Transcript Causes of Great Depression

Causes of Great
Depression
Chapter 22
Economy in the 1920s:
Booming Economy
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WWI brought US out of recession
Americans generally optimistic
1925—stock market value: $27 Billion
Stock market value in Oct. 1929 $87
Billion
 Average wages increased by 40% since
WWI
 Unemployment below 4%
Republicans in Charge
 Progressive reform ends
 Income taxes on the wealthy go
down
 Efforts to help businesses
 Anti-trust efforts end
 Protective tariffs rise
Republicans in Charge
 Americans obsessed with the
business world in 1920s
 Three Republican presidents in a
row reflects the public’s emphasis on
business
 Welfare Capitalism—approach to
labor relations whereby employers
improved benefits & pay to workers
w/out demands from unions
Economic Danger Signs
 Uneven prosperity
 Rich got richer; Huge corporations
dominated business world
 Buying on credit
 Increase in personal debt; people bought all
the new stuff even if they couldn’t afford
them
Economic Danger Signs
 Risky activity in stock market
 “Get rich quick” attitude
 Encouraged speculation—practice of
making high risk investments in hopes of
getting a high return
 Stockbrokers encouraged buying on
margin—allowed investors to buy stock for
a fraction of its price & borrow the rest
 Supply & Demand
 Overproduction and under-consumption
slowed economy in late 1920s
Stock Market Crash
 Dow Jones Industrial Average—
average of stock prices of major
industries—climbed to 191 by early
1928
 March 4, 1929—rose by another 122
points
 Sept. 3, 1929—reached all time high of
381
Stock Market Crash
 After peak in Sept. stock prices fell slowly
 Oct. 23—Dow Jones average dropped 21
points in 1 hour
 Oct. 24—dropped another 24 points
 Oct. 29—Black Tuesday: a record 16.4 million
shares sold (average was 4-8 million)
 Nov. 13—market had fallen to 198.7 (from 381)
 Losses totaled $30 Billion!!!
Causes of the Depression
 Stock market crash was NOT the
cause!!! Only the final straw
 Over-speculation: Investors bought
stocks w/ borrowed $, then used stocks
as collateral to buy more stocks (stock
market boom based on borrowed $ and
optimism instead of real value)
Causes of the Depression
 Gov’t policies: Federal Reserve cut interest
rates to spur economic growth; in 1929 limited
the money supply to discourage lending—after
crash too little $ in circulation to help economy
recover
 Unstable economy: Economy lacked a firm
base; wealth distributed unevenly--$ in hands
of a few wealthy families who saved rather
than spent their $. Industry produced more
goods than were consumed (workers &
farmers didn’t share in economic boom)
 Unevenness of the 1920s prosperity made
rapid economic recovery impossible
Impact of the Depression
 Impact on workers and farmers
 http://www.youtube.com/watch?v=gplaqa2y
Rgg&feature=fvw
 http://www.youtube.com/watch?v=1_nG9LX
0Ioo&feature=related
 Banks close
 http://www.youtube.com/watch?v=qu2uJWS
Zkck&feature=related
 Impact on World