History for Dummies

Analyzing the Causes and Consequences of the Great Depression
Adapted from History for Dummies


This adaptation was published on the web but became unavailable after 2009.


America had gone through hard times before: a bank panic and depression in the early 1820s, other economic hard times in the late 1830s, the mid-1870s, and the early and mid-1890s. But never did it suffer an economic illness so deep and so long as the Great Depression of the 1930s.

Counting the causes

Economists have argued ever since as to just what caused it. But it's safe to say there were a bunch of intertwined things that contributed. Among them:

bulletThe stock market crash. The stock market soared throughout most of the 1920s, and the more it grew, the more people were eager to pour money into it. Many people bought "on margin," which meant they paid only part of a stock's worth when they bought it, and the rest when they sold it. That worked fine as long as stock prices kept going up. But when the market crashed in late October 1929, they were forced to pay up on stocks that were no longer worth anything. Many more had borrowed money from banks to buy stock, and when the stock market went belly-up, they couldn't repay their loans and the banks were left holding the empty bag.
bulletBank failures. Many small banks, particularly in rural areas, had overextended credit to farmers who, for the most part, had not shared in the prosperity of the 1920s and often could not repay the loans. Big banks, meanwhile, had foolishly made huge loans to foreign countries. Why? So the foreign countries could repay their earlier debts from World War I. When times got tough and the U.S. banks stopped lending, European nations simply defaulted on their outstanding loans. The result of all this was that many banks went bankrupt. Others were forced out of business when depositors panicked and withdrew their money. The closings and panics almost completely shut down the country's banking system.
bulletToo many poor people. That may sound goofy, but it's a real reason. While the overall economy had soared in the 1920s, most of the wealth was enjoyed by relatively few Americans. In 1929, half of the families in the country were still living at or below the poverty level. That made them too poor to buy goods and services and too poor to pay their debts. With no markets for their goods, manufacturers had to lay off tens of thousands of workers, which of course just created more poor people.
bulletFarm failures. Many American farmers were already having a hard time before the Depression, mostly because they were producing too much and farm product prices were too low. Things were so bad in some areas that farmers burned corn for fuel rather than sell it. Then one of the worst droughts in recorded history hit the Great Plains. The Midwest became known as the "Dust Bowl." Dry winds picked up tons of topsoil and blew it across the prairies, creating huge, suffocating clouds of dirt that buried towns and turned farms into abandoned deserts.

Living with the consequences

Whatever the causes, the consequences of the Great Depression were staggering. In the cities, thousands of jobless men roamed the streets, looking for work. It wasn't unusual for 2,000 or 3,000 applicants to show up for one or two job openings. If they weren't looking for work, they were looking for food. Bread lines were established to stop people from starving. And more than a million families lost their houses and took up residence in shantytowns made up of tents, packing crates, and the hulks of old cars. They were called "Hoovervilles," a mocking reference to President Hoover, whom many blamed (somewhat unfairly) for the mess the country was in.

Thousands of farmers left their homes in states like Oklahoma and Arkansas and headed for the promise of better days in the West, especially California. What they found there, however, was most often a backbreaking existence as migrant laborers, living in squalid camps, and picking fruit for starvation wages.

Americans weren't sure what to do. In the summer of 1932, about 20,000 desperate World War I veterans marched on Washington D.C. to claim $1,000 bonuses they had been promised they would get, starting in 1946. When Congress refused to move up the payment schedules, several thousand built a camp of tents and shacks on the banks of the Potomac River and refused to leave. Under orders of President Hoover, federal troops commanded by General Douglas MacArthur used bayonets and gas bombs to rout the squatters. The camp was burned. No one was killed, but the episode left a bad taste in the mouths of many Americans.

Shoving aside African Americans, Mexicans, and Native American Indians

More than half of African Americans still lived in the South, most as tenant farmers or "sharecroppers," meaning they farmed someone else's land. Almost all of those who worked and weren't farmers held menial jobs that whites hadn't wanted until the Depression came along. When it did, the African Americans were shoved out of their jobs. As many as 400,000 left the South for cities in the North, which didn't help much. By 1932, it's estimated half of the black U.S. population was on some form of relief.
Other minority groups suffered similarly. Mexico had been exempted from the immigration restrictions of the 1920s, and as a result, hundreds of thousands of Mexicans came to the United States, mostly to the Southwest. Prior to the Depression, they were at least tolerated as a ready source of cheap labor. In the 1930s, however, they were pushed out of jobs by desperate whites. Many thousands were deported, even some who were legal U.S. citizens, and as many as 500,000 returned to Mexico. Those of Asian descent, mostly on the West Coast, were likewise pushed out of jobs or relegated to jobs only within their own communities.

American Indians had been largely forgotten by the U.S. government since the 1880s, which was not a good thing. The general idea had been to gradually have Indians disappear into the American mainstream. In 1924, Congress made U.S. citizens of all Indians who weren't already citizens, whether they wanted to be or not.

But preliminary studies done in the 1920s found that "assimilation" had failed. In 1934, Congress changed direction and passed laws that allowed Indians to retain their cultural identity. Although well meaning, it did little for their economic well-being, and they remained the worst-off of America's minority groups.

Keeping women at home or work

With jobs scarce, a strong feeling prevailed that women should stay home and let men have the jobs. There was even a federal rule that two people in the same family could not both be on the government payroll. But two things occurred that actually increased the number of women in the workforce during the decade. The first was that many families simply could not survive without an extra income. The second was that many men abandoned their families to look for work or because they were ashamed they could not find work. Marriage rates dropped for the first time since the early 1800s.

Developing organized labor

If the sun peeked through the Depression's clouds on anyone, it might have been organized labor. The captains of industry and business lost much of their political clout during the 1930s, and new laws made organizing easier.

All told there were more than 4,500 strikes in 1937, and labor won more than three-fourths of them. By 1940, more than eight million Americans were members of organized labor.