1. Causes of the Great Depression

2. The Great Depression Defined
Total collapse of the US economic system of Capitalism, laissez faire and everything we believed in as a country.
Our democracy and way of life was threatened.
Worse economic calamity in the US
Part of a world-wide economic depression

3. THE BUSINESS CYCLE: The UP’s & DOWN’s of the Economy

4. The Business Cycle—Peak
HIGH DEMAND=
Desire For More Profits =
Greater Investment =
More Production =
Higher Employment =
More Demand =
Higher Prices (INFLATION)

5. The Business Cycle—Contraction
INFLATION/OVERPRODUCTION =
LESS PRODUCTION =
LAY OFFS =
LESS SPENDING =
LOWER CONFIDENCE =
LESS INVESTMENT =
HIGHER UNEMPLOYMENT
UNTIL SURPLUSES ARE USED UP

6. The Business Cycle—Recovery
HIGHER DEMAND
Surplus Reduction =
More Production =
Recall of Workers =
More Purchasing =
Increased Investments =
Economic Growth

7. Business Cycle Troughs
RECESSION
2 successive quarters (6 months) of declining GDP ($ of gov’t, consumer, and business spending)
DEPRESSION
Unemployment greater than 12%

8. Document A
According to this document, between what years did the US economy experience its longest and deepest fall?
What event marks the fall?
Where there any fluctuations in the business cycle within the depression?
What event seems to have pulled the economy out of this depression?

9. Laissez Faire Economic Policy
Prior to the Great Depression the US. Government ignored the business cycles of the US economy.
The Government until FDR believed that the American Economy could fix itself.
Laissez-Faire… “Hands Off”
The Great Depression is a turning Point in US History!

10. Most scholars would include: High Tariff & War Debt
Historians disagree as to the causes of the Great Depression.
Most scholars would include:
Causes of the Great Depression
High Tariff & War Debt
Stock Market Crash & Financial Panic
Overproduction
Industry
Agricultural
Monetary Policy
Unequal Distribution of Wealth

11. 1920s—An Age of Prosperity?
Installment buying allowed people to buy cars, radios and other new products of the 1920s.
Farmers, however, were in a depression throughout the whole decade.

12. RURAL POVERTY IN THE 1920’S

13. Unequal Distribution of Wealth
Top 1% received a 75% increase in their disposable income while the
Other 99% saw an average 9% increase in their disposable income.
80% of Americans had no savings at all
Disposable income is money remaining after the necessities of life have been paid for.

14. The chart shows that 99% of the population received a 9% increase in their income, while the top 1% saw their income rise by 75%.

15. Wages of Unskilled Workers
WHY DO THINK WAGES STARTED GOING UP BEGINNING IN 1938? (WAR SPENDING AROUND THE WORLD)

16. Document B
According to the note in this document, what was the poverty line for the average American family?
What percentage of the American families lived at or below that line in 1929?
How might uneven distribution of income helped to cause the depression?

17. Overproduction in Industry
Factories were producing products
Wages for workers were not rising enough for them to buy them.
The surplus products could not be sold overseas due to high tariffs and lack of money in Europe.

18. Document C
What does Elmer Davis mean by the phrase “quantity prosperity”?
Why does Davis say that quantity prosperity will defeat its own purpose?

19. Farm Overproduction Farm incomes dropped throughout the 1920’s.
Price of farm land fell from $69/acre in 1920 to $31 in 1930.
In 1929 the average annual income for farm families it = $273.
For an American family was $750
Agriculture was in a depression which began in 1920, lasting until the outbreak of World War II in 1939.
Surplus ears of corn

20. Document D
What does the cartoon say was a big problem for the farm industry?
What happens to prices when surpluses are high?
Why do falling prices hurt the economy and help cause a depression?

21. Decline in Farm Prices Agricultural product 1912-1913 1932-1933
Corn (per bushel)
0.56
0.20
Wheat (per bushel)
0.88
0.41
Oats (per bushel)
0.34
0.17
Butter (per lb)
0.21
0.13
Butterfat (per lb)
0.25
0.16
Wool (per lb)
0.24
0.10
Hogs (per cwt)
7.50
3.80
Milk (per cwt)
1.79
0.90

22. Farmers, who had been suffering during the 1920s, suffered further declines during the Great Depression. Wholesale food prices collapsed, which led to a lack of money to purchase new equipment and many could not pay for their mortgages and lost their farms.

23. U.S. Department of Agriculture’s yearbook from 1934 shows the unstable prices of foodstuff
WHEAT
CORN
OATS
POTATOES
PEANUTS
1919
216.3
150.7
76.7
191.1
9.33
1920
182.6
61.0
53.8
133.2
5.26
1921
103.0
52.7
32.2
113.5
3.99
1922
96.6
75.2
37.4
68.6
4.68
1923
92.6
83.5
40.7
91.5
6.78
1924
124.7
105.3
47.8
71.5
5.68
1925
143.7
69.9
38.8
166.3
4.56
1926
121.7
75.3
40.1
136.3
4.97
1927
119.0
84.9
47.1
108.9
5.04
1928
99.8
84.3
57.2
4.90
1929
103.4
79.8
41.9
131.5
3.83
1930
67.0
59.4
3.54
1931
39.0
32.1
21.3
46.4
2.09
1932
37.9
31.8
15.7
1.53

24. Average gross receipts
Per Capita Farm Income
1910
1918
1932
Average gross receipts
2177
3837
1512
Average expenditures
770
1655
1019
Balance
1407
2182
493
Unable to afford new equipment, and their mortgages, led to the hundreds of thousands of foreclosures on farms.

25. High Tariffs & War Debts
At the end of World War I, European nations owed over $10 billion ($115 billion in 2002 dollars) to the United States.
Their economies had been devastated by war and they had no way of paying the money back.
The U.S. insisted their former allies pay the money.
This forced the allies to demand Germany pay the reparations imposed on her as a result of the Treaty of Versailles.
Later led to a financial crisis when Europe could not purchase goods from the U.S.
This debt contributed to the Great Depression.
In 1922, the U.S. passed the Fordney-McCumber Act
Instituted high tariffs on industrial products.
Other nations soon retaliated = world trade declined helping bring on the great depression.

27. Document E What is a tariff? Who is the tariff wall protecting?
Whose boats are being blocked?
Is there anyway a tariff wall might hurt American business?

28. Document F
What does Leuchtenburg mean when he says the US was a creditor nation?
How could a protective tariff hurt a creditor nation?
Did the protective tariffs help cause or at least deepen the depression?

29. Stock Market Crash & Financial Panic
The trading floor of the New York Stock Exchange just after the crash of On Black Tuesday, October twenty-ninth, the market collapsed. In a single day, sixteen million shares were traded--a record--and thirty billion dollars vanished into thin air. Westinghouse lost two thirds of its September value. DuPont dropped seventy points. The "Era of Get Rich Quick" was over. Jack Dempsey, America's first millionaire athlete, lost $3 million. Cynical New York hotel clerks asked incoming guests, "You want a room for sleeping or jumping?"
WALL STREET ON THE DAY OF THE CRASH, OCTOBER 1929

30. Document G What does it mean to buy stock on margin?
How could an investor who bought stock on margin go broke in a stock market crash?

31. Document H
What happened to the value of American Telephone & Telegraph stock?
If the stock market falls what happens to:
Spending by rich people? Why?
Spending by poor people? Why?

32. Reasons for the Crash
Stocks were overpriced due to speculation = not worth their sale price
Massive fraud and illegal activity occurred due to a lack of regulation and rules
Margin buying, or buying using credit

33. Effects of the Crash Businesses lose profits Consumer spending drops
Businesses cut investments & production
Workers are laid off
Business cannot repay bank loans
Banks run out of money
Savings accounts are wiped out
Investors lose millions
Effects of the Crash

34. Document I
What was the unemployment rate for all civilian American workers in 1929?
In what year were more than one-quarter of American workers without jobs?
For how many years did America experience double-digit unemployment?
Were high unemployment figures simply an effect of the depression or were they also a cause?

35. Document J
What does the author mean when he says the structure of American banks in 1929 was weak?
What happens if a bank makes lots of loans to stock buyers buying on margin?
If many banks fails…
What happens to consumer consumption?
What happens to investment?

36. Federal Reserve Monetary Policy
Created in 1913 to help stabilize the economy by establishing a central banking system for the U.S.
Goal to deal with bank panics.
Manipulates the money supply to help strengthen the economy
At the beginning of the Great Depression…
Did not address failing banks
Many scholars argue their idleness worsened the situation.

37. Poor Monetary Policy Should Have:
Changes in interest rates and money supply to expand or contract aggregate demand.
In a recession, the Fed will lower interest rates and increase the money supply.
In an overheated expansion, the Fed will raise interest rates and decrease the money supply.
Fed. Reserve INCREASED interest rates
Money/Borrowing MORE EXPENSIVE & Saving MORE ATTRACTIVE
Should Have:
LOWERED interest rates to give the economy a “JUMP START”

38. Poor Fiscal Policy Should Have:
Changes in the taxing and spending of the federal government for purposes of expanding or contracting the level of aggregate demand.
In a recession, an expansionary fiscal policy involves lowering taxes and increasing government spending.
In an overheated expansion, a contractionary fiscal policy requires higher taxes and reduced spending.
Hoover Admin. & Congress CUT SPENDING & RAISED TAXES to balance the budget
Should Have:
INCREASE SPENDING & CUT TAXES to “JUMP START” the economy
EX: Temporary Deficit Spending