Chapter 13 The Great Depression

The Crash and Its Aftermath Section Objectives Describe the stock market crash of 1929 and explain why it occurred. Explain how the crash led to the Depression and describe some underlying causes of this downturn. Discuss Hoover’s response to the Depression and how the failure of his policies led to his defeat in the election of 1932

Why did the Crash Occur? Speculation—gambling in short term investments, then selling for a profit The bought stocks on margin—increase buying power by buying stock at fraction of cost The stock was collateral for the loan—broker would take stock if investor couldn’t repay loan As long as prices were high, they could sell and make a profit…if prices remained high

Crash Too much money was lent in margin loans Brokers started selling stocks forcing prices down. Brokers called on their margins (wanted money from investors) they didn’t have the money Brokers took stock and sold it—causing prices to go down further. The ensuing panic caused the bottom to fall out of the market. Brokers failed to repay their loans to banks, and millions of people saw their savings vanish from the banks that had made the loans. No FDIC. Unemployment rose.

The Causes of the Great Depression The stock market crash in itself did not cause the Great Depression. Other underlying weaknesses in the economy combined to create the most devastating economic downswing in the nation’s history.

Underlying Causes of Depression Loss of income by farmers due to overproduction and by workers in some industries (textile, lumber, mining, railroad, automobile) because of a decrease in orders—wages dropped and unemployment went As a result, under consumption ensued

Wealth Distribution Growing gap between rich and poor Workers didn’t get pay increases Reduced consumer power—all the goods piled up in warehouse

Restricted Monetary Policy Federal Reserve—didn’t have enough money in circulation that was large enough to allow the economy to bounce back after stock market crash

Decline in Foreign Trade Our weak economy hurt other nations We lent money to other countries—after WWI We began buying stock, and not putting it in bank—didn’t have as much to loan other countries They didn’t have as much to buy our good Also had high tariffs—blocked international trade

Hoover’s Response Realizing that people’s faith in the plummeting economy might hinder the chances of recovery, Hoover claimed that the economic downswing would soon pass. Following his faith in voluntary action, Hoover asked business leaders to pledge not to cut wages or production. He urged city and state governments to stimulate local economies through building projects.

Hoover’s response cont. Hoover funneled aid to farmers through the Agricultural Marketing Act, which helped farmers set up cooperative marketing associations. However, the act could do nothing to help the thousands of individual farmers who went bankrupt in the early 1930s. Despite Hoover’s efforts, business conditions worsened. The early 1930s saw declining incomes, rising unemployment, and mounting business failures With the number of unemployed growing every month, charity funds soon proved inadequate. The Federal Reserve compounded the problem by squandering chances to rescue the collapsing banking system.

Too Little Too Late Hoover introduced government programs to deal with the economic crisis Federal relief agency called Reconstruction Finance Corporation in 1932 Give $2 billion in loans to banks, insurance companies, and RR Trickle-down method couldn’t relieve unemployment immediately

Bonus Army WWI veterans promised a bonus by government payable in 1945 Feeling the problems of the depression, they wanted their bonus early Marched and camped in Washington D.C. Congress defeated bill MacArthur forced the Bonus Army out using unnecessary means.

Chapter 13-2 The Dream on Hold Section Objectives Tell how the Depression affected rural and urban families differently. Describe how communities responded to hardship. Explain upheaval in the family during the Depression.

Life on the Farms Foreclosure—couldn’t pay bank Penny Auctions—friends would buy goods cheap and give items back Okies—sold what they had and drifted for work (California) at huge farms, competition Tenant Farmers—affected and left to travel for work, African Americans hurt most Mexican Americans—illegal aliens (Mexico)

Life in the City 25% unemployment rate Absence of activity—beggars Unemployment pattern People lost everything and adjusted their lifestyles, even wealthy. Hoovervilles—2 million on the road Family roles affected—some families became stronger, some fell apart

Chapter 13-3 Life During the Depression Car craze—status symbol