1. It’s the End of the World As We Know It…
…But We Don’t Feel Fine
Chapter 14, Section 1 Notes

2. People Are Rich…Or Are They?
Last week, we talked about the concepts of credit and buying on margin
Many people in the 1920s bought goods beyond their means with credit and stocks beyond their means on margin
What does it mean if one buys with credit?
Answer: Consumers agreed to buy now and pay later for purchases, based on some sort of combination of monthly payments on the original cost + interest
What does it mean if one buys on margin?
Answer: It is essentially buying stocks with credit
A consumer would pay a small percentage of the stock’s price as a down payment and borrow the rest

3. So Why Is This a Bad Thing?
Isn’t it good that people are buying more things? After all if demand is high, more will be produced…
Answer: Not if people don’t have the money to pay for those things
Industries saw people buying goods, so they continued to produce goods
Farmers even grew more crops and raised more livestock than they could sell for profit
Consumers + buying goods + no $ = DEBT!
Producers + overproducing = DEBT!
This is why things seem good but, looking back on history, they are actually trending in the wrong direction in the late ’20s…

4. What About the Big Boys?
Surely, the big industries had to be doing well, right?
Wrong. Basic industries like railroads, textiles, and steel barely made a profit
Railroads lost business to new forms of transportation
Mining and lumbering were needed during the war—now they aren’t
Fewer people are buying new houses—they don’t need to be built and that’s a bad economic sign (it’s one reason people were so worried about houses foreclosing the last few years while we’ve been in recession)
When technology or world events change what’s needed, people must adapt or technology overtakes them and people are left behind

5. Farmers Meet Supply and Demand
In 1919, farmers made $10 billion in income
In 1921, farmers made $4 billion in income
The drop happened because during WWI prices and demand for crops went way up
After WWI, demand went way down and farmers had to pay for equipment and land they bought during the war
They tried to get as much $ as possible by overproducing crops
What happened?
Answer: People had more to choose from, so prices went down farther—good for consumers; bad for farmers
Many farmers lost their farms when banks foreclosed and seized the property for the debt

6. The Rich Get Richer…The Poor Get Poorer
A standard of living is the amount of money a family could comfortably live with
In the 1920s, $2,500 was needed to reach this standard of living
In the 1920s, more than 70% of families made less than $2,500
The average man or woman could buy 1 new outfit of clothes once per year
½ the homes had electric lights or a furnace for heat
1 home in 10 had an electric refrigerator
At the same time, the top 1% of Americans saw their income rise by 75%

7. Boom Goes the Dynamite!
Republican Herbert Hoover is elected president in 1928, largely because the country was doing so well
It’s about to not be doing so well…
As people buy stocks on margin and speculate, everyone is happy
But what happens if the stock market falls? How will people pay for the stocks if they have no money?

8. Boom Goes the Dynamite!
September 1929: Stock prices peak then fall…confidence in stocks wavers; some investors pull out of the market
October 24: Market plunges; some investors panic and sell
October 29 is Black Tuesday: The bottom falls out of the market as 16.4 million shareholders try to sell their stock before prices fall lower
People who bought stocks with credit were stuck with huge debt; sellers couldn’t find any buyers; many lost their savings
How much? By mid-November, investors had lost about $30 billion…that’s the same amount as the U.S. spent during WWI

9. Causes of the Depression in Summary
If one had to list the causes of the Great Depression, it could be narrowed to four things:
1. Tariffs and war debt policies that cut down the foreign market for U.S. goods
2. A crisis in the farming sector
3. The availability of easy credit
4. An unequal distribution of income
Exit question: write in a sentence or two why those four factors led to the Great Depression