The interbellum years II: the crisis.

Hoover came into power 1929. A critical year. He believed that technology and expertise would lead USA to a permanent state of prosperity. Industrial production had increased by 30% during the last ten years, but the characteristic prosperity of the 20s was an illusion and ended in financial disaster. In 1929 the unemployment rate rocketed and 60% of families fell below the poverty line. Several factors contributed to this long crisis:

  • structural weakness of the banking system.

  • Inability of borrowers to repay loans, which lead to a epidemics of bank failures.

  • Unequal distribution of wealth and income (23-29 the income of the wealthiest 1% increased dramatically). Concentration of resources in hands of the wealthy, who didn’t need to spend their money. As a consequence assembly line production, which was aimed for a very different niche, remained stored and the stock surplus lowered prices, which was in turn translated into unemployment and financial failure for the companies. No unemployment insurance: the relief burden fell on state and municipal governments and private charities. Crisis hit during a shift from traditional industries to newer (steel and textiles to processed food, auto-mobiles and tobacco, heavily dependent on the stock market).

  • Farm prices depressed since the end of WWI, when European agriculture revived.

  • Rural consumers stopped buying farm implements and defaulted on their debts putting pressure on the banking system.

  • Protectionist measures: residential construction rose in 1924 and 27 and plummeted in 1929. One of the reasons was the restrictions to immigration. Republican tariff policies damaged foreign trade.

  • Economists and bankers introduced measures founded in past experiences no longer relevant.

  • The Federal Reserve, in order to curb stock market speculation slowed down the growth of the money supply then allowed it to fall after the crash, producing a liquidity crisis. Reduced amount of money available to consumers to spend.

  • USA, UK and most countries in Europe and Latin America insisted on clinging to the Gold Standard after WWI: each currency had a fixed value in relation to gold. It made their economies slow down.

market crash suicide

The Stock Market Crash took place in October 1929. As a result, Hoover was blamed and the new way of life was named after him by his opponents: shanty towns built by the homeless was called Hoovervilles. There were hundreds of Hoovervilles across the country during the 1930s and hundreds of thousands of people lived in these slums. Newspapers were called “Hoover blankets”, and empty pockets inside out were “Hoover flags”.

hooverville

Homelessness was present before the Great Depression, and hobos and tramps were common sights before 1929; most large cities built municipal lodging houses for them, but the depression exponentially increased the demand. The homeless clustered in shanty towns close to free soup kitchens. These settlements were often formed on empty land and consisted of tents and shacks. The authorities did not officially recognize these “Hoovervilles” and occasionally removed the occupants for trespassing on private properties, but they were frequently tolerated or ignored out of necessity.

According to Hoover recovery was just round the corner. But the reality was that families lived on soup and beans only, without meat and fresh vegetables for months. Family providers were in question and they walked long distances looking for a job while their families had to stood in line for hours waiting for a relief check. The crops rotted in the fields, as prices were too low to make harvesting worthwhile. The blacks were the first to lose their jobs and Mexican Americans were deported. Those who were poor before the crisis subsisted better because they were used to subsisting in poverty, but middle class was hit hard. Many professionals and white collars refused to ask for charity and those who fell behind on mortgage payments lost their homes. As health care declined, people stopped going to the doctor, because they could not pay assistance. Banks approached collapse and customers rushed in to withdraw their deposits causing bank failure.

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