1. From Prosperity to Great Depression
A Look at the Causes of the
Great Depression

2. 1920’s seen as the Jazz Age….
Prosperity
Inventions accessible to more
Growing wealth of the middle class
Flapper culture
Jazz

4. Causes of the Great Depression
Inequality of Wealth
A. Between Rich and Poor in U.S.
B. Between industries
C. Between the U.S. and Europe

5. Inequality between rich and poor
Top 25% control 55% of national income.
80% have no savings
Middle class and working classes wages rise slowly compared
to that of rich.
4. Poor and farming communities left out of prosperity of Jazz Age.
a. This creates a very unstable economy as total demand cannot
Possibly keep up with total supply.
1. How was demand maintained?
a. Credit: buy with installment buying.
1. 60% of cars/80% of radios
2. borrowing triples
b. artificial demand puts off the day of reckoning,
but the downfall will be worse.
2. Luxury investment and spending: wealthy spend and
invest, but this is based upon confidence in the economy.

6. II. Inequality of industrial wealth
A. most spending on auto and radio industries.
1. related industries also thrive and drive
the prosperity of the 1920’s.
B. U.S. economy is not balanced as too much
emphasis and importance placed on these new
industries.
1. Farmers left out, no help from gov.t. as
prices collapse.
2. When these industries slow, the entire
economy will slow. .

8. III. International Inequality of wealth
A. Europe struggles to restore economies
after WWI.
1. Mass borrowing from U.S. banks
a. 10 billion by 1920, 1.25/yr from 1925
to 1928.
b. Germany borrowing after 1924.
2. Money used to buy U.S. goods to repair
nations, restore economies.
a. they can’t repay b/c
1. war damages
2. U.S. tariffs close U.S. market
3. Onset of Depression=loss of Eur. market.

9. IV. Speculation
A market doubles its price
1. investors want in, and don’t check
out health of company before hand.
2. RCA in one year!!!!
B. Middle class buys stock on margin
1. By mid billion in stock
loans, 1.5 b more in next 3 mos.
2. This is all done based on
confidence that market will keep
going up.

10. What did the middle class do with extra money in the late 20’s?
Invest in the market of course…good way to double money. Buy stock
on margin (put up 10% and repay loan after 15 days)
Credit was easy (Federal Reserve policy of cheap money)
Market was rising (due to increased credit and increased margin buying)

12. Dies Irae or
Day of Wrath
The market crumbles amid
widespread recalling of loans
by America’s banks.
What to do with those stocks
that were bought on margin?
But wait, the Federal Reserve
has just made it harder to get
credit (loans at favorable rates.)
Where will money come from?
Uh oh…..

13. banks close, factories shut, massive unemployment
But what happens when the confidence is rocked?
The crash (Sept. and Oct see reading on this.
middle class and
poor stop buying
on margin and
installment for due
to fear of job loss
Rich stop
spending and
speculating
industrial
production
slows
inventories
pile up in
the
factories
Jobs cut
and people
default on
loans
radios and cars
purchased on
credit returned
to dealer
industries
related to car and
radio crumble
massive job
losses
tariffs go
up to protect
U.S. factories
more
job loss
banks close, factories shut, massive unemployment
GREAT DEPRESSION

16. Why did the Great Depression Happen?
1. Inequality between rich and poor. If the rich aren’t spending, and the
working class can’t afford goods (or are worried about layoffs) the
demand decreases.
2. Depressed farm economy: No purchasing power for a large segment
of the American population.
3. Federal Reserve tightens credit: wrong policy, should have expanded
credit to get spending going again.
4. Weakness of international trade after WWI: Foreign nations depend
on American loans.
A spiraling cycle due to decreased spending, loss of wealth due to
stock market, bank failures (overextended credit), layoffs all mean one
thing
No one is spending…..no need for workers…fewer people spending..
You get the point.