When Confidence Failed.

The stock market crash of 1929 helped bring on the Great Depression

It seemed as if everyone was going crazy. On October 29, 1929, brokers on the floor of the New York Stock Exchange received so many orders to "sell at the market price that the ticker tape couldn't keep up. With prices plummeting, no one knew just what their stock was worth -- so they panicked, hurrying to sell it while it still had any value at all. Wrote The New York Times:

Stock prices virtually collapsed ... swept downward with gigantic losses in the most disastrous trading day in the stock market's history. Billions of dollars in open market values were wiped out as prices crumbled under the pressure of liquidation of securities which had to be sold at any price.

The stock market crash of 1929 shocked the country and helped usher in the Great Depression, a decade-long economic slump that left one-fourth of all U.S. workers unemployed and thousands of families homeless and hungry.

In the previous year, stock prices had skyrocketed. Many people had bought shares "on margin," meaning that they had to put up only a small fraction of the purchase price, using the value of the stocks themselves as collateral to borrow the rest. They had built paper fortunes, but when stocks fell they had to sell to pay their debts. And stocks kept falling. By November, one third of the value all stocks had held in September was gone,

But problems in the economy went far beyond the 2.5 percent of Americans who owned securities.

Farms were suffering, the banking system was unstable, and industry was overbuilt. Also, wages hadn't kept up with profits, limiting people's buying power.

An economy depends on confidence -- bank depositors' confidence that if they put a dollar in the bank, they'll be able to withdraw it later; investors' faith that their investments have a chance to grow: and companies' confidence that if they hire workers to make products, there will be consumers to buy them. For millions in the 1930s, those bets were off. Failure triggered failure as the economy acted like a row of falling dominoes.

By 1932, the U.S. gross national Product, the total value of a country's economic output, had fallen 25 percent. In that year, 85,000 companies went out of business. Nine thousand banks went broke by early 1933, taking $2.5 billion of people's money with them--and leading many to shun banks and trot their cash under the mattress.

Unemployment soared to 13 to 15 million. Especially hard hit were Toledo, Ohio, where 80 percent were out of work, and Donora, Pennsylvania, where just 277 held jobs in a workforce that had numbered 13,900.

Unable to make rent or mortgage payments, Americans accustomed to middle-class comforts made their beds on a cousin's couch, or the floor of a relief agency, or on park benches, in doorways, and on subway cars.

The Apple Growers Association provided boxes of apples at low cost to the unemployed, and hard-luck engineers, mechanics, clerks, and secretaries set up sidewalk stands, selling apples for a nickel a piece. As The Times wrote:

... the apple-selling crusade has brought to thousands of men and women the first money they had earned in many months. Wherever the little boxes of apples stand, a listener has no trouble in getting from the vendor the story of a long period of unemployment, misery at home and of near-starvation.

Republican President Herbert Hoover stepped up federal construction and got business leaders to agree not to cut wages--for a while, But many Americans blamed Hoover for hard times anyway, using the nickname "Hooverville" for the new squatter shantytowns that sprang up across the land. Hoover opposed federal handouts, believing that people should fight the Depression "by taking new courage to be masters of their own destiny in the struggle for life."

But voters wanted government to do more. In November 1932, they rejected Hoover in favor of New York's Democratic Governor, Franklin D. Roosevelt, who promised "a new deal for the American people" and declared

... the only thing we have to fear is fear itself --nameless, unreasoning, unjustified terror.... Our greatest primary task is to put people to work. ... in part by direct recruiting by the government itself, treating the task as we would treat the emergency of war....

In its first 100 days, the new administration passed a flurry of legislation to deliver relief to farmers, the unemployed, and struggling homeowners. The programs helped, but it took a real war--World War II, which began in Europe in 1939 --to fully revive U.S. economic might.

Could America suffer another Great Depression? Not in the same way. Today, the federal government regulates stock market practices and insures bank deposits, and there is wide political agreement that government should help the victims of hard times. But the economy still relies on the human factor of confidence.

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When Confidence Failed

FOCUS: The 1929 Stock Market Crash Helps Bring the U.S. a Decade of Depression

TEACHING OBJECTIVES

To help students understand the stock market crash of 1929, the Great Depression of the 1930s, and how the Depression flattened the U.S. economy and brought suffering to millions.

Discussion Questions:

* How does confidence affect a country's economy?

* Could a stock market ever be made crashproof?

* Why do you believe President Hoover refused to give direct federal aid to victims of the Depression?

* A severe stock market crash in October 1987 did not lead to a Depression. Why was the result so different in 1929?

CLASSROOM STRATEGIES

Photo Analysis: Have students write reviews of the photos in which they discuss the despair the photos portray.

Critical Thinking: First, tell students that the 25 percent unemployment rate of the Depression was six times higher than today's 4.2 percent. Then note three points: (1) stock owners panicked; (2) only 2.5 percent of Americans owned securities; (3) a country's economy depends on confidence.

Use this information to discuss the role psychology plays in economics. After the market crashed, the U.S. still had its factories, farms, natural resources, and workers. What it had lost was confidence.

You may explain, too, that many historians say the crash by itself need not have caused the Depression. In the late 1920s, despite a high-flying market, there were weaknesses in the U.S. economy that made it vulnerable when the loss of confidence came. Ask students to locate what the article says about these weaknesses.

Research Project: Students may: (1) interview elderly relatives who recall the Great Depression; (2) find family letters or diaries that show the life of the period; or (3) talk to parents about Depression memories they remember hearing from their own parents. Share the most gripping stories with the class. Ask: How does living through a Depression affect attitudes toward economic security? Toward life's fairness or unfairness? Toward government's proper role?

Web Watch: For more on Franklin D. Roosevelt and his New Deal programs, log on to www.geocities.com/Athens/4545/