Every Picture Tells a Story....The Great Depression

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Causes of the Great Depression
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Prosperity Hides Trouble

• The Roaring Twenties had been a Republican
  decade.
• Harding and Coolidge
• Both Presidents watched the country grow
  increasingly prosperous.
• Consumption went up and the stock market went up.
• Republicans took credit for the economy and
  Americans agreed.

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Herbert Hoover

• 1928 Republican National Convention
• Nominated Herbert Hoover
• He was born in Iowa but orphaned.
• Went to Stanford and earned a degree in Geology.
• He became a mining engineer and traveled the
  world.
• He became wealthy and retired from engineering
  and devoted the rest of his life to public
  service.
• He was first noticed during WWI.
• He coordinated the Belgium relief program and
  then as head of the Food Administration.
• He served as Secretary of Commerce in the Harding
  and Coolidge administrations.

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Problems Plague Agriculture

• Farmers made up ¼ of the American workforce
  during the 1920s.
• To meet demands during WWI, they increased food
  production and harvest and bought more land to
  farm.
• They sunk money into tractors and other
  mechanized equipment.
• Huge debts loomed over their heads.
• After the war, crop demands fell dramatically.
• Farmers were failing to sell their crop surpluses
  and pay the debts they owed to banks.
• The result was a rural depression.
• Farmers did not share in the good times of the
  20s.
• The majority lived on credit month to month.

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Wealth is Distributed Unevenly

• More than 60 of all American families had
  yearly incomes of less than 2000.
• 24,000 of the countrys wealthiest families
  enjoyed annual incomes of more than 100,000,
  which was 50 more than what most families were
  earning.
• Since there was so few wealthy, there was no way
  they alone could buy enough consumer goods to
  keep the economy booming.
• A healthy economy needs more people to buy more
  products, which in turn creates even more wealth.
• From the overproduction of the farmers to the
  undersconsumption of the lower-income industrial
  worker, created instability.

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Easy Credit Hides Problems

• Americans bought cars, appliances, radios, etc.
  on credit.
• By the end of the decade, 80 of radios and 60
  of cars were purchased on installment plans.
• Americans bought stocks on credit.
• With each year, Americans were accumulating more
  debt.
• Too many people were living beyond their means
  for too long.

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The Stock Market Crashes

• Early 1929, stock prices soared.
• Many economists agreed that too much money was
  being poured into stock speculation.
• Investors were risking their money that stock
  increases would turn into quick profits.
• Sept. 3, 1929- the stock market began to lag.
• Prices peaked and then started going down.
• By the end of Oct. the decline gave way to a free
  fall.
• Dow Jones average dropped 21 points in 1 hour on
  Oct. 23
• People and investors lost confidence and that
  very attitude kept the market up for so long.

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The Stock Market Crashes

• Oct. 24-investors became nervous and began
  selling their stocks.
• Stock in General Electric once sold for
  400/share and was now worth 283/share.
• Oct. 29, Black Tuesday-more than 16 million
  shares were sold and the market collapsed.
• Billions of dollars were lost
• Fortunes were wiped out in a just a few hours
• People who bought stock on installment plans were
  financially ruined.

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The Great Depression Begins

• 1929-1941-economy faltered and unemployment
  soared.
• The stock market crash did not start the
  depression by itself, it did spark a chain of
  events that collapsed the U.S. economy.

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The Banks Collapse

• The crisis in confidence continued as frightened
  people tried to withdraw their money from their
  banks.
• Run- requests by the majority of a banks
  depositors to withdraw money.
• 1929- 641 banks failed.
• 1930- 1,350 failed.
• 1931- 1,700 went under.
• Federal Reserve-regulates the amount of money in
  circulation.
• During the 20s, the Fed cut interest rates in
  order to stimulate economic growth.
• 1929- the Fed limited the money supply to
  discourage lending but there was too little money
  in circulation to help the economy come back up
  after the crash.
• When stock prices fell, investors went to their
  banks to secure whatever hard money they had
  left, the banks were cleaned out of currency and
  were forced to close.

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Businesses Close and Unemployment Rises

• Reduced consumer spending
• Production is cutback to maintain price levels.
• Layoffs to reduce payroll.
• Company stock fell forcing companies to close
  plants and layoff workers.
• August, 1931- Henry Ford closed several Detroit
  factories, putting nearly 75,000 people out of
  work.
• Americans lost their jobs.
• No jobs No Spending less .
• 1933, 25 of Americans had no job.

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Tariffs

• Government wanted to protect American business
  from foreign competition.
• 1930-Congress passed the Hawley-Smoot Tariff
  which raised prices of foreign imports to such a
  level that they could not compete in the American
  market.
• European countries retaliated and did the same
  thing.
• The H-S Tariff only added to the problems.
• It hurt international trade which was disastrous
  to the global economy.

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Depression Goes Global

• 1930-Germany stops paying reparations which
  violates the Treaty of Versailles that ended WWI.
• European countries experienced the same cycle of
  business failures, bank collapses, and high
  unemployment rates.

U.S. profits plummet.
Europeans cannot afford American goods.
U.S. investors have little or no money to invest
abroad.
Worldwide Depression
European production plummets.
European nations cannot pay off war debts.
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What Caused the Great Depression?

• Historians and Economists disagree on the exact
  causes.
• John Maynard Keynes-believed the lack of govt.
  interference in the economy was the reason.
• He thought the govt. should spend more money to
  keep people employed when the economy slows.
• Milton Friedman- believed that the reason was a
  contraction in the money supply. The twin events
  of the stock market crash and the run on banks
  left too little money in circulation.
• Problems with consumption, coupled with an uneven
  distribution in wealth and overspeculation in the
  stock market, created the conditions which with
  poor or misinformed economic decisions by
  Congress and President Hoover resulted in the
  Great Depression.