it was coming from government so they would not feel dependent on the federal government and stifle individual initiative.Hoover’s RFC is the new entity that will make the government the lender of last resort but most of its policies don’t kick in until FDR’s term begins.Hoover secretly took food and blankets to the Bonus Army protestors the night before MacArthur took harsh actions.
12What is a Stock Market?System that allows the trading of company stocks, other securities, and derivativesParticipants range from individuals to large hedge fund traders, who can be based anywhereStock orders usually end up with a professional at a stock exchange, who executes the orderSome exchanges are physical locations where transactions are carried out on a trading floor
13New York Stock Exchange Largest stock exchange by dollar valueHolds $14.2 trillion in market value of 2,317 companiesBegan in 1792, when the 24 stock brokers outside of 68 Wall Street created a stock brokerage houseNASDAQ (National Association of Securities Dealers Automated Quotations), has a value of $4.45 trillion market value listed with 2,872 companies (began 1971)Tokyo Exchange has $3.8 trillion, founded 1878London Stock Exchange has 3.2 trillion, founded 1801Euronext Exchange has $2.93 trillion, founded 2000Bombay Stock Exchange became biggest stock exchange with a company listing of 5,034 in August 2007Value of shares is $1.63 trillion
14Dow Jones Industrial Average Began in 1896 by Wall Street Journal editor and Dow Jones and Company co-founder Charles DowThe value of the Dow is not the actual average of the prices of its component stocks, but the sum of the component prices divided by a divisor, which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the indexToday, it consists of the 30 largest and most widely held public companies in the United StatesThe "industrial" portion of the name is historical—most of the 30 companies have little to do with industryOnly GE remains of the original 12 companies
15Original Stocks in the DJIA • American Cotton Oil Company, ancestor of Best FoodsAmerican Sugar CompanyAmerican Tobacco Company, broken by anti-trust actionChicago Gas Company, now part of Integrys EnergyDistilling and Cattle Feeding CompanyLaclede Gas Light CompanyNational Lead CompanyNorth American Company, an Edison electric companyTN Coal, Iron & Railroad, bought by US Steel in 1907US Leather Company, dissolved 1952US Rubber Company, now part of BF Goodrich
16Companies on the DJIA Today 3M, Alcoa, American Express, AT&T, Bank of America, Boeing, Caterpillar, Chevron, Cisco, Coca ColaDuPont, Exxon Mobil, General Electric, Hewlett-Packard, Home Depot, Intel, IBM, Johnson & Johnson, JP Morgan and Chase, Kraft Foods, McDonalds, Merck, Microsoft, Pfizer, Procter and Gamble, Travelers, United Technologies, Verizon, Wal-Mart, Walt DisneyOn June 8, 2009, GM and Citigroup were replaced by Travelers Companies and Cisco Systems.On September 22, 2008, Kraft Foods replaced AIG in the index
17Growth of the Dow JonesIndex began at 40.94, computed as direct averageClosed at on July 30, 1914 for four monthsWhen it reopened, it grew up to 381 by Oct. 1929Nov. 14, closed above 1,000 for first time1980s and 90s saw a rapid increase in the averageOct. 19, largest one-day percentage drop since 1914, when the average fell 22.61%Oct. 21, Largest one-day gain since the 1930s, 10.15%, bringing the Dow above 2,000
18Growth and Decline Nov. 1995 - Closed above 5,000 for the first time March Closed above the 10,000 markSept. 17, 2001, third largest point drop ever, drops 684 points, 7.1%By the end of that week, DJIA fell 1, pointsJuly 19, Closes above the 14,000 levelSept. 15, with collapse of Lehman Brothers, Dow drops 500 points in one dayMarch low of 6,547, lowest since April 1997
22Start of the Stock Market Crash Sept 3, DJIA peaks at 381, value increases five-fold in five yearsFrom March 1928-Sept. 1929, average price of stocks increased 40%, stocks on Dow double in valueTrading goes from 2-3 million shares a day to 5-10 million shares a dayMarket fell after Sept. 3, losing 17% of its value by early OctoberPrices recovered more than half of the losses over next week, turn down immediately afterwardsOct stock prices fall rapidlyOct brief recovery made, then steep decline
23The Crash Continues“Black Thursday” - Thursday Oct DJIA lost 20% of its valueOct JP Morgan attempts to save the marketWith bankers' money, Morgan placed a bid to purchase a large block of shares in U.S. Steel at well above the current market pricePlaced similar bids on other industrial stocks, and succeeded in halting the slide that dayA record number of 12.9 million shares tradedMonday Oct Dow closes down 13.5%
24Immediate Impact of the Crash 10/29 - Members of Rockefeller family and other financial giants bought large quantities of stocks to demonstrate confidence in the marketDJIA lost another 12% that day, 16 million shares are tradedTicker did not stop running until 7:45 that eveningBy the market’s close on 10/29, Dow had lost 39.6% since its market value since Sept. 3October losses are over $16 billion
25The Continuing Fall of the Dow Jones Bottom seen on Nov. 13, with a close of 198.6Dow reaches a secondary peak of 294 in April 1930Market took a steady slide in April 1931Ended July 8, 1932 when Dow closed at 41.22, down 89% decline from the peak in Sept. 1929As late as April 1942, stock prices at 75% below the1929 peak and would not be at that level until November 1954—a quarter of a century later
28The yearly chart shows the eventual market low in 1932.
29Overall Causes of the Depression Economy too tied to construction and automobilesConstruction spending goes from $11 billion in 1926 to $9 billion in 1929Auto sales decrease by 1/3 in 1919Purchasing power not equally dividedHalf of American families at or below poverty lineIncome of wealthiest 1% increases by 63% fromIncome of 93% of Americans increases by 4% fromFactories and farmers produce more goods than neededCredit and banking structures flawedNo regulation over interest rates, lending policies, banks invest recklessly in stock market
30International Causes of the Depression European demand for US goods declinesMany nations begin to default on WWI loansUS banks begin lending money to European nations to help them re-pay loansOnly leads to more debtIncrease in US tariffs leads European nations to increase their own tariff walls
31Progress of the Depression Stock market crash triggers economic decline9,000 banks close/bankrupted inDepositors lose at least $2.5 billionMoney supply declines by 1/3 fromFederal Reserve responds by raising interest rates in 1931GNP falls from $104 billion in 1929 to $76 billion in 1932Business investment falls from $16 billion in 1929 to 1/3 of a billion in 1933Wholesale price index falls 32% by 1933Farm income falls from $12 billion to $5 billion
32Unemployment during the Depression 1929, 1.5 million Americans unemployedmillion unemployedCities particularly hit - Cleveland has 50%, Toledo, 80%Farm income decreases 60% from1/3 of farmers lose landUnemployment for black males higher than national average
33Impact for African Americans By 1932, half of all blacks in South unemployedUnemployment in NYC up to 50% for black menSupreme Court overturns conviction of Scottsboro boysNAACP supports formation of the Congress of Industrial OrganizationsOver 500,000 blacks join labor movement
34Hispanics and WomenHispanic population increases dramatically in 20th century, due to no immigration restrictions, WWIOver 500,000 return to Mexico during 1930sExcluded from most relief programs, have few educational or social facilitiesStrong belief that no woman whose husband was employed should accept a jobFrom , illegal for more than one family member to have a federal civil service job22 states consider prohibiting women from working in paid jobsBy end of Depression, 25% more women working than at start of Depression, mostly in non-professional jobs24% of white women, 38% of black women
35Social Issues in the Great Depression Divorce rate declines due to cost of divorcesMarriage and birth rates both declineSome view Depression as the fault of individualsOthers see the Depression as a societal issue, not the fault of individuals, want a collective responseFarm Security Administration documents plight of rural AmericansMany writers focus on exposing social injusticeAgee describes lives of Southern familiesSteinbeck’s The Grapes of Wrath, Cannery RowOther cultural products provide light entertainmentMovies are mostly lavish musicals, comedies