1. The Great Depression and the New Deal (1928-1941)
Lesson 1 Causes of the Depression

2. The Great Depression and the New Deal (1928-1941)
Lesson 1 Causes of the Depression
Learning Objectives
Identify how weaknesses in the economy in the 1920s caused the Great Depression.
Explain why the stock market crashed in 1929 and the crash’s effect on the economy.
Describe how the Great Depression deepened in the United States and spread overseas.
Identify the causes of the Great Depression and discuss how historians’ differ about them.
business cycle
Herbert Hoover
speculation
Black Tuesday
Great Depression
Hawley-Smoot Tariff

3. 1920s Economic Changes: Ford & Conservatives in Economic Boom
Economic Boom: widespread construction jobs; new technologies; high demand
2ND Industrial Revolution
New Products & Technology
Radio, refrigerators, vacuums, cars
Assembly Line + Henry Ford
NOT inventor of automobile but of assembly line – makes production easier = more, cheaper cars
Wealthier, in-debt Americans
Installment Payments (credit)
Farming Bankruptcies + Income Inequality
Conservative Presidents & Laissez Fair Capitalism
Warren G. Harding ( )
Calvin Coolidge (1923;1924-8)

4. 1920 Election: Pres. Warren Harding
Warren G. Harding of Ohio: returning America to "Normalcy"
Americans eager to turn inward and evade international issues.; tired of the idealism/sacrifice of Progressive Reforms.
Harding’s conservative economic philosophy (carried out by Coolidge & Hoover)
Conservatives believed role of gov’t was to make business more profitable.
Government’s role should be limited; stay out of business (laissez faire)
Businessmen should run the government as they had experience in management
Rejected federal gov’t programs to help citizens; local communities/charity should be responsible
Less Taxes: for corporations and the wealthy
Premise: high taxes forced investors to invest in tax-exempt securities rather than in factories that provided economic growth. "trickle down" economics”
Smaller net return to the Treasury than moderate taxes. Tax burden shifted to middle-class
High Tariffs: Fordney-McCumber Tariff (1922)
Businessmen feared cheap goods coming from a recovering Europe. Tariff rates pushed from 27% (Underwood Tariff) to about 38.5% (almost as high as the Payne-Aldrich Tariff of 19
Less Regulation:
Harding appointed people to regulate agencies that didn't like regulation
Interstate Commerce Commission dominated by men sympathetic to the managers of railroads.

5. Main Causes for the Crash
Farming Troubles
Too many crops during the 1920’s
Earliest prediction of economic collapse
Over Speculation / Buying on Margin
Over speculation in the Stock Market
Barrowing $ to invest
Buying on Credit
Buy now, Pay later
Increased debt
Gap between Rich and Poor
Economy was uneven
Bank Failures
Harding, Coolidge and Hoover

6. #1: Farmer Troubles No industry suffered as much as agriculture WWI
First sign of economic trouble
WWI
Farmers had to produce for the war effort
After WWI
Demand plummeted
Decrease in profits
Increased debt
Farmers foreclose their farms
4,000 farmers

7. Why might this be a problem?
#2. Over Speculation
Speculation:
Too many Americans were engaged in speculation
buying stocks & bonds hoping for a quick profit
Thought economy would always “boom”
Margin:
Americans were buying “on margin” –
paying a small percentage of a stock’s price as a down payment and borrowing the rest
Buying stock
EX: cost of stock $100
Person paid $25
Borrows $75
Pays 20% interest
Why might this be a problem?

8. #3: Living On Credit: Credit – Decreased Spending
Many Americans were living beyond their means.
Credit –
an arrangement in which consumers agreed to buy now and pay later for purchases.
Buy now and Pay later = Consumerism & Debt
Lower wages + lost income = can’t afford debt
Decreased Spending
By the late 1920s, American consumers were buying less
(they couldn’t afford it – they were maxed out)
Wages for workers decreased
Over Production

9. #4 -Gap Between Rich And Poor:
The gap between rich and poor widened
Wages did not increase enough / prices of goods increased
Consumers stopped buying products
Employers were forced to layoff workers
The wealthiest 1% saw their income rise 75%
The rest of the population saw an increase of only 9%

10. Hidden Economic Problems in the Roaring Twenties
Analyze Graphs Based on the information in the pie chart, what share of total income earned in 1929 did the top 5 percent of income earners account for?

11. Herbert Hoover won the presidency in 1928
Herbert Hoover won the presidency in He thought the economy would “fix” itself.

12. Definition of Great Depression
The Great Depression
was an economic depression that eliminated jobs, family incomes and sense of hope.
Most people did not see it coming, though there were a few warning signs
The economic crash depressed (brought down) U.S. economy: companies bankrupted, banks closed, jobs lost, families become poor
Time Span: 1929 to 1939, start of WWII

13. The Stock Market Hits Bottom
On October 24, the market took a plunge
Bank Runs
People rush to withdraw money from banks
On October 29, now known as Black Tuesday, the stock market crashed
Stock Market Crash Oct 29, 1929
Start of Great Depression
Important :
The Stock Market Crash did not cause the Great Depression

14. The Great Depression Begins
After the crash, many Americans panicked and withdrew their money from banks “Bank Runs”
Banks had invested in the Stock Market and lost money
People couldn’t pay their mortgages = banks lost money and forced to close
In banks fail
By 1933 – 11,000 of the 25,000 banks nationwide had collapsed
90,000 businesses went bankrupt
Unemployment
3% in 1929 to 25% in 1933

16. Hawley-Smoot Tariff: Hawley- Smoot Tariff
Increased tariff on imported European goods
Toughest tariff in US history
It was meant to protect U.S. industry
In response, other countries enacted their own tariffs and soon world trade fell 40%
Hurt international trade
World Wide Economic Depression
Much of Europe suffered throughout the 1920s
Europe had to repair after WWI
Germany forced to pay reparations

17. The Great Depression Begins
Analyze Graphs According to the Per Capita Income and Spending graph were Americans as a whole going into debt during the depression, or were they 'just getting by'?