1. CAUSES OF THE GREAT DEPRESSION 1.Governmental Economic Policies 2.Unchecked Speculation 3.Weak and Unregulated Banking Industry 4.Overproduction of Goods 5.Farming Industry Decline 6.Unequal Distribution of Wealth

3. Twenties Prosperity Americans in the 20’s were generally earning more and living better than in the past, but often consumers (buyers) in the 20’s were spending more money than they had by buying on credit, a practice new to most Americans at this time. Buying on credit at this time came in the form of installment plans. People would pay for luxury items like cars and radios on a monthly payment plan. This idea was the predecessor to the credit cards we use today.

4. Herbert Hoover President (1929-1932) Calvin Coolidge President (1923-1928) Andrew Mellon Secretary of Treasury

5. Economic Policies of the 20’s The economic policy of the presidents of this period, like Calvin Coolidge, were summed up by his well- known saying, “the business of America is business”. Which meant that government supported the success of businesses by not interfering with government regulations and policy that would hinder the wealthy business owners of America. Republican officials dominated government during this decade. Their policies included the “trickle down” theory of economics, which stated that if the wealthy are allowed to flourish without government interference, they will invest in businesses and hire workers, and that would in the end, benefit lower classes because they could find work and earn a living…in theory, this idea would allow the prosperity of the wealthy in our society to eventually lead to the prosperity of all Americans.

6. The problem with this idea, was at the time, American businessmen often did not reinvest their profits in more businesses and the hiring of more workers. Because businessmen often invested in new machines that replaced workers, and their businesses near the end of the decade began to overproduce products due to these new mechanized factories, the amount of products in the market exceeded the amount needed by the consumers. This, in the end led to problems for both the businessmen and the workers. Overall the theory did not work, and the wealth of elite Americans did not “trickle down” and benefit the lower classes

7. Also, on the international scene, in an attempt to protect American industry and business, the government set high tariff walls (high taxes on goods coming into America from other countries). This had a negative effect on American trade as other nations would put up barriers to our trade in return for putting up high tariffs on their trade. We also refused to forgive debts acquired by other countries during WWI, and when those nations suffered economically from their debt problems and difficulty in recovering from the war, they defaulted on their American loans (which means they did not repay America for the loans given during the war) In the end, these policies and economic hardship in Europe only made things worse and contributed to economic hardship in America.

9. Real Estate Speculation Speculation means to invest in a risky venture in the hopes to make a quick and large profit. Americans were heavily investing/speculating in both real estate speculation during the 1920’s. There was a real estate boom in the early 20’s in Florida and California that fell dramatically near the end of the decade due to fraudulent (corrupt) deals and over-speculation, which means people were buying up and investing in more land than would be sold for a profit…in other words, there were more investors than buyers…which created an imbalance in supply and demand

11. Unchecked Stock Speculation Stock trading is a practice of speculation. Investors trade stocks on a stock market. Stocks are a way of investing in a business by buying certificates of ownership of a certain amount shares in a company. Shares are divided portions of ownership in a company. People buy up shares in the hopes that the company will do well because of the money they invested in it and because it has a good future. When the company does well, it improves in its value and the value of its shares goes up with its value. When its shares go up in value, investors can make a profit by selling their shares at a higher price than they purchased them.

12. Unfortunately, many speculators in the 20’s were buying up stock like crazy because stock values were consistently going up during the decade due to a boom in consumerism and productivity, but also “over speculation”, which means people were buying up so much stock, that they inflated (drove up) the price (value) of the stock higher than it was actually worth. So, stock was being traded for a higher value than the company could actually justify by its business activity and profits. A contributing factor was that because the market was so good, banks and lenders were willing to let investors borrow money on the value of the stock. This practice, now illegal today, allowed investors to buy stock “on the margin”. Which means they could pay only a small amount of money for stock, and borrow the rest from a lender. Lenders were willing to do this because stocks were selling so high and so well for so long, there seemed little risk. But as stocks started to fall to their actual value near the end of the decade, people could not pay back the lender on these loans. In the end, both the investors and the banks would lose money because of this practice.

13. Stock Market & Banking Industry Collapse

14. Stock Market Crash The stock market in the 20’s was a “Bull” market, which means it was a market that was consistently doing well in overall exchange of shares. A “Bear” market is the opposite type of market, where the exchange of shares on the whole is going down in value. Near the end of decade, stocks had risen so high beyond the actual value of their worth, the stock market finally reached a breaking point. The exchange of shares dropped dramatically in October of 1929. Despite the efforts of bankers and businessmen, the stock market crashed on October 29, 1929, which meant that stocks prices fell dramatically than they were being exchanged for earlier. People lost money on their investment, especially those who “borrowed or bought on the margin” and could not pay back their lenders.

15. Collapse of the Banking Industry The stock market crash triggered a collapse of the banking industry since so many investors had borrowed from banks to invest in the stock market. Banks were even invested in the market themselves, which is no longer legal today. What contributed to this problem was that the government did not interfere with banking practices or try to regulate it against corrupt or irresponsible practices that would lead the banking industry to ruin. Due to these practices, banks were over extended in their loans, and when many people had to default (could not pay back the bank) on their loans, the banks began to lose money, and ended up having to close their doors for business. Unfortunately many people had money in these banks, and the lost their money as well when these banks closed.

17. Overproduction Overproduction is when more goods are produced than are needed or purchased. It is when there is more supply of a product than this is a demand for it. During the 20’s many farmers were suffering from overproduction problems due to new techniques and machines used for farming that increased the amount of goods they could produce. This practice ended up producing more farm goods than the country was willing to buy. Another factor was that farmers also lost valuable customers when WWI ended and Europeans were less dependent on American farm goods.

18. More goods in the market than there was a demand for led to the lowering of prices. When prices went down, farmers could not make enough profit to pay back loans they had taken out from banks for land, equipment and supplies. Farmers found themselves deeper in debt as this problem grew in the 1920s. Farmers were not the only ones to suffer from overproduction problems however. Many companies were producing more manufactured goods than were needed as well. By the end of the decade the lessening demand for products here in America, the limits on foreign trade because of high tariffs, and the economic problems in Europe contributed to problems in overproduction of manufactured as well as farm goods.

20. Farming Problems As stated already, the farmers grew deeper and deeper into debt during the 20’s due to over production. Between 1929-1933 farmers’ income dropped by 50%, and their property values decreased by the billions of dollars. Unfortunately, mid-and southwestern farmers were also plagued by an additional disaster as well, called the “Dust Bowl”. Due to a severe drought, a powdery dust swept across the great plains in choking black clouds between 1930-1934, leading this area to be called the “Dust Bowl”. Farms were lost and farmers were ruined. Many farmers fled the area in droves to California and other areas of the nation for employment and to escape hard times. These migrating farmers were often referred to as “Okies”

22. Unequal Distribution of Wealth A final cause of the great depression was the fact that our nation had a huge discrepancy in America between those doing well economically in this nation and those who were not. The gap between the rich and the poor widened by the end of the decade. Lower classes struggled to survive, while the rich seemed to get richer due to the lack government regulation of business, no income tax and increased profits of enterprises. Profits that were not redistributed back into society with more jobs and opportunities for lower classes. An example, from 1920-1929 the average income rose approx. 9% while in comparison, the income of rich Americans rose a whopping 75%. This maldistribution of wealth led to an instability in the U.S. economy.