The

Great Depression

Causes of the Great Depression

1. Stock Market Crash of 1929 • $40 Billion dollars in stockholder money gone• Led to decrease in confidence. • Investors & businesses less likely to invest

• Banks had invested money in the stock market & lost it

Causes of the Great Depression2. Lack of diversification in the economy• 1920’s prosperity depended largely on construction &

automobile industry• Late 1920’s: construction & auto industries declining • Construction: 1926: $11 Billion 1929: $9 Billion• Automobiles: Decreases 33%

3. Extremely unequal distribution of wealth leads to overproduction.• Wages didn’t rise in proportion to manufacturing productivity

(Manufacturing increases/consumption decreases)• 71% of Americans live on below $2,500 per year

– Americans too poor to buy the goods American industry is producing

Americans stop purchasing Businesses decrease production Workers eliminated Raising unemployment

Causes of the Great Depression

4. Credit & Investment• Farmers heavily in debt to banks for land &

equipment– Crop prices decrease (86%) Farmers unable to repay loans Farms foreclosed . . . Unemployed farmers

Causes of the Great Depression

• Investors who had “bought on margin”• Lenders “call in” loans . . . Investors go broke and

default or lost investments• Banks investing deposits in the stock market• Loose money. Constrict credit. Bank runs. Bank failures

5. Destabilizing of American/European Trade• After WWI, Europe reliant on American agriculture &

manufacturing. Part of reason for U.S. economic growth of 20’s. • European demand for American goods declines in late 1920’s. – European manufacturing & agriculture rebuilding – European economic troubles due to post-War debt

Causes of the Great Depression

• Hawley-Smoot Tariff (1930)- American protective tariff against foreign goods.- 33 foreign governments react by raising tariffs on U.S.- Fewer exports fewer goods sold decreased production

Decreased profits Rising unemployment

The

Effects of the

GREAT DEPRESSION

What happened to many banks?

• Many banks “speculated” in the Stock Market in 1920’s (Invest w/depositors $)

• After the Crash, some banks closed because they lost depositors savings in the 1929 Stock Market Crash.

• Fear & uncertainty leads to . . .

BANK RUNS

What is a Bank Run?When a large number of people withdraw their money from a bank at the same time out of fear the bank will “go under”

Bank Run:

• 1929 – 1933: 9,000 banks close• Depositors lost $2.5 Billion• Banks stopped lending money & calling in loans

What happened to farms?• Many farmers in debt to banks for

land & equipment• Price of agricultural goods

decreases Decreased income for farmers

• Thousands of farmers unable to make payments to banks for land/equipment loans• 1933: 364,000 farms foreclosed on

The Dust BowlTo make matters worse . . .

• Irresponsible farming practices• Drought• Wind storms lead to dust storms

Okies – Migrants who fled the Great Planes because of the dust bowl

What happened to employment?• As GDP fell, unemployment increased• 1930: 4.2 million unemployed (9%)• 1933:12.6 million unemployed (25%)

What was the unemployment rate in Harlem in 1932?

50%

What was life like for the unemployed?

“They hung around street corners and in groups. They gave each other solace. They were loath to go home because the were indicated, as if it were their fault for being unemployed. A jobless man was a lazy good-for-nothing. The women punished the men for not bringing home the bacon, by withholding themselves . . . The men suffered from depression . . . They were ashamed of themselves . . . They avoided home.” – Nathan Ackerman (Psychiatrist)

What was life like for the unemployed?

What happened to thousands of Americans as a result of unemployment?

HOMELESSNESS

Where did many homeless Americans live?

“Hoovervilles”Shantytowns of homeless

built outside of cities . . . named after President

Hoover

“Hoovervilles”

Others became

“Hoboes”

• Unemployed (usually) men who led a migrant lifestyle traveling from town to town on foot or railroad car • Estimated 2 million men became hoboes

How did Herbert Hoover attempt to deal with the economy?

• Tried to restore public confidence in American economy– “The fundamental business

of this country, that is, production & distribution of commodities is on a sound and prosperous basis.”

DID IT HELP?

Hoover & the Depression• Tried to stay inactive . . .

Believed the government should keep “hands off” . . . Economy would fix itself

• Tried to convince businessmen not to cut production or lay of workers– Could not stop the declining

economy

Hoover & Government Spending• Increased government spending

& involvement to improve economy– Agriculture Marketing Act – Tried

to help farmers maintain prices.– Funded construction of Boulder

Dam (Hoover Dam) to provide electricity & clean water to western states.

– Reconstruction Finance Reform – Emergency funding for banks

Did Hoover’s succeed?• Many Americans blamed Hoover for

the economic decline• Believed he was too aloof and

inactive and that he should have been more active in trying to help Americans• Reforms generally helped banks