Chapter 21: Great Depression Section 1: Cause of the great depression

1920’s Prosperity During the 1920’s the US economy skyrocketed and people credited Republican Presidents Warren Harding and Calvin Coolidge Coolidge decided not to run for reelection in 1928 opening the door for Herbert Hoover who had been Sec of Commerce under both Harding and Coolidge Hoover’s solid record of accomplishments led him to an easy victory over Democrat Alfred Smith of NY who chose Franklin D Roosevelt as his VP candidate Hoover claimed that he would end poverty in the US, little did he know that an economic disaster was on the horizon

1920’s trouble Farmers made up 1/4th of the US workforce, they had increased production for the war and never recovered from the loans they needed to buy better equipment in order to produce such large quantities of food Throughout the 1920’s crop prices remained low due to massive surpluses and a rural depression had been a way of life while the rest of the country thrived Industrial workers did see improvements in the 1920’s with raises averaging 8%, but that was nothing compared to corporate profits being up 65% The rich got richer while the poor stayed poor, the wealthiest 1% earned the same amount as the bottom 42% To make matters worse, Americans had changed their opinion of credit and most used loans to buy cars, radios and even stocks

Causes of The Collapse of the Market Overspeculation: over 4 million investors with limited knowledge of how the markets work Short-sighted government policies: such as high protective tariffs which eventually lead to reciprocal tariffs against American products overseas Unstable Economy: growing unequal distribution of wealth Top 10% controlled 90% of the nations wealth Remaining 90% only shared 10% of the nations wealth Mergers: fewer government regulations led to more corporate mergers limiting competition

Credit system Why was this bad? People didn’t really have the money they were spending WWI The U.S. was a major credit loaner to other nations in need Many of these nations could not pay us back

The Stock Market People bought stocks on margins Stocks fall If a stock is $100 you can pay $10 now and the rest later when the stock rose Stocks fall Now the person has less than $100 and no money to pay back

As people panicked about their money, investors tried to sell their stocks This led to more selling and a rapid decline in prices Many stocks were now worthless People who had bought on “margins” could not pay back the money borrowed to purchase stocks Most investors were average people that were now broke And then….

Stock Market Crashes Because stocks were being bought with credit, prices were inflated, many investors looked to make quick money and sell (Speculation). Over 4 Million investors. Stocks began to slide in Sept of 1929, by Oct investors began to lose confidence they would recover…this lack of confidence caused the Market to crash October 29, 1929 is known as Black Tuesday: in one day 16 million shares were sold and billions of dollars were lost Hoover tried to tell Americans the market would recover, but it continued to fall into November and the boom of the 1920’s was over

Causes of the Depression John Maynard Keynes blames the lack of government intervention in the economy, meaning when the economy began to collapse the government should have stepped in and provided more money to circulation to ease the pain of the economic collapse (Demand-Side Theory: provide money or jobs to put more spending cash in the hands of the consumers who do the majority of spending to stimulate the economy) Keynes would also argue that the US government should have stepped in to stop the uneven distribution of wealth, stock speculation and production of goods throughout the 1920’s. Historians do agree on the fact that those factors combined with poor decisions by Congress and the President ultimately led to the worst economic disaster in the nations history

The Great depression Begins With confidence in the US economy at a new low, investors withdrew their savings from banks when banks ran out of cash they were forced to close and investors who hadn't withdrawn funds lost everything (No FDIC) The fear often led to “Runs on the bank” by panicked depositors hoping to get their money out before banks closed From 1929-193, there was a steady closing of banks across the country, over 500 closings by 1932, some wondered if the banking system would survive at all With peoples life savings gone, they could not purchase goods, which caused businesses to produce less, with that lesser production came fewer jobs (Snowball effect) By 1933, between 25%-33% of Americans had lost their jobs

What about the people? Farmers were already feeling the effects Prices of crops went down Many farms foreclosed People could not afford luxuries Factories shut down Businesses closed Banks could not pay out money People could not pay their taxes Schools shut down due to lack of funds Many families became homeless and had to live in shanties

President Hoover Herbert Hoover was president at the start Philosophy: We’ll make it! What He Did: Nothing The poor were looking for help and no ideas on how to correct or help were coming When he finally began to see a problem, it was “Too little, too late”

Depression goes Global Page 707-708 What was the Hawley-Smoot Tariff? What was its intention and what did it actually do? What other European problems helped the Depression become a worldwide problem? What was the effect of Germany refusing to make war reparation payments?

Cause #6 Private Investors wanted their money back: The US, who loaned money to France and GB in WW1 wanted money back. GB and France forced Germany to pay war reparations. Germany was broke so they asked the US for cash. The US began loaning the Germans money but stopped due to the faltering German economy. Germany, without any money coming in decides to print more to pay the off debts and its workers. German money quickly became literally worthless.

Causes of the Great Depression Some historians believe the Stock Market Crash and bank failures simply left too little money in circulation for the economy to function. Many blame the policies of Sec. of Treasury Andrew Mellon and Supply-Side Theory: a. tax cuts to wealthy in hopes they create jobs with the extra money b. cuts in government spending (less regulation leading to more mergers and less help to the poor) c. high protective tariffs: Fordney-McCumber Tariff

Causes of the Depression John Maynard Keynes blames the lack of government intervention in the economy, meaning when the economy began to collapse the government should have stepped in and provided more money to circulation to ease the pain of the economic collapse (Demand-Side Theory: provide money or jobs to put more spending cash in the hands of the consumers who do the majority of spending to stimulate the economy) Keynes would also argue that the US government should have stepped in to stop the uneven distribution of wealth, stock speculation and production of goods throughout the 1920’s. Historians do agree on the fact that those factors combined with poor decisions by Congress and the President ultimately led to the worst economic disaster in the nations history