Causes of the Great Depression ■The 1920s were a decade of consumer spending & the economy looked healthy on the surface: –Income did increase in the 1920s, but there were some severe problems with the U.S. economy –In October 1929, the “Roaring Twenties” came to an end & the Great Depression began…why?

Causes of the Great Depression

Causes of the Depression ■Weak Industries: –Mass-production of consumer goods led to overproduction –People did not need as many appliances & cars by the end of the decade (under-consumption) –Railroads, textiles, steel, coal mining, construction were barely profitable “Traditional industries” faced new competition in the 1920: Cars, synthetic clothes, natural gas

Overproduction of Consumer Goods Too much inventory…Not enough buyers

“Traditional” industries suffered in the 1920s Profits for Coal MiningProfits for Railroad Companies Corporate Profits for Coal and Railroad Industries,

Causes of the Depression ■Depressed Farming: –The end of WWI led to a decline in demand for agricultural products –Too much food led to a 40% drop in crop prices –Farmers could not pay back loans & many had their farms foreclosed –Some rural banks failed

Causes of the Depression ■Credit: –Many Americans used easy credit to live beyond their means –By “buying now & paying later,” Americans generated large debts –As a result, Americans cut back on spending by the end of the decade

Americans bought goods on credit & did not have much in savings accounts

Causes of the Depression ■Uneven Division of Wealth –Despite rising wages, the gap between the rich & poor grew wider in the 1920s –70% of Americans were considered “poor” –Most of the spending in the 1920s was done by 30% of the population

Distribution of Wealth in the 1920s * An income of $2,500 per year was considered the minimum amount needed for a decent standard of living

Causes of the Depression ■The Stock Market: –In the 1920s, the stock market soared & people speculated with stocks –Many people borrowed money to pay for stocks, called buying on margin –There was no regulation of the market & some companies altered stock values to raise profits

Buying Stocks on Margin

Causes of the Depression ■The Stock Market: –On October 29, 1929 (Black Tuesday) the stock market crashed –People rushed to sell, prices plummeted, & investors lost $30 billion –Speculators who bought on the margin, could not pay off their debts –Many lost their savings The stock market crash in October 1929 marked the beginning of the “Great Depression”

The U.S. stock market had only about 3 million active buyers & sellers but the spillover into the greater economy led to the Great Depression

Causes of the Depression ■Bank Failures: –After the crash, people tried to withdraw their money from banks –In 1929, 600 banks failed due to lack of funds & the inability to recoup loans –The failure of the banks left many Americans without their life savings

Bank & Business Failures,

Causes of the Depression ■Foreign Trade: –Post-war debts in Europe & high protective tariffs in America limited international trade –The Great Depression led to a global depression in Europe, Asia, & Latin America –World trade fell by 40%

A Global Depression

Causes of the Depression ■Consumer Confidence: –Millions of Americans lost their jobs or took pay cuts to keep jobs –The lack of confidence in the future kept people from spending money –The lack of spending made the depression drag on until the 1940s

Unemployment & Consumer Spending,

Effects of the Great Depression ■The Great Depression led to a collapse of the U.S. financial system –25,000 banks & 90,000 businesses failed by 1933 –Unemployment peaked at 25% –Many Americans lost their homes –America had record poverty & suicide rates; Fathers abandoned families; Healthcare declined –Private charities created soup kitchens & breadlines to help

Soup Kitchens & Breadlines

Mortgage Foreclosures

Poverty in America

The Dust Bowl ■The effects of the depression were made worse by the Dust Bowl: –Heavy droughts & over-farming in the West destroyed the Plains –In the early 1930s, windstorms swept away loose soil –Farmers in the Plains left their farms & searched for work or better land in West coast states

The Dust Bowl ( ) worsened the effects of the Depression Areas Affected by the Dust Bowl drought “Okies” & “Arkies”

President Hoover’s Response ■President Herbert Hoover initially rejected bold gov’t action in response the depression: –He tried to reassure Americans that prosperity would return –He called for volunteerism & “rugged individualism”— Americans need to work together to end the depression

President Hoover’s Response ■As the depression worsened, Hoover called for more gov’t action –The gov’t issued relief checks to help the unemployed Reconstruction Finance Corps –The Reconstruction Finance Corps (RFC) loaned money to failing businesses –Building projects like Hoover Dam ■These efforts did not end the depression & many citizens lost faith in President Hoover

Employment Agencies & Relief-Check Lines

Americans who lost their homes, lived in shantytowns nicknamed “Hoovervilles”

Conclusions ■The Depression of the 1930s came as a shock to Americans: –When the stock market crashed in 1929, businesses closed & millions were unemployed –Americans lost faith in Hoover & began looking for new leadership & an more active gov’t to solve their problems