Transcript The Great Depression and the New Deal, 1929

Prosperity, Depression, and
the New Deal
1920s Economy and Advertising
 “Mass production is only possible where there
is mass demand. Mass demand has been
created almost entirely through the
development of advertising. …”
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President Calvin Coolidge, 1926
1920s Economic Prosperity
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Industry
*Percentage Increase, 1922-28
Industrial Production: 70%
Gross National Product (value of total goods and services produced): 40%
Output per factory man hour: 75%
Corporate Profits: 62% (1923-1929)
Standard of Living
* Percentage Increase, 1923 – 1929
Homes with Electricity: 30%
Telephone Ownership and Use: 54%
Home Ownership: 25%
Automobile Ownership: 150%
Workers
*Percentage Increase, 1923-29
Worker's Incomes: 11%
Average Work Week: -4%
In what general ways did the economy change in the 1920's?
What changes in the average worker's wage, output, and work day length do you
notice?
What effects did this have on the average American?
1920s Economic Prosperity
 Unemployment
remained low and
prices for consumer
goods remained stable
 people had $ to
spend on affordable
goods
 Availability of electric
power
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Telephones, radios,
and electric appliances
Henry Ford and the Automobile
Industry
 Mass production and
moving assembly line
affordable car for the
masses, the Model T
 $290 in 1927 ($2900
today)
 Ford paid workers $5 a
day  workers could
afford to buy cars
themselves increased
demand for cars
1903: Ford made 1700 cars in 3 different styles
1914: Ford made 286,770 cars in ONE style
1925: Ford made 1 car every 10 seconds!!
1924 Advertisement for a Ford Model T – “available in any color so
long as it is black”
The Automobile Industry
 The automobile industry drove the 1920s economy
 Road construction, gasoline/service stations, oil, and
motel industries all profited
 Job creation
 Led the way in installment plan buying – “buy now
and pay later”
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Encouraged consumer spending and increased
consumer debt  created artificial demand
Superficial and temporary prosperity
The Politics of Prosperity
 Republican Party dominated the 1920s and
encouraged business growth
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Cut taxes on wealthy  unequal distribution of wealth
Opposed labor unions  wages remained low
Cut federal spending; believed in a balanced budget
Laissez-faire approach
High protective tariffs  promote American businesses
over foreign competition
Undid many Progressive Era Reforms
The Politics of Prosperity
President Warren G. Harding, 1920 - 1923
President Calvin Coolidge, 1923 - 1928
“The chief business of the American people is business…The man who
builds a factory builds a temple.”
President Coolidge
The “Bull” Market, 1920 – 1929
 What is “stock?”
 Why would someone buy stock? Are there
risks?
 How/why are stocks valuable?
 What determines the prices of stocks and
direction of the stock market?
 What is the “stock market?”
Stock Prices, Round #1
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
80
80
120
110
70
120
120
150
Stock Prices, Round #2
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
100
110
150
120
60
140
130
160
Stock Prices, Round #3
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
150
130
190
130
50
150
140
200
Stock Prices, Round #4
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
140
180
40
140
90
110
100
210
Stock Prices, Round #5
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
160
190
30
160
100
170
110
210
Stock Prices, Round #6
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
150
220
60
150
110
180
90
230
Stock Prices, Round #7
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
180
270
100
200
180
90
180
270
Stock Prices, Round #8
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
160
280
150
180
210
60
100
170
Stock Prices, Round #9
 Kroger
 RCA
 Mammoth Oil
 City Corp.
 Durant Motors
 Midland Power
 K & P Railroad
 Tel-Tone
80
50
30
150
50
10
20
80
Causes of the Great Depression
 Agricultural Weaknesses – 1920s
 Falling demand after WWI  decreased farm income
 Overproduction worsened the situation
 Increased debts, loss of farms and homes
 Uneven Distribution of Wealth by 1929
 Low wages  workers can’t afford all of the products
they produce
 70% of American families lived in poverty; 80% had no
savings
Causes of the Great Depression
 Struggling Industries
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Housing, automobile, steel, and RR’s
Overuse of credit  consumers cut back on spending by
late 1920s
 Low demand for goods  less production 
unemployment  no $ to spend  less demand
 Poor Fiscal Policies by the Federal Government
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Not enough $ in circulation  no $ to spend
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High interest rates  difficult to borrow $
Republicans tried to balance the budget by raising income
taxes  people have less $ to spend
Causes of the Great Depression
 International Problems
 WWI  economic devastation and huge debts in
Europe
 High tariffs worldwide (Hawley Smoot Tariff) contracted
trade and decreased international demand by 70%
 Weaknesses in the Stock Market
 Inflated stock prices reflected demand and confidence,
not actual business value
 Speculation – “risky business”
 Buying on margin – works as long as prices go up
 No laws/regulations
The Great Depression Begins
 SM crash on Tuesday, October 29, 1929 – marked
the beginning of the GD
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16.4 million shares sold; $30 billion lost by November
 Bank Failures
 Investors default on loans  bank reserves fall and
savings lost
 Federal Reserve failed to loan $ to banks
 “Runs on banks”
 9,000 out of 25,000 banks in nation close by 1933
 Unemployment = 25% by 1933
Run on NYC Bank – American Union Bank closed on June 30, 1931
The Dust Bowl: Nature’s Cruel Blow
President Herbert Hoover, 1929 - 1933
 Quaker upbringing in
Iowa and Oregon
 Stanford educated
 Humanitarian hero of
World War I
Hoover’s Philosophies
 Traditionally Republican = limited role for the
government in the economy
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1920s prosperity was the result of Republican policies
and would return if the economy was left alone
 Did not support direct government aid to the
American people
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Feared they would become dependent on the
government; “rugged individualism”
 Encouraged volunteer efforts to combat the GD
 Voluntary wage freezes by businesses
 Private charities to fight homelessness and other
needs
Hoover’s Actions
 Public Works Projects
 Roads, dams, etc (Boulder Dam)
 Use government $ to fund private companies
 Provide jobs, but workers not paid by the government
 Reconstruction Finance Corporation
 Provide government loans to banks, RR’s, big
businesses to keep them going and encourage
expansion
 “Trickle-down” method  higher wages and jobs
 Failed because not enough $ was available (no tax
increases by Hoover)
 Despite failures, Hoover actually did more than any
previous president and laid a foundation for FDR’s
New Deal
Hoover’s Actions
 From bad to worse… The
Bonus Army (1932)
 WWI vets marched to
Washington DC to demand
early payments of promised
bonus  Congress refused in
June
 Hoover initially supported their
presence, but then used the US
Army to forcefully evict
remaining protestors
 100 veterans injured and
Hoover’s reputation destroyed
Hoover’s Assessment
 Faced an unprecedented economic crisis –
What lessons could he have been expected
to have learned and used from the past?
 Too principled and idealistic? Should he have
compromised on his beliefs?
 He has been blamed for the GD – Fair?
Accurate?
 Importance of personality for a politician?
“Relatability” factor?