The Great Depression The BIG Picture: The boom times of the 1920's had never reached into all sectors of the economy. Much of the prosperity rested on shaky foundations. In 1929 the economy's underlying weaknesses were exposed. The stock market collapsed, and the nation plunged into the worst economic depression in its history.

economy

• the management of the resources of a community, country, etc., especially with a view to its productivity.

• A system for people to get the things they need

1. The Nation's Sick EconomyA) Industries in Trouble•A number of key basic industries, such as textiles, steel, and railroads, barely made a profit. RR's lost business to new forms of transportation (trucks, buses, automobiles). •Mining and lumbering, which expanded during WWI, now faced a large decline in the demand for these goods. Coal mining was especially hit hard because of the competition from new forms of energy, including hydroelectric power and natural gas.

• The construction of new houses fell by 25% between 1925 and 1929. Housing starts or the number of new dwellings beginning construction are an important economic indicator, because house construction has spinoff effects on other industries such as building materials, new furnishings, new equipment, new appliances, and provides jobs in construction.

So what’s an economic

indicator?

Statistical data showing

general trends in the

economy. Ex: Housing starts,

unemployment, stock market

prices, & industrial

production.

B) Farmers Need a Lift•Agriculture suffered the most in the 1920's. During WWI, the demand for crops such as wheat and corn soared, causing the prices to rise. Farmers took out loans to buy more land and new equipment. After the war, the demand for farm goods fell and crop prices declined by 50% or more.•Many farmers went into debt trying to pay off loans and many lost their farms when the bank foreclosed and seized the property as payment for the debt. As farmers began to default on their loans, many rural banks began to fail.

List all sectors of the economy facing trouble during the 1920’s.

C) Consumers Have Less Money to Spend• Americans were buying less mainly because of

1. rising prices, 2. stagnant wages, 3. unbalanced distribution of income, and 4. over buying on credit in the previous

years.

Superficial Prosperity• Many Americans appeared

prosperous during the 1920's, but they were living beyond their means. They often bought on credit or used installment buying causing Americans to pile up a large consumer debt. Many people had trouble paying off their debts so they cut back on spending.

D) The Stock Market Comes Tumbling Down

• Most Americans were unaware of the economic disaster that was around the corner and continued to have confidence in the economy. (False sense of security)

Many invested in the stock market and during the 20's stock prices rose steadily. This is known as a bull market - a period of rising stock prices.

• As prices continued to rise, many investors were engaging in speculation - they bought stocks and bonds on the chance that they might make a quick or large profit, ignoring the risks. As a result, the price of stocks had little relationship to the dividends the stocks paid.

• Investors were also buying on margin - paying a small percentage of the stock's price as a down payment and borrowing the rest. Stockbrokers were willing to lend up to 75% of a stock's purchase price, so buying on margin became rule. This worked as long as prices continued to rise. If stocks declined, there was no way to pay off the loan.

• The Federal Reserve System, which serves as the nation's bank, attempted to make it more difficult for stockbrokers to borrow cash to allow investors to buy on margin.

• In early September 1929, stock prices peaked and began to decline. Many investors sold their stock and pulled out of the market. On October 24th 1929, the market took a plunge and panicked investors unloaded their shares.

• October 29th 1929 known as Black Tuesday - the bottom fell out of the market. People and corporations tried to sell off stocks before the prices plunged even lower. Individuals who bought stocks on credit acquired large debts as the prices fell. Others who put most of their savings into the stock market lost a large portion of their nest eggs.

• 16 million shares were dumped that day. By mid-November, investors had lost $30 billion - the equivalent to American spending in WWI. The stock market bubble finally burst.

E) Causes of The Great Depression•The stock market crash signaled the beginning of the Great Depression - the period from 1929 to 1941 in which the economy was in a severe decline and millions of people were out of work. A common set of factors contributed to the Great Depression 1. An old and decaying industrial base 2. A crisis in the farm sector (Over Production) 3. The availability of easy credit 4. An unequal distribution of income

F) The Effects of the Crash•The impact on individuals: Many lost years of gains and watched their fortunes disappear. Margin buyers were left with large debts to pay and had to sell off stocks for much lower than its purchase price.

• Effects on banks: Many rushed to the banks to withdraw their money, draining the banks of funds. Many banks had invested in the market too. Banks also made loans to the stockbrokers who loaned the money to investors to buy on margin. Loan failures eventually drove many banks out of business.

• Effects on business: Banks and investors were unwilling or unable to provide industries with the money it needed to grow and expand. Consumers were spending less and many companies began to lay off workers.

• Effects overseas: Europe suffered through much of the 20's with high debts from WWI. Congress made a bad situation worse by passing the Smoot-Hawley Tariff Act which established the highest protective tariff in U.S. history. It was designed to protect American farmers and manufactures from foreign competition. Other countries responded with their own tariffs resulting in a worldwide decline in trade and economic activity.

What was the goal of the Smoot-Hawley Tariff Act?

What was the result of the Smoot-Hawley Tariff Act?

2. Hardship and Suffering During the Depression

A) The Depression in the Cities•Many people who lost their jobs could no longer afford to pay their rent or mortgages and ended up living on the streets. Large shantytowns - little towns consisting of shacks - sprang up on the outskirts of cities which came to be known as Hoovervilles.

Louisville flood victims line up for relief, ironically, in front of a billboard extolling the American way in 1937.

• The urban poor could be seen scrounging for food, digging in garbage cans or begging on street corners. Soup kitchens - places where food is offered free to the needy - and bread lines - lines of people waiting to receive food provided by charitable organizations or public agencies - became a common sight in the cities.

B) The Depression in Rural Areas•Life in the rural areas was hard, but it did have one advantage over city life: most farmers could manage to grow some food to feed their families.•The prices of crops continued to fall and many farmers lost their land when they couldn't pay their debts (foreclosure).

C) The Dust Bowl•The drought that began in the early 1930's wreaked havoc on the Great Plains. Farmers had used tractors in the previous decade to break up the grasslands and plant millions of acres of new farmland. The land was exhausted through overproduction of crops and the land became unsuitable for farming.

• Little grass and trees were left to hold the soil down as the drought and winds picked up causing major dust storms that covered just about everything in its path.

What issues caused the environmental crisis known as the dust bowl?

• Thousands of farmers were forced to leave their land behind and headed out West to California. These migrants were called Okies - originally referred to Oklahomans, but came to be used negatively for all the migrants. Some found work as farm hands, but others continued to wander in search of work.

Effects on the family•Making ends meet was a daily struggle and in some cases, families broke apart under the strain.•Many men had difficulty coping with unemployment because they were accustomed to working and supporting their families. Approximately 2 million men wandered the country in search of jobs, hitching rides on railroads or boxcars and sleeping under bridges (hobos).

• Children also suffered great hardship. Poor diets and lack of money for health care led to serious health problems.

• Falling tax revenues also caused many schools to close or reduce the school year. This sometimes forced children to work in sweatshops under horrible conditions.

Psychological Impact•Some people were so demoralized that they lost their will to survive. Between 1928 and 1932, the suicide rate rose by nearly 30%. •The stigma of poverty and having to scrimp and save never disappeared completely. Achieving financial security became the primary focus in life.

3. Hoover Struggles with the Depression

A) Hoover Tries to Reassure the Nation•Many economists believed that the economy would fix itself. Hoover believed that the economy should be allowed to function with minimal intervention, but he felt that the government could play a role in helping resolve the economic problems.

• Hoover strongly believed in "rugged individualism" - the idea that people should succeed through their own efforts - and take care of their families, rather than depend on the government to bail them out. He opposed any form of federal welfare and thought that it would weaken people's self-respect and undermine the nation's moral fiber.

• In the 1930 Congressional elections the Democrats took advantage of the anti-Hoover sentiments and won more seats in Congress. Criticism of the President and his policies continued to grow.

B) Hoover Takes Action•Hoover started to direct federal funds into projects such as building the Hoover Dam, which was designed to jump-start the economy and add jobs.

• Congress allowed $800 million for the public works program to build large projects in an effort to stimulate business and provide jobs for unemployed workers.

• Many of Hoover's measures failed to turn the economy around and with an election around the corner he appealed to Congress to pass a series of banking reforms. The Federal Home Loan Bank Act was passed which reduced mortgage rates for homeowners and allowed farmers to refinance their farm loans and avoid foreclosure.

• The President's most ambitious economic measure was the Reconstruction Finance Corporation (RFC) which authorized emergency financing to banks, life insurance companies, railroads and other large businesses. This was intended to pump new life into the economy by fueling business expansion. He believed the money would trickle down to the average American through job growth and higher wages.

• Many critics argued that only large corporations would benefit and hungry Americans could not wait for the benefits to trickle down to their tables.

• The RFC was an unprecedented example of federal involvement in a peacetime economy, but in the end, it was a little too late.

Give three different actions taken by the Hoover Administration, aimed at jump starting the economy.

Public works program, ie. Hoover DamPublic works program, ie. Hoover Dam

Federal Home Loan Bank ActFederal Home Loan Bank Act

Reconstruction Finance CorporationReconstruction Finance Corporation

C) The Bonus Army•Gassing the Bonus Army (1932) was yet another incident that further damaged Hoover’s reputation.•Approximately 15 thousand WWI veterans and their families arrived in Washington, D.C. to support the Patman Bill.

• The Patman Bill authorized the government to pay a bonus to the WWI veterans who had not been adequately compensated for their wartime service. This bonus, which Congress approved in 1924, was supposed to be paid out in 1945, but Congressmen Patman believed that it should be paid out immediately.

• Hoover opposed the legislation, but he respected the veteran's right to peacefully assemble. However, when the Senate voted down the legislation, Hoover ordered the Bonus Army to leave.

• Nervous that the angry group could become violent, Hoover ordered the Bonus Army to be disbanded and sent troops with guns, bayonets, and gas to put an end to the assembly. More than 1,000 people were gassed including an 11 month old who died.

• Most Americans were stunned and outraged at the government's treatment of the veterans.

• The downturn in the economy and Hoover's inability to effectively deal with the Depression had sealed his political fate as the next Presidential election was nearing.