The Great Depression and the New Deal (1928-1941) Lesson 1 Causes of the Depression

The Great Depression and the New Deal (1928-1941) Lesson 1 Causes of the Depression Learning Objectives Identify how weaknesses in the economy in the 1920s caused the Great Depression. Explain why the stock market crashed in 1929 and the crash’s effect on the economy. Describe how the Great Depression deepened in the United States and spread overseas. Identify the causes of the Great Depression and discuss how historians’ differ about them. business cycle Herbert Hoover speculation Black Tuesday Great Depression Hawley-Smoot Tariff

1920s Economic Changes: Ford & Conservatives in Economic Boom Economic Boom: widespread construction jobs; new technologies; high demand 2ND Industrial Revolution New Products & Technology Radio, refrigerators, vacuums, cars Assembly Line + Henry Ford NOT inventor of automobile but of assembly line – makes production easier = more, cheaper cars Wealthier, in-debt Americans Installment Payments (credit) Farming Bankruptcies + Income Inequality Conservative Presidents & Laissez Fair Capitalism Warren G. Harding (1920-23) Calvin Coolidge (1923;1924-8)

1920 Election: Pres. Warren Harding Warren G. Harding of Ohio: returning America to "Normalcy" Americans eager to turn inward and evade international issues.; tired of the idealism/sacrifice of Progressive Reforms. Harding’s conservative economic philosophy (carried out by Coolidge & Hoover) Conservatives believed role of gov’t was to make business more profitable. Government’s role should be limited; stay out of business (laissez faire) Businessmen should run the government as they had experience in management Rejected federal gov’t programs to help citizens; local communities/charity should be responsible Less Taxes: for corporations and the wealthy Premise: high taxes forced investors to invest in tax-exempt securities rather than in factories that provided economic growth. "trickle down" economics” Smaller net return to the Treasury than moderate taxes. Tax burden shifted to middle-class High Tariffs: Fordney-McCumber Tariff (1922) Businessmen feared cheap goods coming from a recovering Europe. Tariff rates pushed from 27% (Underwood Tariff) to about 38.5% (almost as high as the Payne-Aldrich Tariff of 19 Less Regulation: Harding appointed people to regulate agencies that didn't like regulation Interstate Commerce Commission dominated by men sympathetic to the managers of railroads.

Main Causes for the Crash Farming Troubles Too many crops during the 1920’s Earliest prediction of economic collapse Over Speculation / Buying on Margin Over speculation in the Stock Market Barrowing $ to invest Buying on Credit Buy now, Pay later Increased debt Gap between Rich and Poor Economy was uneven Bank Failures Harding, Coolidge and Hoover http://www.history.com/topics/1929-stock-market-crash/videos#1929-stock-market-crash

#1: Farmer Troubles No industry suffered as much as agriculture WWI First sign of economic trouble WWI Farmers had to produce for the war effort After WWI Demand plummeted Decrease in profits Increased debt Farmers foreclose their farms 4,000 farmers

Why might this be a problem? #2. Over Speculation Speculation: Too many Americans were engaged in speculation buying stocks & bonds hoping for a quick profit Thought economy would always “boom” Margin: Americans were buying “on margin” – paying a small percentage of a stock’s price as a down payment and borrowing the rest Buying stock EX: cost of stock $100 Person paid $25 Borrows $75 Pays 20% interest Why might this be a problem?

#3: Living On Credit: Credit – Decreased Spending Many Americans were living beyond their means. Credit – an arrangement in which consumers agreed to buy now and pay later for purchases. Buy now and Pay later = Consumerism & Debt Lower wages + lost income = can’t afford debt Decreased Spending By the late 1920s, American consumers were buying less (they couldn’t afford it – they were maxed out) Wages for workers decreased Over Production

#4 -Gap Between Rich And Poor: The gap between rich and poor widened Wages did not increase enough / prices of goods increased Consumers stopped buying products Employers were forced to layoff workers The wealthiest 1% saw their income rise 75% The rest of the population saw an increase of only 9%

Hidden Economic Problems in the Roaring Twenties Analyze Graphs Based on the information in the pie chart, what share of total income earned in 1929 did the top 5 percent of income earners account for?

Herbert Hoover won the presidency in 1928 Herbert Hoover won the presidency in 1928. He thought the economy would “fix” itself.

Definition of Great Depression The Great Depression was an economic depression that eliminated jobs, family incomes and sense of hope. Most people did not see it coming, though there were a few warning signs The economic crash depressed (brought down) U.S. economy: companies bankrupted, banks closed, jobs lost, families become poor Time Span: 1929 to 1939, start of WWII

The Stock Market Hits Bottom On October 24, the market took a plunge Bank Runs People rush to withdraw money from banks On October 29, now known as Black Tuesday, the stock market crashed Stock Market Crash Oct 29, 1929 Start of Great Depression Important : The Stock Market Crash did not cause the Great Depression

The Great Depression Begins After the crash, many Americans panicked and withdrew their money from banks “Bank Runs” Banks had invested in the Stock Market and lost money People couldn’t pay their mortgages = banks lost money and forced to close In 1929- 600 banks fail By 1933 – 11,000 of the 25,000 banks nationwide had collapsed 90,000 businesses went bankrupt Unemployment 3% in 1929 to 25% in 1933

Hawley-Smoot Tariff: Hawley- Smoot Tariff Increased tariff on imported European goods Toughest tariff in US history It was meant to protect U.S. industry In response, other countries enacted their own tariffs and soon world trade fell 40% Hurt international trade World Wide Economic Depression Much of Europe suffered throughout the 1920s Europe had to repair after WWI Germany forced to pay reparations

The Great Depression Begins Analyze Graphs According to the Per Capita Income and Spending graph were Americans as a whole going into debt during the depression, or were they 'just getting by'?