7.5 The Great Depression

Causes and Onset of the Depression

The stock market crash of 1929 exposed deep weaknesses: overproduction, farm debt, income inequality, and excessive speculation (buying on margin). Banks failed as panicked depositors withdrew savings, credit dried up, and consumer spending collapsed. Global trade shrank further after the Smoot-Hawley Tariff raised import taxes, provoking retaliation and worsening the crisis.

Hoover's Limited Response

President Herbert Hoover favored voluntary cooperation and limited federal intervention, believing in rugged individualism. He created the Reconstruction Finance Corporation to loan money to banks and businesses, but refused direct relief to individuals. His inaction, plus the harsh eviction of the Bonus Army, made him deeply unpopular by 1932.

FDR and the New Deal

Franklin D. Roosevelt won in 1932 promising a New Deal built on relief, recovery, and reform. Programs like the CCC, WPA, and Social Security Act provided jobs and a safety net, while the NRA and AAA tried to stabilize industry and agriculture. Critics on the left (Huey Long) and right (American Liberty League) challenged its scope, and the Supreme Court struck down key programs.

Key terms

Stock market crash of 1929

The collapse of stock prices in October 1929 that triggered bank failures, credit shortages, and the onset of the Great Depression.

Smoot-Hawley Tariff

1930 law raising tariffs on imports, which led to foreign retaliation and reduced international trade, worsening the Depression.

Rugged individualism

Hoover's belief that individuals and private charity, not the federal government, should solve economic problems.

Bonus Army

WWI veterans who marched on Washington in 1932 for early bonus payments; forcibly removed by federal troops, hurting Hoover's reputation.

New Deal

FDR's set of programs (1933–1938) focused on relief, recovery, and reform, including the CCC, WPA, NRA, AAA, and Social Security Act.

Try an AP-style question

A major cause of the Great Depression was…

1. high wages for all workers
2. a shortage of consumer goods
3. too much government spending
4. overproduction and stock speculation