The Super Summary of World History - Alan Dale Daniel [165]
In October of 1929, all illusions came to an abrupt end. The US Stock Market crashed. Billions were lost on the New York Stock Exchange in just one day. Industrial stocks peaked at a high of 452 in 1929, but by 1932 industrial stocks were at 58. By 1932 in the US 23 million were out of work. The 1929 crash started a panic and millions of institutions and individuals began selling stock causing a continuing and precipitous market decline. Many paper millionaires, because of their extensive stock holdings, found themselves paupers within a few days. Some large banks failed because they held substantial stock investments. The panic spread to the middle class who owned few stocks but kept savings accounts in local banks. A bank does not keep enough money on hand to pay all its depositors their money at the same time. Banks loan out the deposited money, retaining only a small amount in demand deposits to pay the few customers coming into the bank on a normal day wanting cash. Because of the stock market crash thousands of depositors descended on banks demanding their money. The banks could not pay; consequently, banks began to fail by the hundreds all over the nation. When the local banks failed they took the depositor’s money with them into default causing people all over the United States to lose their life’s savings. As a result, fewer people put money into banks resulting in more money going out of circulation (and under mattresses) further decreasing the money supply and making money harder to obtain. As fear of the economic future took hold fewer people purchased items not absolutely needed, the business community suffered a greater slowdown, and more people experienced layoffs. Therefore, the descending economic spiral began and would not stop.
The economic crash became worldwide. American loans to Europe, previously easily extended, were now called. The American banks needed that money, but the European nations could not pay. The chaos in the world economy caused even more trouble, and as manufacturing declined more people were laid off, and with more layoffs fewer goods were bought (people without work stop buying) causing more layoffs. Things began to look very bleak. This was a downward spiral that fed on itself. Stopping this cycle became the major focus of economists all over the planet, but classical economic theories of the 1920s seemed unable to explain it. Unfortunately, governments were already trying to “solve” the crisis.
Hoover and Roosevelt—The Twins of Economic Failure
Governments around the world responded poorly to the crisis. In America, President Herbert Hoover began lobbying businesses to maintain high wages. He was certain if wages remained high people would keep buying, the national economy would right itself, and things would be fine. As the downward trend continued Hoover instituted government work programs and raised taxes to pay for them. President Hoover tried many things to overcome the Depression that no president before him dared attempt. In fact, his intervention into the economic system was unmatched until his successor took office. When Hoover lost the presidency to Franklin D. Roosevelt the new administration went far beyond what Hoover tried, but the focus of the effort was fundamentally the same. Under Roosevelt the Congress instituted massive work programs, tried to control wages and prices, tried to prop up farm-produce prices, supported union organization of labor in large industries, and raised taxes far more than Hoover’s administration to support new and larger government programs. Roosevelt created regulatory programs stifling competition in an attempt to raise prices because competition kept them down. The National Recovery Act, a centerpiece of Roosevelt