US_Ch7_info

=**The Roaring Twenties and the Great Crash Background Information**=

**Return to Normalcy:**
From 1919 to 1921, the U.S. economy looked bad. Millions of soldiers were returning home with jobs gone. Unemployment doubled to 11.7%. The destruction of Europe from the war crippled normal economic activities including trade with America, which wasn't able to get back to normal at the war's end. The Wilson Administration used the war to increase the size of the government, which grew massively under Wilson. The job markets in America were filled to capacity. Farm prices began to plummet after the war since European soldiers went back to their farms and farm products were again on a global competition market (factories in Europe however needed rebuild from war destruction). America was headed into a major depression in 1920. Some historians refer to it as the "**Forgotten Depression**." Most Americans have never heard of this depression, because it was avoided and America would go on to experience massive economic growth in the 1920s.

In the election of 1920, **Warren Harding** was the Republican nominee running against James Cox of the Democrats. Cox wanted to pay off the large war debt with higher taxes. Cox and the Democrats would have a difficult time since the economic was in a major recession looking at going into a depression plus the League of Nations was unpopular. Harding, who was known for "bloviating" (talking big and making speeches that really didn't make sense, but went over well with the public) and in a speech, he said "//America's present need is not heroics, but healing; not nostrums, but **normalcy**; not revolution, but restoration; not agitation, but adjustment; not surgery, but serenity; not the dramatic, but the dispassionate; not experiment, but triumphant nationality."// The key word was normalcy, which wasn't a word, but the American public took it to mean returning to a normal life and not the gloom that was at the end of the Wilson years. The election resulted in a Harding victory as well as major Republican gains in the House and Senate. Harding defeated Cox 404 to 127 in the electoral vote and 16.1 million to 9.1 million in the popular vote. Oddly, Eugene V. Debs, the Socialist Party candidate picked up over 900,000 votes from jail. Overall, the American public showed its dissatisfaction with the Wilson Administration's push for the League of Nations as well as the postwar turmoil (depression, Red Scare, labor strife).

President Harding immediately looked to address the 1920-1 depression. He was faced with the decision as to whether or not he should increase government spending to bailout struggling banks and businesses. He did the opposite. Instead of bailouts or stimulus spending, Harding cut the federal budget in half and cut taxes in all income brackets. Harding had appointed **Andrew Mellon** from Pittsburgh as Secretary of the Treasury. Mellon wanted to know why more revenue wasn't coming in with Wilson's high income tax rate. He discovered that less money was coming in from the wealthy even though the tax rate was over 70% on the wealthy under Wilson. As the rates went up under Wilson, less was coming in (as rates went up, government was getting less revenue in taxes from the wealthy). He found out that with each rate increase, the wealthy invested more overseas rather than building mills and factories in the U.S. and then paying 73% in taxes. In other words, there wasn't incentive to grow one's business in the U.S. under Wilson. Therefore, Mellon proposed (and was approved) cutting taxes from 73% on the wealthiest to 25% and 4% on the lowest bracket to 1.5%. As a result, revenues greatly increased and the national debt would be reduced by 1/3 in five years. In addition, the Mellon tax cuts and government spending cuts set the stage for a major economic boom...the Roaring 20s. There was now incentive for businesses to grow and hire. As a result, what looked to be a major depression, turned into an economic boom. Also, Harding had signed the **Budget and Accounting Act** of 1921 that set up a Bureau of the Budget and the General Accounting Office to oversee expenditures. The President would have to develop a budget to send to Congress.

**Scandals Under Harding:**
Harding appointed one of the best minds in America as Secretary of the Treasury in Andrew Mellon. However, some of his other appointees would put his administration towards the bottom and take away some of Harding's true accomplishments due to corruption. Harding was suspected of having extramarital affairs and often would sneak women into the White House. However, it was his friends, the Ohio Gang, that caused major problems in terms of corruption. Some used their positions to sell government jobs, pardons, and protection from prosecution. The Veterans Bureau headed by Charles Forbes sold hospital supplies that were to go to veterans to his friends. Harry Daugherty, the Attorney General, took bribes in handling German assets seized after the war. Albert Fall, Secretary of the Interior, was responsible for the **Teapot Dome Scandal**, one of the worst in history ranking along with Credit Mobilier (Watergate would be a larger scandal in the 1970s). Fall granted favorable leases acting secretly without competitive bids giving oil fields in Elk Hills, California and Teapot Dome, Wyoming in return for kickbacks totaling $400,000. Any of the three scandals alone may not have damaged Harding, but altogether they tainted his administration. Among the scandals were suicides of Charles Cramer, the Counsel for the Veterans Bureau and Jess Smith, an associate of Daugherty's. Like Grant, corruption stuck to Harding, who (also like Grant) seemed to appoint crooks and bunglers. Harding said "//I have no problems with my enemies. I can take care of my enemies. Its my friends that keep me walking the floors at night.//" In 1923, Harding died of a heart attack, which brought **Calvin Coolidge** into the presidency.

Coolidge would be president during the best times of the Roaring 20s. He favored small government and refused to play the public relations game that politicians played. He was nicknamed "Silent Cal" for not talking much. He demonstrated his limited government approach as the Massachusetts governor. He explained that public institutions (use of tax dollars to run) could never take the place of the private sector and hard work. He took the oath of office from his father, a notary public, when he learned of Harding's death. His 102 word inaugural address warned Americans not to expect to build up the weak by pulling down the strong and not to be in a hurry to legislate. He didn't allow business or unions to endanger the public. In the 1919 Boston police strike, as governor he summoned the National Guard saying that there was no right to strike "against the public safety at any time." Federal spending plummeted under Harding and Coolidge. Unemployment dropped below 2% under Coolidge. Union membership declined as well as Coolidge was reluctant to involve the government in labor disputes (which Progressives did get involved) plus general prosperity and welfare capitalism proved less of a need for unions. **Welfare capitalism** (not welfare as we think of today when discussing welfare) was businesses giving benefits to workers without union pressures. In return, businesses got worker satisfaction and loyalty along with more efficient work. Coolidge's small government approach allowed business to expand. He said **//the chief business of America is business//**. He also said **//four-fifths of our troubles would disappear if we would sit down and keep still//**. Coolidge was re-elected in 1924 over John Davis, a conservative Democrat and third party Progressive candidate Robert LaFollette when liberal Democrats left the party for a more progressive candidate. The nation decided overwhelmingly to "keep cool with Coolidge." as he got over 50% of the vote. The Republicans increased seats in the House and Senate showing that public opinion supported "Silent Cal's" approach.

**An Economic (and Cultural) Goliath:**
Harding and Coolidge kept government out of the way of economic growth, which American entrepreneurs produced the biggest 8-year burst of manufacturing and innovation in the nation's history. This limited government approach enabled the invention of breakthrough devices and products that changed the structure of society even more than the Industrial Revolution. Auto registration rose from just over 9 million in 1921 to 25 million by 1929. Production soared by 225% in the 1920s. Ford's assembly line brought down costs and set a model for all businesses to be more efficient and bring down costs. **Chrysler** would be a new auto corporation in the 1920s formed by Walter Chrysler. **GM** (General Motors) formed from the merger of Chevrolet, Oldsmobile, Buick, Cadillac, Fisher Body, Delco, and other firms under William Durant between 1918 and 1920 to satisfy all tastes (Ford's Model T only came in black), but he couldn't manage the large corporation and therefore yielded control to Alfred P. Sloan Jr. who led GM past Ford in the 1920s. It didn't matter what type of car people were driving. What was important was they were driving more than ever before, which generated demand for a wide variety of related materials - metal, lumber, steel, cotton, leather, paint, rubber, glass, and of course gasoline. Cement plants, housing construction, gasoline and spare parts firms grew at a dramatic rate. Demand for cities and states to build roads grew. The automobile also encouraged opportunity and occupational freedom as workers didn't have to live in cities close to work.

The **radio** became the biggest form of entertainment in the 1920s. Radio Corporation of America (RCA) formed in 1919 to take over the assets of the American Marconi Company. The new radio medium utilized broadcasting in which the transmitter sent signals out over the airwaves for whoever wanted to pick them up. **Frank Conrad** from Wilkinsburg, PA began the broadcasting industry in his garage. In 1920, Westinghouse (an RCA partner) applied for the first radio station license and **KDKA** in Pittsburgh became the first corporate broadcasting station. By 1922, more than 200 stations were operating and radio soon began to feature paid advertisements for products, giving birth to the modern practice of sponsor payments for programming on public airwaves. Eventually, networks would link radio stations across the country. In 1926, the National Broadcasting Company (**NBC**) linked a network and the following year Columbia Broadcasting System (**CBS**) did the same.

Motion pictures competed with radio as a main source of public entertainment. "Movies" originated with Thomas Edison in the late 1880s and in 1903, //The Great Train Robbery// was the first movie with a recognizable plot. The greatest motion picture directed in the 1920s, **Cecil B. DeMille**, developed the epics //The Ten Commandments// and //King of Kings//. Warner Brothers had a breakthrough in 1927 with **Al Jolson** in **//The Jazz Singer//**, which was the first movie with sound opening the industry to "talkies" and ending the careers of many silent actors who looked good but sounded bad. Some of the major actors and actresses were Mary Pickford, Douglas Fairbanks, Rudolph Valentino, Charlie Chaplin, and Clara Bow. **Walt Disney** developed //Steamboat Willie// in 1928, which introduced Mickey Mouse to the world.

The telephone also grew in the 1920s. In 1920, there were 61 phones per 1,000 city dwellers and by 1928 that number rose to 92 per 1,000. Borrowing money wasn't respectable in the early 1900s, but in the 1920s, the new type of buying, installment buying (paying for an item over time in small payments), allowing goods to be bought on credit became more common. Persuasive advertising became a major industry in itself. Companies began to have managers run various divisions within a company again creating a new career. Nativism resurged in the 1920s with the Sacco-Vanzetti Case, quotas on immigration, and a resurgence of the KKK. Roles for women were changing. **Flappers** refers to young women who shocked society by chopping off their hair, raising their hemlines, wearing makeup, smoking, drinking alcohol, and dancing in nightclubs with an new independent lifestyle. **Fundamentalism** was the Christian belief based on literal interpretations of the Bible and was against the new teachings of evolution. The **Scopes Monkey Trial** took place when a law in Tennessee banned teaching evolution, but John T. Scopes was arrested. He was defended by Clarence Darrow and the prosecutor was William Jennings Bryan. Scopes was found guilty with a $100 fine, but got off the hook due to a technicality. The **Harlem Renaissance** was a literary and artistic black movement, which was a form of protest for blacks. African-Americans showed abilities in arts and culture. **Louis Armstrong** became famous in the new Jazz Age.

**Wets vs. Drys:**
The efforts to ban alcohol began to unravel largely because enforcement mechanisms were weak. The federal government only hired 1,500 agents while gangsters like **Al Capone** had almost as many. Gunplay and violence, as law enforcement agents tried to shut down bootlegging, led to countless deaths. The early parts of the movement against alcohol included women, such as **Carry Nation**, who were concerned with protected the nuclear family from the assault by liquor and prostitution, but Prohibition didn't necessarily improve the character of men, but more women went to the saloons. Drys (1) lost some of their flexible and dynamic speakers, (2) dry politicians, who were already in power, bore much of the blame for the economic fallout associated with the 1929 market crash, (3) public tastes shifted to accommodate the new freedom of the age represented by the automobile and radio (restricted individual choices didn't fit well). In addition, the liquor industry pumped massive resources into the repeal campaign and got a monopoly on press coverage. In 1933, the 21st amendment would repeal the 18th amendment.

The legacy over Prohibition is mixed. The intention was not to stop private individuals from drinking, but rather to eliminate the source of (as they saw it) evil and misery - the saloon. Historians have displayed a nearly irresistible urge to blame white, rural Protestants despite its female upper to upper-middle class origins. Lack of attentions was given to Prohibition results. In 1971, the Department of Health, Education, and Welfare prepared a report "Alcohol and Health," which showed that per capita consumption of alcoholic beverages fell by at least 40% in 1920, marking a permanent reduction in drinking. Arrests for public drunkenness fell, which led to lower public expenses for dealing with drunks. The rates of alcoholic psychoses fell. Medical problems related to drinking in every category fell so much that medical journals barely mentioned them as public health problems. Gambling remained organized crime's major money source, not liquor. Prohibition at most accelerated the rise of gangsters, but did not cause the rise of organized crime.

**The Bull Market:**
A boom in utilities would take place with electric power being applied more than ever. New industries of radio, movies, finance, and telephones all needed electricity. In 1899, electric motors accounted for 5% of all installed horsepower, but by 1929, that number was 80%. All of the growth, energy, and American industrial success alarmed the Europeans. At an economic conference, proposals were put forward for an "economic United States of Europe" as the only way to compete with America. This shows that the U.S. economy was robust and the stock market boom was for real. The bull market (when stocks are high; bear market is when it's bad) reflected growth in genuine production, which didn't fall and consequentlystocks didn't fall. Stocks could be bought on margin, which a buyer only had to put down 10% and borrow 90% from a stock broker with the stock being the collateral. Purchasing stock wasn't only something done by wealthy speculators, but rather 15% of families owned stock in 1900 and by 1929, that number was 28%. The most numerous purchases were housekeepers, clerks, factory workers, merchants, chauffeurs and drivers, electricians, mechanics, and foremen. However, wealthy speculators (those who bid up the prices of certain stock they see as going to do well in the future) catch a lot of the blame for the stock market crash. However, the stock market going high in the late 1920s reflected true growth in business. By 1928, American homes had 15 million irons, 6.8 million vacuum cleaners, 5 million washers, 4.5 million toasters, and 750,000 electric refrigerators. In addition, housing construction reached record levels. __Income across the board increased as did the standard of living for almost all Americans__.

John Maynard Keynes (//General Theory of Employment, Interest, and Money// in 1936) and later championed by John Kenneth Galbraith (//The Great Crash// written in 1955) said consumer purchasing fell behind productivity increases causing a surplus of goods in the late 1920s (several historical sources/textbooks write the same thing - that there was overproduction of businesses, didn't need more products, led to layoffs). However, statistics show that in 1921, the consumer share of the GNP (Gross National Product) was $54 billion and quickly rose to $73 billion adding 5% at a time when consumer prices were falling. What this means is, when GNP goes up more money is being spent - that means someone gets that money spent and it keeps going in the business cycle. Consumers would have the available cash to own stocks and bonds and also control 5/6 of the world's auto production - 1 for every 5 people in the U.S. - air travel grew as well (40,000 used airplanes in 1920 to 417,000 in 1930 and 3.1 million by 1940).

**Foreign Policy in the 1920s:**
There were concerns over naval power, which dominated postwar policy in 1920 and 1921. To deal with one of the leftover problems of WWI, the **Washington Conference** was held in D.C. in 1921 to deal with naval arms. Secretary of State Charles Evans Hughes directed the meeting towards arms limitations especially with the "ultimate weapon" - the battleship. The **Five Power Treaty** was agreed to, which put limits on naval tonnage that for every 525,000 tons of ships the U.S. built, Britain could build the same, Japan 315,000 (upset Japan), and France and Italy could each have 175,000. As a result, nations did limit tonnage, but cheated by changing the character and lethality and shifted production to a new ship type that was more potent - the aircraft carrier, which wasn't covered in the agreement. Furthermore, nations installed more and bigger guns on existing platforms. In addition, there was an increase in submarine production. The Washington Conference had an ironic effect. It encouraged the development of two new weapons - aircraft carriers and submarines - that would be far more effective that the increasingly obsolete battleship that was the target of the arms limitation pact.

Republican administrations sought to ensure peace through active negotiations to limit weapons, encourage discussions among former enemies, and assist the new German Weimar Republic when it experienced massive inflation in the mid-1920s. Germany had to pay large reparations to France and Britain as well as provide France with thousands of locomotives and railroad cars free and give Britain hundreds of thousands of tons of shipping also free. Germany printed money to pay France - in essence, worthless money, which led to hyperinflation and the value of the German money went down so low that some burned the money in fireplaces and stoves since it was cheaper than using the money to buy wood. France moved into the Ruhr Valley to take over German industries, which led to tensions. Fearing another war, the U.S. devised a plan in 1924 implemented by **Charles G. Dawes**, a banker, known for his postwar testimony in Congress after being grilled about paying top dollar for supplies, he leapt from his chair and shouted "Helen Maria! I would have paid horse prices for sheep, if sheep could have pulled artillery to the front!" He headed the committee to deal with the reparations mess. The Dawes committee proposed lower reparations, put the German Deutschmark on the gold-based American dollar, half of future reparations to come from taxes, and the U.S. would lend money to Germany to help them get back on their feet. America with the Dawes committee avoided war. Few paid attention to the realities with naval build up vs. the Washington Conference and problems in Germany with inflation. An absurd agreement, the **Kellogg-Briand Pact** (U.S. Secretary of State in 1928 was Frank Kellogg) outlawed war - made war illegal.

**Crash and Depression:**
In 1928, President Coolidge handed a strip of paper to newsmen that read "I do not choose to run for President in 1928." In his autobiography, Coolidge notes that presidents who served 8 years were not effective in the latter parts of their term. The election of 1928 pitted **Herbert Hoover** (R) against Alfred Smith (D). Hoover headed the Food Administration in WWI with the slogan "Food will win the war." He was Secretary of Commerce under Coolidge. Hoover was a Republican Progressive, a group that Coolidge despised, which was the type of progressive that put an emphasis on perfection of this world and was a big government type. The Commerce Department increased its size of bureaucracy under Hoover, while every other department was shrinking. Franklin Roosevelt (a future big government president) called Hoover a "wonder" and added I wish we could make him president" while Coolidge scarcely had a good thing to say about him. Hoover's approach was that large-scale government planned organizations could direct better economic outcomes than laissez-faire and that the federal government would solve all problems. He saw high wages as critical to maintaining prosperity, which is a classic Keynesian approach to economics that demand was what counted, not supply. Smith was the governor of New York who was Catholic, which at the time hindered him as a candidate. Actually, Smith's overall views were more closely related to Harding and Coolidge. Hoover appealed to all campaigning for "A chicken in every pot and a car in every garage." Peace and prosperity helped Hoover defeat Smith 444-87 in the electoral vote and with a popular vote with 21.3 million more votes than Smith. After losing a few seats in the House and Senate in 1926 (still held majorities though), the Republicans gained seats in the House and Senate showing that public opinion greatly approved of the economic prosperity from Harding and Coolidge. Hoover saw opportunity to end economic dips with the tools of the government.

On October 29, 1929, the economy began its fall with the stock market crash. The major problem in the 1920s was that the Federal Reserve failed to expand the supply of money at a pace that would support the growth over the long haul. Also, a slow drain caused by the weakened agricultural sector had started to afflict the financial structure. Furthermore, the Smoot-Hawley Tariff didn't help and once the crash happened, the government made every poor policy decision possible. Farming never recovered from the end of WWI and by 1927, farm bankruptcies were at 1.8 per 100, a rate lower than all American businesses. Much anxiety came from the so-called parity formula developed by the Agriculture Department and pushed by a pair of farm industrialists (George N. Peek and Hugh S. Johnson), which sought to maintain a relationship between the prices of farm and nonfarm goods. This formula was deeply flawed since no fixed relationships exist between any good or service, but rather subject to the laws of supply and demand. They failed to take into account the revolution in mechanical motorized farm equipment, which tended to increase production as farmers plowed more land, which decreased prices. The drop in agriculture prices gave the impression that farms in general were in trouble, but added to the price decline would be natural shocks that destroyed livestock and farm economies in several specific regions, which in turn collateral for loans would disappear and banks in agriculture sectors would struggle and some would close. Some areas where farms were collapsing (especially Midwest) weakened the banking system with bad debts. The bank distress contributed to the second problem in the 1920s of slow growth of the money supply. No nationally known banks failed - only ones in the South and West with little capital. __The Federal Reserve should have reduced interest rates it charged member banks and made it easier for banks to borrow money, but instead, the Fed did the opposite__.

The nation's money supply simply failed to keep up with output (textbooks have become too concerned with stock market and stock prices). Blame is put more on speculators with the assumption that capital gains would continue to be made indefinitely and stock prices continue to go up. Speculators bid up stock prices believing that the future will produce positive results. This happened in a select few cases (and unfortunately happens today as well especially with oil). However, this isn't something that would cause a depression. Blame to the speculators has become a common "cause" of the depression and points to RCA stock that went from $85 to $420 a share in 1928 and RCA never paid a dividend (payments to stock holders). However, Carnegie Steel never paid a dividend either when its value soared 50 years earlier. In addition, radio sales expanded far faster than the stock prices rose. Stocks were only a part of the economy to look at, but the money supply affected everyone. As the availability of loans shrank, businesses had less cash with which to continue to grow. This was seen with the slowing of the manufacturing sector in mid-1928. Overproduction is often the blame, but evidence shows that the __Federal Reserve didn't allow the money supply to grow with economic expansion, which didn't have loans as available__. Contrary to demand-side economics (Keynes and Galbraith), demand did NOT disappear in the late 1920s and wages remained high enough to purchase most of the vast number of new conveniences or entertainments. However, firms couldn't add new production facilities without bank loans, but the Fed tightened the money supply due to concern about speculation, which wasn't the major problem. The Fed thought funneling depositors' money into the stock market. Evidence also shows that corporations sensed the tightening of the money supply and cut back.

The **Smoot-Hawley Tariff** increased rates by about 20% on average on tariffs. Europe, then, raised theirs as well. Businesses may have feared slowing of the economy and sold stock. Changes in trade had a ripple effect. The tariff had disruptive effects, but few people knew exactly what form those disruptive effects would take. It was unknown to anyone at the time that the Fed made the harmful effects worse by contracting the money supply. Overall, the combination of concerns about the Smoot-Hawley Tariff, the need for a real (not necessarily large) market correction, and rapid sell off of stock triggered a sharp decline. The stock market dropped sharply marking the start of the Great Depression.

There's a myth about the 1920s that led to the depression. The myth story says that wild speculation in the stock market led to a maladjustment of wealth and too much investment. Americans couldn't buy enough goods so sales tailed off. The Federal Reserve didn't limit bank lending and expanded the money supply allowing stock prices to soar in wild speculation. Herbert Hoover lacked vision to solve the problem and when FDR came into office with the New Deal, it led America out of the Great Depression. Most textbooks print this myth, but little is true. No evidence that the stock market was a giant speculation bubble ready to burst, but at the most, a tiny layer of speculation at the top took place, but nothing that would affect stock prices or attitudes in buying securities. If anything, the market reflected the fantastic growth of industry. Rapidly rising stocks were in electricity/electric utilities, radios, and automobiles. Industrial use of electricity from 1899 to the 1920s increased 300%. The auto industry boomed with Ford, GM, and Chrysler. Furthermore, for there to be speculation and for it to be a problem (1) people would have had to invest with little or no information about their purchases, but studies show that most investors were well informed and (2) most of the stock trading would have to have been done by the wealthy, but studies show that there was a broad cross-section of investors. The stock market crash would reflect a downturn in the economy, not cause a depression. The depression was due mostly to the Smoot-Hawley Tariff and actions of the Federal Reserve.

**Hoover Accelerates the Decline:**
Coming into office Hoover tried to prop up farm prices by creating another new federal agency and then turned his attention to the tariff. Once the crash hit, a bank crisis followed. When the Bank of the United States in New York failed in 1930, followed by the collapse of Caldwell and Company in Nashville. The sense of panic spread and people pulled out deposits and the Fed proved unable or unwilling to break bank runs. Hoover cut taxes, but did so across the board (all incomes), which symbolically had wide public support, but in reality it didn't give the wealthy incentive to invest in new plants, which would stimulate hiring. This was a Keynesian response - addressing demand. The 1930 U.S. government ran a deficit for the first time since WWI, which further destabilized the markets. Hoover taxed bank checks, which accelerated the decline in the availability of money by penalizing people for writing checks. The Smoot-Hawley Tariff made selling goods overseas more difficult. Overall, Hoover never inspired confidence and as a result the Democrats took control of the House and gain seats in the Senate to be one seat shy of control in the 1930 midterm elections.

The most significant Hoover response was the Reconstruction Finance Corporation (RFC) created in January 1932, which provided $2 billion in funds for financial institutions in danger of collapse. It made loans to businesses, but conditions of the loans were strict and actually generated instability in the firms the RFC looked to save. In addition, banks that were in trouble got worse by the public notice that they had to post that the bank needed RFC funds, which sent depositors scrambling to withdraw their money, which made banks weaker. He came up with public works, or government financed building projects such as the **Hoover Dam** to harness the Colorado River to provide electricity and a safe water supply to a large area.

After passing a "demand-side" tax cut, Hoover then signed the largest peacetime tax increase in history. The tax cut was ineffective since it's small reductions were across the board (all income levels) over too large of a population and the tax hike took the form of a sales tax hurting the middle and lower classes. Banks were going from bad to desperate. As banks failed, the money supply went down falling by 1/3, which alone was enough to bring the economy down. By 1933, there was 25% unemployment and major cities were struggling. Hoover wanted balanced budgets and refused to pay military service bonuses early to WWI veterans. The bonuses weren't due until 1945, but the **Bonus Army** went to D.C. for their money early. When Hoover refused the veterans set up a shack city within D.C. The police shied away and therefore the army was called in to disperse the Bonus Army. Even though they had no basis of law to get what they wanted and drained D.C. resources wanting special privileges, it looked bad for Hoover.

Hoover got blamed for being unwilling to use the powers of the government to stop the depression, but in reality his activist policies deepened and prolonged the depression. He was not small government minded like Harding and Coolidge. However, he planned to run for re-election in 1932 casting gloom over the Republicans. The Democrats saw that almost any candidate would defeat Hoover, which happened with **Franklin D. Roosevelt** and the Democrats would control the House and Senate. FDR had served in the New York state senate, was Assistant Secretary of the Navy in WWI, and due to being in a wealthy family, he never had to work. He was educated at Harvard and Columbia Universities. FDR never ran a business and had disdain for commerce. He wasn't shy about using public funds (tax dollars) and learned how to manipulate patronage in government. A major positive in his life was overcoming polio and never used his disability for public gain. He went to Groton Prep School and learned about the Social Gospel learning that it was unfair for anyone to be poor and that government's task was to eliminate this unfairness by siding with the poor over non-poor and workers over owners and management. His wife, Eleanor Roosevelt, learned of an affair he had with Lucy Mercer in 1914 when she discovered letters between the two. She offered him a divorce but his family and political considerations led to an arrangement - he'd stop seeing Lucy and keep his hands off Eleanor. He would be the first to successfully use the radio for politics with his fireside chats. His campaign song was upbeat and gave hope - //Happy Days Are Here Again//.

Once FDR won the election, he could've solidified the markets and restored a little confidence in the economy by stating the truth - that he would continue many of Hoover's big government policies. However, he would not and between November 1932 and March 1933 he kept silent when he could've made the difference between misery continuing and recovery. FDR criticized Hoover for increasing the size of government, which is hypocritical since FDR is responsible for the largest federal government expansion in history.

**Life in the Depression:**
People were struggling to get by with competition for jobs, begging for food, long lines in soup kitchens and bread lines. Hobos were sneaking on railroads. Many were evicted and unable to pay their rent or mortgage, which led to shanty towns called "Hoovervilles;" an empty pocket was a "Hoover flag;" a newspaper was a "Hoover blanket;" a car pulled by a mule was a "Hoover wagon." The Great Plains was hurt by a devastating drought beginning around 1931 and would be called the **Dust Bowl**. Many headed west along Route 66 to California The migrants became known as "Okies" and met resistance and discrimination in California. **John Steinbeck** wrote **//The// Grapes of Wrath** about a family in the Dust Bowl and moving to California.

It's important to understand that a stock market crash itself didn't cause the Great Depression (though it could cause a recession). Money in the stock market is nominal wealth, or numbers on paper that are gained or lost. If I put money into the market, I certainly hope it gains. If it does good, if it drops, that doesn't mean that I've lost more money out of my checking or savings account or my pocket. That means the money that I originally put in was lost. Before the depression though, stocks were allowed to be bought on margin...10% put down and 90% borrowed. When the market dropped and loans became tough to pay, people began to sell all of their stock to get what money was left to pay their loans. This added to the difficulty of the banks being able to loan as well as people taking their money out of the banks (bank runs). The banking crisis after the stock market crash is in reality what began the depression. The Smoot-Hawley Tariff and the Federal Reserve failing to keep the money supply flowing were the major causes behind the whole problem. Speculation and overproduction were smaller issues involved. In general, jobs were being lost, unemployment was rising, and the nation wanted action.

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