1. Boom Turns to Bust: The Great Depression
Focus Question: How did the prosperity of the 1920s give way to the Great Depression?

3. Free Market Business Cycle

4. The Twenties: Endless Prosperity?
Consumption goes up
Gross National Product (GNP) goes up
Stock Market goes up
Times were good in America
Republican Presidents Harding & Coolidge took the credit
In 1928, Herbert Hoover elected President

5. Underneath the Glitter, All Was Not Gold
Agricultural Sector Hurting Badly
Farmers ¼ of the total U.S. work force
To meet increased food production needs in WWI, farmers had bought land & farm machinery
With decreased demand, farmers struggling: Rural depression

6. Causes of the Depression: Prosperity Built on Cars & Construction
Most of economic growth in country based on two industries: automobiles & construction
By 1928, market for cars saturated
Construction bubble “pops”!

7. Causes of the Depression: Unequal Distribution of Wealth
Despite apparent prosperity of the 1920’s, 50% of the U.S. population lived on a subsistence income
1% of Americans controlled 40% of the country’s wealth

9. Causes of the Depression: Easy Credit
Expansion of credit partially hides the problem: installment plan
80% of radios & 60% of cars bought on installment plan
Americans accumulate more debt
When economy tanks, Americans in serious trouble

10. Causes of the Depression: Stock Speculation
Related to the credit crunch was the habit of “buying on margin”
Soaring stocks made the stock market seemed like an easier way to make money than savings accounts
When market crashes, people lose everything!

11. Causes of the Depression: Reparations & War Debts
Versailles Treaty mandated Germany pay “reparations” $$$ to Britain & France
Germany could not afford them and borrowed money from U.S.
England and France owed money to U.S. and paid their debts to U.S. from reparation payments
U.S. continues loans to Germany
What will happen when economy goes South?

12. Causes of the Depression: High Tariffs
Smoot-Hawley Tariff Act increased tariffs on imports to the U.S. by up to 50%. This tariff made the depresssion the Great Depression
Put into law in June 1930 by the Republican Congress (That would be at point A on the GDP chart.)
Smoot-Hawley was indeed bad. Other countries followed the U.S. tariff policy and U.S. exports to them contracted.
The U.S. GDP went down further

13. The Stock Market Crashes
Black Tuesday: October 29, 1929
Billions of dollars lost
People who bought on margin lost everything they had
Black Tuesday provides the spark for the Great Depression:

14. Cities Devastated Banks Collapse Factories Close; unemployment grows
Misery & Despair; Middle-class men hit especially hard
Brother Can You Spare a Dime

15. Rural Areas Suffer
Crop Prices fell further: in 1919, a bushel of wheat sells for $2.16; in 1932, $0.38
Farmers lose 1/3 of their income
Nearly one million farmers lost their farms between
Environmental disaster: Dust Bowl of the 1930’s