What were penny auctions? Penny auctions were a way for communities to stop farms and properties being sold by the banks that foreclosed on them during the Great Depression.
The 1920s and the 1930s were a hard time for a lot of Americans. The Great Depression began in 1929, which destroyed the life savings of a lot of people, but, possibly worse than that, it forced companies to let workers go and put a stop on hiring. An enormous people were out of work without any way to make a living. The Great Depression was bad enough, but for thousands of communities throughout the central states of the United States of America, things were made much worse by the Dust Bowl. For decades, farmers had planted wheat on soil that wasn’t suited for it, increasing erosion. This eroded soil was picked up by the winds and carried over the land, causing illness, death, and economic ruin. It felt like the end of times, and a lot of people did actually lose their lives. The Great Depression only really ended when the United States entered World War 2 and ramped up its military spending, putting people back in jobs.
As it is today, the majority of people didn’t own their houses. They either rented or they had a mortgage. This was worse for farmers who also had to borrow the money to buy all of their farm equipment and the seeds they planted. The idea has always been to borrow the money to buy the seeds, grow the crops, harvest them, and then make enough money to pay back the loan with some profit as well. If this can be done successfully, over the years, a farmer can slowly make enough money to stop needing loans. However, practically, it is impossible because of crop diseases, weather, and bad harvests. Very few farmers, then or now, make enough money to support themselves. So, when the Great Depression decimated the economy and the Dust Bowl decimated their farming, they couldn’t grow any crops, which meant they couldn’t pay back the banks.
If you have a loan or a mortgage from the bank and you don’t pay it back, the bank is allowed to take your property and sell it in an attempt to recover the money lost on the loan. This is called foreclosure. When you sign the contract for the mortgage, you agree to these rules. It isn’t always the house that is taken. When you get a loan, you have to secure it with some form of collateral. Most people don’t have much in the way of collateral, so they use the value of the home they are buying. That is why the bank won’t lend you more than the value of the house. In the contract, it will say that if you miss too many payments on the loan, the bank will seize the house. When that happens, the bank can then sell the house to recover its loses and that is often at auction.
In the Great Depression, farmers couldn’t pay back their loans, and banks foreclosed on farms and farm equipment left right and center. Banks took possession of these houses and possessions and then turned round to sell them at auction. The idea was to sell them to people in the community at a high enough price that the bank could walk away with a profit. This didn’t end up happening. The banks didn’t expect communities to come together, but they did. When a farmer’s equipment, livestock, and even buildings were put up for auction, the whole community turned up, and one person bid a few cents for each item. Nobody raised the bid, and the auctioneer sold things for a few pennies. The person who bought the item would return it to the farmer. There was always a danger that some outsider would come and try to outbid the townspeople. To make sure that didn’t happen, they were often armed, and they tied up nooses as a warning. If somebody did bid on something, it wasn’t a mistake they made more than once.
The government stepped in after a while and put a moratorium on foreclosures. The problem was that everyone expected the Great Depression to last a year at most, but it ended up lasting 12 years. Penny auctions were a way for people to fight back against something they couldn’t control, but they could only ever save a small percentage of people. During the Great Depression, one million families lost their farms. And this is what I learned today.
Sources
https://livinghistoryfarm.org/farming-in-the-1930s/making-money/bank-failures/penny-auctions
https://historymatters.gmu.edu/d/5060
https://en.wikipedia.org/wiki/Penny_auction_(foreclosure)
https://en.wikipedia.org/wiki/Great_Depression_in_the_United_States
https://www.npr.org/transcripts/17060380
https://www.federalreservehistory.org/essays/great-depression
https://www.investopedia.com/terms/f/foreclosure.asp
Photo by Jeff Weese: https://www.pexels.com/photo/silver-liberty-in-god-we-trust-1978-coin-64824/