Causes of the Great Causes of the Great DepressionDepression

((America’s Economic Collapse America’s Economic Collapse 1929-1941) 1929-1941)

Prosperity in the 1920sProsperity in the 1920s

Seemingly unlimited Seemingly unlimited growth, opportunity, and growth, opportunity, and achievementachievement

•Nation’s income 43% Nation’s income 43% ($61-87B)($61-87B)

•Technology = productionTechnology = production

•Stock market at all-time Stock market at all-time highhigh

19291929

19211921

19321932

Dow Jones Dow Jones AverageAverage

The Depression ForeshadowedThe Depression Foreshadowed

• Rising unemploymentRising unemployment

• Farmers losing farmsFarmers losing farms

• Stock prices droppingStock prices dropping

• More impoverished More impoverished Americans =Americans =

fewer products soldfewer products sold

Stock Market 101Stock Market 101• Pay the current stock price to buy one or Pay the current stock price to buy one or

more shares of ‘stock’more shares of ‘stock’

• ‘‘Stock’ is partial ownership of a corporationStock’ is partial ownership of a corporation

• If others want to buy that stock, it becomes If others want to buy that stock, it becomes more valuablemore valuable

• If others do not, it loses valueIf others do not, it loses value

• ““Buy low, sell high!”Buy low, sell high!”

• Once you sell your stock, you get cash. Until Once you sell your stock, you get cash. Until you sell, you have a piece of paper!you sell, you have a piece of paper!

October 29, 1929October 29, 1929

““Sell!! Sell!! Sell!! Sell!! Sell!! Sell!! Sell!! Sell!! Sell!! Sell!! Sell!! Sell!! Sell!! Sell!!Sell!! Sell!!

Long-Term Causes of the Long-Term Causes of the Great DepressionGreat Depression

• Republican domestic and Republican domestic and international international economic policieseconomic policies

• Stock and real estate speculationStock and real estate speculation• Unregulated banking practicesUnregulated banking practices• Overproduction of goodsOverproduction of goods• Decline of the farming industryDecline of the farming industry• Unequal distribution of wealthUnequal distribution of wealth• THE STOCK MARKET CRASH THE STOCK MARKET CRASH

ALONE DID NOT CAUSE THE ALONE DID NOT CAUSE THE GREAT DEPRESSION!!GREAT DEPRESSION!!

Domestic Domestic Economic PoliciesEconomic Policies

• ““The business of America is The business of America is business.” – Laissez-fairebusiness.” – Laissez-faire

• ‘‘Trickle-down economics’Trickle-down economics’• Cut government Cut government

expenditures, lower taxes on expenditures, lower taxes on rich, higher taxes on middle rich, higher taxes on middle and lower classesand lower classes

Calvin Coolidge Calvin Coolidge (1923-1929)(1923-1929)

Herbert Hoover Herbert Hoover (1929-1933) (1929-1933)

Rich get richer ; Rich get richer ; Workers suffer!Workers suffer!

Increased production = who will buy all this Increased production = who will buy all this stuff!!stuff!!

Purchase machines = who needs workers??Purchase machines = who needs workers??

Rich use tax breaks to spend on themselves Rich use tax breaks to spend on themselves = wages low= wages low

International Economic PoliciesInternational Economic Policies

• European nations owe European nations owe U.S.A. billions!!U.S.A. billions!!

• US refusal to forgive or US refusal to forgive or reduce debtsreduce debts

• US lends more $$$ so they US lends more $$$ so they can pay us backcan pay us back

• Tariffs (import taxes) Tariffs (import taxes) keep Americans buying keep Americans buying American goodsAmerican goods

Dawes PlanDawes Plan

Real Estate SpeculationReal Estate Speculation• ““Speculation”– make a risky Speculation”– make a risky

investment in the hope to investment in the hope to “GET RICH QUICK!”“GET RICH QUICK!”

• California-Real estate boom California-Real estate boom goes bust (building permits goes bust (building permits 25%)25%)

• Florida-scams and Florida-scams and fraudulent practices doom fraudulent practices doom investorsinvestors

Unchecked Stock Market SpeculationUnchecked Stock Market Speculation• ““Virtual feeding frenzy” of buying and selling = Virtual feeding frenzy” of buying and selling =

value of a company’s stock was deceivingvalue of a company’s stock was deceiving• Crooked investors look for a quick profitCrooked investors look for a quick profit• Hoover: “Possible hard time [are] coming.”Hoover: “Possible hard time [are] coming.”

The 1929 Stock Market Crash!The 1929 Stock Market Crash!• Analysts warn of an end to Analysts warn of an end to

the ‘bull market’ (in which the ‘bull market’ (in which prices are constantly prices are constantly rising)rising)

• Investors begin to sell Investors begin to sell

stock prices fallstock prices fall

companies reduced companies reduced productionproduction

• Fortunes lost in a dayFortunes lost in a day– Investors lose $4B on the 28Investors lose $4B on the 28thth

and $16B on the 29thand $16B on the 29th

Unregulated Banking InstitutionsUnregulated Banking Institutions• Stock market crash Stock market crash

collapse of banking collapse of banking industryindustry

• ‘‘laissez-faire’ in the 1920s laissez-faire’ in the 1920s (speculation, no reserves, (speculation, no reserves, uninsured $)uninsured $)

• Banks’ over-extension of Banks’ over-extension of credit to stock investors credit to stock investors and brokers (buying on and brokers (buying on margin)margin)

The government The government that governs best, that governs best, governs least!governs least!

Pay 10% now Pay 10% now and the bank and the bank

fronts the other fronts the other 90%- your 90%- your

stock is your stock is your collateral!collateral!

• Families lose savings in Families lose savings in crash; banks have little crash; banks have little cash left on reservecash left on reserve

• Banks lose money Banks lose money loaned to ‘buy on the loaned to ‘buy on the margin’ (even people margin’ (even people who did not invest lost who did not invest lost out!)out!)

• People default on People default on mortgages due to mortgages due to unemploymentunemploymentBy 1932, ¼ of banks had By 1932, ¼ of banks had

closed (6000 banks)closed (6000 banks)

Banking Industry CollapseBanking Industry Collapse

Overproduction of Industrial and Overproduction of Industrial and Agricultural GoodsAgricultural Goods

Overproduction of Overproduction of Industrial GoodsIndustrial Goods

• Technological advances Technological advances change how Americans live change how Americans live and workand work

• In the Roaring 1920s:In the Roaring 1920s:– Consumer demand is very Consumer demand is very

highhigh

– Machine produce quality Machine produce quality products quicklyproducts quickly

– Unrestricted capitalismUnrestricted capitalism

• By 1929, supply greatly By 1929, supply greatly exceeds demand!exceeds demand!

Overproduction of Agricultural GoodsOverproduction of Agricultural Goods• American farmers had prospered during WWIAmerican farmers had prospered during WWI• Use profits to buy machines to produce moreUse profits to buy machines to produce more

• After WWI, demand drops surplus!After WWI, demand drops surplus!– Huge supply + Low demand = Low pricesHuge supply + Low demand = Low prices

Farming Industry DeclineFarming Industry Decline• Farmers borrowed from Farmers borrowed from

bank to buy machinerybank to buy machinery• Foreclosed on mortgages Foreclosed on mortgages

and other debtsand other debts• Banks closed due to Banks closed due to

defaults and stock marketdefaults and stock market• Between 1929 and 1933 Between 1929 and 1933

farmers’ income 50%farmers’ income 50%• One million families lose One million families lose

their farms by 1934their farms by 1934

Unequal Distribution of WealthUnequal Distribution of Wealth• Gap between the rich and poor widens in the 20sGap between the rich and poor widens in the 20s

• By 1929 1% of Americans have 59% of the wealthBy 1929 1% of Americans have 59% of the wealth

• In the 1920s average American’s wages up 9%In the 1920s average American’s wages up 9%

• In the 1920s income of rich up 75%!In the 1920s income of rich up 75%!

• Wealth DOES NOT ‘trickle down’Wealth DOES NOT ‘trickle down’

• Consumers in debt ; Cannot afford productsConsumers in debt ; Cannot afford products

•Failure of ‘Trickle-Down Failure of ‘Trickle-Down EconomicsEconomics

•Decline in international Decline in international commercecommerce

•Overvaluation of stocksOvervaluation of stocks

•Ill-advised banking practicesIll-advised banking practices

•Overproduction of goodsOverproduction of goods

•Collapse of agriculture industryCollapse of agriculture industry

•Unequal distribution of wealthUnequal distribution of wealth

Great Great Depression Depression

1929-19411929-1941

ConclusionConclusion

What do you think the What do you think the American people wanted? American people wanted?

What type(s) of change do you What type(s) of change do you think were about to happen?think were about to happen?

Questions?Questions?