From Prosperity to Despair (1928-1932)

From Prosperity to Despair (1928-1932)

Herbert Hoover served as President of the United States from March 4, 1929 - March 4, 1933. He served one 4-year term.

1. What did Hoover mean by "rugged individualism"? What role did he think government would take in business affairs?

a. By rugged individualism, Hoover meant that Americans were used to caring for themselves. They did not want government acting like "big brother". The idea that the individual was supreme was paramount.

b. Hoover felt that government should stay completely out of business affairs. The only interference government should make is to tax corporations to pay for government, and to provide tariffs to protect American business from foreign competition.

2. Define: buying "on margin", durable goods, business inventories

a. Buying on margin meant that an investor only put up part of the money to purchase stocks; the stock broker would borrow the rest to make the purchase.

b. Durable goods are those items of production designed to last several years.

c. A business inventory is the quantity of unsold goods on hand.

d. See: Quick definitions

3. How did the stock market crash affect banks?

a. Banks that had leant heavily to margin investors or had invested heavily in stocks themselves suddenly found themselves insolvent (broke) and went out of business. These bank closings led people to distrust banks. People would then attempt to pull their money out of the bank creating a run on the bank. These runs led to further bank closures and additional runs.

4. Why was the economy collapse like a chain reaction?

a. Bank closings and the stock market collapse led to less money available to invest in business or to purchase goods. The fewer purchases led to companies cutting back on production. This led to lay-offs and more people not being able to purchase goods, which led to further cut backs in production and more lay-offs. Thus, like a chain reaction, each event triggered the next.

5. What did Hoover do at the onset of the Depression?

a. Nothing. Hoover believed in the cycle of business and that the country would come out of the depression on its own.

6.  What was the purpose of the Reconstruction Finance Corporation (RFC)? Why did this not work?

a. The RFC was designed to lend money to major institutions like banks, railroads, and big business in an effort to stimulate the economy (the trickle down theory).

b. The RFC did not work because it was far too little (3 million dollars) applied in the wrong places. The RFC did not provide relief to out of work people, and did not create many jobs. It did slow down the number of bank failures but did little else to combat the depression.

7.  What was the Bonus Army? How did Hoover react?

         a. The bonus army was a group of WWI veterans who marched on Washington, attempting to get the bonus money promised to them by the U.S. government. This money was not scheduled to be paid until 1945, but Congress had voted to pay half of the money up front. President Hoover vetoed this bill passed by Congress.

         b. Hoover tried to ignore the many thousands of bonus marchers at first, hoping they would go away, but when they set up a permanent camp near the Capitol, Hoover had first the police attempt to move them out, then he called on the Army to move them.