The Great Depression

By Abe Bortz, Social Security Administration Historian (1963-1985)

Editor’s Note: This entry is a portion of Special Study #1, a lecture Dr. Bortz, the first SSA Historian,developed as part of SSA’s internal training program. Up until the early 1970s new employees were trained at SSA headquarters in Baltimore before being sent to assume their new duties in offices around the country. As part of this training, Dr. Bortz presented a curriculum on the history of Social Security. This lecture, developed in the early 1970s, was the core of that curriculum. It features an extensive overview of social policy developments dating from pre-history up to the passage of the Social Security Act in 1935.

The Great Depression: To go back to the depression itself — later generations have no first hand experience of the depths of despair into which the depression, beginning in 1929, had thrust the nation, and the excitement and eagerness with which people greeted the New Deal. You know many critics not only have denied that anything constructive could have come from the New Deal but they have even succeeded in creating the impression in the prosperous years since 1945 that the depression really did not amount to much.

How bad it was is worth remembering, since this is a means of gauging the enormous pressure for change.

As for the causes of the depression underlying it all:

1. Among the most important was the unequal distribution of income — wages through the 20’s remained fairly stable, profits continued to rise and the economy in large measure depended on continued investment by the wealthy.

2. Our tradebalance following World War I, we became a creditor — rather than a debtor — nation. Countries owed us more than we owed them a huge export trade balance — we were exporting much more than we were importing. Yet continued balance depended on continued loans by United States investors. When this began to decline, as it did — POOF!!!

3. There was — as John Kenneth Galbraith put it –considerable corporate thimble rigging, shenanigans.

4. The stock market boom — The stock market represented confidence or the lack of it– in the economy –Yet the stock exchange was not policed, controlled, etc. (Harding died owing his broker $180,000.) So you could hardly look for controls with that kind of a President. There was also considerable margin-buying — which would help upset the apple cart all the sooner, once things started going bad.

5. Our weak banking system–It was unable in time of crisis or emergency o expand or contract–despite the establishment of the Federal Reserve System in 1913.

Well, between October 1929 and March 1933 — old America literally fell apart — She was tired, she was wheezy, her spirit sagging, her wealth deeply slashed.

The number of unemployed ranged up to 13 million out of a labor force of 52 million. Even that figure is still a guess — it could have been much higher. One in four wage earners was without any means of support for himself or his family. Of these 13 million unemployed, only about a quarter were receiving any kind of assistance. Between 1929 to 1932 — our GNP fell by more than 28% — the manufacturing level fell from 110 to 57; dividends fell by 56.6%. Wages paid by 1932 were 60% less than in 1929 — salaries by 40%. The National income dropped from 81 billion in 1929 to 68 billion in 1930; to 53 billion in 1931 to 41 billion in 1932; then started up– 55.6 billion in 1933 and 100 billion in 1940.

Other statistics on what happened between 1929 and 1932: Marriages–off 22%; the birth rate dropped sharply; suicide rate went up 40% over 1929.

But, these are just figures. More important, the depression shook the very foundation of our economic system as well as our political system. American capitalism seemed almost a matter of touch and go. Could it deal effectively with this depression? Earlier in other depressions, the view had been that being thrown out of work by periodic “bad times” was considered inevitable and the occasion for charity rather than statesmanship. But now, remember this was a worldwide depression — countries were turning to dictatorship for a way out. In America, many persons – including leaders from many fields– people who believed in our political democracy and our capitalistic system — felt we had come to the end of the trail. Some new system would have to do the trick since this one had failed so miserably. No question we were fast becoming a demoralized people, completely bewildered. To so many there seemed to be no rhyme or reason to it all. The old idea of working hard and well; believe in yourself and you would be rewarded by good fortune — all of this appeared to be sheer mockery now.

Perhaps the worst thing about this depression was its inexorable continuance year after year. Men who had been sturdy and self-respecting workers can take unemployment without flinching for a few weeks, a few months, even if they have to see their families suffer; but it is quite different after a year, two years, three years. Among the miserable creatures curled up on park benches or standing in dreary lines before soup kitchens in 1932 were men who had been jobless since the end of 1929. This traumatic experience marked millions of people for the rest of their lives, and made them security conscious.

In some ways, what was worse perhaps, were the signs that law and order were beginning to crumble. There was also the Bonus March of World War II to Washington in 1932. General MacArthur fired on them– several veterans killed. People began to understand, as they moved through the second and third sharp winters of despair, the full impact of the truth evoked by Daniel Willard, President of the B&O Railroad, when in a speech at the Wharton School of Finance in 1931, he said “I would steal before I would starve.”

And people did die of starvation; many others died where hunger was largely contributory. You’ve already read of people fighting over garbage and then eating it.

No wonder the American people were willing–hoping– for lasting changes to take place affecting their economic and political institution.

And yet, despite all the grim statistics, in many ways America did not look different. These were some of the signs: Many untenanted shops; beggars and panhandlers were much in evidence. One might see bread lines here and there; Hoovervilles in vacant lots at the edge of town (a Hooverville was groups of tar paper shacks inhabited by homeless people– sleeping under their Hoover blankets (newspapers) eating Hoover hogs (Jack-rabbits); railroad trains were shorter with fewer Pullmans; and there were many factory chimneys out of which poured no smoke. But, otherwise, there was little to see. Great numbers of people were sitting at home trying to keep warm and conserve their strength.

It was the day of the apple salesmen. In 1930, the International Apple Shipper’s Association found itself with an over-supply of apples, and had the bright idea of selling them on credit to unemployed men, at wholesale prices for resale at 5 cents a piece. Suddenly there were apple salesmen shivering on every corner in American towns — New York City alone soon had 2,000 — but, this didn’t last long either.

Occasionally one might see bankrupt business with–in grim humor– notices on the door of their closed businesses– marked “Opened by Mistake.” Other humor of the times reflected attempts to be optimistic or a certain bravado.

“Did you hear about the fellow who engaged a hotel room and the clerk asked him whether he wanted it for sleeping or jumping?” “No, but did you hear about the two men who jumped together hand-in-hand because they held a joint account.”

When the hit song of the day was “Happy Days Are Here Again,” — but, of course, they weren’t. On the other hand, the words to this song were quite significant: “Once I Built a Railroad, Made it run, Made it race against time, Once I Built a Railroad, Now It’s Done – Brother Can You Spare a Dime?”To the disillusionment and bewilderment and despair–many were repeating Rudy Vallee in George White’s “Scandals” in 1931-“Life is Just a Bowl of Cherries; Don’t Make it Serious; Life’s too Mysterious.” Then, there were the barbs against Hoover. To Hoover’s earlier prediction of a “chicken in every pot” and a “Car in Every Garage,” came roaring back the answer “Who Had the Pot to Cook It; Who Had A Garage?” And Hoover to Secretary Mellon — “Can You Lend Me a Nickel to Call a Friend?” Mellon to Hoover — “Here’sa Dime, – Call Both of Them.”

As for the President, despairing people in pre-New Deal years feared that Herbert Hoover had forgotten them and did not recognize the seriousness of their plight. As a matter of fact, he had, more than any other depression president in American history, taken steps to try to bring recovery. But, he had functioned largely through giving aid at the top to prevent the further collapse of banks and industries and the concentric rings of further collapses and unemployment which would then ensue. Also he had continued to pin his faith on individual action. He felt that too great Federal intervention would undermine the self-reliance, destroy the “rugged individualism” of the American people, (some called it ragged individualism). Hoover felt that it would create Federal centralization, thus paving the way for socialism.

President Hoover was consistent in his thinking, and he was humane. But it was hard to explain to people grubbing on a Chicago garbage heap, why–when the Government’s Reconstruction Finance Corporation was loaning $90,000,000 to a single Chicago bank, the President would veto a bill to provide Federal relief for the unemployed, asserting “never before has so dangerous a suggestion been seriously made in this country.” (It was not until July 1932 that he approved a measure permitting the Reconstruction Finance Corporation to loan $300 million for relief purposes.) And it was as hard for people to understand President Hoover could recommend an appropriation to allow the Department of Agriculture to lend money for a program of providing seed and feed for animals, but fight against any aid by the Federal Government to feed human beings.

Herbert Hoover– as he revealed in his memoirs– had long been interested in both old age and unemployment insurance, but always such schemes were to be worked out through private insurance companies or at best with the States– never under the auspices of the Federal Government.

Source: http://www.ssa.gov/history/bortz.html