Preview Main Idea / Reading Focus The U.S. Economy in the 1920s Quick Facts: Causes of the 1929 Stock Market Crash The Depression Spreads The Worldwide Depression Quick Facts: Social Programs in Selected Countries The Great Depression
The Great Depression Main Idea In the late 1920s, an economic depression started in the United States and quickly spread around the globe, causing great hardship and creating ideal conditions for political unrest. • Reading Focus • What happened to the U.S. economy during the 1920s? • How did the Depression spread throughout the United States? • How did the Depression affect the world?
The U.S. Economy in the 1920s • At War’s End • U.S. world’s leading economic power at end of World War I • Position stronger during 1920s • End of decade, economy crashed • Economic Growth • American farms, factories supplied world with food, supplies to fight World War I • Economy slowed briefly at war’s end • Steady Growth • Economy booming by 1921 • Most growth in industry • Auto manufacturing, consumer goods, radios, vacuum cleaners, washing machines • 1920s Stock Market • Overall value rose 400 percent • Americans did not want to miss out on prosperity • Increased investment drove stock prices higher
Hidden Problems • Stock market booming, but hidden problems affected economy • New wealth not distributed evenly • Richest 1 percent of population earned 19 percent of nation’s income • Easy credit allowed increase in consumer goods spending • Credit • Credit, arrangement where purchaser borrows money from lender and agrees to pay it back over time • At decade’s end many consumers reached limit of credit • Could no longer afford to buy products that had kept U.S. economy expanding
The Stock Market Crash • Fall of 1929 • Consumer spending slowed, sales suffered • Many feared drop in stock prices • Nervous investors began to sell off stocks • October 29 • Black Tuesday, 16 million shares of stock sold in one single day • Few people wanted to buy stock, stock prices collapsed • Investors who had borrowed to buy stocks forced to sell at loss • Market Crash • Stock market crash ruined many investors • Banks that had lent money to investors were also in deep financial trouble • Devastating blow dealt to American industry
Sequence What happened to the U.S. economy during the 1920s? Answer(s): The economy boomed; Americans bought goods and stock on credit; when consumer spending slowed, a stock sell-off began, resulting in the 1929 stock market crash.
Industry Slows Great Depression • As industry slowed, workers lost jobs • One out of four unemployed by 1933 • Joblessness, poverty reduced ability to buy food, goods, hurt industry even further • Banks suffered when businesses, investors failed to pay off loans; many failed • American economy took severe downward dive after stock market crash • Economic downturn became known as Great Depression • Depression result of complex factors • One factor, slowdown in industry; began before crash, worsened quickly after The Depression Spreads
The Depression Spreads • Government Response • President Herbert Hoover favored minimal government response to crisis • Some thought depression was normal adjustment to overheated economy • Hoover eventually took some actions, many felt too little too late • Roosevelt Elected • Franklin Delano Roosevelt elected president, 1932 • Increased federal government’s role in lives of Americans • Pushed forward New Deal, program to fight Great Depression • New Deal • Provided government spending to help start economic recovery • Public works programs to provide jobs, government money for welfare, relief • New regulations to reform, protect stock market, banking system
Increased government spending supported by theories of British economist John Maynard Keynes Believed governments could limit, prevent economic downturns Governments should spend money Spending would help increase economic output Factories would hire workers to meet new demand Eventually workers would begin spending, depression would end Government spending did help U.S. economy, but depression lingered through 1930s New Economic Theories
Identify Cause and Effect Explain the factors that led to the Great Depression. Answer(s): unequal distribution of wealth; buying stock and products on credit; spending slowed; stock market crashed; a slowdown in industry followed
Before the Crash World Woes Series of Crises • Some countries having difficulties before stock market crash • European countries recovering from World War I • Allied Powers in debt to U.S. • High interest rates in Great Britain • Decreased spending, high unemployment • Germany’s reparations led to inflation, crippled economy • Japan’s economic depression forced banks to close • U.S. Great Depression latest in long series of economic crises • Effects far worse The Worldwide Depression In 1929 America was one of the world’s leading importers and lenders of money, and created much of the world’s industrial output. Events affecting America’s economy would soon impact other countries.
Act Backfired Results • New tariff led other countries to increase their tariffs on American goods • World trade slowed to a standstill • Loss of foreign trade crippled many nations’ economies • Trade slowed, prices collapsed • Price of Japanese silk dropped • Silk major Japanese export, nearly 20 percent of farm income • Decline of silk industry one example of collapsing markets worldwide The Worldwide Depression • A Slowdown in Trade • President Hoover signed Smoot-Hawley Tariff Act, 1930 • Act placed heavy taxes on imported goods • Attempt to encourage Americans to buy U.S. made goods, products • American goods would be cheaper than taxed imported goods
Political Impact Economies Worsen, New Leaders Emerge • Instability in Great Britain and France led to formation of several new governments • Extremist political groups gained strength • Germany’s Nazi Party blamed Jews • Italian dictator Benito Mussolini tightened his control of the nation • Widespread misery, hopelessness worldwide • Ideal conditions for rise of leaders who promised to restore their nations to glory • World in midst of troubled times • Worse crisis lay ahead The Worldwide Depression The postwar era left many countries politically unstable. As the Depression continued, unrest grew worse.
Summarize How did the Depression spread to the rest of the world? Answer(s): World trade slowed, ruining some foreign economies. War recovery and economic problems in Europe led to political unrest and changes in government.