What caused the "Great Depression"

These days we're hearing a lot about "the new deal" and the actions of F.D.R. that have been credited for ending the great depression but what do you really know about the history of the great depression? Today we are going to open the history book and examine the facts surrounding that era.



It's Monday, march 4th 1929 and the nation has gathered to witness the Inauguration of Herbert Hoover, a mining engineer from Iowa. The country is experiencing its most prosperous years ever and the only major problem is the rise in crime driven by the eighteenth amendment (prohibition). The inaugural address touches all of the usual points such as education, health care and national security. The difference is that he tied each topic into the necessity of "personal responsibility". He promoted "an advance toward the highest conception of self government" and stated that "progress is born of cooperation in the community_not from governmental restraints".



When speaking of the relation of government to business, Hoover said "regulation of private enterprise and not government ownership or operation is the coarse rightly to be pursued". That was the Ideology of the day and with unemployment at 4.2% and a tax rate of 4% things were sailing along quite well. Hoover was the inspiration for Ronald Reagan who we consider the Godfather of conservatism.




President Hoover had won by a landslide (444 electoral votes to 87) and brought with him a 56 to39 republican majority in the senate and a 267 to 167 majority in the house. The Democratic candidate for President, Alfred Smith, lost a quarter of a million votes to Norman Thomas, the Socialist candidate. Yes, the Socialist party was an official party in the U.S. at the time, as was the communist party, but eventually they merged into the Democratic party to offset the power of the Republicans.

During the late 1920s the rest of the world was still smoldering from the first World War and their economies were shaky to say the least. Mexico was in the grips of a civil war that spilled over into American territories which led to military response on April 6, 1929 when Hoover sent war planes to respond to the American lives taken in the crossfire. Meanwhile, China, Japan, the U.S.S.R. and Italy were positioning themselves to take advantage of the war weary nations around them. Then there was Hitler.. but that's another story.

England was leaning on us to help in their recovery and as their economy tumbled many Americans started getting nervous. The media started warning that the depression was bound to spread to the U.S. and that Hoover was too concerned with big business and didn't care about the working class. He (Hoover) insisted that the speculator driven peaks in the stock market would go through the same "natural corrections" as it always had and that the resulting recession would be difficult but short lived. It was his stance that "the sole function of Government was to bring about conditions favorable to the beneficial development of private enterprise" (Bobama recently borrowed the same quote but replaced "private enterprise" with "working class" which made it a very socialist statement). Hoover chose to keep the government out of it and allow those speculators enough rope to hang them selves.

They did, and it just happened to coincide with the campaign for the mid-term elections. The Democratic candidates ran a campaign that focused on that issue, pointing out that Hoover was willing to allow business to fail and thus put countless workers out in the street. They harped on his statement that "private institutions were responsible for serving humanity, Government was not" and drove a new level of fear into the working class. They also claimed that republicans had entered the first world war illegally and that they would be likely to get into one of the skirmishes that were heating up around the world. They promised more government involvement in business along with an investigation into war profiteering from WWI.

The fear that blossomed during the campaign culminated on Thursday, October 24, 1929 (black Thursday) when 13 million shares on the New York Stock Exchange were sold and the floor dropped out. Four days later, black Tuesday, another 16 million more shares were sold off and thousands of people were finished.

A year later America voted. The huge majorities in congress had fallen away, now we had 48 Republicans to 47 Democrats in the Senate and 220 Democrats to 214 Republicans in the House. There was a now mandate. Even some of the Republicans in the Senate were leaning left just to keep their job.

Sadly, Hoovers prediction was true. The stock market did go through its "natural correction" and it was very painful for many middle class Americans. That's not the sad part, you see, in the year following Black Tuesday many companies dropped out leaving lots of unemployed people and empty stores but those gaps began refilling with new business. A new economy was being built from the parts left over and the great deals that resulted. Unemployment was on a slow but steady decrease and the correction was taking place. The sad fact is that Americans were being told that they shouldn't have to rebuild, that the Government should do it for them and that the rich were to blame and they must be held responsible.

On March 4th, 1931 the 72nd congress took office and the economy came to a screeching halt. Over the next three months the Dems were making promises to everyone who was a "victim" of the collapse and by June 20th of that year, taxes on the rich had gone from 4% to 62%. Hoover Vetoed the increases but was overridden by congress. Shortly after that England dropped the gold standard. Those who had money made a run on the banks to buy gold so that they could protect what was left from taxes. The result, by September of that year more than 800 banks failed and unemployment jumped to 56%.

January 22, 1932.. Election year, congress passes the Reconstruction Finance Corporation as a way to loan Government money to help failing business. You know it as a "bail out"

All of this happened within a two year period. We went from the most prosperous years in history to the great depression and it all points at the Democrats and the media as the real cause despite what our history teachers like to believe. This is exactly the path that we are tumbling down today. In my next post I will show you the rest of the story, how FDR prolonged the depression and put a limit on the American dream that is with us today.