Transcript Causes of the Great Depression

Causes of the Great
Depression
Stock Market
• Investors poured millions of dollars
into the market
• Stock speculation (“playing” the market)
became popular - this rapid buying & selling
inflated stock prices
• Margin buying purchasing stock
with borrowed
money
Ups and Downs
•
•
•
•
•
Bull Market
Stocks are on the rise
Bear Market
Stocks are declining
The use of "bull" and
"bear" to describe
markets comes from the
way the animals
attack their opponents. A
bull thrusts its horns up
into the air while a
bear swipes
its paws down.
The Stock Market Crashes
• Black Thursday - October 24, 1929 – 13 million shares
were changing hands
• Panic spread - prices dropped
dramatically
• Black Tuesday - October 29, 1929 panicked investors dumped more
than 16 million shares of stock
• Brokers demanded cash from
customers - thousands of
people were forced to sell
stocks at huge losses
The stock market crash didn’t start
the Great Depression by itself.
Instead, it quickened the
collapse of the U.S. economy.
Real Causes of the
Depression
Write down the reasons and
explanations
Despite Hoover’s confidence,
some saw signs of weakness in
the economy.
The agricultural
sector
was in trouble. Rural
farmers produced
huge surpluses of
food that depressed
prices.
Farmers
could not
afford to buy
goods or
repay their
loans.
Credit
• Many Americans purchased
new consumer products on
credit
• By 1929 purchases on credit
totaled $7 billion
• Republican administration believed easy credit
policy would promote business
• Economic experts warned such
debt could cripple consumers
Banking Crisis
• The crash led to a major banking crisis
• Borrowers who lost
investments in the stock
market could not repay
their loans
• Some banks were forced to close - some investors
lost entire life savings
• Led to bank runs - depositors panicked and tried
to withdraw savings
• Did not cause depression; stocks rallied late in
year and business didn’t decline until spring of
1930
• 1300 banks closed in 1930
• 3700 more next two years
• Thousands lost funds that could have
been used to buy goods
• Bank of US in NYC closed, 400,000
people lost their savings
Business Failures
• Many businesses suffered
from the banking crisis
• 1929 U.S. GDP = $103 billion
• 1933 U.S. GDP = $56 billion
• As businesses failed unemployment rose
Income Gap &Consumer Debt
• Between 1923-1929
incomes of wealthiest
Americans increased by
63%, incomes of poorest
Americans decreased by
4%
• This gap meant most
people did not have the
buying power to boost
economy
• National income fell from over $80
billion to under $50 billion
• Unemployment under 1 million at
height of boom rose to at least 13
million
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• Mellon tax structure favored the rich
and didn’t tax nearly enough as they
should have been
• Most politicians and professional
economists did not fully understand
what was happening or what to do
about it
Global Depression
• European countries were dealing with massive
war debts
• World trade had rapidly declined during the late
1920s
• U.S. contributed to the global depression by
placing high tariffs on imported goods HawleySmoot Tariff Act
• Foreign consumers were unable to purchase
American goods
• Destroyed international trade
As international trade falls, a global
drop in business leads to a
worldwide depression.
Hard Times
Unemployment
• 1929 - 1.5 million Americans were unemployed
or about 3.7%, by 1931 - rose to 15 million
• Unemployment rate 1933-25%
• Even for those who kept jobs,
wages fell dramatically
• Percentage of women in workforce actually
increased in 1930s
For many, the only
food available came
from public soup
kitchens or bread
lines run by
charitable
organizations.
People sold their
property to buy food.
Life in the City
• During 1930s, federal government did little to
assist city-dwellers
• City governments, religious groups, & charities
tried to provide relief to the needy
• Hunger, homelessness, poverty, & unemployment
were widespread
• Homeless often gathered
in shantytowns,
“Hoovervilles”
Life on the Farm
• Farm prices dropped
• Farmers had more goods than
they could sell
• Many farmers were unable to keep their farms,
houses, & equipment
• Many immigrant farmers
were forced to return
home
• Some farmers became
tenant farmers,
working for bigger
landowners.
The remaining
farmers on the
Great Plains
suffered a
terrible
drought, which
led to the
Dust Bowl.
Dust storms
destroyed
millions of
acres of
farmland.
Millions of tons of topsoil were
blown away in giant dust storms.
• Farmers had dug up thick prairie grasses
to plant wheat so there was nothing to hold
the soil in place.
• 100 mile-per-hour winds blew dust clouds
8,000 feet tall in Oklahoma, Texas, New
Mexico, and Colorado.
• Wildlife and farm animals suffocated in
the choking winds.
Farmers who
had lost their
land, called
Okies
regardless of
where they
were from,
were forced
to leave.
In old trucks, they moved
west or to northern cities.
800,000 Okies left Texas,
Oklahoma, Missouri, and
Arkansas alone. Rural
states lost population
during the 1930s.
Those who could afford
it bought distressed
neighbors’ farms at low
prices to build expanded
commercial farms.
Family Life in the 1930s
• Some families pulled together
to help each other with housing
& food
• In other cases, the Depression
broke families apart
• Marriage rate fell
• The Depression also affected
the mental health & attitudes of
many Americans
• Those who were still working
felt guilty because friends and
relatives were unemployed.
Minorities suffered even more
during the depression.
•
Even in good times,
African Americans were
“last hired and first fired.”
•
Many were thrown off
southern farms where they
were sharecroppers.
As Okies moved west to
find work, Mexicans and
Mexican Americans faced
fierce competition for jobs.
•
Local governments urged
repatriation for Mexican
Americans.
•
Hoover’s Policies
Herbert Hoover did not cause
the Great Depression, but
Americans looked to him to
solve the crisis.
He tried a number of
different approaches,
but in the end he failed
to discover the right
formula for stopping the
crisis.
Opposing Direct Relief

Americans began to demand federal
government provide food, shelter, etc.

Hoover rejected & urged Americans to lift
themselves up

“Rugged Individualism” –
success comes through
individual effort & private
enterprise

Like most economists of the day, he
believed that up and down swings in the
economy were a natural part of the
business cycle.

It was thought that strong businesses
would weather storms without the support
of the government.
Hoover saw that he must do
something:
Asked
businesses
to keep
wages,
employme
nt, and
prices at
current
levels
Called for
tax cuts,
lower
interest
rates,
and
public
works
Asked
wealthy
to donate
more
money to
charity
But volunteerism failed:
Hoover put his
faith in
localism, a
policy whereby
problems are
best solved at
the local and
state levels.
•
Towns and
states didn’t
have the
necessary
resources to
deal with the
depression.
•
Hoover did not
support direct
federal aid to
individuals.
In 1932, Hoover
urged Congress
to create the
Reconstruction
Finance
Corporation
(RFC). The RFC
employed a
policy known as
trickle down
economics.
The RFC gave billions
of dollars to banks
and large businesses.
Lend to, and invest
in, struggling
businesses who would
hire workers and thus
end the depression.
The RFC failed when
businesses did not
hire more workers.
Boosting the Economy

Andrew Mellon argued the government
should not interfere – let businesses
handle it

At Hoover’s request, Congress & state
governments funded
several public-works
programs

Hoover Dam
Boulder Dam (later
renamed Hoover
Dam) across the
Colorado River.
Started in 1930, the
huge dam provided
power for millions and
irrigation for farm land,
and put thousands to
work.
Farm Crisis

Congress passed
Agricultural Marketing
Act – set up Federal Farm
Board

FFB bought surplus corn, cotton, & wheat

This did not work, crop prices still continued to
fall. No regulation on how much farmers could
grow.

Hoover recommended Home Loan Bank Act in
1932
Discontent

Radical protests – Communist Party &
Socialist Party blamed capitalism for
depression

The Bonus Army – largest protest –
10,000 WWI veterans protested in
Washington D.C.
20,000
veterans set
up camps and
occupied
vacant
buildings. In
July, police
tried to evict
them and
riots erupted.
Hoover ordered
General Douglas
MacArthur to
remove the
veterans. He used
tear gas, cavalry,
tanks, and troops
with fixed
bayonets.
Press photos of
troops using
excessive force
angered the
American public.
The eviction of
the Bonus Army
doomed
Hoover’s bid for
re-election.
Americans were
ready for new
leadership and a
greater role for
the government
in solving
problems.
Election of 1932

Republicans reluctantly renominated
Hoover

Democrat nomination – Franklin D.
Roosevelt

Election revolved around
depression

Roosevelt proposed “New Deal”