The Great Depression

One way of making money during the 1920s was to buy stocks and shares. Prices of these stocks and shares constantly went up and so investors kept them for a short-term period and then sold them at a good profit. As with consumer goods, such as motor cars and washing machines, it was possible to buy stocks and shares on credit. This was called buying on the margin and enabled speculators to sell off shares at a profit before paying what they owed. In this way it was possible to make a considerable amount of money without a great deal of investment.

In an article entitled Everybody Ought to be Rich in June 1929, John Jaskob claimed that by investing $15 a month in stocks and shares it would be possible to make $80,000 over the next 20 years. Another investor, Will Payne, stated in 1929 that it had become so easy to make money on the Wall Street Stock Exchange, that it had ceased to become a gamble. He went on to say that a gambler wins only because someone loses, when you invest in stocks and shares, everybody wins.

On 3rd September 1929 the stock market reached an all-time high. In the weeks that followed prices began to decline. Then on 24th October, over 12,894,650 shares were sold. Prices fell dramatically as sellers tried to find people willing their shares. That evening, five of the country's bankers, led by Charles Edward Mitchell, chairman of the National City Bank, issued a statement saying that due to the heavy selling of shares, many were now under-priced. This statement failed to halt the reduction in demand for shares. On 29th October, over 16 million shares were sold. The market had lost 47 per cent of its value in twenty-six days.

Although less than one per cent of the American people actually possessed stocks and shares, the Wall Street Crash was to have a tremendous impact on the whole population. The fall in share prices made it difficult for entrepreneurs to raise the money needed to run their companies. Within a short time, 100,000 American companies were forced to close and consequently many workers became unemployed. As there was no national system of unemployment benefit, the purchasing power of the American people fell dramatically. This in turn led to even more unemployment.

It was later discovered that some Wall Street bankers had been partly responsible for the crash. It was pointed out that from September 1929, Albert H. Wiggin had begun selling short his personal shares in Chase National Bank at the same time he was committing his bank's money to buying. He shorted over 42,000 shares, earning him over $4 million. His earning were tax-free since he used a Canadian shell company to buy the stocks.

As William E. Leuchtenburg, the author of Franklin D. Roosevelt and the New Deal (1963) pointed out: "At a time when millions lived close to starvation, and some even had to scavenge for food, bankers like Wiggin and corporation executives like George Washington Hill of American Tobacco drew astronomical salaries and bonuses. Yet many of these men, including Wiggin, manipulated their investments so that they paid no income tax at all. In Chicago, where teachers, unpaid for months, fainted in classrooms for want of food, wealthy citizens of national reputation brazenly refused to pay taxes or submitted falsified statements."

Senator Burton Wheeler of Montana argued: "The best way to restore confidence in the banks would be to take these crooked presidents out of the banks and treat them the same way as we treated Al Capone when he failed to pay his income-tax." Senator Carter Glass of Virginia claimed: "One banker in my state attempted to marry a white woman and they lynched him."

President Herbert Hoover was slow to react to the crisis. He did not provide federal relief to farmers and stubbornly refused to give help to the unemployed in urban areas. Hoover vetoed a bill that would have created a federal unemployment agency and also opposed a plan to create a public works programme.

Andrew Mellon was Hoover's secretary of the treasury. Mellon followed policies that involved cutting income tax rates and reducing public spending. He also brought an end to the excess profits tax. Mellon's policies created a great deal of controversy and he was accused of following policies that favoured the wealthy. The economic depression that began in 1929 was partly blamed on Mellon's policies.

Charlie Chaplin commented: "The lugubrious Hoover sat and sulked, because his disastrous economic sophistry of allocating money at the top in the belief that it would percolate down to the common people had failed. And amidst all this tragedy he ranted in the election campaign that if Franklin Roosevelt got into office the very foundations of the American system - not an infallible system at that moment - would be imperilled."

As governor of New York, Franklin D. Roosevelt made strenuous attempts to help those without work. He set up the New York State Emergency Relief Commission and appointed the respected Harry Hopkins to run the agency. Another popular figure with a good record for helping the disadvantaged, Frances Perkins, was recruited to the team as state industrial commissioner. With the help of Hopkins and Perkins, Roosevelt introduced help for the unemployed and those too old to work. He was therefore obvious choice as the Democratic presidential candidate in 1932.

Franklin D. Roosevelt to Herbert Hoover: "Just leave them Herb. I'll do it all after March 4th." Cliff Berryman, Washington Evening Star (1932)
Franklin D. Roosevelt to Herbert Hoover: "Just
leave them Herb. I'll do it all after March 4th." Cliff Berryman, Washington Evening Star (1932)

Although Franklin D. Roosevelt was vague about what he would do about the economic depression, he easily beat his unpopular Republican rival, Herbert Hoover. Roosevelt's first act as president was to deal with the country's banking crisis. Since the beginning of the depression, a fifth of all banks had been forced to close. As a consequence, around 15% of people's life-savings had been lost. By the beginning of 1933 the American people were starting to lose faith in their banking system and a significant proportion were withdrawing their money and keeping it at home. The day after taking office as president, Roosevelt ordered all banks to close. He then asked Congress to pass legislation which would guarantee that savers would not lose their money if there was another financial crisis.

After he was elected President Roosevelt initially opposed massive public works spending. However, by the spring of 1933, the needs of more than fifteen million unemployed had overwhelmed the resources of local governments. In some areas, as many as 90 per cent of the people were on relief and it was clear something needed to be done. His close advisors and colleagues, Frances Perkins, Harry Hopkins, Rexford Tugwell, Robert LaFollette Jr. Robert Wagner, Fiorello LaGuardia, George Norris and Edward Costigan eventually won him over.

On 9th March 1933, Roosevelt called a special session of Congress. He told the members that unemployment could only be solved "by direct recruiting by the Government itself." For the next three months, Roosevelt proposed, and Congress passed, a series of important bills that attempted to deal with the problem of unemployment. The special session of Congress became known as the Hundred Days and provided the basis for Roosevelt's New Deal.

Charles Edison told his workers: "President Roosevelt has done his part: now you do something. Buy something - buy anything, anywhere; paint your kitchen, send a telegram, give a party, get a car, pay a bill, rent a flat, fix your roof, get a haircut, see a show, build a house, take a trip, sing a song, get married. It does not matter what you do - but get going and keep going. This old world is starting to move."

Frances Perkins explained in her book, The Roosevelt I Knew (1946): In one of my conversations with the President in March 1933, he brought up the idea that became the Civilian Conservation Corps. Roosevelt loved trees and hated to see them cut and not replaced. It was natural for him to wish to put large numbers of the unemployed to repairing such devastation. His enthusiasm for this project, which was really all his own, led him to some exaggeration of what could be accomplished. He saw it big. He thought any man or boy would rejoice to leave the city and work in the woods. It was characteristic of him that he conceived the project, boldly rushed it through, and happily left it to others to worry about the details."

On 21st March, 1933, sent an unemployment relief message to Congress. It took only eight days to create the Civilian Conservation Corps. It authorized half a billion dollars in direct federal grants to the states for relief. The CCC was a program designed to tackle the problem of unemployed young men aged between 18 and 25 years old. The organisation was based on the armed forces with officers in charge of the men. The pay was $30 dollars a month with $22 dollars of it being sent home to dependents. The men planted trees, built public parks, drained swamps to fight malaria, restocked rivers with fish, worked on flood control projects and a range of other work that helped to conserve the environment.

Rexford Tugwell pointed out: "During the late spring the Civilian Conservation Corps got underway with some awkwardness. What had begun as a simple notion that the experienced foresters would take under their care and direction a certain number of idle young men turned out in practice to be not so simple. There were problems of recruiting; who was to be chosen? There were problems of housing; who was to build the camps? It was finally decided that all those sent to camps should come from families on relief. It was also decided, when pacifying the unions had become something of an issue, that the boys would not build their own camps but that union labour would do it."

Marriner Eccles, an advocate of the economic ideas of John Maynard Keynes and Lauchlin Currie, worked at the Treasury Department under the treasury secretary Henry Morgenthau. Eccles went before the Senate Finance Committee in 1933. According to Patrick Renshaw, the author of Franklin D. Roosevelt (2004): "Though the young Mormon banker from Utah claimed never to have read Keynes he had nevertheless jolted Senate finance committee hearings in 1933 by urging that the federal government forget about trying to balance budgets during the depression and instead spend heavily on relief, public works, the domestic allotment plan and refinancing farm mortgages, while cancelling what remained of war debt."

The government employed people to carry out a range of different tasks. These projects included the Works Projects Administration (WPA), the Civilian Conservation Corps (CCC), the National Youth Administration (NYA), the National Recovery Act (NRA) and the Public Works Administration (PWA). As well as trying to reduce unemployment, Roosevelt also attempted to reduce the misery for those who were unable to work. One of the bodies Roosevelt formed was the Federal Emergency Relief Administration which provided federal money to help those in desperate need.

Emanuel Celler later explained: "The first days of the Roosevelt Administration charged the air with the snap and the zigzag of electricity. I felt it. We all felt it. It seemed as it you could hold out your hand and close it over the piece of excitement you had ripped away. It was the return of hope. The mind was elastic and capable of crowding idea into idea. New faces came to Washington - young faces of bright lads who could talk. It was contagious. We started to talk in the cloak rooms; we started to talk in committees. The shining new faces called on us and talked. In March of 1933 we had witnessed a revolution - a revolution in manner, in mores, in the definition of government. What before had been black or white sprang alive with color. The messages to Congress, the legislation; even the reports on the legislation took on the briskness of authority."

As soon as Roosevelt became president he recruited Harry Hopkins to implement his various social welfare programs. As John C. Lee has pointed out: "On the whole, it is apparent that the mission of the Civil Works Administrator had been accomplished by 15th February 1934. His program had put over four million persons to work, thereby directly benefiting probably twelve million people otherwise dependent upon direct relief. The program put some seven hundred million dollars into general circulation. Such losses as occurred were negligible, on a percentage basis, and even those losses were probably added to the purchasing power of the country." Frances Perkins later recalled: "Hopkins became not only Roosevelt's relief administrator but his general assistant as no one had been able to be. There was a temperamental sympathy between the men which made their relationship extremely easy as well as faithful and productive. Roosevelt was greatly enriched by Hopkins knowledge, ability, and humane attitude toward all facets of life."

In August 1935 the Social Security Act was passed. This act set up a national system of old age pensions and co-ordinated federal and state action for the relief of the unemployed. The British journalist, Henry N. Brailsford, argued that Roosevelt was doing what David Lloyd George had done between 1906 and 1914, but at a quicker tempo. According to William E. Leuchtenburg: "The British reforms, which rested on the conviction that the profit system was compatible with aid to the underdog, had rendered working-class life less precarious and was one of the important reasons that the depression struck Britain less heavily than America." Roosevelt told Anne O'Hare McCormick: "In five years I think we have caught up twenty years. If liberal government continues over another ten years we ought to be contemporary somewhere in the late Nineteen Forties."

Primary Sources

(1) John J. Raskob, Everybody Ought to be Rich (June, 1929)

If a man saves $15 a week, and invests in good common stocks, and allows the dividends and rights to accumulate, at the end of twenty years he will have at least $80,000 and an income from investments of around $400 a month. He will be rich. And because income can do that, I am firm in my belief that anyone not only can be rich, but ought to be rich.

(2) Alec Wilder was interviewed by Studs Terkel in Hard Times (1970)

I knew something was terribly wrong because I heard bellboys, everybody, talking about the stock market. About six weeks before the Wall Street Crash, I persuaded my mother in Rochester to let me talk to our family adviser. I wanted to sell stock which had been left me by my father. He got very sentimental: "Oh your father wouldn't have liked you to do that." He was so persuasive, I said O.K. I could have sold it for $160,000. Four years later, I sold it for $4,000.

(3) Franklin D. Roosevelt, speech in Boston (October, 1932)

We have two problems: first, to meet the immediate distress; second, to build up on a basis of permanent employment.

As to immediate relief, the first principle is that this nation, this national government, if you like, owes a positive duty that no citizen shall be permitted to starve.

In addition to providing emergency relief, the Federal Government should and must provide temporary work wherever that is possible. You and I know that in the national forests, on flood prevention, and on the development of waterway projects that have already been authorized and planned but not yet executed, tens of thousands, and even hundreds of thousands of our unemployed citizens can be given at least temporary employment.

(4) Franklin D. Roosevelt, radio broadcast, Fireside Chat (12th March, 1933)

Some of our bankers have shown themselves either incompetent or dishonest in their handling of the people's funds. They had used money entrusted to them in speculations and unwise loans. This was, of course, not true of the vast majority of our banks, but it was true in enough of them to shock the people for a time into a sense of insecurity. It was the government's job to straighten out this situation and do it as quickly as possible. And the job is being performed. Confidence and courage are the essentials in our plan. We must have faith; you must not be stampeded by rumours. We have provided the machinery to restore our financial system; it is up to you to support and make it work. Together we cannot fail.

(5) Father Charles Coughlin, radio broadcast (17th January, 1934)

President Roosevelt is not going to make a mistake, for God Almighty is guiding him. President Roosevelt has leadership, he has followers and he is the answer to many prayers that were sent up last year.

If Congress fails to carry through with the President's suggestions, I foresee a revolution far greater than the French Revolution. It is either Roosevelt or Ruin.