The Great Depression

Keeping track of causes 1. Overproduction. Put explanations here 2. Declining demand for products. 3. "Junk Stocks." 4. Speculative Investing. 5. Poor Banking Practices. 6. Declining prices and demand for crops. 7. Unemployment due to technology. 8. Installment buying. As we go over the causes keep a chart in your notes so you will have easy access to the causes of the Great Depression.

I. The Consumer Society A. Higher wages and shorter workdays led to an economic boom as Americans traded thrift for their new role as consumers. American attitudes about debt shifted, as they became confident that they could pay back what they owed at a later time. B. Advertising was used to convince Americans that they needed new products. Ads linked products with qualities that were popular to the modern era, such as convenience, leisure, success, fashion, and style.

Discussion Question Why did Americans’ attitudes towards consumerism change during the 1920s? (Higher wages and shorter workdays led to an economic boom as Americans traded thrift for their new role as consumers. American attitudes about debt shifted, as they became confident that they could pay back what they owed at a later time. Advertising was used to convince Americans that they needed new products. Ads linked products with qualities that were popular to the modern era, such as convenience, leisure, success, fashion, and style. The ads promised consumers self improvement, happiness, and self-fulfillment.)

The Roots of the Great Depression A. Efficient machinery led to overproduction, and Americans could not afford to buy all the goods produced. B. The uneven distribution of wealth in the United States added to the country’s economic problems. In 1929 the top 5 percent of American households earned 30 percent of the country’s income. More than two-thirds of the nation’s families earned less than $2,500 a year.

More Problems… C. Low consumption added to the economic problems. Worker’s wages did not increase fast enough to keep up with the quick production of goods. As sales decreased, workers were laid off, resulting in a chain reaction that further hurt the economy. D. Many Americans bought on the installment plan, making a down payment and paying the rest in monthly installments. Paying off installment debts left little money to purchase other goods. E. The Hawley-Smoot Tariff intensified the Depression by raising the tax on imports. Americans purchased less from abroad because of the high cost. In return, foreign countries raised their tariffs on American products, causing fewer to be sold overseas. F. Instead of raising interest rates to stop speculation, the Federal Reserve Board made the mistake of lowering the rates. This encouraged banks to make risky loans and misled business owners into thinking the economy was still expanding.

Discussion Question How did the Federal Reserve Board help cause the Depression? (Lowering the interest rate instead of raising it helped cause the Depression in two ways. First, it encouraged banks to make risky loans. Second, it made it appear as if the economy was still thriving, which caused businesses to borrow money to further expand their production.)

II. The Farm Crisis Returns A. American farmers did not share in the prosperity of the 1920s. Instead, prices dropped dramatically while the cost to improve farmers’ technology increased. B. During wartime, the government had encouraged farmers to produce more for food supplies needed in Europe. Farmers borrowed money at inflated prices to buy new land and new machinery to raise more crops. Farmers prospered during the war. After the war, Europeans had little money to buy American farm products. After Congress raised tariffs, farmers could no longer sell products overseas, and prices fell. C. President Coolidge twice vetoed a bill to aid the farmers, fearing it would only make the situation worse. American farmers remained in a recession throughout the 1920s.

Discussion Question Why were farmers left out of the economic prosperity of the 1920s? (During wartime, the U.S. government had encouraged farmers to produce more for food supplies needed in Europe. Farmers borrowed money at inflated prices to buy new land and new machinery to raise more crops. Farmers prospered during the war. After the war, Europeans had little money to buy American farm products. After Congress raised tariffs, farmers could no longer sell products overseas, and prices fell. The farmers had technological advances that enabled them to increase production, but because there was no increase in demand, they were forced to lower prices.)

III. Promoting Prosperity A. Andrew Mellon, named secretary of treasury by President Harding, reduced government spending and cut the federal budget. The federal debt was reduced by $7 billion between 1921 and 1929. B. Secretary Mellon applied the idea of supply-side economics to reduce taxes. Named the Mellon Bills. This idea suggested that lower taxes would allow businesses and consumers to spend and invest their extra money, resulting in economic growth. In the end, the government would collect more taxes at a lower rate.

Discussion Question How did the Harding administration encourage economic growth in the United States? (Secretary of the Treasury Andrew Mellon refinanced the national debt to lower the interest on it and persuaded the Federal Reserve to lower interest rates as well. Mellon reduced government spending and cut the federal budget. Mellon applied the idea of supply-side economics to reduce taxes. This idea suggested that lower taxes would allow businesses and consumers to spend and invest their extra money, resulting in economic growth. In the end, the government would collect more taxes at a lower rate. Secretary of Commerce Herbert Hoover attempted to balance government regulation with cooperative individualism. Manufacturers and distributors were asked to form their own trade associations and share information with the federal government’s Bureau of Standards. Hoover felt this would reduce waste and costs and lead to economic stability.)

IV. The Long Bull Market A. The stock market was established as a system for buying and selling shares of companies. A long period of rising stock prices is known as a bull market. Prosperous times during the 1920s caused many Americans to invest heavily in the stock market. B. As the bull market continued to go up, many investors bought stocks on margin, making a small cash down payment. This was considered safe as long as stock prices continued to rise. If the stock began to fall, the broker could issue a margin call demanding that the investor repay the loan immediately. C. In the late 1920s, new investors bid prices up without looking at a company’s earnings and profits. Speculation occurred when investors bet on the market climbing and sold whatever stock they had in an effort to make a quick profit.

Discussion Question Why were stock market investors in the 1920s sensitive to any fall in stock prices? (Investors were uneasy about any fall in the price of stocks because it meant they might be unable to make money quickly to repay their loans.)

Why did all these combined destroy the economy ? 1. Overproduction. 2. Declining demand for products. 3. "Junk Stocks." 4. Speculative Investing. 5. Poor Banking Practices. 6. Declining prices and demand for crops. 7. Unemployment due to technology. 8. Installment buying. You will write a letter/political cartoon from a point of view explaining the problems 1. Farmer in the Midwest 2. Widow with six children in a city 3. Wife of a factory worker who has been laid off 4. Small businessman

V. The Great Crash A. By late 1929, a lack of new investors in the stock market caused stock prices to drop and the bull market to end. B. As stockbrokers advised their customers of margin calls, customers responded by placing their stocks up for sale, causing the stock market to plummet further. Stock prices fell drastically on October 29, 1929, Black Tuesday, resulting in a $10 to $15 billion loss in value. While this did not cause the Great Depression, it did undermine the economy’s ability to hold out against its other weaknesses. C. The stock market crash weakened the nation’s banks. Banks lost money on their investments, and speculators defaulted on loans. Because the government did not insure bank deposits, customers lost their money if a bank closed. Bank runs resulted as many bank customers withdrew their money at the same time, causing the bank to collapse. YouTube - It's A Wonderful Life bank run

Discussion Question How did the stock market crash weaken the nation’s banks? (The stock market crash caused the banks to lose money on their investments, and speculators defaulted on bank loans. Because the government did not insure bank deposits, customers lost their money if a bank closed. Bank runs resulted as many bank customers withdrew their money at the same time, causing the bank to collapse.)

World Wide Depression The depression that began in the United States in 1929 went around the world in the years that followed. By 1932, more than 30 million people could not find a job. That same year, industrial production worldwide was 38 percent less than it had been in 1929. Just as in the U.S., unemployment rates in Germany and Great Britain reached 25 percent in 1932. In Germany that meant that over 5.5 million people were out of work.

What should the Government do? OK, if you were in charge what would you do to help. Brainstorm with a group and then come up with 4-5 solutions to the Depression.

What caused the Great Depression to become a worldwide event? Some economists say that the fact that there was an international monetary system tied to the price of gold made the different economies closely related. Problems in one large economy were passed on to others and eventually back to the country where the problems began.    Others point to the fact that a trade war developed. Throughout the 1920s, American farmers exported commodities worth an average of almost $2 billion a year. Avg exports accounted for 42% of all U.S. exports. During the 1930s, avg exports dropped by almost two-thirds to $765 million and accounted for only 32% of exports. In part, the drop was caused by protective tariffs that were imposed on foreign products and the tariffs other countries imposed in retaliation.

VII. The Depression Worsens A. By 1933 thousands of banks had closed and millions of American workers were unemployed. Unemployed workers often stood at bread lines to receive free food or at soup kitchens where private charities gave a free meal to the poor. B. Americans unable to pay their mortgage or rent lost their homes. Those unable or unwilling to move had a court-ordered eviction notice delivered by a court officer or bailiff who forced nonpaying tenants out onto the street. C. Many of the homeless built shacks in shantytowns, which they referred to as “Hoovervilles” because they blamed the president for their financial trouble. Hobos, or homeless Americans who wandered around hitching rides on railroad cars, searched for work and a better life. YouTube - The Great Depression (Britannica.com)

DUST BOWL D. As crop prices dropped in the 1920s, many American farmers left their fields uncultivated. A terrible drought in the Great Plains, beginning in 1932, caused the region to become a “Dust Bowl.” E. “The OKIES” Many Midwestern farmers and Great Plains farmers lost their farms. Many families moved west to California hoping to find a better life, but most still faced poverty and homelessness. YouTube - U.S. Dust Bowl of 1930's

Discussion Question What happened to unemployed workers and Midwestern and Great Plains farmers during the Depression? (Unemployed workers often went to bread lines or soup kitchens to receive free food. Americans unable to pay their mortgage or rent lost their homes. Many of the homeless built shacks in shantytowns. Hobos wandered around hitching rides on railroad cars, searching for work and a better life. As crop prices dropped in the 1920s, many American farmers left their fields uncultivated. A terrible drought in the Great Plains, beginning in 1932, caused the region to become a “Dust Bowl.” Many Midwestern farmers and Great Plains farmers lost their farms. Many families moved west to California hoping to find a better life, but most of them still faced poverty and homelessness.)

IX. Escaping the Depression A. Americans escaped the hardships of the Depression by going to the movies and listening to radio broadcasts. Stories tended to be about overcoming hardships and achieving success. B. Walt Disney produced the first feature-length animated film, Snow White and the Seven Dwarfs, in 1937. Other films, like The Wizard of Oz, Mr. Smith Goes to Washington, and Gone with the Wind, contained stories of triumph over adversity and visions of a better life. C. Families gathered around the radio daily to hear news or listen to comedy shows like George Burns or a dramatic series like the Lone Ranger. Melodramas, called soap operas, became very popular with housewives. Soap operas received their name because makers of laundry soaps often sponsored them.

Discussion Question Why were movies and radio programs important during the Depression? (Movies and radio programs allowed Americans to escape their own lives and use their imagination.)

III. The Depression in Art A. Homeless and unemployed Americans were the subjects of art and literature during the 1930s. Artists and writers tried to capture the real life drama of the Depression. Thomas Hart Benton and Grant Wood emphasized traditional American values in their art. B. John Steinbeck’s 1939 novel The Grapes of Wrath told the story of an Oklahoma family fleeing the Dust Bowl to find a new life in California. Steinbeck, like many writers of this time, wrote of poverty, misfortune, and social injustice. C. Novelist William Faulkner’s In his novels, he exposed hidden attitudes of Southern whites and African Americans in a fictional Mississippi county.

XI. Hoover-too little too late A. In an effort to promote economic recovery, President Herbert Hoover held a series of conferences bringing together the heads of banks, railroads, big business, labor, and government. Hoover received a pledge from industry to keep factories open and stop cutting wages. B. After the pledge failed, Hoover increased public works—government-financed building projects. Hoover asked the nation’s governors and mayors to increase public works spending. At the same time, however, Hoover refused to increase government spending or taxes. He feared that deficit spending would actually delay an economic recovery. C. Americans blamed the Republican Party for the Depression. As a result, in the midterm congressional elections of 1930, the Republicans lost 49 seats and their majority in the House of Representatives.

Discussion Question How did Hoover promote economic recovery? (President Herbert Hoover held a series of conferences bringing together the heads of banks, railroads, big business, labor, and government. Hoover received a pledge from industry to keep factories open and stop cutting wages. After the pledge failed, Hoover increased public works to replace some construction jobs. Hoover asked the nation’s governors and mayors to increase public works spending. At the same time, however, Hoover refused to increase government spending or taxes. He feared that deficit spending would actually delay an economic recovery.)

XII. Pumping Money Into the Economy A. President Hoover tried to persuade the Federal Reserve Board to put more currency into circulation, but the Board refused. B. Hoover set up the National Credit Corporation (NCC), which created a pool of money to rescue banks, but it was not enough to help.

C. By 1932 Hoover felt the government had to provide funding for borrowers. He asked Congress to set up the Reconstruction Finance Corporation (RFC) to make loans to banks, railroads, and agricultural institutions. The economy continued to decline when the RFC was too cautious in its loan amounts. D. Hoover opposed the federal government’s participation in relief—money that went directly to very poor families. He felt relief was the responsibility of state and local governments. E. In July 1932, Congress passed the Emergency Relief and Construction Act to get money for public works and for loans to the states for direct relief.

Discussion Question What actions did President Hoover take to try to pump money back into the American economy? (Hoover tried to persuade the Federal Reserve Board to put more currency into circulation, but the Board refused. Hoover set up the National Credit Corporation (NCC), which created a pool of money to rescue banks, but it was not enough to help. Hoover asked Congress to set up the Reconstruction Finance Corporation to make loans to banks, railroads, and agricultural institutions. The economy continued to decline when the RFC was too cautious in its loan amounts.)

XIII. In an Angry Mood A. By 1931 discontentment over the economy led to violence. Looting, rallies, and hunger marches began. During a hunger march at the nation’s capital, police denied protestors food, water, and medical treatment. Congress intervened, stressing the marchers’ right to petition their government. Congress permitted them to march on to Capitol Hill. B. Between 1930 and 1934, creditors foreclosed, or took possession of, almost a million farms. Some farmers destroyed their crops, hoping the reduction in supply would cause the prices to go up.

C. In 1924 Congress enacted a $1,000 bonus to be paid to veterans in 1945. In 1931 a bill was introduced in the House that authorized early payment of the bonus. In 1932 the “Bonus Army” marched to Washington, D.C., to ask Congress to approve the legislation. D. After Hoover refused to meet with the Bonus Army, and the Senate voted the new bonus bill down, some of the marchers left. Some marchers stayed, moving into deserted buildings in Washington, D.C. When Hoover ordered the buildings cleared, disputes between the remaining people and the police (and later the army) resulted in several deaths.

Discussion Question What positive things did Hoover do as president? (Hoover did more to expand the role of the federal government than any previous president. His authorization of the Reconstruction Finance Corporation was the first time an American president had used federal power to intervene in the economy during peacetime.)

Who can stop the Madness?????  FDR can 