CAUSES OF THE GREAT DEPRESSION
HIGH TARIFFS AND WAR DEBTS CAUSES OF THE GREAT DEPRESSION UNEVEN DISTRIBUTION OF WEALTH OVER PRODUCTION AGRICULTURE Historians disagree as to the causes of the Great Depression. Most scholars would include: STOCK MARKET CRASH AND FINANCIAL PANIC MONETARY POLICY INDUSTRY
The 1920s: prosperous time, but not for everyone Installment buying, using credit and paying back in small amounts allowed people to buy cars, radios and other new products. Farmers, however, were in a depression throughout the whole decade.
UNEVEN DISTRIBUTION OF WEALTH Wages had risen relatively little compared to the large increase in productivity and profits The 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. Happy Feet song
1,230,000 Americans 121,770,000 Americans
The economy grew by billions throughout the 1920s. Total realized income rose from $74.3 billion in 1923 to $89 billion in 1929
Chart showing wages of unskilled workers. Notice how little the wages changed during the supposed prosperity of the 1920’s.
STOCK MARKET SPECULATION • Get rich quick by “playing the market” • Buying on margin • Down payment of 10%, borrow the rest of the cost of stock from stockbrokers who borrowed from banks • Hoped that price would go up in order to repay loan • When prices dropped, market collapsed
HIGH TARIFFS AND WAR DEBTS • European nations owed over $10 billion to the US. Their economies had been devastated by war and they had no way of paying the money back. • Forced the allies to demand Germany pay the reparations. All of this later led to a financial crisis when Europe could not purchase goods from the US • 1922: US passed the Fordney-McCumber Act, which instituted high tariffs on industrial products. • 1930: Hawley-Smoot Tariff set the highest tariff rates in US history (31 to 49%). European countries passed their own higher tariffs in US goods. Both national and international economies sank further into depression
OVERPRODUCTION IN INDUSTRY • Factories were producing products, however wages for workers were not rising enough for them to buy them. • Too few workers could afford to buy the factory output. • The surplus products could not be sold overseas due to high tariffs and lack of money in Europe.
FARM OVERPRODUCTION • Due to surpluses and overproduction, farm incomes dropped throughout the 1920’s. • The price of farm land fell from $69 per acre in 1920 to $31 in 1930. • Agriculture in depression until the outbreak of World War II in 1939. • 1929: average annual income for an American family was $750, but for farm families it was only $273. • The problems in the agricultural sector had a large impact since 30% of Americans still lived on farms. Surplus ears of corn
Table shows the sharp decline in the prices of various products from American farms
Democratic New York Governor Al Smith ran against Republican Secretary of Commerce Herbert Hoover. Many were suspicious of Smith who was Catholic, while Hoover was popular for feeding starving Europeans after WWI. Al Smith
Hoover’s winning platform was based on continued prosperity “We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us.” 1928 Hoover accepting the Republican nomination for president
President Hoover’s belief in self-reliance would later affect his ideas about how to best solve the upcoming depression "I do not believe that the power and duty of the General Government ought to be extended to the relief of individual suffering. . . . The lesson should be constantly enforced that though the people support the Government the Government should not support the people." (1930) President and Mrs. Hoover
ONE OF HOOVER’S FIRST ACTS WAS DEALING WITH THE FARM CRISIS Candidate Hoover: "The most urgent economic problem . . . is agriculture. It must be solved.
U.S. Department of Agriculture’s yearbook from 1934 shows the unstable prices of foodstuff
Federal Reserve Monetary Policy • The Federal Reserve System was created in 1913 to help stabilize the economy by establishing a central banking system for the U.S. • A major goal is to deal with bank panics. • Monetary policy manipulates the money supply to help strengthen the economy. • At the beginning of the Great Depression, the Fed did not address failing banks, and many scholars argue their idleness worsened the situation.
Millions of average Americans began speculating in the stock market in the 1920s. Speculating is buying risky stocks out of a desire to get rich quick, rather than investing because of a sound investment.
Black Thursday Oct. 24, 1929
STOCK MARKET CRASH AND FINANCIAL PANIC WALL STREET ON THE DAY OF THE CRASH, OCTOBER 1929
Major reasons for the stock market crash in October 1929 • Stocks were overpriced due to speculation, meaning they were 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 • Federal reserve policy
THE "SNOWBALL EFFECT" OF THE CRASH • Bankers call brokers wanting their money! • Brokers go to investors to collect their money to pay the bank loans borrowed by broker for investor • Orders to sell any any price… swamped the market--nobody would buy • Brokers go under--stocks are worthless--investors loose their savings! • Run on the Banks: People begin to panic and go to banks---try to withdraw their money…Banks don’t have any money to give back • Banks close---people lost their savings • Businesses close---could not pay back loans to banks. • Workers loose their jobs • No money to buy consumer products • Sales fall---more businesses shut down • More workers lose their jobs domino effect
Great Crash Great Crash Great Crash Great Crash Great Crash World Payments World Payments World Payments Investors Investors Investors Investors Investors Businesses and Workers Businesses and Workers Businesses and Workers Businesses and Workers Overall U.S. production plummets. Overall U.S. production plummets. Overall U.S. production plummets. Investors lose millions. Investors lose millions. Investors lose millions. Investors lose millions. Investors lose millions. Banks Banks Banks Businesses and workers cannot repay bank loans. Businesses and workers cannot repay bank loans. Businesses and workers cannot repay bank loans. Consumer spending drops. Consumer spending drops. Consumer spending drops. U.S. investors have little or no money to invest. U.S. investors have little or no money to invest. U.S. investors have little or no money to invest. Consumer spending drops. Allies cannot pay debts to United States. Allies cannot pay debts to United States. Allies cannot pay debts to United States. Businesses lose profits. Businesses lose profits. Businesses lose profits. Businesses lose profits. Businesses lose profits. Businesses cut investment and production Some fail. Businesses cut investment and production Some fail. Businesses cut investment and production. Some fail. Savings accounts are wiped out. Savings accounts are wiped out. Savings accounts are wiped out. Businesses cut investment and production Some fail. Banks run out of money and fail. Banks run out of money and fail. Banks run out of money and fail. Workers are laid off. Workers are laid off. Workers are laid off. Workers are laid off. Europeans cannot afford American goods. Europeans cannot afford American goods. Europeans cannot afford American goods. U.S. investments in Germany decline. U.S. investments in Germany decline. U.S. investments in Germany decline. Bank runs occur. Bank runs occur. Bank runs occur. German war payments to Allies fall off. German war payments to Allies fall off. German war payments to Allies fall off. Effects of the Stock Market Crash
"Brother, Can You Spare a Dime," lyrics by Yip Harburg, music by Jay Gorney (1931) • They used to tell me I was building a dream, and so I followed the mob, • When there was earth to plow, or guns to bear, I was always there right on the job. • They used to tell me I was building a dream, with peace and glory ahead, • Why should I be standing in line, just waiting for bread? • Once I built a railroad, I made it run, made it race against time. • Once I built a railroad; now it's done. Brother, can you spare a dime? • Once I built a tower, up to the sun, brick, and rivet, and lime; • Once I built a tower, now it's done. Brother, can you spare a dime? • Once in khaki suits, gee we looked swell, • Full of that Yankee Doodly Dum, • Half a million boots went slogging through Hell, • And I was the kid with the drum! • Say, don't you remember, they called me Al; it was Al all the time. • Why don't you remember, I'm your pal? Buddy, can you spare a dime? • Once in khaki suits, gee we looked swell, • Full of that Yankee Doodly Dum, • Half a million boots went slogging through Hell, • And I was the kid with the drum! • Say, don't you remember, they called me Al; it was Al all the time. • Say, don't you remember, I'm your pal? Buddy, can you spare a dime? END OF POWERPOINT
PRESIDENT HERBERT HOOVER • Hoover was blamed for not providing “direct relief” to help Americans? WHY? • US Govt. should not provide “direct relief” • laissez faire • Rugged individualism: Americans are self-sufficient and would work themselves out this depression through hard work and determination. • Charitable organizations: Churches, volunteers and people helping one another.
PRESIDENT HERBERT HOOVER • US Government provided “indirect” relief by assisting insurance corporations, banks, agricultural organizations, railroads and state and local governments. • The theory was that prosperity at the top would help the economy as a whole. • Many Americans saw it as helping bankers and big businessmen, while ordinary people went hungry. • BUT, no direct relief to American people. Why? Hoover did not support federal public assistance because he believed it would destroy people’s self-respect and create big government which would violate laissez faire.
PRESIDENT HERBERT HOOVER Promoting Recovery • Hoover reassures the public; downplayed the public’s fears. • Critics were angry that the conditions worsened as Hoover tried to put a good face on the situation. • Privately, Hoover is deeply worried about the economy and gathers a heads of banks, labor, railroads, labor, big business, and government officials.
PRESIDENT HERBERT HOOVER The greatness of America has grown out of a political and social system and a method of a lack of governmental control of economic forces distinctly its own. Our American system which has carried this great experiment in human welfare farther than ever before in history.... And I again repeat that the departure from our American system... will jeopardize the very liberty and freedom of our people, and will destroy equality of opportunity not only to ourselves, but to our children....
HOOVER’S ATTEMPTS TO SOLVE THE GREAT DEPRESSION • Industry pledged to keep factories open and stop slashing wages. • This did not work: by 1931 most businesses reneged. • Next step was public works: • government financed building projects. • Hoover urged governors and mayors throughout the nation to increase public works spending. • Many governors and mayors did not choose to do this. WHY? • Pay higher taxes or borrow money from banks (deficit spending) which leaves less money for banks to loan out to people. • Hoover feared that deficit spendingcould delay an economic recovery.
The Midterm Election • As the congressional elections of 1930 approached, most Americans felt that the party in power was to blame for unemployment. • The Republicans lost 49 seats and their majority in the House of Representatives.
Pumping Money Into the Economy • Hoover asked the Federal Reserve Boardto pump more money into circulation. • The National Credit Corporationwas created to have a pool of money that would enable troubled banks to continue lending money in their communities • he encouraged wealthy New Yorkers to contribute to this
PRESIDENT HERBERT HOOVER • Reconstruction Finance Corporation • Early in 1932, Congress, responding to Hoover’s appeal, established the Reconstruction Finance Corporation, which became a government lending bank. • With $500 million, US Government provided “indirect” relief by assisting insurance corporations, banks, agricultural organizations, railroads and state and local governments. • The theory was that prosperity at the top would help the economy as a whole. • Many Americans saw it as helping bankers and big businessmen, while ordinary people went hungry. • BUT, no direct relief to American people. Why? Hoover did not support federal public assistance because he believed it would destroy people’s self-respect and create a large bureaucracy.
Direct Help for Citizens • However, states and cities were doing it—but by 1932, they were running out of money. • Many Americans saw it as helping bankers and big businessmen, while ordinary people went hungry. • Political support was building for a relief measure; Congress passed the Emergency Relief and Construction Act. • The new act called for $1.5 billion for public works and $300 million in loans to the states for debt relief. • It was still not enough; the collapse continued.
Hunger Marches • January 1931: 500 men and women in Oklahoma City broke into a grocery store • Rallies and “hunger marches” were held by the American Communist Party • December 5, 1932: a freezing day in Washington, DC; 1200 hunger marchers assembled“Feed the hungry, tax the rich.” • Police herded them into a blocked-off area, where they had to sleep on the sidewalks or in trucks. • The police denied them food, water, and medical treatment. • Congress insisted the right of the marchers’ to petition their government.
Farmers Revolt • 1930-1934: creditors foreclosed on nearly one million farms, taking possession of them and evicting families • Some farmers began destroying their crops in a desperate attempt to raise prices by lowering the amount of crops on the market. • In Nebraska grain growers burned corn to heat their homes in the winter. • In Iowa food growers prevented the delivery of vegetables to distributors. • Georgia dairy farmers blocked the highways and stopped milk trucks, emptying the milk cans into ditches.
RUN ON THE BANKS • Banks lost their investments in the Market after the Crash • Millions of Americans were caught in the panic of the Stock Market crash. • Went to their banks to withdraw their savings accounts. • Banks loaned out their $$$ and had no reserve funds to give customers withdrawing their savings. • Once banks ran out of $$$ they closed their doors and left people stranded. • 1929 = 659 and by 1933 = 5190
DEBTS BONUS ARMY • Bonus Army Marchin the summer of 1932 over 20,000 veterans from WWI marched on Washington, DC. • Demanded their Bonus promised to them by the government for fighting in WWI. • They were out of work and wanted to feed their families.
DEBTS BONUS ARMY • Bonus Army refused to leave Washington, DC until Congress gave them their Bonus. Congress voted not give the Bonus to the veterans. • They were ordered to leave by President Hoover but disobeyed the order. Eventually, President Hoover would order the army to force these veterans out of Washington, DC