The Great Depression: Financially, Socially, and Psychologically

Soon after Herbert Hoover was elected President of the United States the financial security of the American people was shaken when the New York Stock Exchange suffered a horrendous loss to its market. Stocks dropped drastically in October of 1929 and began what would be known as the Great Depression. Financial losses on this day led to an increase in suicides, not only stockbrokers and speculators, but average citizens as well. While this single event was not the only cause of the Depression, it was the initial blow that awakened the American public, the banking industry, and the federal government. And while this event was the first blow to what would become a full-blown financial crisis, it would not be the last as no one could have believed it would last for over a decade. The stock crash, followed by bank failures, caused the American people to lose faith and hope in the American financial system. Once the American citizens lost faith in the financial system they lost faith in the economy, leading to further financial panic and escalation of the Depression. For those who lived through this time they would never be the same again.

Hoover would explain years later that he believed World War I was the primary cause of the Depression. Perhaps it did have something to do with it, but it was not the only event. Once the shock of the market crash was absorbed the next catastrophic event to take place was the collapse of the banking system. While most Americans did not participate in stock and/or bond purchases they did, in most homes, have a bank account. Many people had a checking or saving account through their local bank or savings and loan institutions. Once banks began to fail people lost faith in the banking system and began to withdraw their money. Closing personal bank accounts led to greater panic as more banks collapsed. AS banks failed and stocks continued to decline, the normal response from people was to not spend any money until later when the economy began to improve. However, that was not going to be the outcome, at least not in the short-term. Lack of spending further weakened the economy. Banks that had managed to maintain the initial panic tightened their lending practices, reducing the number of loans they were willing to fund. Lack of loans meant lack of interest collected by these banks. Couple this issue along with the reduction in spending by American citizens led to a money crunch. This further led to unemployment escalating as many lost their jobs during this period. Without capital to purchase equipment, build products, or to grease the wheels of the economy, businesses had no other choice than to lay off employees; that is if the business itself did not fail. These were very fearful times for Americans as well as those living in other parts of the world.

Especially hard hit during the Depression were those who earned their living in farming. America was becoming an industrial power at this time, but the country still had a significant percentage of the population, about 25% according to Thoams E. Hall and J. David Ferguson in, The Great Depression: The Start of the Great Depression, 1929-1930, involved in agriculture. According to Charles Reagan Wilson in his narrative, The Great Depression, in The New Encyclopedia of Southern Culture, agriculture in the American South was hit the hardest. Southerners suffered more so as this region of the country was still predominantly agriculturally based.

The important point to keep in mind throughout this period is the uncertainty and fear people felt during this time. Uncertainty about their future led many people to postpone consumable purchases. Without sales of these items, factories continued to lay off workers which only created more fear and uncertainty about the future. While the federal government searched for ways to minimize this cycle it often led to further issues which did not improve the prevailing mood of the public.

For the American public, living through these uncertain times, the natural response was to live within their means, even as their finances became more suspect due to losses in wages or increases in interest rates. The focus was to keep food on the table and a roof over their heads. as for the purchase of a home, car, appliances, or furniture these items could wait until the economy improved; however, without money flowing throughout the financial systems and the economy it only worsened the Depression. While this paper only explains part of the reason why the Depression occurred it also shows the psychological response of humans to events beyond their complete understanding or control. That response was fear, and it fed the Depression.