Events and Ideas #1 1920’s Weaknesses in Key Sectors of the Economy US History Unit 4

Essential Question: How did the social, economic, and political issues of the 1920’s contribute to the Great Depression?

Directions for this PowerPoint: For each slide, on the left column under the heading, write and highlight which issue(s) the slide pertains to: social, economic or political

Definitions: (write the full definition of each) Social Political Economic Definition: The facts and experiences that influence individuals' personality, attitudes and lifestyle Definition: Those factors that determine monetary issues whether personal, business, or government and thus effect how money is spent Definition: Relating to the government or public affairs of a country

The Roaring Twenties The United States prospered in the 1920’s Increased availability of consumer goods, such as electric appliances and automobiles, offered to make life easier. Americans felt they deserved to reward themselves after the sacrifices of World War I. What was happening in the 1920s that encouraged people to spend money?

This led to a high demand for such goods, so companies began to produce more and more, in order to meet that demand.

After reading this, answer this question: How did consumerism increase in the 1920s?

Business Average output per worker increased 32% in manufacturing Corporate profits rose 62%

Credit and Under-Consumption The poor and middle class wanted to possess luxury items, such as cars and radios Wages were not keeping up with the prices of goods, so buying on credit offered a solution Is this still the situation today? __ List six things…. YET, under-consumption of goods did exist - more products were made than people could afford to buy One solution to the problem was to let products be purchased on credit. The concept of “buying now and paying later” caught on quickly.

Agricultural Output During WWI, European farms were in ruin American farmers increased output to provide food to the Allies and supply the troops To increase their profit they attempted to increase their levels of production Many borrowed money to buy new land and machinery

Farm Subsidies The government also subsidized farmers during the war, paying high prices for wheat and grains. When the subsidies were cut, it became difficult for many farmers to pay their debts when commodity prices dropped to normal levels. Definition: a sum of money granted by the government to assist an industry or business so that the price of a commodity may remain low or competitive.

After the War ended… European countries began to restore their own agriculture so demand for American foodstuffs dropped Prices for crops fell and many farmers could not pay back loans In attempt to pay their debts many farmers borrowed more money using their farms as collateral for the loan. Why would it become an issue for farmers to borrow money using their farms as collateral? _______________ At the end of World War I, the destructive effects of the war and the surrender burdens enforced on the Central Powers of Europe bankrupted much of Europe, closing major export markets in the United States and beginning a series of events that would lead to the development of agricultural price and income support policies.

Falling Prices in the 1920’s 180 160 Price per bushel or pound 140 120 100 80 60 40 20 Wheat Corn Cotton

Factors working against American Farmers New man-made fibers decreased the demand for cotton European countries could buy cheaper food from Canada, Russia, and Argentina Cause: American trade tariffs stopped foreign countries exporting manufactured goods to the US Effect: Those countries had less money to buy American wheat and cotton The Fordney–McCumber Tariff of 1922 was a law that raised American tariffs on many imported goods in order to protect factories and farms. Congress displayed a pro-business attitude in passing the tariff and in promoting foreign trade through providing huge loans to Europe, which in turn bought more American goods. The Roaring Twenties brought a period of sustained economic prosperity The prosperity ended in late 1929, and the tariff was revised in 1930.

So, to summarize it: HIGH DEMAND for consumer goods and agricultural products led to… OVERPRODUCTION!

Start your list (get a hard copy or download from assignments): Causes of the Great Depression… Overproduction and under-consumption of goods and agricultural products Buying goods (necessary /luxury) on credit

The Federal Reserve In the 1800’s banks often closed during economic crises. People lost what money they had in banks. Federal Reserve was established by President Wilson in 1913. What was the purpose of the Federal Reserve? Its purpose is to prevent bank failures and regulate the supply of money. The Federal Reserve System was created on December 23, 1913. The task of the Federal Reserve System is to maintain employment, keep prices stable, and keep interest rates at a moderate level by regulating monetary policy. Components of the Federal Reserve System also supervise banks, provide financial services, and conduct research on the United States economy and the economies in the surrounding region.

Federal Reserve In the early years, the Federal Reserve kept interest rates low and encouraged borrowing that led to excessive debt. People bought stock on credit, which meant huge losses when stocks did not rise.

Stock Market A method of buying and selling shares of a company. It allows a company to raise money. It allows businesses to go public, or raise capital for expansion. Stock market = stock exchange. Pictures – 1920’s stock certificates and 1920’s picture of the stock market During the 1920s, Virginia Representative Carter Glass warned that stock market speculation would lead to dire consequences.  In October 1929, his predictions seemed to be realized when the stock market crashed, and the nation fell into the worst depression in its history. From 1930 to 1933, nearly 10,000 banks failed, and by March 1933, newly inaugurated President Franklin Delano Roosevelt declared a bank holiday, while government officials grappled with ways to remedy the nation’s economic woes. Many people blamed the Fed for failing to stem speculative lending that led to the crash, and some also argued that inadequate understanding of monetary economics kept the Fed from pursuing policies that could have lessened the depth of the Depression. “Okies”

Buying on Margin To maximize investment, investors bought on margin with a down payment. A $1,000 investment could get you $10,000 in stock. Stockbroker loaned you $9,000 (commission and interest). Margin call = full payment due. As long as stock kept rising, buying on the margin was safe. Once $10,000 in stock hit $11,000, you could sell, repay the loan and interest and walk away with $1,000 profit. You have doubled your money. Bull markets last only as long as investors keep putting more money into the market. Life in a tent.

Bull Market A long period of rising stock prices on the stock market. Late 1920s, Americans invest heavily in stocks. By 1929, 3 million Americans (10% of households) owned stock. Investors buying in mass = herd (bull is a herding animal). Photo shows the 7,000 pound statue, called 'Charging Bull,' located near Wall Street in New York's financial district (current day photo)

Banks in the 1920’s Banks loaned money to stock speculators… …then banks invested depositor’s money in the stock market. How could this be a problem in the future?

Add to your list: Causes of the Great Depression… Federal Reserve kept interest rates on loans low, encouraging people to borrow money Investors bought stock on margin Banks loaned money to stock market speculators Banks invested bank money in stocks

Essential Question: How did the social, economic, and political issues of the 1920’s contribute to the Great Depression?