What explains the decline in personal income beginning in 1929?

What explains the decline in personal income beginning in 1929?

The Stock Market Crash (’29) and Great Depression (‘30s)

What were the causes of the Great Depression and how did the depression affect the lives of Americans?

Expansion

*Increase production

*Wages high

Peak

Recession(Business Slump)

*Decrease Production*Decrease Wages*Layoffs

Depression(longer businessdownturn)

Measure of GDP (Gross Domestic Product) Estimated total value of all final goods.

What basically determines the ups and downs in the business cycle?

SUPPLY and DEMAND

I. Background: Business Cycle

Expansion*Increase production

*Wages high

Case in Point: Model T Ford

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Henry Ford’s company mass produces Model T. Assembly line production makes the process quick and affordable. Company makes money, investors make money, workers make money….

WHAT HAPPENS WHEN EVERYONE WHO WANTS A MODEL T HASALREADY PURCHASED ONE????

Case in Point: Model T Ford

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Henry Ford’s company meets the demand for Model T. Supply meets Demand.

Peak (Supply meets demand)

WHAT WOULD HAPPEN IF HENRY FORD CONTINUED PRODUCINGMODEL T’s AT THE SAME RATE DURING PEAK AS HE HAD DURINGEXPANSION?

Case in Point: Model T Ford

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Henry Ford must reduce production to meet lower demand for Model T.Company does not make as much money, investors do not make as muchmoney, and some workers may be laid off.

Recession(Business Slump)

*Decrease Production*Decrease Wages*Layoffs

Stock Market measures health of economy / business bybuying and selling stock (supply and demand.)Stock- ownership in company.

New York Stock Exchange

What role does the stock market play in the Business Cycle?

Business distributes

stock (shares)to shareholders.

STOCK MARKET

What role does the stock market play in the Business Cycle?

Business distributes

stock (shares)to shareholders.

Business earns money.

STOCK MARKET

What role does the stock market play in the Business Cycle?

Business distributes

stock (shares)to shareholders.

Business earns money.

Dividends(portion of earnings)

given tostockholders.

STOCK MARKET

What role does the stock market play in the Business Cycle?

Business distributes

stock (shares)to shareholders.

Business earns money.

Dividends(portion of earnings)

given tostockholders.

Stockholdersbuy more

shares of stock in company.

STOCK MARKET

Price of stocks in the stock market reflects the expectation of shareholders.

Expectation / Speculation stock prices high = stock grows or remain high

Expectation / Speculation stock prices low = stock goes down

Expectationhigh and people buy

Expectationlow and people stop buying

Peak

Economy 1920s

*optimistic *prosperity*wages high*confidence in business

***Over speculation-Stocks overvalued

GREAT DEPRESSION

II. Causes and Effects ofGreat Depression

*uneven distribution of wealth*80% people had no savings*installment buying-Debt*stock on margin-borrowed $*over production*laissez faire gov’t

Oct. 29, 1929Black Tuesday

1. Over speculation of stocks using borrowed money that could not be repaid when the stock market crashed in 1929.

The trading floor of the New York Stock Exchange just after the crash of 1929. In a single day-Black Tuesday- a record sixteen million shares were traded and thirty billion dollars vanished into thin air.

2. The “ripple effect” of thestock market crash.

II. Causes and Effects ofGreat Depression Investors

lose money

1929Stock Market

Crash

Many investors losteverything in the stock market

Income drops 40%

Factorieslay-off

workers-no insurance

Investorslose

money

1929Stock Market

Crash

Typical scene outside an employment agency.

86,000 businesses fail

13 million workers left unemployed

Local missionssponsor soup kitchens to feed the unemployed.

How did massive unemployment impact the nation’s psychological state?

Feelings of shame, depression,hopelessness.

Banks fail,people take money out of

banks

Factorieslay-off

workers-no insurance

Investorslose

money

1929Stock Market

Crash

“Run on the Bank” (1933)

Federal Reserve failed to prevent widespread collapse of banking system leading to severe contraction in the nation’s supply of money in circulation.

Farm foreclosures,banks need

money

Banks fail,people take money out of

banks

Factorieslay-off

workers-no insurance

Investorslose

money

1929Stock Market

Crash

Farmers worst hit by Great Depression. New machineryincreased crop yields, but surplusesmeant crop prices remained low— Mortgaged farms are lost.

(1933-1934) Farmer’s plight in Great Plains made worse by drought and the consequent dust storms-- “Dust Bowl.”

“Black Blizzard”

Consumed by “Dust Bowl”-“dust pneumonia,” brown snow reaches northeast.

25% of farmers migrate out of “Dust Bowl.”

“Okies” escape thedust storms and moveto California.(Steinbeck’s novel, Grapes of Wrath)

Over speculation of stocks

Local missions sponsor soup kitchens and bread lines

Federal Reserve failed to prevent collapse of banking system in late 1920s and ’30s, severe contraction in nation’s money supply

Banks need money

“Okies” escape Great Plains for

California

Cause and Effect: Graphic Practice

CAUSE EFFECT

Over speculation of stocks Stock Market Crash, 1929 --

followed by Great Depression

Local missions sponsor soup kitchens and bread lines

Federal Reserve failed to prevent collapse of banking system in late 1920s and ’30s, severe contraction in nation’s money supply

Banks need money

“Okies” escape Great Plains for

California

Cause and Effect: Graphic Practice

CAUSE EFFECT

Over speculation of stocks Stock Market Crash, 1929 --

followed by Great Depression

Factories lay off workers, no insurance

Local missions sponsor soup kitchens and bread lines

Federal Reserve failed to prevent collapse of banking system in late 1920s and ’30s, severe contraction in nation’s money supply

Banks need money

“Okies” escape Great Plains for

California

Cause and Effect: Graphic Practice

CAUSE EFFECT

Over speculation of stocks Stock Market Crash, 1929 --

followed by Great Depression

Factories lay off workers, no insurance

Local missions sponsor soup kitchens and bread lines

Federal Reserve failed to prevent collapse of banking system in late 1920s and ’30s, severe contraction in nation’s money supply

Banks close as people make a “run on the bank” to take money out

Banks need money

“Okies” escape Great Plains for

California

Cause and Effect: Graphic Practice

CAUSE EFFECT

Over speculation of stocks Stock Market Crash, 1929 --

followed by Great Depression

Factories lay off workers, no insurance

Local missions sponsor soup kitchens and bread lines

Federal Reserve failed to prevent collapse of banking system in late 1920s and ’30s, severe contraction in nation’s money supply

Banks close as people make a “run on the bank” to take money out

Banks need money Foreclosure of family farms, farmers not able to pay their debt in cash

“Okies” escape Great Plains for

California

Cause and Effect: Graphic Practice

CAUSE EFFECT

Over speculation of stocks Stock Market Crash, 1929 --

followed by Great Depression

Factories lay off workers, no insurance

Local missions sponsor soup kitchens and bread lines

Federal Reserve failed to prevent collapse of banking system in late 1920s and ’30s, severe contraction in nation’s money supply

Banks close as people make a “run on the bank” to take money out

Banks need money Foreclosure of family farms, farmers not able to pay their debt in cash

Drought in Great Plains creates “Dust Bowl.”

“Okies” escape Great Plains for

California

Cause and Effect: Graphic Practice

CAUSE EFFECT

Global- Germany cannotrepay WWI debt,

France and England

cannot repay debt

Farms foreclosures,banks need

money

Banks fail,people take money out of

banks

Factorieslay-off

workers-no insurance

Investorslose

money

1929Stock Market

Crash

German post-WWI Inflation-1 dollar worth 100,000 marks

Unable to pay war reparations.

Poor in streets of Germany

Dawes Plan and Young Plan- U.S. loans money to Germany to pay reparations, ends afterstock market crash.

What is strange about this financial arrangement?

Herbert Hoover (R)(1929- 1933)

III. Limited role of government: Hoover

Gov’t help would destroy people’s self respect

Insisted things would getbetter soon…“no one is actually starving”

Voluntary aid (neighbor helping neighbor)

Overall view:

What is the problem with Hoover’s approach?

Tariff Act of 1930 or Hawley-Smoot Tariff- High protective tariff that produced retaliatory tariffs in other countries, strangling world trade.

Bad Decisions:

Reconstruction Finance Corporation (RFC)-Loans to banks and business, appeared as though Hoover only willing to help the rich.

People blame Hoover for Great Depression: Shantytowns = Hoovervilles Empty pockets = Hoover flags Newspaper = Hoover blankets

Hooverville

“Bonus Army” Incident- 20,000 WWI vets protest in D.C. They want pensions. There is a few violent skirmishes and army is called out to drive them out.

Hoover’s reputation gets worse….

Write a letter to President Hoover explaining how you feel about the “Bonus Army” incident and what you think he should do to solve the problems of the Great Depression.

Hoover (R) FDR (D)

Election of 1932

Why did FDR win by such a wide margin in 1932?

FDR offered a NEW DEAL for the American people.

(Jan-March 1933)Wait for FDR to come into office…

IV. Active role of government: FDR

Franklin Delano Roosevelt (D)(1933-1945)

New Deal- government programs tosolve problems of Great Depressionand put people back to work.

3 “R’s” : Relief, Recovery, Reform

At inauguration, FDR rallied a frightened nation in which 1 in 4 workers were unemployed. “We have nothing to fear, but fear itself.”

Corrected unsound banking and investment practices:“Bank Holiday” Federal Deposit Insurance Corporation (FDIC)-

Insured deposits up to 5,000.

New Deal in Action:

“Fire Side Chats” reassure American people

New Deal Alphabet Soup:

Works Progress Administration (WPA)-Gov’t building projects, direct payment to people for immediate help.

Civilian Conservation Corps(CCC)-

Young men to work building roads,parks, planting trees…$ to families***Blue Ridge Parkway

New Deal Alphabet Soup:

New Deal Alphabet Soup:

National Recovery Administration (NRA)-

Gov’t set prices and limited production.

“The making of industrial policy…should no longer be left to the market place and the price mechanism but should be placed in the hands of administrative bodies.” Gardiner Means—Economist

Growing militancy of unions.Wagner Act- protected right of workers to join unions and collective bargaining and set min. wage and hours.

Agricultural Adjustment Administration (AAA)-Recovery programs were designed to bring nation out of depression over time. Crop subsidies.Educational programs to promote soil conservation.

Social Security Act - Offered safeguards for workers,unemployment insurance, aid to disabled, elderly,and dependent children.

What explains the results of the 1936 election?

Why does Democratic control of the White House mark an important turning point in U.S. political history?