The Boom and the Bust

THE BOOM AND THE BUST,1920-1939

CHAPTER 5

INTRODUCTION

• The Great War was over…disillusioned and shocked by its frightful toll, Americans wanted to

retreat to the safe shell of prewar isolationism.

• Isolationism is the policy or doctrine of isolating one’s nation from the affairs of other nations instead

seeking to devote the entire efforts of one’s own nation to its own advancement.

• America wanted to return to business, which meant electing a Republican to the White House.

• Beginning in 1921, a Republican held the presidency for the next twelve years.

• First was Warren G. Harding (1865-1923), who campaigned on the promise of a “return to

normalcy.”

• After his election in 1920, the highlights of his weak administration were the loud whispers of

presidential philandering and the infamous Teapot Dome Scandal of 1923.

WARREN G. HARDINGINTERESTING FACTS

• Scholarly polls conducted in 1948, 1962, and 1996 all ranked Harding last among the presidents considered.

• Harding was a keen poker player, who once gambled away an entire set of White House china (dating back to Benjamin Franklin) on a single hand.

• On August 2, 1923, at 7:35 p.m. Harding died of congestive heart failure in the middle of a conversation with his wife in the Palace Hotel’s presidential suite in San Francisco, California.

INTRODUCTION

• In the midst of that scandal, Harding died and was replaced by Calvin Coolidge (1872-1933), best remembered for his statement that “the business of America is business.”

• Under Coolidge, America seemed to prosper during the Roaring Twenties, a period in which the booming stock market was the centerpiece of a roaring economy.

• In spite of Prohibition, Americans enjoyed the carefree spirit of the Jazz Age, the literary masterpieces of F. Scott Fitzgerald and Ernest Hemingway, and the soon to be multimillion-dollar movie productions of Hollywood.

• Seemingly pleased with its wealth, Americans stayed the course in 1928 by electing Calvin Coolidge’s commerce secretary, Herbert Hoover (1874-1964), an international hero who kept Europe from starving during the First World War.

• His reputation faded fast being that he was cursed with overseeing the greatest economic collapse in history.

CALVIN COOLIDGEINTERESTING FACTS

• Coolidge’s father, a notary public, administered the presidential oath

of office in the family’s parlor by the light of a kerosene lamp at

2:47 a.m.

• Coolidge was the first president to have his inauguration and

address to Congress broadcast on radio.

• Ronald Reagan regarded Coolidge as his favorite president of the

twentieth century because of his belief in limited government.

HERBERT HOOVERINTERESTING FACTS

• Hoover was elected to the presidency despite having no

electoral experience or high military rank.

• The relationship between Hoover and FDR was the most

severely strained in presidential history – FDR struck his name

from the dam on the Colorado River (Boulder Dam).

• Until Jimmy Carter, Hoover had the longest retirement of any

president at 31 years, 7 months, and 16 days.

INTRODUCTION

• As a worldwide economic collapse ensued, Hoover was dropped in 1932 in favor of the governor

of New York, Franklin D. Roosevelt (1882-1945), who was elected overwhelmingly by a nation

that desperately wanted a new direction.

• The economic crisis was met in America by Roosevelt’s progressivism and the “New Deal.”

• Overseas, there were different responses.

• As the answer to their woes, Germany turned to Adolf Hitler and Italy to Benito Mussolini.

• By the middle of the depressed thirties, the war that was not supposed to be was on the horizon.

FRANKLIN D. ROOSEVELTINTERESTING FACTS

• FDR is said to have contracted polio in 1921, which resulted in permanent paralysis from the waist down; however, new evidence indicates that polio was a misdiagnosis and that Guillain-Barre syndrome is the most fitting disease.

• Only two photographs are known to exist of FDR which were taken while he was in his wheelchair and only four seconds of film exists of the “walk he achieved after his illness.”

• Prior to their marriage, Franklin and Anna Eleanor Roosevelt, Theodore Roosevelt’s niece, were fifth cousins, once removed.

AMERICAN PROSPERITY

• America’s postwar economy experienced some confusion from 1919 to 1921 as it struggled to

redirect its industry from wartime to civilian production.

• Beginning in 1922, the United States began a period of remarkable economic growth.

• From 1922 to 1929, the Gross National Product (GNP) grew at a yearly rate of 5.5 percent,

rising from $149 billion to $227 billion.

• The Gross National Product is the total market value of all the goods and services produced by a

nation during a specified period.

• The unemployment rate never exceeded five percent – and real wages rose about fifteen

percent.

• The unemployment rate is the percentage of the working population that is not working.

A CONSUMER SOCIETY

• In the nineteenth century (1800s), economic growth rested mostly on the production of capital

goods – factory machinery and railroad tracks.

• In the twentieth century (1900s), however, growth rested more on consumer goods –

automobiles and telephones.

• Other consumer goods became available for the first time: tractors, washing machines, refrigerators,

electric irons, radios, and vacuum cleaners.

• The term “consumer durable” was thought up to describe such goods, which (unlike food, clothing,

and other perishables) were meant to last.

• In addition, scientists had discovered the importance of vitamins in the diet and began urging

Americans to consume more fresh fruits and vegetables.

A CONSUMER SOCIETY

• The American public responded to these innovations with excitement:

• Refrigerators, vacuum cleaners, and washing machines would spare women the grind of housework.

• Radios would expand the public’s cultural possibilities.

• Cars, asphalt roads, service stations, hot dog stands, “tourist cabins” (the forerunners of motels), and

traffic lights seemed to announce a completely new automobile civilization.

A CONSUMER SOCIETY

• Some Americans even discovered the benefits to owning stocks.

• The number of stockholders in AT&T, the nation’s largest corporation, rose from 140,000 to 568,000.

• U.S. Steel stockholder numbers increased from 96,000 to 146,000.

• By 1929, as many as seven million Americans owned stock, most of them people of middle-class

means.

• A stock represents an ownership stake in a corporation; if your are a stockholder then you own a equal

share in the corporation’s assets (resources/money).

• This spread of stock ownership reflected the need for working capital among the nation’s corporations

because privately held wealth could not satisfy that need.

• It became the duty of the New York Stock Exchange (NYSE), first organized in 1792, to assist

in processing the transactions between the corporation and the stockholder.

A PEOPLE’S CAPITALISM

• Capitalists boasted that they had created a “people’s capitalism” in which practically all Americans

could participate.

• Now, everyone could own a piece of corporate America and could have a share of luxuries and services.

• Poverty, capitalists claimed, was eliminated and the gap between rich and poor all but closed.

• If every American could own an automobile and house, buy quality clothes, own stock, take vacations, and go

to the movies, then economic equality would cease to matter as a political issue.

• One solution came with the introduction of consumer credit.

• Car dealers, home appliance salesman, and other merchants began to offer installment plans that enabled

consumers to purchase a product by making a down payment and promising to pay the rest in installments.

• By 1930, fifteen percent of all purchases – including sixty percent of all automobiles and seventy-five

percent of all radios – were made on the installment plan.

THE RISE OF ADVERTISING AND MASS MARKETING

• As the demand for consumer goods increased so did the desires for more bright colors, sleek designs, and attractive packaging.

• This called for advertising campaigns intended to make the product “the answer” to the consumer’s demands and desires.

• To create these campaigns, corporations turned to a new type of company: professional advertising firms.

• The new advertising entrepreneurs tended to be well-educated, sensitive to public taste, and knowledgeable in human psychology.

• In their campaigns, these advertisers played on Americans’ obsession with self-improvement and personal pleasure.

• By 1929, more money was being spent on advertising than on education.

SELLING BEAUTY

AND HEALTHThis advertisement suggests the negative health effects of

smoking, but advertises “Luckies” as a healthful cigarette more

suitable for the delicate bodies of beautiful women.

THE HARLEM RENAISSANCE

• It is of great importance to note that with the emergence of the Jazz Age in “white” America

came the emergence of a black literary and artistic movement known as the Harlem

Renaissance.

• Black novelists, poets, painters, sculptors, and playwrights set about creating works rooted in their own

culture instead of imitating the styles of white Europeans and Americans.

• While blacks suffered discrimination in everyday life, they could express their racial pride and

demonstrate their talents in the world of culture.

• The most notable Renaissance figures include Zora Neale Hurston (author of Their Eyes Were

Watching God), Langston Hughes (poet and playwright), Louis Armstrong (musician), and Ella

Fitzgerald (musician).

PROHIBITION

• The ratification of the 18th Amendment to the Constitution, which prohibited the manufacture,

transportation, and sale of intoxicating liquors, ushered in a period known as Prohibition.

• This amendment was the result of a widespread temperance movement that focused on fixing the

social instability and moral decline of the early twentieth century.

• It soon became obvious, however, that Prohibition was doing more to encourage lawless activities

than abstinence.

• With only 1,500 federal agents to enforce the law, the government could not possibly police the

drinking habits of 110 million Americans.

• The increase of the illegal production and sale of liquor (bootlegging), the spread of

speakeasies (illegal drinking spots), and the complementary rise in gang violence led to the

future repeal of the amendment.

PROHIBITION

• Since the law prevented legitimate businesses from manufacturing liquor, organized crime added

alcohol to its portfolio.

• Mobsters acquired much of their liquor from Canadian manufacturers, smuggled it across the

border, protected it in warehouses, and distributed it to speakeasies.

• Al Capone’s Chicago-based mob alone employed 1,000 men to protect its liquor trafficking, which was

so profitable that Capone became the wealthiest and most feared gangster in America.

• Blood flowed in the streets of Chicago and other northern cities as rival mobs fought one

another to enlarge their share of the market.

• The rash of gang violence reached its bloody climax in a garage on the North Side on February 14,

1929, when seven men associated with George “Bugs” Moran, one of Capone’s longtime enemies, were

shot to death by several men disguised as policemen – the St. Valentine’s Day Massacre.

ST. VALENTINE’S

DAY MASSACREGeorge "Bugs" Moran was on his way to

the garage in Chicago at the time of the St.

Valentine's Day Massacre; he missed getting

killed by minutes. A few days later, he told

reporters “only Capone kills like that."

Reached at his Florida home for comment

on the murders, Capone offered his own

opinion: "The only man who kills like that is

Bugs Moran."

PROHIBITION

• These unexpected consequences caused many early advocates of Prohibition, especially in the

cities, to withdraw their support.

• On the other hand, the violence produced by liquor trafficking confirmed their view of alcohol as evil.

• The high-profile involvement of Italian, Irish, and Jewish gangsters in the bootleg trade

reinforced their belief that Catholics and Jews were threats to law and morality.

• Many rural white Protestants became more, not less, determined to rid the country of liquor once and

for all; some among them resolved to rid the country of Jews and Catholics as well.

• By the mid-1920s, the Ku Klux Klan’s ideological focus expanded from loathing blacks to a

hatred of Jews and Catholics.

• Their new aim became to eliminate the influence of Jews and Catholics and restore “Anglo-Saxon”

racial purity, Protestant supremacy, and traditional morality to national life.

KU KLUX KLAN

By the turn of the twentieth century, many thought that the Ku Klux Klan was extinct. With the release of the film The Birth

of a Nation, which glorified the original Klan and its activities, the second Klan emerged. Formed in Georgia in 1915,

membership in the Klan rose to more than five million. For the first time in the history of the Klan, supremacy activities were

not confined to the southern state.

1928 PRESIDENTIAL ELECTION

• In 1928, Herbert Hoover campaigned for “a chicken in every pot and a car in every garage.”

• His landslide victory over Alfred E. Smith would be based on three principals: Prohibition, Prejudice, and Prosperity.

• Prohibition

• Hoover was considered a “dry” in the popular language of the day because he considered Prohibition “an experiment noble in purpose” whereas Smith, a committed “wet,” was concerned about the corruption and lawlessness brought about by the 18th Amendment.

• Prejudice

• Smith was the target of much anti-Catholic sentiment – most Protestants were willing to believe that the Catholic Church financed the Democratic Party.

• Prosperity

• The Republican Party took full credit for the prosperity of the 1920s and promised a continuation in economic growth.

STOCK MARKET SPECULATION

• Between 1928 and 1929, the New York Stock Exchange experienced a remarkable run-up in

prices, which is known as a bull market.

• Many investors were buying stocks on ten percent “margin” – putting up only ten percent of the

price of a stock and borrowing the rest from brokers and banks.

• Few thought that they would ever have to repay these loans with money out of their own pockets.

• Instead, investors expected to resell their shares within a few months at dramatically higher prices, pay

back their loans from the earnings, and still clear a fine profit.

• As investors grew more greedy, they began to invest in all kinds of risky enterprises and the stock

market spiraled upward, out of control.

• In October 1929, the market crashed from its dizzying heights.


• As confidence in future earnings weakened, creditors began issuing margin calls.

• A margin call is the demand that investors who had purchased stocks on margin repay their loans.

• The stock market collapsed on October 24, a day that would forever be known as “Black

Thursday.”

• The average price of the thirty leading American industrial shares dropped from $380 per share to $230

per share.

• The market took its steepest dive on October 29, a day later dubbed “Black Tuesday.”

• Stocks lost an estimated $10 to $15 billion in value in a single day.

• By mid-November, stock prices had dropped by over one-third and more than $30 billion had

been lost.


• America had experienced other depressions, or “panics,” and no one would have been surprised

if the boom of the 1920s had been followed by a one or two year economic downturn.

• No one was prepared, however, for the economic disaster of the 1930s.

• The stock market crash fails to explain why the Great Depression lasted as long as it did.

• Poor decision making by the Federal Reserve Board.

• An ill-advised tariff took effect soon after the depression hit.

• An unequal concentration of wealth in the hands of the rich deepened the economic collapse and made

recovery more difficult.

MISTAKES BY THE FEDERAL RESERVE BOARD

• In 1930 and 1931, the Federal Reserve Board reduced the amount of money in circulation and

raised interest rates, thereby making credit more difficult for the public to secure.

• This tight fiscal policy might have controlled the stock market and strengthened the economy in 1928

and 1929 but it was disastrous once the market had crashed.

• What the economy needed in 1930 and 1931 was an expanded money supply, lower interest rates,

and easier credit.

• Such a course would have enabled debtors to pay their creditors.

• By choosing the more restrictive approach, the Federal Reserve plunged an economy starved for

credit deeper into depression.

AN ILL-ADVISED TARIFF

• The Tariff Act of 1930, also known as the Hawley-Smoot Tariff Act, sped up economic decline abroad and at home.

• Throughout the 1920s, American farmers favored higher tariffs to protect their products from foreign competition.

• But the Hawley-Smoot not only raised tariffs on seventy-five agricultural goods from thirty-two percent to forty percent (the highest rate in American history), it also raised tariffs by a similar rate on 925 manufactured products.

• The legislation was a disaster.

• Angry foreign governments retaliated by raising their own tariff rates to keep American goods out of their country.

• International trade, already weakened by the tight credit policies of the Federal Reserve, took another blow at the very moment that it needed a boost.

A MALDISTRIBUTION OF WEALTH

• A maldistribution in the nation’s wealth that had developed in the 1920s also frustrated economic

recovery.

• Although the average income per family rose in the 1920s, the income of the wealthiest families rose

higher than the rest.

• Average Americans had bought high-cost goods, such as automobiles and appliances, on credit or

installment plans.

• Paying off these debts limited their purchasing power and slowed consumption, which led many

manufactures to limit production and lay off employees.

• Even when the wealthy spent their money lavishly – building large mansions, buying expensive

automobiles, or vacations to the French Riviera – they still spent a smaller percentage of their

total incomes on consumption than wage-earners did.

THE GREAT DEPRESSION DEEPENS

• Despite guarantees from Hoover and other national figures that the economic crisis would run its course, hardships continued to only get worse over the next three years.

• By 1930, four million Americans looking for work could not find it and that number rose to 6 million in 1931.

• Bread lines, soup kitchens, and the homeless became more and more common in America’s towns and cities.

• Farmers could not afford to harvest their crops and were forced to leave them rotting in the fields while people elsewhere starved.

• In the fall of 1930, the first of four waves of banking panics began, as large numbers of investors lost confidence in the security of their banks and demanded all deposits in cash.

• In order for banks to supply this demand for cash, they had to call on all debts and loans to be repaid immediately.

• Bank runs swept across America in 1931 and 1932, and by early 1933, over 9,000 banks had closed their doors.

SHANTY-TOWNSAs the Depression worsened, shanty-towns

appeared across the United States as the

unemployed were evicted from their homes.

These makeshift houses, located on the

outskirts of major cities, became known as

Hoovervilles. Hooverville shanties were

constructed of cardboard, tar paper, glass,

lumber, tin, and whatever other material

could be salvaged.

HOOVER’S PROGRAM

• To cope with the crisis, Hoover first turned to a concept or policy called associationalism.

• He encouraged farmers, industrialists, and bankers to share information, boost each other’s spirits, and

create policies to aid economic recovery.

• Hoover urged farmers to restrict output, industrialists to hold wages at pre-depression rates, and

bankers to help each other to remain solvent.

• In turn, the federal government would them with information, strategies for mutual aid, occasional

loans, and morale-boosting speeches.

• Hoover turned to more aggressive policies once he realized that associationalism was failing.

• He steered through Congress the Glass-Steagall Act of 1932, which was meant to help American

banks meet the demands of European depositors who wished to convert their American dollars to

gold.

HOOVER’S PROGRAM

• To ease the crisis at home, he began to expand the government’s economic role.

• The Reconstruction Finance Corporation (RFC), created in 1932, made $2 billion available in loans to ailing banks and to companies willing to build low-cost housing, bridges, and other public works.

• Hoover insisted that the RFC issue loans only to relatively healthy institutions that were capable of repaying them and that it favor public works.

• The RFC was the largest federal peacetime intervention in the economy up to that point in American history.

• Hoover was reluctant to involve the federal government in providing relief to the unemployed and homeless Americans – that was the task of the state and local governments.

• He firmly believed that providing aid would destroy every American’s desire to work and sense of self-worth.

THE BONUS ARMY

• In the spring 1932, a group of army veterans mounted an emotional challenge to Hoover’s economic policies.

• In 1924, Congress had authorized a $1,000 bonus for First World War veterans in the form of benefit certificates that would mature in 1945.

• Now the veterans were demanding that the government pay the bonus immediately.

• A group of Portland, Oregon veterans, calling themselves the Bonus Expeditionary Force, hopped onto empty box-cars of freight trains heading east, determined to stage a march on Washington D.C.

• As the impoverished “army” moved eastward, its ranks multiplied, so that by the time it reached Washington its numbers had swelled to 20,000, including wives and children.

• The so-called Bonus Army set up camp in the Anacostia Flats, southeast of the Capital, and petitioned Congress for the early payment of their promised bonus.

THE BONUS ARMY

• The House of Representatives agreed on early payment, but the Senate turned them down.

• Additionally, Hoover refused to meet with the veterans.

• In July, federal troops led by Army Chief of Staff Douglas MacArthur and 3rd Cavalry

Commander George Patton attacked the veteran’s Anacostia encampment, set the tents and

shacks ablaze, and dispersed the protestors.

• In the process, more than 100 veterans were wounded and one infant was killed.

• News that the veterans and their families had been attacked in the nation’s capital served only to

harden anti-Hoover opinion.

• Hoover would leave the presidency a bewildered man, reviled by American for his seeming indifference

to suffering and his ineptitude in dealing with the economy’s collapse.

THE DUST BOWL

• Just as the depression rolled in, the rain stopped falling on the plains.

• The land, stripped of its native grasses by decades of excessive plowing, dried up and turned to

dust.

• And then the dust began to blow and “black blizzards” swarmed the open prairies, sometimes traveling

over 1,000.

• Dust became a constant feature of the daily life on the plains, covering furniture, floors, and appliances,

and penetrating people’s lungs.

• The worst dust storm occurred on April 14, 1935, when a great mass of dust, moving at speeds

of forty-five to seventy miles per hour, roared through Colorado, Kansas, and Oklahoma.

• The storm blackened the skies, suffocated livestock, and dumped thousands of tons of topsoil and red

clay on homes and streets.

DUST BOWLThis map shows the areas in five states –

Texas, New Mexico, Oklahoma, Colorado,

and Kansas – claimed by the Dust Bowl

between 1935 and 1940. The darken area

shows the area where the winds caused the

worst damage.

THE DUST BOWL

• Nearly one million had left their homes by 1935, and another 2.5 million would leave after 1935.

• Most headed west, piling their belongings onto their jalopies, snaking along Route 66 until they

reached California.

• They became known as Okies, because many, although not all, had come from Oklahoma.

• Their dispossession and forced migration disturbed many Americans, for whom the plight of

these once-sturdy yeomen became a symbol of how much had gone wrong with the American

dream.

SEARCHING FOR

A BETTER LIFEScenes like this one were common in the

1930s as farm families in Oklahoma and

Texas who had lost their land began heading

to California. Here a family’s entire

belongings are packed onto a truck, and the

mother tends to her baby on an isolated

road.

ESCAPING THE DEPRESSION

• Despite the overwhelmingly difficult times, Americans could escape, if only for an hour or two,

through entertainment.

• Many Americans had the means to scrape together enough money to go to the movies or listen to one of the

may radio program broadcasts.

• Sixty to ninety million weekly viewed strolled into theaters and into a fantasy world of thrills, romance,

and comic relief.

• The original “fantasy factory” produced feature length films such as Snow White and the Seven Dwarfs (1937),

The Wizard of Oz (1939), Mr. Smith Goes to Washington (1939), Gone with the Wind (1939), and short films by the

Marx Brothers and The Three Stooges.

• While Hollywood captured the imagination, the radio offered a more personal form of entertainment.

• Families gathered around the radio to hear about The Adventures of the Green Hornet, The Lone Ranger, Amon ‘n’

Andy, and numerous soap operas like The Guiding Light.

JAMES BRADDOCKINTERESTING FACTS

• During the Great Depression, Braddock gave up professional boxing and worked at the docks and accepted government relief money to feed his family.

• In 1950, the Associated Press conducted a poll and ranked Braddock’s heavyweight victory over Max Baer in 1935 as the fourth greatest sports upset of the first half of the twentieth century.

• Damon Runyon nicknamed Braddock “the Cinderella Man” for his rags-to-riches comeback story.


• The worsening economy virtually guaranteed that the Democratic Party would win back the White House; however, the only question was who would win the nomination of the splintering party.

• Al Smith, the “Happy Warrior” of 1924 and 1928

• John Nance “Cactus Jack” Garner, Speaker of the House

• Albert Ritchie, Governor of Maryland

• FDR, “Roosevelt Minor,” Governor of New York

• Roosevelt was able to secure the nomination with two dramatic moves:

• First, he broke tradition by appearing at the Democratic Convention in Chicago before he was officially nominated.

• Second, he traveled from Albany, New York to Chicago, Illinois by air.

1932 DEMOCRATIC

CONVENTION“Let it be symbolic that I broke traditions.

Let it be from now on the task of our party

to break foolish traditions…. I pledge you, I

pledge myself to a new deal for the

American people.”


• In the 1932 elections, the discredited Republican Party was voted out of office after having

dominated national politics for thirty-six years.

• The exception were the two terms or eight years of Woodrow Wilson.

• The trauma of the Great Depression could be measured by the changing fortunes of Herbert

Hoover.

• In the 1928 presidential election, he won 444 electoral votes and carried all but eight states.

• In the 1932 presidential election, he won only 32 electoral votes and carried only seven states.

• The overwhelming victory went to Franklin D. Roosevelt and the Democratic Party.

Education

The Boom and the Bust