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Crash & Depression

Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

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Page 1: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

Crash & Depression

Page 2: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

Economy in the late 1920s

• Everything seemed fine:– “regard the present with satisfaction and anticipate

the future with optimism.” – Calvin Coolidge– “poverty will be banished from this nation.” –

Herbert Hoover

• Medical advances less death from disease, lower infant mortality, longer life expectancy

Page 3: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• 1928 – Coolidge chose not to run again, and Hoover won easily– People trusted him:

• Organized food relief during WWI

• Secretary of Commerce for Harding & Coolidge

– Stock market was soaring: $27B in 1925 $87B in early 1929

– Workers in most industries were finally seeing wage increases

– Unemployment rate < 4%

Page 4: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• “Everybody Ought to Be Rich” – 1929 article by John J. Raskob– Americans, even those who weren’t particularly

wealthy, were encouraged to invest & play the stock market

– People were wildly buying stocks (often with borrowed money) and the gov’t did little to discourage this

Page 5: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• Welfare Capitalism – strategy of keeping unions weak by meeting some of workers’ needs (keeping them content)– Employers raised wages & gave benefits like paid

vacation and health plans– Made everyone feel “wealthy”

• Despite this feeling of prosperity, warning signs were lurking…

Page 6: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• DANGER SIGNS:– Uneven prosperity: “false” prosperity – not

everyone was wealthy (really only a tiny fraction), people were spending LOTS of money on stocks who shouldn’t have been

– Buying on credit: buying beyond your means = personal debt

– Playing the stock market: speculation – making high risk investments in hopes of high gain (many were “risking it all”); buying on margin – stock brokers let investors buy stock at partial cost (you owe him the remainder + interest)

Page 7: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

– Too many goods, too little demand: industries were OVERproducing (more than consumers could afford to buy); stocks had been rising, but were starting to stall/drop

– Trouble for farmers: high demand during WWI had fallen (so did farm prices); during prosperity, farmers bought new expensive equipment (on credit) – now can’t afford to pay it off

– Trouble for workers: many still working for low wage in poor conditions = sign that the economy is NOT healthy everywhere, and certainly that these people shouldn’t be playing the stock market

Page 8: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

The Stock market crash

• Market was soaring– Dow Jones Industrial Average (average of stock

prices of major industries) peaked at 381 in 1929

• Black Thursday– When market closed on Wednesday, Dow Jones

had dropped 21 pts in one hour– On Thursday October 24, 1929, investors started

getting worried about the falling stock value and began to sell. This caused stock prices to fall even MORE

Page 9: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• Black Tuesday– After Black Thursday, things stabilized for a few

days (extra investing by wealthy bankers), but by Monday they fell again

– On Tuesday October 29, 1929, investors desperately tried to sell their stocks & get out

– 16.4 million shares sold in that one day (usually 4-8)

– Led to the GREAT CRASH• Part of the business cycle, but went to extremes

Page 10: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• Great Crash first affected those who invested; but soon it rippled out & reached almost everyone, triggering the GREAT DEPRESSION (severe economic decline from 1929-WWII)

• Impacts– Income & profits fell

– Factories began to close (Ford in Detroit, 1931 – 75,000 people out of work)

– Restaurants & small businesses closed (customers couldn’t afford to go anymore)

– Farm prices fell (wheat: $1.04/bushel in 1929 $0.38/bushel in 1932)

Page 11: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

– Bank closures (people desperately withdrew deposits, overreaching reserves)

• Deposits = money given to banks (people’s accounts)

• Loans = money banks give to borrowers

• Reserves = amount of deposits not loaned out (actual money in the bank)

– Total deposits – total loans = total reserves

• Bank run = many depositors run into a bank all at once to withdraw their money

• Bank failure = since total reserves are usually much less than total deposits, bank can’t give everyone their money at the same time

Page 12: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

– International impact – downward cycle• France & Britain were still paying off debts to U.S. for

WWI

• Congress kept import tax high to support American business; unfortunately, this made it hard for France & Britain to sell to the U.S., which hurt THEIR economies

• Allies relied on reparation payments from Germany to pay debt to U.S.; BUT Germany was reliant on U.S. investing in German industry. With our depression, we stopped investing in Germany, and Germany wasn’t able to pay reparations, WHICH meant Allies weren’t able to pay U.S.!

Page 13: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

surviving the great depression

• Americans pulled together – At farm auctions, bidders kept bids low and often

returned the farms to the original owners– less effected families offered help from their

homes, displaying this “kind hearted woman” symbol:

Page 14: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• Political solutions– No calls for radical change– Some supported political reform movements that promised

more even distribution of wealth• Communist Party (100,000 popular votes in 1932)• Socialist Party (881,951 popular votes in 1932)

• Depression humor– Many Americans relied on humor to “laugh through the

pain”– Jokes & political cartoons– “Hoovervilles”, “Hoover shoes”, etc.– Babe Ruth criticized for requesting $80,000 salary, which

was higher than President Hoover’s. He replied, “I had a better year than he did.”

Page 15: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• Changes in the 1930s– Prohibition ended with the 21st Amendment

• Some upset, but most agreed it was a “failed social experiment”

– Empire State Building was created (developed by John J. Raskob)

• Created jobs

• Became the tallest building in the world (1,250 ft, 102 stories)

• Symbol of hope & accomplishment

Page 16: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

– End of “Roaring Twenties” era• 1931 – Al Capone put in jail (tax evasion)

• 1932 – Lindbergh’s infant son kidnapped & murdered

• 1933 – Calvin Coolidge died

• 1935 – Babe Ruth retired

• Lasting effects on the “Depression generation”– Saved money (“penny pinching”)– Avoided wasting anything– Avoided buying on credit– Distrust of banks (put $ in mattresses)

Page 17: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

The election of 1932• Hoover’s initial response to the Great Depression

– Blamed it on “world-wide economic conditions beyond our control”

– Strategy = voluntary action – getting businesses to promise to maintain wages

• Didn’t work – many businesses began cutting pay

• Further action– Gov’t-funded projects to create jobs (parks, roads, Hoover

Dam)– Hawley-Smoot tariff (1930) – high tax on imports

• Backfired: European nations started raising taxes on OUR goods

– Wanted state & local gov’t to handle relief effort, but they didn’t have enough money

Page 18: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• Hoover didn’t want to extend direct federal relief– Thought it would hurt people’s pride & make gov’t too big

• Bonus Army – summer of 1932, WWI veterans camped out in D.C. to demand their pension bonuses be paid immediately (they’d been told to wait until 1945)– Many left, but some stayed and it got violent

• Hoover’s challenger = Franklin Delano Roosevelt– NY Senate, NY Governor

– Promised a “New Deal” for America

– Had established unemployment & relief programs in NY

Page 19: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• Different approaches to gov’t role in GD– Hoover: The federal gov’t should not try to fix people’s

problems; we should not extend the federal gov’t; private relief efforts and support of big business will solve problem

– FDR: The GD requires federal intervention; the gov’t should step in more to solve large-scale problems like this

• Outcome– Landslide victory for FDR

– Some loved his policies, some just wanted ANYBODY but Hoover

– Marked a change in the way people viewed gov’t and its responsibilities

• More willing to accept gov’t intervention b/c it was a time of crisis

Page 20: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

FDR’s New deal• New Deal = FDR’s program of relief, recovery, and

reform aimed at combating problems caused by the Great Depression

• First Hundred Days = period at the start of FDR’s presidency when many New Deal programs were passed by Congress– GOALS:

• 1) restore faith in banks – passed the EBRA (Emergency Banking Relief Act), authorizing federal inspection of banks; Glass-Steagall Act created the FDIC (Federal Deposit Insurance Corp.) that insured deposits up to $5000

Page 21: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• 2) Give money to local relief agencies – FERA (Federal Emergency Relief Administration) helped states provide relief to their citizens in need

• 3) Create jobs – public works programs=gov’t funded programs to create jobs; PWA (Public Works Admin.) & CWA (Civil “ “) created jobs on gov’t projects (roads, bridges, parks, etc.); CCC (Civilian Conservation Corps) was a longer-lasting program that provided work in camps around the country.

• 4) Help business flourish – NRA (National Recovery Admin.) set prices and standards, limited production, guaranteed unionization rights

Page 22: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• 5) Reform the stock market – Federal Securities Act was passed & the SEC (Securities & Exchange Commission) was created; required companies to inform their stockholders (including the risk), worked to control buying stock on margin & insider trading.

• 6) Help homeowners – HOLC (Home Owners’ Loan Corp) gave loans at lower rates & allowed homeowners to refinance their mortgages to make more manageable payments; FHA (Federal Housing Admin.) gave loans for building and repairing homes.

• 7) Help farmers & rural workers – AAA (Agricultural Adjustment Admin.) controlled farm prices by paying farmers to lower production; TVA (Tennessee Valley Authority) built dams, creating jobs and providing flood protection and hydroelectric power in an underdeveloped area

Page 23: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• New Deal shortcomings– No MAJOR economic improvement yet

– Some concerned federal gov’t was becoming too powerful

– Supreme Court declared some programs unconstitutional (overreaching the separation of powers)

• Second New Deal – period of legislative activity launched by FDR in 1935– Created new agencies to fix unemployment

– More social welfare programs (Social Security system – system to provide security (regular payments) to people who could not support themselves)

• Some criticism, but widely successful

– New labor legislation (Wagner Act)

Page 24: Crash & Depression. Economy in the late 1920s Everything seemed fine: –“regard the present with satisfaction and anticipate the future with optimism.”

• FDR re-elected in 1936– Large majority of popular votes– Showed that despite criticism, most Americans

supported Roosevelt’s ideas for a New Deal