C AUSES OF THE D EPRESSION 21.1

O BJECTIVES Discuss the weaknesses in the economy of the 1920s. Explain how the stock market crash contributed to the coming of the Great Depression. Describe how the Depression spread overseas

K EY P ARTS Prosperity Hides Troubles The Stock Market Crashes The Great Depression Begins What Caused the Great Depression

I NTRODUCTION Read section 21.1 Answer critical thinking questions 4-5.

C AUSES OF D EPRESSION During the Roaring Twenties, many Americans enjoyed what seemed like an endless era of prosperity. Then in October 1929, the mighty bull market crashed. This pushed the U.S. Economy into a steep decline.

C ONT. The Roaring Twenties had been a Republican decade. Economic prosperity was thriving in the United States. In 1928 Herbert Hoover is elected President, he is an accomplished public servant. One of his primary platforms during his campaign was to end poverty in America. When he took office in March of 1929, no one knew that economic disaster lay just seven months in the future.

C ONT.. In the 1920s American farmers made up one fourth of the American workforce. Farmers had bought more land, new equipment, formed new farming methods to keep up with the governments needs for food for the WWI war effort. After the war there was a sharp drop in harvest needs, and farmers were not able sell their surplus of crops.

C ONT … Many farmers ended up going bankrupt because of inability to pay the banks back for their loans. Some farmers lived on credit from month to month. Unlike farmers, industrial workers participated in the great national success story.

C ONT …. Their wages continued to rise and their productivity skyrocketed by 32%. Also during this time the efficiency of making products increased so margins increased by 65%. So this meant the rich got extremely rich and the poor just became slightly less poor. In 1929 the wealthiest one percent of the population earned about the same amount of money as the bottom 42 percent of people.

C ONT ….. This uneven distribution of the nations wealth created economic problems. More than 60 percent of all American families had yearly incomes of less than $2,000 per year and only 24,000 people enjoyed annual incomes of more than $100,000 per year which is 50 times more than what most families were earning. These wealthy families did not eat 50 times more food than lower-income families.

C ONT …… The issue was that the wealthiest few did not buy enough to keep the economy booming. A healthy economy needs more people to buy more products, which in turn creates even more wealth. For a period of time the expansion of credit partially hid this problem. But the easy credit and the continual living above peoples means eventually leads to the implosion of the economy.

T HE S TOCK M ARKET C RASHES On spetember 3, 1929 the stock market began to sputter and fall. Prices peaked and then began to slide in an uneven way, and then finally go into a free fall. On October 23, Dow Jones average dropped 21 pts that is when many investors concluded that the boom was over. This became known as Black Thursday.

C ONT. Then on October 29 th the bottom fell out of the stock market. Sixteen million shares were sold as the stock market collapsed in the Great Crash known as Black Tuesday. Billions of dollars were lost and fortunes lost in mere hours. The Great Crash represented another hallmark of the nation’s business cycle.

T HE G REAT D EPRESSION B EGINS The Great Depression lasted from 1929 to One of the first institutions to feel the effects of the stock market crash was the country’s banking system. Over 4,000 banks went under by 1932, and part of this was due to the Federal Reserve not letting enough money circulate after the crash.

C ONT. American businesses began to face the economic downfall. Many businesses began to cut production, maintain price level of products, and cut jobs to decrease payroll. Thousands of people began to lose their jobs and by 1933 nearly 25% of all American workers had lost their jobs.

C ONT.. Congressed passed the Hawley-Smoot Tariff, which raised prices on foreign imports to such a level they could not compete in the American market. This was a bad idea considering the surplus of crops produced by the farmers that were needed to be sold. This tariff caused a ripple effect that literally caused a global depression.

W HAT C AUSED THE G REAT D EPRESSION U.S. profits plummet U.S. investors have little or no money to invest abroad. European nations cannot pay off war debts. European production plummets. Europeans cannot afford American goods.