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The Great Depression: Crash Course US History #33

From: U.S. History by Crash Course

In which John Green teaches you about the Great Depression. So, everybody knows that the Great Depression started with the stock market crash in 1929, right? Not exactly. The Depression happened after the stock market crash but wasn't caused by the crash. John will teach you about how the depression started, what Herbert Hoover tried to do to fix it, and why those efforts failed.

Full Transcript

The Great Depression Crash Course US History 33

speaker01 00:00:00

Hi I'm John Green, this is Crash Course us history and Herbert Hoo here, which is never a good sign. Today we're to two of my favorites is and inaccurate naming conventions. That's right, we're going be talking about the Great Depression, which was a only great if you enjoy like being a hobo or selling pencil. Now, some of you might get a bit frustrated today because there's no real consensus about the Great Depression and simple declarative statements about it really say much more about you than they do about history. You look at me Mr Green, I didn't say anything. I thought it because me from the past, you always want things to fit into the simplistic narrative. She loves me, she loves me not.

speaker01 00:35:00

The Great Depression was caused by X, was caused by what? It's complicated.

speaker01 00:48:00

Many people tell you that the Great Depression started with the stock market crash in October 1929, but A, that isn't true and B, it leads people to mistake correlation with call, what we think of as the Great Depression did begin after the stock market crash, but not because of it.

speaker01 01:03:00

Like as we saw last week, the underlying economic conditions in the us before the stock market crash weren't all moonshine and rainbows. The 19009 20s featured large-scale domestic consumption of relatively new consumer products, which good for American industry. But much of this consumption was fueled by credit and installment buying, which, as it turned out, was totally unsustainable. The thing about credit is that it works fine unless and until economic uncertainty increases. At which point? That's a technical historian term, by the way.

speaker01 01:31:00

Meanwhile, the agricultural sector suffered throughout the 1000 and 920 S, and farm prices kept dropping for two reasons. First, American farms had expanded enormously during World War I to provide food for those soldiers. And second, the expansion led many farmers to mechanize their operation. As you'll know if you've ever bought a tractor, that mechanization was expensive. And so many farmers went into debt to finance their expansion. And then a combination of overproduction, low prices, meant that often their farms were foreclosed upon and other signs of economic appeared throughout the decade, like by 1000 and 925, the growth of car manufacturing slowed along with residential construction, and worst of all, with what noted left wing radical Herbert Hoover labeled an orgy of mad speculation in the stock market that began in $19927. And by the way I'm kidding about him being a left wing radical, you just look at him, according to historian David Kennedy by 1929, commercial bankers were in the unusual position of loaning more money for stock market and real estate investments than for commercial ventures. If we would ever find ourselves in that position again, right, we did in 2008.

speaker01 02:31:00

Anyway, it's tempting to see the stock market crash as the cause of the depression, possibly because it turns American economic history into morality play. But the truth is that the stock market crash and the Depression were not the same thing. A lot of rich people lost money in the market.

speaker01 02:46:00

But what made the Great Depression the Great Depression was massive unemployment and accompanying hardship. And this didn't actually begin until like 1930 or 1931, yet of 1929 was actually okay, unless you were a farmer or stockbroker, obviously. So what did actually cause the depression? Well, that's a big question, and it's one that economists have struggled with ever since. They want to find out so they can keep it from ever happening again. No pressure, economists, only 3% of Americans actually owned stock in the markets recover a lot of their value by 19 9 30, although they did then go down again because, you know, there was a depression on. And even though big banks and corporations were buying a lot of stock, much of it was with borrowed money known as margin buying. And all of that still was not nearly a big enough ice to sink the world's economy.

speaker01 03:29:00

But if I had to name a single cause of the Great Depression, it might be America's weak banking system. All right, let's go to the Thought Bubble. Although the Federal Reserve System had been created in 1000 and 913, the vast majority of America's banks were small, individual institutions that had to rely on their own resources when there was a panic and depositors rush to take money out of the bank like they do in the obscure art house movie Mary Poppins, the bank went under if it didn't have enough money on reserve. So in 1930, a wave of bank failures began in Louisville that then spread to Indiana, Illinois, Missouri, and eventually Arkansas and North Carolina as depositors lined up to take their money out before the banks went belly up, banks called in loans and sold assets. Ultimately, this meant that credit froze up, which was what really destroyed the economy.

speaker01 04:13:00

A frozen credit system meant that less money was in circulation and that led to deflation.

speaker01 04:18:00

Now you're probably thinking big deal, deflation can't be as bad as inflation, right? No deflation is much worse as anyone who has ever slept on an air mattress knows. When prices drop, businesses cut costs mainly by laying off workers. These workers then can't buy anything, so inventories continue to build up and prices drop further. Banks weren't lending money, so employers couldn't borrow it to make payroll to pay their workers, and more and more businesses went bankrupt, leaving more and more workers unable to purchase the goods and services that would keep the businesses open.

speaker01 04:48:00

So if we have to lay the blame for the Great Depression on someone, we can blame the banks, which isn't completely wrong, and it gives us a chance to shake our fists at Andrew Jackson, whose distrust of central banking got us into this mess in the first, That's probably too simple, but the Federal Reserve does deserve a good chunk of the blame for not rescuing the banks and not infusing money into the economy to combat this deflationary cycle. Thanks thought bubble. So economics fans out there might be saying, why didn't the Hoover administration engage in some good old fashioned Keynesian pump priming the thinking there is that if governments do large scale of economic stimulus and a bunch of infrastructure projects, that can kind of create a bottom that stops the deflationary cycle. And that does often work. Unfortunately, the Hoover administration did not have a Tars. John Maynard Keynes, great work. The general theory of employment, interest and money, he wasn't very good at titles wasn't published until 1936 when the Depression was well underway.

speaker01 05:39:00

Venturing into the green nightmare of not America for a moment, Herbert Hoover offered a global explanation in his memoirs for the global phenomenon that was the Great Depression. He claimed that its primary cause was World War One, and to be fair, the war did set the stage for a global economic disaster because of the web of debts and reparations that it created. Like under the Versailles Treaty, Germany had to pay $33 billion in reparations, mostly to France and Britain, which it couldn't pay without borrowing money from American banks. In addition, the us itself was owed $10 billion by Britain and France, some of which those countries paid back with German, but then once American credit dried up, as it did in the wake of the stock market crash and the American bank failures, the economies of Germany, France and Britain also fell off a cliff. And then, with the largest nonnus industrial economies in total turmoil, where people abroad could buy American products or French wine or Brazilian coffee, and world trade came to a halt, and then when what the world really needed was more trade, America responded by raising tariff to their highest levels ever with the Holly Smoot tariff, a law that was as bad as it sounds. The idea of the high tariff was to protect American industry. But since Europe responded with their own high tariffs, that just meant that there were fewer buyers for American goods, less trade, fewer sales, and ultimately fewer jobs. So what did Hoover do?

speaker01 06:58:00

Not enough.

speaker01 06:59:00

It's important to remember that the American government is not just the president. Hoover couldn't always get Congress to do what he wanted, but his political ineptitude was not particularly surprising because the first elected office that he ever held in his life was president of the United States, Like, let's take the foreign debt issue. Hoover proposed a moratorium on intergovernmental debt payments, and he actually got Congress to go along with it, but it wasn't enough. Mainly, the central bankers in Europe and America refused to let go of the gold standard, which would have allowed the governments to devalue their currency and pump needed money into their economies, and when Britain, rather heroically, I might add, did abandon the gold standard in 19 9 31 and stopped payments in gold, the US did not follow suit, which meant that world financial markets froze up even further. Like this is a little bit complicated, but if you and I have always used Cheetos as currency to exchange goods and services, and one day I announced that we can't really do that anymore because it doesn't give us the flexibility that we need to pull ourselves out of this deflationary spiral. I don't also agree to abandon Cheetos, and it's going to be a total disaster, which it was. And then even worse, the Fed raised its discount rate, making credit even harder to come by the end of 1931, 2294 American banks had failed, double the number that had gone under in 1030.

speaker01 08:13:00

Now, it's easy to criticize poor Herbert Hoover for not doing enough to stop the Great Depression, and he probably didn't do enough. But part of that is down to our knowledge of what happened afterward, the new deal that Franklin Delano Roosevelt at least tried to do something about the Depression makes us forget that when Hoover was president, orthodox political and economic theory counseled in favor of doing nothing. And at least Hoover didn't follow the advice of his treasury secretary, who, according to Hoover anyway, argued that the solution was to, quote, liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate, which sounds like the worst milkshake ever. Instead Hoover believed that the best course of action was to use the powers of government to cushion the situation. And in a White House meeting, he persuaded a large number of industrialists to agree to maintain wage rates. He also got the federal farm board to support agricultural production and got congressional approval for $140 million in new public works. Overall, he nearly doubled the federal public works expenditures between 1929 and 1931.

speaker01 09:11:00

It just wasn't nearly enough, because what Hoover did was for the federal government to take over the situation completely. He relied primarily on private businesses and state and local governments to stimulate the economy, and that was insufficient. It's not surprising when you consider that in 1929, federal expenditures accounted for 3% of our gross domestic product. Today, it's more like 20%. So it was just really hard to imagine the federal government doing anything on such a large scale to address a national problem because it had never really done that much before.

speaker01 09:42:00

Hoover also hiked taxes as part of a plan to stabilize the banks by balancing the federal budget, providing confidence for foreign creditors and stopping them from buying American gold. This would support bonds and also keep the federal government out of competition with private borrowers. The Revenue Act of 1000 and 930 twotwo Congress, but it didn't do much to stop the Depression. In fact, arguably, it made it worse. So ultimately, this dire situation forced Hoover into a truly radical move. In January 1000 and 930 two-two, he and Congress created the Reconstruction Finance Corporation, which was basically a federal bailout program that borrowed money to provide emergency loans to banks, building and loans, societies, railroads, and agricultural corporation. The problem was that by 1000 and 930 two-two, bailing out the banks wasn't enough in the Great Depression started to take shape.

speaker01 10:30:00

By early 1932, well over 10 million people were out of work, 20% of the labor force. And in big cities, the numbers were even worse, especially for people of color. Like in Chicago, 4% of the population was African American, but they made up more than 16% of the unemployed. Although Hoover famously claimed that no one starved, which was a little bit let them eat cakey, people did search trash cans for food, and many Americans were forced to ask for relief. Hoover's response was to try to encourage private charity through the unfortunate. President's organization on unemployment relief or poor New York City's government relief programs, rose from $9 million in 1000 and 930 to 58 million in 1000 and 930 swo and private charitable giving deed increase from 4 5 million to 20 two-one million. And that sounds great until you realize that the total of 70 andine million that New York City spent on relief in 1000 and 930 two-two was less than one months lost wages for the 800000 people who were unemployed.

speaker01 11:28:00

It's time for the mystery document. I hope it's a break from the unrelenting misery, probably not, The rules here are simple, I guess. The author of the mystery document and then usually fail and get shocked with the shock pen, which is a real shock pen no matter what you people say.

speaker01 11:42:00

All right, what we got here? We sit looking at the floor, no one dares think of the coming winter, there are only a few more days of summer, everyone is anxious to get work, to lay up something for that long siege of bitter cold, but there is no work sitting in the room, we all know it, this is why we don't talk much. Look at the floor, getting to see that knowledge in each other's eyes, there is a kind of humiliation in it, we look away from each other, we look at the floor, It's too terrible to see this animal terror in each other's eyes. I mean, an unemployment was 25, and this could be literally any of those people. I'm going to guess that it's a woman because men were usually on the road trying to find work while women would go to these offices to look. I mean, it could be really, I have no idea.

speaker01 12:30:00

Janet Smith. Meda, the sewer. She's a good writer. Maybe we should hire her.

speaker01 12:35:00

So often a crash course, we try to show how conventional wisdom about history isn't always correct, but in the case of the hardships experienced during the Great Depression, it really is the pictures of Dorothea Lang and Walker Evans and steini could'st in the Grapes of Wrath of Okies leaving the Dust Bowl in the usually vain hope of a better life in California. They tell the story better than I can. Thousands of Americans took to the road in search of work, and thousands more stood in red lines. There were shanty towns for the homeless called hoovervilles, and there were protests like the Bonus March on Washington by veterans seeking an early payment of a bonus due to them in 1945.

speaker01 13:10:00

A lot of the debate around the Great Depression revolves around the call, while still more concerns the degree to which the federal government's eventual response, the New Deal, actually helped to end the Depression. Those questions are controversial because they're still relevant. We're still talking about how to regulate banking. We're still talking about what the government's role in economic policy should be and whether a strong federal government is ultimately good for an economy or bad for it, and how you feel about the government's role in the Great Depression is going to depend on how you feel about government in general. That said, we shouldn't let our ideological feelings about markets and governments and economics obscure the suffering that millions of Americans experienced during the Great Depression. For generations of Americans, it was one of the defining experiences of their lives.

speaker01 13:52:00

Thanks for I'm You next week. Crash Course is produced, directed by an Miller written by Raul Meier, made with the of of the Nice People, and it is possible because of your support through subbable. These videos are only possible because the support Crash Course viewers of the show on a monthly basis through subtable. There's a link in the video info if you'd like to join those subscribers. Cool perks and stuff, but mostly as.

speaker01 14:19:00

Crash course? My hometown's. I'm going to hit the globe, nailed it.