In the 1920s the United States looked unstoppable. Factories were producing more than ever, cars and radios were flying off shelves, and the stock market kept climbing. But underneath the boom were serious weaknesses — and by October 1929, the whole system collapsed. Paper 3 examiners want you to explain BOTH the political and the economic causes, not just 'the Wall Street Crash happened'.
- Overproduction — factories and farms made more goods than people could afford to buy, so unsold stock piled up and prices fell
- Uneven wealth distribution — the richest 5% of Americans held about a third of all income, so most families could not keep buying enough to match rising output
- Buying on credit and on margin — millions bought goods on instalment credit, and investors bought shares 'on margin' (with borrowed money), which multiplied losses when prices fell
- Weak banking system — thousands of small, poorly regulated banks had no safety net, so a single local shock could set off a chain of failures
- Agricultural depression — farm prices had already been falling all through the 1920s because of overproduction and competition from European farms recovering after the war
- Republican government policy — Presidents Harding and Coolidge favoured very low taxes on the wealthy, minimal business regulation, and high tariffs (Fordney–McCumber, 1922), which discouraged international trade and left the economy dangerously unbalanced
The Crash was a trigger, not the whole cause: The Wall Street Crash of October 1929 (Black Thursday, 24 October, and Black Tuesday, 29 October) wiped out huge amounts of paper wealth in days. But it exposed problems that had been building for years — it did not create them out of nothing. A good essay treats the Crash as the SPARK, and overproduction, weak banks, and unequal wealth as the FUEL.
Once share prices crashed, panic spread fast. Investors who had borrowed to buy shares now owed more than their shares were worth, so they sold everything they could — driving prices down further. Banks that had lent this money, or invested depositors' savings in the market, began to fail. Between 1930 and 1933 over 9,000 US banks collapsed, wiping out ordinary people's savings and destroying the credit that businesses needed to survive.
| Cause | How it fed the Depression |
|---|---|
| Overproduction | Unsold goods → falling prices → factories cut workers → less spending → more unsold goods |
| Credit/margin buying | Small price falls wiped out investors who owed borrowed money |
| Bank failures | Savings destroyed; businesses could no longer borrow to operate |
| High tariffs | Smoot–Hawley Tariff (1930) raised US import taxes; other countries retaliated, and world trade shrank sharply |
Link causes together: Don't just list causes in a paragraph each. Show the CHAIN: overproduction → falling prices and profits → speculation on the stock market as an alternative way to get rich → the Crash → bank failures → credit collapse → mass unemployment. Examiners reward causation, not description.
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Herbert Hoover became president in March 1929, just months before the Crash. He is often remembered as a president who 'did nothing' — but that is not quite fair. Hoover did act; the real criticism is that his actions were too limited and too slow for the scale of the crisis.
Hoover's guiding belief: Hoover believed in rugged individualism and voluntarism — the idea that Americans should solve problems through private charity, local government, and voluntary cooperation between businesses, not through a powerful federal government handing out direct relief. He feared that direct federal aid to individuals would create dependency and damage the American character.
Voluntary cooperation (1929–1930)
Hoover asked business leaders to keep wages and employment steady and asked state governments to expand public works, but gave the federal government little direct power to enforce this.
Smoot-Hawley Tariff (1930)
Raised tariffs on over 20,000 imported goods to protect US industry. Other countries retaliated with their own tariffs, so world trade collapsed and the Depression deepened internationally.
Reconstruction Finance Corporation (1932)
Hoover's biggest intervention: lent federal money to banks, railroads, and insurance companies to stop them collapsing — but the money rarely reached ordinary unemployed families.
Bonus Army incident (1932)
When WWI veterans camped in Washington DC demanding early payment of a promised bonus, Hoover ordered the army to forcibly clear them out. The harsh scenes badly damaged his public image.
Hoover: Voluntary action, Smoot-Hawley, RFC, Bonus Army — help for business, not for people.
By 1932 the situation was dire: unemployment had reached roughly 25%, thousands of families lived in shantytowns nicknamed 'Hoovervilles' in bitter mockery of the president, and confidence in Hoover's leadership had collapsed. In the 1932 election, Democrat Franklin D Roosevelt (FDR) promised 'a new deal for the American people' and won by a landslide.
Efficacy, not just description: Paper 3 asks about the efficacy (how effective) of solutions. Hoover's measures were not zero — the RFC was a genuine, large-scale intervention — but they were indirect, slow, and too small for a crisis of this size. His refusal to give direct relief to individuals is the key weakness examiners want you to identify.
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Franklin D Roosevelt took office in March 1933 promising energetic federal action. His approach split into two waves of legislation, often called the First New Deal (1933–1934) and the Second New Deal (1935–1938). The guiding aims are usually summarised as the '3 Rs'.
- Relief — immediate help for the suffering unemployed and poor
- Recovery — getting the economy growing again
- Reform — fixing the structural weaknesses that had caused the Depression, so it could not happen again
| Agency | 3 Rs | What it did |
|---|---|---|
| Emergency Banking Act (1933) | Recovery | Closed weak banks for inspection, reopened only sound ones — restored public trust in banking almost overnight |
| Civilian Conservation Corps (CCC) | Relief | Employed young men on environmental and conservation projects |
| Agricultural Adjustment Act (AAA) | Recovery | Paid farmers to reduce production, aiming to raise crop prices |
| National Recovery Administration (NRA) | Recovery/Reform | Set fair codes of practice for industry: minimum wages, maximum hours, prices |
| Works Progress Administration (WPA, 1935) | Relief | Employed millions on public works — roads, bridges, schools, arts projects |
| Social Security Act (1935) | Reform | Created old-age pensions and unemployment insurance for the first time nationally |
| Wagner Act (1935) | Reform | Guaranteed workers' right to join unions and bargain collectively |
Worked example — was the New Deal effective?: Unemployment fell from about 25% in 1933 to around 14% by 1937 — real progress, but nowhere near full recovery, and a sharp 1937–38 recession ('the Roosevelt Recession', caused partly by Roosevelt cutting spending too soon) showed the recovery was still fragile. It took wartime production from 1941 to finally end mass unemployment. Verdict: significant relief and reform, but incomplete recovery on its own.
Critics from the Left
- Huey Long ('Share Our Wealth') — said the New Deal did not go far enough; demanded direct wealth redistribution from the rich
- Father Coughlin — radio priest who initially supported FDR, then attacked the New Deal as too friendly to bankers
- Socialists and some labour leaders — argued relief was too limited and temporary
Critics from the Right
- Supreme Court — struck down the NRA (1935, Schechter case) and the AAA (1936) as unconstitutional over-reach by federal government
- American Liberty League — business leaders who said the New Deal was heading towards socialism and attacked government interference in the free market
- Conservatives — argued deficit spending was reckless and government was growing too powerful
The New Deal permanently reshaped the US political and economic system. It established the principle that the federal government has a responsibility for citizens' economic welfare — seen ever since in programmes like Social Security. It also shifted political loyalties: African Americans, urban workers, and union members increasingly voted Democrat, building the 'New Deal coalition' that dominated US politics for decades.
Don't overclaim: Avoid writing that 'the New Deal ended the Depression' — the data doesn't support a full recovery by 1939. Say instead that it provided major relief, partial recovery, and lasting reform, while full recovery came only with wartime spending.