Great Depression The Beginning
Great Depression • The United States economy seemed very strong by 1922, only four years after World War I, but by the beginning of the 1930s, the United States was in a deep economic depression. • Why do you think this happened? • As the worry of war decreased, people began buying many products.
Great Depression • For example, demand for home appliances increased, and many Americans bought such products on credit. • In addition, overseas orders for American products increased as war-ravaged countries purchased goods from the United States because their own factory systems were destroyed.
Great Depression • Factories in the United States went into full production to meet this increased postwar demand, both domestic and foreign. • As war-torn countries rebuilt their factories, they began cutting their orders to American factories, which in turn contributed to American factories’ laying off workers or shutting down when their inventories stopped selling.
Great Depression • A long period of rising stock prices is known as a bull market • Many investors bought stocks on margin, making small cash down payments (borrowed money) • Margin call, a demand by the broker for the investor to repay the loan immediately • Speculation, bet on the market climbing and selling whatever stock they could to make money
Buying on Margin $42.50 $37.50 $425.00 Shares are being sold at $5.00 each. Initially, the investor owes 15%.
Roots of the Great Depression • Efficient machinery led to overproduction • Uneven distribution of wealth added to the country’s problems. (5% of households earned 30% of the county’s income) • Low consumption added to economic problems • As sales decreased, workers were laid off, resulting in a chain reaction
Roots of the Great Depression • Installment plan, paying a little at a time, left little money to purchase other goods • Hawley-Smoot Tariff intensified the Depression by raising the tax on imports • Americans purchased less from abroad, in return foreign corporations did not buy American exports. • Federal reserve lowered interest rates instead of raising them, encouraging banks to make risky loans and business thinking economy was growing
Causes of the Great Depression • Over speculation in the stock market • Over borrowing (investments made with borrowed money) • Over production in factories and farms • Uneven distribution of wealth • Failure by the Federal Reserve to monitor banks • High protective tariffs
Causes of the Depression • Overproduction and low demand leads to employee layoffs • Low wages reduce consumer buying power • High tariffs restrict foreign demand for American goods (Hawley-Smoot Tariff) • Unemployment reduces buying power further
Causes of Depression • Hawley-Smoot Tariff: A high import tariff that is considered the most destructive tariff in American history.
Depression • Black Tuesday, October 29, 1929, stock prices fell drastically (stocks lost $10-$15 billion in value) • This stock market crash did not cause the depression, but it weakened the nation’s banks • Because the government did not insure bank deposits, customers lost their money. • $30 billion was lost, (roughly equal to the total wages earned by Americans in 1929), as stock prices had dropped by over 1/3.
THE 1929 CRASH • October 29, Black Tuesday, the bottom fell out • 16 million shares were sold. • Prices plummeted • $30 billion was lost
The Stock Market Crash • Affect on Banks: • People can’t repay loans, therefore banks lose money. Banks close and people lose life savings.
Bank Closings • Banks had invested in the Stock Market and lost money • By 1933 – 11,000 of the 25,000 banks nationwide had collapsed Bank run 1929, Los Angeles
Causes of Depression • Overproduction: Machines (automation) and new technology led to creating more products than could be consumed.
Causes of Depression • Uneven Distribution of Wealth: Most Americans were poor and could not afford to buy new products.
Causes of the Depression • Credit: Americans who could buy things were making installment payments and could not afford to buy additional goods.
Causes of Depression • Under-consumption: Low sales led to factory lay-offs. Creating a chain reaction: Lay-offs led to lower sales, led to more lay-offs………..
Effects of the Great Depression • Unemployment: By 1933, 1 out of every 3 American workers were unemployed. Bread lines / Soup Kitchens created to feed the poor
The Impact of The Great Depression • Unemployment increased • Homelessness increased • Workers became more militant • Farmers lost their farms • Workers migrated in search of jobs
The Depression Worsens • Bread lines – people waited for free food • Soup kitchens – private charities gave a free meal to the poor • Many homeless built shacks in shantytowns, which they referred to as “Hoovervilles” because they blamed the president who had been inaugurated in March 1929. • As crop prices fell, many farmers left their fields uncultivated
Hoovervilles Hoover Flags Hoover Blankets Hoovervilles
THE DUST BOWL • A severe drought gripped the Great Plains in the early 1930s • Wind scattered the topsoil, exposing sand and grit • The resulting dust traveled hundreds of miles Kansas Farmer, 1933
The Depression Worsens • A drought in the Great Plains, beginning in 1932, caused the region to become a “Dust Bowl” • Farmers lost their farms and many families moved to California hoping to find a better life • To escape these hardships Americans turned to movies and radio programs • These shows contained stories of triumph over adversity and visions of a better life
Coping with the Depression • Movies and Radio: allowed people to temporarily forget the problems that they faced. • Stories tended to focus on people overcoming hardships to achieve success. • Snow White, Wizard of Oz
The Depression Worsens • Movies like The Wizard of Oz, Gone with the Wind, and Snow White became popular • Books were written about the depression, the most famous was The Grapes of Wrath by John Steinbeck. • It was about an Oklahoma family fleeing the Dust Bowl to find a new life in California.
Headlines of 1932 • U.S STEEL LAYS OFF ANOTHER 10,000 • GENERAL MOTORS STOCK DOWN FROM $500 A SHARE TO $10 A SHARE • CHICAGO TEACHERS FEED 11,000 HUNGRY CHILDREN • IOWA CORN WAY DOWN IN PRICE • KENTUCKY COAL MINERS FOUND LIVING ON DANDELIONS • 110 CHILDREN IN N.Y.C. DIE FROM MALNUTRITION
Some Interesting statistics • National Income: • 1929--$81 billion • 1932--$41 billion • Business Failures: 1929-32--85,000 • Banks: 1929-32 - 9,000 failures and 9,000,000 accounts wiped out • Per capita income: • 1929 -- $681 • 1932 -- $495 • Weekly income of a stenographer: • 1929 -- $45 • 1932 -- $16
Hoover’s Response: • Initial Response: • Laissez-Faire: Left the economy alone “the ship would right itself.” • Rugged Individualism: Americans should pick themselves up by their boot straps. • Hoovervilles = shanty-towns built by migrant populations that had lost their farms, homes, jobs, etc.
Later Response: • Reconstruction Finance Corporation (RFC): • Loaned money to companies to keep businesses running. • The government also bought surplus grain from farmers. • Both measures were too little, too late!!
Promoting Recovery • Public Works – government-financed building projects • Hoover increased public works and asked the nation’s mayors and governors to do the same • Hoover tried to persuade the Federal Reserve to put more currency into circulation, but they refused • He set up the NCC (National Credit Corporation) creating a pool of money to rescue the banks, it was not enough to help
Promoting Recovery • He set up the Reconstruction Finance Corporation to make loans to banks, railroads, and agricultural institutions, but the economy continued to decline • He opposed the federal government’s participation in relief – money that went directly to very poor families • He felt that was the responsibility of state and local governments