Causes of Great Depression Chapter 22

Economy in the 1920s: Booming Economy  WWI brought US out of recession  Americans generally optimistic  1925—stock market value: $27 Billion  Stock market value in Oct $87 Billion  Average wages increased by 40% since WWI  Unemployment below 4%

Republicans in Charge  Progressive reform ends  Income taxes on the wealthy go down  Efforts to help businesses  Anti-trust efforts end  Protective tariffs rise

Republicans in Charge  Americans obsessed with the business world in 1920s  Three Republican presidents in a row reflects the public’s emphasis on business  Welfare Capitalism—approach to labor relations whereby employers improved benefits & pay to workers w/out demands from unions

Economic Danger Signs  Uneven prosperity  Rich got richer; Huge corporations dominated business world  Buying on credit  Increase in personal debt; people bought all the new stuff even if they couldn’t afford them

Economic Danger Signs  Risky activity in stock market  “Get rich quick” attitude  Encouraged speculation—practice of making high risk investments in hopes of getting a high return  Stockbrokers encouraged buying on margin—allowed investors to buy stock for a fraction of its price & borrow the rest  Supply & Demand  Overproduction and under-consumption slowed economy in late 1920s

Stock Market Crash  Dow Jones Industrial Average— average of stock prices of major industries—climbed to 191 by early 1928  March 4, 1929—rose by another 122 points  Sept. 3, 1929—reached all time high of 381

Stock Market Crash  After peak in Sept. stock prices fell slowly  Oct. 23—Dow Jones average dropped 21 points in 1 hour  Oct. 24—dropped another 24 points  Oct. 29—Black Tuesday: a record 16.4 million shares sold (average was 4-8 million)  Nov. 13—market had fallen to (from 381)  Losses totaled $30 Billion!!!

Causes of the Depression  Stock market crash was NOT the cause!!! Only the final straw  Over-speculation: Investors bought stocks w/ borrowed $, then used stocks as collateral to buy more stocks (stock market boom based on borrowed $ and optimism instead of real value)

Causes of the Depression  Gov’t policies: Federal Reserve cut interest rates to spur economic growth; in 1929 limited the money supply to discourage lending—after crash too little $ in circulation to help economy recover  Unstable economy: Economy lacked a firm base; wealth distributed unevenly--$ in hands of a few wealthy families who saved rather than spent their $. Industry produced more goods than were consumed (workers & farmers didn’t share in economic boom)  Unevenness of the 1920s prosperity made rapid economic recovery impossible

Impact of the Depression  Impact on workers and farmers  Rgg&feature=fvw Rgg&feature=fvw Rgg&feature=fvw  0Ioo&feature=related 0Ioo&feature=related 0Ioo&feature=related  Banks close  Zkck&feature=related Zkck&feature=related Zkck&feature=related  Impact on World