1 / 44

The Great Depression 1929-1940: Causes and Lessons

The Great Depression 1929-1940: Causes and Lessons. “ Migrant Mother ” photo taken by Dorothea Lange 1936 in CA. http://weblogs.cltv.com/news/local/chicago/the%20great%20depression%202.gif. Goals: SWBAT. Describe major causes & conditions of the GD Analyze major causes of the GD

ulfah
Download Presentation

The Great Depression 1929-1940: Causes and Lessons

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. The Great Depression1929-1940: Causes and Lessons “Migrant Mother” photo taken by Dorothea Lange 1936 in CA http://weblogs.cltv.com/news/local/chicago/the%20great%20depression%202.gif

  2. Goals: SWBAT • Describe major causes & conditions of the GD • Analyze major causes of the GD • Apply economic concepts to the GD • Evaluate “lessons” from the GD • Apply lessons from the GD

  3. Economic Concepts • Boom-Bust Cycle • Bull Market vs. Bear Market • Recession and Depression • Inflation/Deflation • Unemployment • Economic Growth • Monetary Policy • Interest Rates • Fiscal Policy • Debt

  4. The Stock Market Crash! • Tuesday, October 29, 1929 • Aka Black Tuesday! • 16.4 million shares traded (normal was 3 million) • Stock values fell 37 percent in Oct.

  5. The Stock Market Crash caused the Great Depression? http://images.businessweek.com/ss/07/04/0426_dow/image/2_great_depression.jpg

  6. The Stock Market Crash caused the Great Depression? • Many say not true • Cause vs. Symptom (ex: fuel gauge) • Initially, markets actually recovered • The Crash was a Psychological Blow (see Behavioral Economics) • But only 2-4% traded in market • The Crash and Depression were caused by larger, structural problems

  7. What caused the Great Depression? • Instability in Economy • Income, Taxes & Production • Personal Debt & Margin Buying • Government Policies (Fiscal and Monetary) • International Trade

  8. Income, Taxes & Production in 1920s • The “Roaring 20s”?

  9. Income, Taxes & Production in 1920s • The “Roaring 20s”? • Many were well off, but… • Depressed crop prices & wages • Increases in production • Unstable jobs • Demand for goods dropping • New housing down in 1927 • Steel and car production down in ’29 • Business inventories up

  10. Income, Taxes & Production in 1920s • Tax Cuts for Wealthy during decade • Top 5% earned over 1/3 of income • They were saving not spending • Treasury Secretary Andrew Mellon’s laissez-faire “scorched earth” policy • Mellon: “Liquidate labor, liquidate stocks, liquidate the farmer, liquidate real estate” to help the economy

  11. Why was Over Production a Problem?

  12. Personal Debt and Margin Buying in ‘20s • People wanted to buy, but no $ • Installment plans • Borrow to buy/invest in stocks (“on margin”) – 10% down • Stock prices didn’t reflect value • Growing personal debt • When market crashed, people couldn’t “cover” – wealth vanished!

  13. Run on Banks and Bankruptcies

  14. Government Policies: Fiscal

  15. Herbert Hoover’s “hands off” policies caused the GD? • Landslide victory in 1928 • Conservative Republican • “General Prosperity” • Keep tariffs high • Pay down govt. debt • Balance the budget • Keep inflation low • Keep govt. out of economy

  16. Herbert Hoover’s “hands off” policies caused the GD? http://www.tribbleagency.com/wp-content/uploads/2008/12/the-great-depression.jpg

  17. Herbert Hoover’s “hands off” policies Caused the GD? • Not completely true • Hoover encouraged businesses to keep wages high • Agriculture Marketing Act (1929) created Federal Farm Board • Reconstruction Finance Corp (1932) for railroads and banks • Relief and Reconstruction Act (1932) for public works ($1.5 billion) – but credit went to FDR

  18. Herbert Hoover’s “hands off” policies Caused the GD? • Kept promising recovery is here! • Believed in hands-off govt • But did more than any previous president • Too little, too late!

  19. Hoovervilles and Hoover Blankets

  20. 2 million migrants and “hobos” • 13 million out of work by 1933

  21. Bonus Army to DC in 1932 • aka Bonus Expeditionary Force • Great War Vets ask for early bonus • Hopeless, desperate families • Hoover sent in military killing a few • General Douglas MacArthur • Aide Dwight D. Eisenhower • Major George Patton

  22. Govt Policies: Fiscal (cont) • Tariff made Recession worse • Smoot-Hawley Tariff (1930) raised import taxes up to 50 percent • Farmers & consumers devastated!

  23. Govt Policy: Fiscal Why Were Tariff Rates Raised? “Protect” businesses and jobs Today we know this was a Bad Idea!

  24. Measuring Economic Growth(See John Maynard Keynes) • Gross Domestic Product • GDP = C + I + G + ( x – m ) • C = Consumer spending • I = Investment spending • G = Government spending • x = exports, m = imports • C, I, G, and/or x go up = GROWTH!

  25. Impact of Smoot-Hawley (1930) and Trade Agreements Act (1934)

  26. International Trade • Smoot-Hawley Tariff (1930) • Britain set “imperial preference” • Austria’s Credit Ansalt Bank failed on May 11, 1931 • Germany’s Danat Bank suspended operations on July 13, 1931 • Germany still paying Great War reparations; Allies still paying debt

  27. International Trade • 1929 Global Trade at $36 billion • 1933 Global Trade at …..

  28. International Trade • 1929 Global Trade at $36 billion • 1933 Global Trade at $12 billion

  29. Government Policies: Monetary • Federal Reserve System (1913) • “Easy money” policy in 1920s • Low interest rates • Allowed Bank of United States to fail on Dec. 11, 1930: • Deposits of $268 million gone! • Maintain Gold Standard

  30. Govt Policy: Monetary • Why maintain the Gold Standard? • Stable, but very restrictive • What did it mean? • To maintain gold reserves, govt had to RAISE interest rates and CUT money supply – DISASTER!

  31. Great Depression Numbers • 1929-1931 over 1.5 million mortgages failed

  32. Great Depression Numbers • 1929-1933 over 9,000 banks failed

  33. Great Depression Numbers • 1933 over 13 million out of work (over 25%)

  34. Great Depression Numbers • 1929-1932 Stock Market lost 90%

  35. Great Depression NumbersDow Jones Industrial Average • Sept 1929 – 381 • July 1932 – 41 • Dec 1954 finally reached 1929 level!

  36. Great Depression NumbersDJIA: Some perspective • May 1999 – above 11,000 for 1st time • 2003 – down to 7,000 • Oct. 2007 – up to 14,100 • March 2009 – down to 6,500 • Jan. 2011 – up to 11,891 • Oct. 2011 – down to 10,400 • Now – up to 12,660 • Unemployment 8.5 percent (Dec. 2011)

  37. FDR’s Inaugural Address on March 4, 1933 “…So first of all let me assert my firm belief that the only thing we have to fear is fear itself – nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”

  38. Lesson #1: • The government must respond to an Economic Crisis • But How? John Maynard Keynes Milton Friedman

  39. John Maynard Keynes • “Father” of Macro Economics • The General Theory of Employment, Interest and Money (1936) • aka: Demand-Side economics • Economic goals & measurement? • Economic Growth (GDP) • Employment (Unemp. Rate) • Price Stability(Inflation Rate) • How to “guide” an economy? • Fiscal and Monetary Policy • Stimulate Demand during recession

  40. Lesson #2: from the 4 year old “we were ashamed”“save your money and don’t overextend yourself” http://www.cnn.com/2008/LIVING/12/02/dustbowl.photo/index.html http://weblogs.cltv.com/news/local/chicago/the%20great%20depression%202.gif

More Related