AMSCO 7.9 The Great Depression

Overview

AMSCO Topic 7.9, The Great Depression, covers the stock market crash of October 1929, the deeper causes that turned a crash into a decade-long economic catastrophe, and President Hoover's failed attempts to fix it. This chapter sits in the middle of Period 7 (1890-1945), bridging the prosperity of the 1920s in AMSCO 7.8 and the New Deal response in AMSCO 7.10. The big APUSH takeaway: the crash didn't cause the Depression by itself, and the crisis transformed how Americans thought about the federal government's role in the economy.

The Wall Street Crash of 1929

The chapter opens with the crash itself, the event that triggered (but did not single-handedly cause) the Great Depression.

The U.S. had seen severe depressions before (1837, 1873, 1893), each marked by bank failures and credit collapse. The 1930s depression was worse than all of them. It lasted longer, hit both middle-class and working-class Americans, and consumed 12 years of effort by two presidents, Herbert Hoover and Franklin Roosevelt.

The setup for disaster:

• Stock prices rose almost continuously for 18 months, from March 1928 to September 1929.
• On September 3, 1929, the Dow Jones Industrial Average hit an all-time high of 381.
• An investor who put $1,000 into major stocks when Hoover was elected (November 1928) would have doubled it in under a year. Millions invested. Millions lost everything.

Black Thursday and Black Tuesday

• Black Thursday (October 24, 1929): unprecedented selling volume on Wall Street; prices plunged.
• Friday: a group of bankers bought millions of dollars in stocks to stabilize prices. It worked for exactly one business day.
• Black Tuesday (October 29, 1929): the bottom fell out. Millions of panicked investors ordered their brokers to sell, and almost nobody was buying.

By late November the Dow had fallen from 381 to 198. Three years later it bottomed out at 41, less than one-ninth of its peak.

Underlying Causes of the Great Depression

This is the section APUSH loves to test. The crash was a trigger, but the Depression came from a combination of structural weaknesses. Know these seven causes:

• Uneven distribution of income. Wages barely rose while productivity and corporate profits soared. The top 5 percent of Americans took in over 33 percent of all income. When demand dropped, businesses laid off workers, which cut demand further. A downward spiral.
• Stock market speculation. People weren't investing to share in a company's earnings; they were gambling that prices would rise so they could sell quickly. Buying on margin let them borrow most of a stock's cost with down payments as low as 10 percent. When prices fell, borrowers were wiped out.
• Excessive use of credit. Low interest rates and faith that the boom was permanent fueled borrowing and installment buying. Over-indebtedness led to loan defaults and bank failures.
• Overproduction of consumer goods. Factories churned out more goods than workers with stagnant wages could afford to buy.
• Weak farm economy. Farmers never shared in 1920s prosperity. They'd faced overproduction, high debt, and low prices since World War I ended, and severe drought in the 1930s made it worse.
• Government policies. Washington trusted business completely and barely regulated it. High tariffs protected U.S. industry but hurt farmers and international trade. Some economists blame the Federal Reserve's tight money policies: instead of stabilizing banks and the money supply, the Fed tried to preserve the gold standard. With no deposit insurance, panicked depositors rushed to pull their money out, triggering more bank failures.
• Global economic problems. International banking, manufacturing, and trade had tied nations together. Europe never recovered from World War I, and U.S. insistence on full loan repayment plus high tariffs weakened Europe and helped spread the depression worldwide.

Effects of the Great Depression

The numbers tell the story. Memorize a few of these for evidence in essays:

• Gross national product (GNP) fell from $104 billion to $56 billion between 1929 and 1932.
• National income dropped by over 50 percent.
• About 20 percent of all banks closed, wiping out 10 million savings accounts.
• The money supply contracted by 30 percent.
• By 1933, 13 million people were unemployed, 25 percent of the workforce, and that doesn't even count farmers.

Social Effects

Every class felt it, but groups already left out of 1920s prosperity (farmers, African Americans) suffered most. Poverty, homelessness, and family stress spiked. People kept moving from rural areas to cities hoping to find work. Mortgage foreclosures and evictions became routine. The homeless rode boxcars and lived in shantytowns mockingly named "Hoovervilles" after the president.

Hoover's Response: Voluntarism, Then Reluctant Action

Hoover believed prosperity would return soon, and he wasn't alone in that. His philosophy was voluntary action and self-reliance. He urged businesses not to cut wages, unions not to strike, and private charities to help the needy. Until summer 1930 he resisted asking Congress for economic legislation, fearing that federal aid to individuals would destroy their self-reliance. Even as he came around to more direct action, he insisted public relief should come from state and local governments, not Washington.

Hawley-Smoot Tariff (1930)

Hoover's first big international move was, in the chapter's words, one of the worst mistakes of his presidency. In June 1930 he signed the Hawley-Smoot Tariff, the highest tariff schedule in history, with rates of 31 to 49 percent on foreign imports. European countries retaliated with their own tariffs on U.S. goods. International trade, already shrinking, fell even faster, and economies worldwide sank deeper into depression.

Debt Moratorium (1931)

By 1931, conditions were so bad that the Dawes Plan for collecting war debts (covered in AMSCO 7.11) couldn't continue. Hoover proposed a moratorium, a suspension of international debt payments. Britain and Germany accepted; France balked. Massive loan defaults followed, and banks on both sides of the Atlantic scrambled as depositors withdrew their money.

Domestic Programs: Too Little, Too Late

• Federal Farm Board. Created in 1929 (before the crash), later given expanded powers. It tried to stabilize farm prices by holding surplus grain and cotton in storage, but it was far too modest to handle continued overproduction.
• Reconstruction Finance Corporation (RFC), 1932. A federally funded, government-owned corporation that made emergency loans to prop up railroads, banks, life insurance companies, and other financial institutions. Hoover's logic was that benefits would "trickle down" to smaller businesses and bring recovery. Democrats scoffed that it helped only the rich.

The RFC matters beyond Hoover: it marked the federal government actually stepping into financial markets, a preview of the bigger expansion to come.

Despair, Protest, and the Election of 1932

By 1932, desperation pushed Americans toward direct action.

• Farm Holiday Association. Midwestern farmers banded together to block banks from foreclosing on farms and evicting families. The Association tried to raise prices by keeping the entire 1932 grain crop off the market. The effort collapsed after some violence.
• Bonus March (1932). A thousand unemployed World War I veterans marched to Washington, D.C., demanding immediate payment of bonuses they'd been promised for 1945. Thousands more joined, camping with their families in shacks near the Capitol. Congress rejected the bonus bill. After two veterans were killed in a clash with police, General Douglas MacArthur used tanks and tear gas to destroy the shantytown and drive the veterans out. The incident cemented Hoover's image as heartless.

Changing Directions

The economy hit bottom in the winter of 1932-1933, though full recovery only came with the start of another world war in 1939. Long term, the Depression changed American thinking: people accepted dramatic policy changes and a bigger federal government, including calls for a stronger financial regulatory system. Short term, it ended Republican control of government. Democrats won the 1932 election in a landslide, and Franklin D. Roosevelt's confident voice and the Democratic Congress began restoring hope. That story continues in AMSCO 7.10 on the New Deal.

Key Terms to Know

Practice and Next Steps

Pair these notes with the Fiveable Topic 7.9 The Great Depression study guide for the course-aligned version of this material, and browse the full set of AMSCO chapter notes for the rest of Unit 7. To check yourself, try guided multiple-choice practice on Period 7, then write a causation paragraph on the Depression's origins and score it with FRQ practice with instant feedback. The causes-of-the-Depression list is a classic SAQ and LEQ target, so make sure you can explain at least three causes with specific evidence.