1. The Great Depression Causes of the Great Depression

2. Prosperity? Roaring Twenties was a “Republican” decade Harding & Coolidge had both been elected Consumption went up Gross national product went up Stock market went up “Egos” went up Times were good Republicans took responsibility America agreed

3. Herbert Hoover 1928- Republicans nominate Hoover – Born in Iowa – Orphaned as a child – Graduated from Stanford University (Geology) – Became a mining engineer – By 1914, massed a massive fortune – Retired from engineering, devoted to public service

4. Hoover’s Qualifications WWI – Coordinated Belgium relief program – Head of Food Administration Harding & Coolidge – Served as Secretary of Commerce Philosophy – Stressed importance of competition – Believed in voluntary cooperation between labor & management Won election by landslide – Took over a country that seemed to be in good financial health

5. Economic Problems Farmers made up ¼ of workforce in the 1920s Increased harvest yields & bought more land Bought more tractors & other equipment to work the land Created huge debts & mortgage payments Crop demand fell sharply Production remained high Farms got bigger and yielded more crops Failed to sell surpluses; were unable to pay debts

6. Economic Problems Contd. Farmers did not share in the economic boom of 1920 – Hard-pressed to pay debts – Forced to sell in competitive world market – Faced with natural disasters – No cash to buy consumer goods – Lived largely on credit – Farmers hit first & hardest

7. Uneven Wealth Industry workers enjoyed prosperity – Wages rose steadily – Disposable income rose – Purchased Model T Fords – In better financial situation than farmers So What Happened? While wages rose, productivity increased dramatically 1923-1929: output per person jumped 32% BUT wages on increased 8% Corporate profits soared 65% Rich became much richer, poor became less poor

8. Uneven Wealth Contd. 1929: Wealthiest 1% earned @ same as bottom 42% More than 60% of American families earned less than $2,000 annually 24K of wealthiest families earned more than $100,000 annually (50X more than most families) Problem: Wealthiest few did not buy enough Overproduction of farmers + underconsumption of wealthy = economic stability Too many Americans did not have enough $$ to buy what then needed or wanted

9. Great Depression Soup Line

10. Is “Easy” Credit the Answer? Americans used credit for many purchases: – Cars – Appliances – Radios – Stocks – Other goods 80% of radios/ 60% of cars on credit More debt accumulated every year “Easy” credit eliminated fear of purchasing w/out cash People began to live beyond their means

11. Then the Stock Market Crashed!

12. Stock Market Crash of 1929 Stocks being purchased on “speculation” Investors were gambling w/ someone else’s money that stocks would jump, and turn quick profit September 3, 1929: market starts to fall Downward slide lasted until October By end of October, market is in a “free fall” Dow fell 21 points per hour on 10/23/29 “Boom is over” No confidence in market-very thing that kept market up for so long

13. The “Black” Days Black Thursday: 10/24/29- investors start to sell GE stock plunged from $400 to $283 Investors raced to pull $$ out of market Black Tuesday: 10/29/29- “bottom falls out” More than 16 millions shares sold – Fortunes lost in matter of hours Hoover insisted “business of the country is on a sound & prosperous basis” November 13, Dow down to 198.7 – In September, Dow was 381

14. NYSE Floor on Black Tuesday This signaled the beginning of the Great Depression, lasting from 1929 to 1941

15. The Banks Collapse Banking system one of 1 st to feel effects of crash Low confidence caused mass “withdrawals” 1929: 641 commercial banks failed 1930: 1,350 commercial banks failed 1931: 1,700 commercial banks failed In 1920s, Fed Reserve cut interest rates to stimulate economic growth 1929, Fed Reserve limited money supply to discourage lending Result: Not enough $$ in circulation to combat the market crash

16. Businesses Close/Unemployment Rises Customer spending greatly reduced, causing business to struggle. Survival depended on: – Production cutbacks, maintaining price levels, layoffs Companies closed plants & laid off workers 1931, Ford closed several Detroit plants – Put nearly 75,000 people out of work Snowball effect: – Businesses closing led to more people losing jobs – Growing unemployment led to less $$ being spent – Business cut more production, closed more plants, fired more workers – 1938, 25% of American workers had lost their jobs

17. Closing businesses had a cyclical effect

18. Tariffs 1930, Hawley-Smoot Tariff passed – Raised prices on foreign imports to such a level that they could not compete in American market Designed to “protect” American products from foreign competition Actually inspired Europeans to retaliate with tariffs of their own Did more damage than good – High protective tariffs closed markets – Equally harmful to American and global economy – Helped to destroy international trade

19. A Global Depression Hawley-Smoot Tariff only 1 cause – Europeans had problems with reparation payments, war debt payments, international imbalance of trade – 1930s, Germany ceased reparation payments – U.S. suspended France & Britain war debts International economy had been largely funded by U.S. European nations faced same issues: – Business failures – Bank collapses – High unemployment

20. What Really Caused the Depression? Some disagreement over exact causes Milton Friedman, Economist – Contraction in the money supply – Stock market crash & bank failures left too little $$ in circulation for the nation’s economic needs John Maynard Keynes, Economist – Lack of govt. interference in the economy – Problems in $$ supply, distribution of wealth, stock speculation, consumer spending, productivity, & employment – Recommended that govt. spend $$ to keep people employed

21. Other Thoughts Never going to be a fully accepted cause Problems in consumption contributed heavily Economic hardships in Europe & rural America Uneven distribution of wealth Overspeculation in the stock market All combined with poor/misinformed economic decisions by Congress & Hoover led to the Great Depression