Herbert Hoover was elected President of the United States in 1928. He
was the third Republican elected to the presidency since the end of World War I, taking office in March 4, 1929. The Great Depression began on September 4, 1929, with a fall in stock prices. The stock market crashed on October 29, 1929, Black Tuesday. It would continue to drop thereafter, losing billions of dollars in value.
Hoover was President about seven months before the crash came. He spent the next three and some years contending unsuccessfully with the Great Depression and waiting for the Stock Market to reverse itself into positive territory. It never did.
From October 29th on the Great Depression became a world phenomenon. It had devastating effects. Personal incomes, tax revenues, profits and prices dropped. International trade plunged more than 50%. Countries had set up tariff barriers against all other nations.
Both poor and rich suffered. Personal income tax revenues, profits and prices fell. Unemployment in the United States dropped to 25%. It was higher in some other countries, reaching 33%. Farming areas suffered as crop-prices fell 60%. All this began eight months after Hoover became President of the United States and continued to get worse during his presidency.
Once the Depression hit, Hoover, as President attempted to combat the economic decline with large scale government public work projects such as the Hoover Dam. He urged industry to keep wages high. Reluctantly he approved the Smoot-Hawley Tariff of 1930 which set up international trade barriers. Because he believed in a balanced budget as government income from taxes fell, he raised the rate. The economy kept falling and unemployment gradually rose to 25%.
What had happened was that the economy fell like a bolder off the roof of a high building. On the one hand President Hoover tried to continually add money to the economy but on the other hand he massively decreased the amount of money available to the public by continually trying to balance the National budget. The basic problem was that no one really understood what was happening. By continually decreasing the money available Hoover exacerbated the depths of the depression. In 2008, when a similar situation occurred the President increased government spending by trillions of dollars and did not raise taxes. What should have been a greater depression than that of 1929 became instead a Great Recession from which the country recovered in a few years. Economic downturns are generally understood today; their causes and effects weren’t in 1929.
The Great Depression of 1929 was mainly caused by the unregulated banks. They allowed stock to be purchased with a margin of 10 percent of the actual cost of the stock, the bank funding the remaining 90 percent with interest. This allowed innumerable people to invest in the Stock Market. The banks held the stock. If its cost went down the so-called owner had to quickly come up with the difference raising the bank’s holding to 90 percent or they would sell the stock. This was buying on margin.
The system created high false values on the stocks, producing a bubble which would at some point collapse. Stocks that never paid a dividend were selling for ever rising costs. Sooner or later a crash had to come.
When the Crash came on October 29, 1929, Black Tuesday, the majority of stocks dropped quickly far lower than 10 percent in one day and continued dropping on succeeding days. A large number of stockholders were suddenly bankrupt and a lot of banks went out of business.
Overnight the amount of money in circulation decreased by a massive percentage and the country was in a deeper depression than it had ever been in before. This was the Great Depression that would last until shortly after the outbreak of World War II. What pulled the United States and other countries out of the Great Depression was the unlimited war spending.
On March 4, 1933 Franklin Delano Roosevelt took office as the first elected Democratic President since the end of World War I. In the preceding campaign he had promised the country a “New Deal.” It was a term that came from poker; the player gave up his five cards and received five new ones with which to play. It was to the American people a promise of a complete change. What the change would be, no one knew at the time. I suspect that included the President; but he would experiment and find a way through the economic crisis.
The New Deal consisted of what Roosevelt called the 3Rs: Relief, Recovery, and Reform. Relief was to create jobs for the unemployed, Recovery was to bring the economy back to a state of health, and Reform was to pass laws that regulated the banks and other enterprises that brought about the Great Depression. It was felt that the overall economy had to be changed so that this condition could never happen again.
Initially Roosevelt closed all the banks and quickly began a process of auditing them. He began his fireside chats over the new invention, radio, stating in one of his early talks that “We have nothing to fear but fear itself.” He talked the nation through its fears. During the first hundred days Congress passed bills that were largely blank, just having a title. They were filled in by what was needed as they went into operation.
Roosevelt doubled the money supply by collecting all the gold coins, with the exception of a few held back as souvenirs. People objected to having to turn in their gold coins for paper money. The Federal Government sued them and won every case. The gold was melted down and made into blocks which were then put into depositories like Fort Knox. Gold paper certificates were then issued and kept by the Federal Reserve that denoted the amount of gold that was stored.
Ones and five dollar bills were silver certificates. Ten dollar bills and up were gold certificates, actually Federal Reserve Notes. Once this was completed the government had doubled its money supply. Actually once this was done the country was off the gold standard. It solved one major problem. There had never been enough gold available to meet the monetary needs of the economy. From this point on we were off the gold standard. The theoretical fact that we, as a nation, were on one was a fiction. Paper money could not be exchanged for gold.
What emerged as the New Deal developed was a series of Federal programs, public work projects, financial reforms and regulations enacted by the Roosevelt administration in response to the Great Depression. These programs included support to the farmers, the unemployed, youth and the elderly. It also included bank reform and changes to the monetary system. They included both laws passed by Congress, and Presidential executive orders. These programs focused on Relief, Recovery, and Reform.
In essence what Roosevelt did was to change the focus of the Federal Government. From this point on it assumed responsibility for the welfare of its population. It didn’t matter up until 2017 which political party was in control the new focus was kept up and added to by both political parties. The Federal Government’s responsibility was to the people of the nation, to their welfare. With the election of Donald J. Trump on January 20th on the government seemed to be attempting to move back in time to before 1929. To date it hasn’t succeeded.
Harry S. Truman, who became President with the death of Roosevelt, and then won the next election for the Presidency introduced the “Fair Deal.” It was a liberal extension of the New Deal. Unfortunately, during his early presidency both houses of Congress were controlled by the Republicans. What was achieved were those aspects of which the Republicans approved.
The Fair Deal included federal aid to education, a large tax cut for low income earners, abolition of the poll tax, an anti-lynching law, a farm aid program, increased public housing, an immigration bill, new TVA style public works projects, a new Department of Welfare, an increase in the minimum wage from 40 cents to 75 cents an hour, national health insurance, expanded Social Security coverage, and a $4 billion tax increase to reduce the national debt and pay for these programs.
A very small number of these items were passed by the Republican Congress. In 1949 to 1950 there was a Democratic Congress and some more of these items were passed.
President Lyndon B. Johnson got a number of these reforms passed in his Great Society plan. Medicare came into existence for senior citizens, with former President Harry S Truman getting the first card issued with the number 1. Medicaid for the poor who could not afford proper medical care. A number of civil rights and voter laws were passed desegregating the Southern States. Johnson declared “War on poverty,” but was hampered in his domestic program by the Viet Nam War. George W. Bush, the Republican President, added a 400 million dollar prescription drug bill to Medicare.
Finally under President Barack Obama in the early 21st Century Affordable Health Care came into existence. Currently under President Donald J. Trump the country seems to be attempting to move backwards to a time before the New Deal.
To sum up: President Herbert Hoover spent millions on public works trying to help the nation quickly work itself through the Great Depression. He didn’t want the government to directly give charity because that would destroy individual initiative. President Franklin D. Roosevelt spent billions. He doubled the money supply. His policy was Relief, Recovery, and Reform: the three R’s. There was some of each but the Great Depression did not completely end until the 1940s with World War II where spending was endless. In 2008 the Real Estate Bubble, brought about by the banks over a 28 year period, burst and the value of the dollar dropped to about ten cents. President George W. Bush initially bailed out the banks and then Barack Obama became President in 2009. The country faced a potential for a depression far worse than the Great Depression. President Obama spent trillions and the country faced a Great Recession which mainly ended a few years later. We had learned how to limit depressions.
The Weiner Component V.2 #29 – The Pattern of United States History & the Evolving Purpose of Government: Part 2
Herbert Hoover was elected President of the United States in 1928. He was the third Republican elected to the presidency since the end of World War I, taking office in March 4, 1929. The Great Depression began on September 4, 1929, with a fall in stock prices. The stock market crashed on October 29, 1929, Black Tuesday. It would continue to drop thereafter, losing billions of dollars in value.