The subject of this snapshot drew my attention because it mirrors today’s economic and social situation caused by the coronavirus pandemic.
Today, there are few people around who can remember the Great Depression of the 1930s. But, our history classes in school covered the day called Black Tuesday, the day that was the beginning of one of the most difficult times in American history. Similar to today’s coronavirus pandemic, the Great Depression was the most severe economic downturn in world history, affecting almost every country in the world.
In 1929, Texans were optimistic about the future. The state population was growing, passing the 6 million mark. Cotton, cattle and a substantial lumber industry drove a great economy. In the valley, irrigation led to a great citrus and truck farm industry. Following the great event called Spindletop, vast amounts of oil and gas were being produced. (The highest average price per gallon in the United States was $4.11 in 2008. Today at Walmart, the cost is $1.53 per gallon and predicted to go lower, something I thought I would never see again in my lifetime.)
In 1928, Texans re-elected Dan Moody as governor, a man dedicated to wiping out debt and lowering taxes. On the national level, Texas had voted for a Republican, Herbert Hoover, who had a strong belief in prosperity for the future.
In addition to the prosperity factor for the country, there was the issue of the Democratic nominee, Alfred E. Smith, a Catholic. For the majority of Texans, Smith represented things Texans did not want. He was a Catholic, and backed by Tammany Hall, a New York political organization that had endured for almost two centuries. Its popularity stemmed from a willingness to help the city’s poor and immigrant population. However, it later became known for its charges of corruption against its leaders such as William “Boss” Tweed.
During the 1920s, the U.S. stock market underwent a historic expansion. As stock prices rose to unprecedented levels, investing in the stock market came to be seen as an easy way to make more money, and even people of ordinary means used much of their disposable income or even mortgaged their homes to buy stock. By the end of the decade, hundreds of millions of shares were being carried on “margin,” meaning that their purchase price was financed with loans to be repaid with profits generated from ever-increasing share prices.
Once prices began their decline in October 1929, millions of overextended shareholders fell into a panic and rushed to liquidate their holdings, creating further panic. People became concerned about the solvency of their banks and began to simultaneously withdraw their holdings. This caused many banks to collapse and almost one fourth of the banks quickly failed. This in turn caused a downturn in business investments because there were fewer banks with money.
The crash happened on Oct. 29, 1929. Optimism ended as 16 million shares of stock were sold and the stock market crashed for a loss of $16 billion in one day and $40 billion by the end of 1929.
Stock prices had actually begun to slide in the summer of 1929, and the selling had reached a panic level by October. Consumer spending and investments dropped, causing steep declines in industrial output as failing companies laid off workers.
There was an increase in mass unemployment, homelessness, and poverty. During the Great Depression, unemployment reached more than 25%. (Today more than 12 states are approaching the 20% unemployment rate.) By comparison, in the Great Recession of 2007-2008, the second largest downturn in U.S. history, the GDP declined by only 4.3% and unemployment reached slightly more than 9%.
Studies showed that the Great Depression was caused partly by the great inequality between the rich, who accounted for a third of all wealth, and the poor, who had no savings at all. As the economy worsened, many of the wealthy lost their fortunes, and were forced to change their lifestyles.
President Hoover, who had just taken office in 1929, decided that since the stock market was responsible for the collapse, the way to recover was to correct the weakness of the market. He did not believe the entire economy was unsound.
To enforce his beliefs, he inundated the radio waves with announcements, expressing confidence. Continual testimonials by cabinet members, close friends, and powerful business leaders, were provided to the news media. Henry Ford announced in November 1929, that “things are better today than they ever were.”
To keep up the positive tempo, Hoover resorted to numerous business meetings and news conferences on a daily basis at the White House. He, time and time again, predicted the country would not go into a depression and that the downturn in the stock market would soon end. The majority of Texans agreed that the economy would soon drastically improve.
To be continued ....