Transcript Hidden Economic Problems in the Roaring Twenties

The Great Depression and the New Deal (1928-1941)
Lesson 1 Causes of the Depression
The Great Depression and the New Deal (1928-1941)
Lesson 1 Causes of the Depression
Learning Objectives
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Identify how weaknesses in the economy in the 1920s caused the Great
Depression.
Explain why the stock market crashed in 1929 and the crash’s effect on the
economy.
Describe how the Great Depression deepened in the United States and spread
overseas.
Identify the causes of the Great Depression and discuss how historians’ differ
about them.
The Great Depression and the New Deal (1928-1941)
Lesson 1 Causes of the Depression
Key Terms
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business cycle
Herbert Hoover
speculation
Black Tuesday
Great Depression
Hawley-Smoot Tariff
Hidden Economic Problems in the Roaring Twenties
During the Roaring Twenties, many Americans enjoyed what seemed like limitless
prosperity. Then, in October 1929, the mighty bull market crashed. As production fell
and unemployment rose, the U.S. economy lurched into a period of dramatic decline.
Hidden Economic Problems in the Roaring Twenties
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Hoover Sweeps to Victory
Farmers Face Challenges After World War I
A Significant Gap Between the Rich and the Poor
Uneven Distribution of Wealth Creates Problems
Americans Rely on Credit
HIDDEN ECONOMIC PROBLEMS IN THE ROARING
TWENTIES
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Business cycle – periodic growth and contraction of the economy
Not normal – everything growing – fast
Herbert Hoover – President in 1928
 Orphaned – self made millionaire – got into public service
 Belgium relief program
 Food and Drug Administration
 Secretary of Commerce
Believed in competition and voluntary cooperation between labor and management
Wanted to end poverty – “a chicken in every pot”
Farmers were producing record crops – mechanized and WWI rate higher than now – most
farmers in big debt
Gap between rich and poor growing (poor is richer but not proportionately). Richest 1 percent
made the same amount as bottom 42% (1929)
Wealthy could not buy enough to keep the economy running
The more people that can buy stuff, the better
How did growth sustain though? People borrowed money (on credit)
Borrowed for radios, cars, and even stocks (speculation)
GROUP PARTNERS
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Lets make two columns and have one say 1929 and one
say today.
Lets Brainstorm on economic forecasters and compare
GNP
Wealth gap – income gap (with subsidies)
Average income
Average debt
Deflation
Inflation
productivity
Hidden Economic Problems in the Roaring Twenties
An affluent middle-class family poses for a portrait in 1924. Many families bought their first
automobile and radio during the 1920s as mass-produced consumer products became more
affordable.
Hidden Economic Problems in the Roaring Twenties
Analyze Graphs Based on the information in the pie chart, what share of total income earned in
1929 did the top 5 percent of income earners account for?
The Stock Market Hits Bottom
By 1929, some economists were observing that soaring stock prices were based on
little more than confidence. The prices had no basis in reality. Although other experts
disagreed, it became clear that too much money was being poured into stock
speculation, as investors gambled (often with money they did not even have) on highrisk stocks in hopes of turning a quick profit. If the market’s upward climb suddenly
reversed course, many investors would face economic devastation.
THE STOCK MARKET HITS BOTTOM
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People began to realize that soaring stock prices were based on
confidence only.
Speculation – investors engaged in risky financial transactions
(gambling) from profit fluctuations in the market value instead of
fundamental value
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Gambles on high risk stocks in hopes of turning a quick profit
They borrowed money to do this
 No real market value
For one month (Sept. 1929) stocks slid slowly
Wed October 23rd market fell 21 points
Confidence lost and on October 24th (Black Thursday) everyone sold
 GE went from $400 to $238
On October 29th (Black Tuesday) – 16 million shares sold and the
market crashed
Dow Jones Industrial Average dropped from 381 – 198.7 (52%)
 3/10/16 was at 16,906 and fell 94 points (.5%)
 30 companies (Wiki them)
The Stock Market Hits Bottom
Dazed investors gathered outside the New York Stock Exchange as the stock market crashed on
October 29, 1929.
The Great Depression Begins
The stock market crash marked the beginning of the Great Depression, a period lasting
from 1929 to 1941 in which the economy faltered and unemployment soared. Though
it did not start the depression by itself, the crash sparked a chain of events that
quickened the collapse of the U.S. economy.
The Great Depression Begins
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Bank Failures Occur Across the Nation
Decreasing Demand Proves Challenging for Businesses
The Impact of Tariffs
Other Nations Endure Economic Hardship
THE GREAT DEPRESSIONS BEGINS
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Great Depression – a period lasting from 1929 to 1941
(45) in which the economy falter and unemployment
soared.
Stock market crashed started Great Depression, other
chain of events made it worse
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Banks closed – people lost confidence in banks and did Bank
Runs – if a bank didn’t have enough hard money – it closed –
hurting more
Businesses laid off people – trickle down to local businesses
1933 we had 25% unemployment
Hawley – Smoot Tariff – Congress wanted to protect US goods
– raised tariff. Rest of the world did to – no becoming global
US was loaning money to Europe – keeping their economy
going. US stopped loaning money to Europe – trickle down
there as well.
Now a global nightmare
The Great Depression Begins
When depositors went to the Union Bank in New York City, in 1931, they could not withdraw their
money. Predict Consequences How do you think the American public reacted to bank failures?
The Great Depression Begins
Analyze Graphs According to the Per Capita Income and Spending graph were Americans as a
whole going into debt during the depression, or were they 'just getting by'?
The Great Depression Begins
Analyze Data Which two countries' tariff rates grew the most between 1928 and 1932? How would
the rise in tariff rates affect the price of goods imported from these countries?
The Causes of the Great Depression
Historians and economists struggle to identify the exact causes of the Great
Depression. Some have stressed a single root cause in their explanations of the
financial crisis. The economist Milton Friedman believed that the depression resulted
from the contraction in the money supply. The twin events of the stock market crash in
1929 and the run of bank failures in 1930, added to the Federal Reserve’s monetary
policy decisions, left too little money in circulation for the nation’s economic needs.
THE CAUSES OF THE GREAT DEPRESSION
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Contraction of money supply (always need a growing money supply)
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Lack of government interference (Keynes)
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Stock market crash (money lost)
Bank runs and failures
Fed Reserve decided limit money to discourage lending
Money supply
Distribution of wealth
Stock speculation
Consumer spending
Productivity
Employment
Government should have controlled these things
Should the government centralize the economy or let it run free?
The Causes of the Great Depression
The Brooklyn Daily Eagle ran a front-page headline that described the fear and panic that spread
immediately after the stock market crashed in late 1929.
Quiz: Hidden Economic Problems in the Roaring Twenties
Which factor led to underconsumption during the late 1920s?
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expansion of credit
poor agricultural conditions
uneven distribution of wealth
shortage of consumer products
Quiz: The Stock Market Hits Bottom
What fueled the high stock prices of the 1920s?
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chance
confidence
patriotism
skill
Quiz: The Great Depression Begins
How did the Great Depression affect American workers?
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They had to learn to use new technology.
Almost one fourth of all workers were unemployed.
Work conditions declined in safety and cleanliness.
They were forced to work longer shifts for lower wages.
Quiz: The Causes of the Great Depression
According to John Maynard Keynes, what was the main cause of the Great Depression?
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over-speculation
uneven distribution of wealth
a sudden decrease in the money supply
a lack of government interference in the economy