Causes of the Great Depression
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Transcript of Causes of the Great Depression
Causes of the Great Causes of the Great DepressionDepression
Stock MarketStock Market• Investors poured millions of dollars Investors poured millions of dollars
into the marketinto the market
• Stock speculation (“playing” the market) Stock speculation (“playing” the market) became popular - this rapid buying & selling became popular - this rapid buying & selling inflated stock pricesinflated stock prices
• Margin buying - Margin buying - purchasing stock purchasing stock with borrowed with borrowed moneymoney
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 CrashesThe Stock Market Crashes• Black Thursday - October 24, 1929 – 13 million shares Black Thursday - October 24, 1929 – 13 million shares
were changing handswere changing hands
• Panic spread - prices dropped Panic spread - prices dropped dramaticallydramatically
• Black Tuesday - October 29, 1929 - Black Tuesday - October 29, 1929 - panicked investors dumped more panicked investors dumped more than 16 million shares of stockthan 16 million shares of stock
• Brokers demanded cash from Brokers demanded cash from customers - thousands of customers - thousands of people were forced to sell people were forced to sell stocks at huge lossesstocks 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
Farmers could not afford to buy goods or repay their loans.
The agricultural sector
was in trouble. Rural farmers produced huge surpluses of
food that depressed prices.
Despite Hoover’s confidence, some saw signs of weakness in the economy.
CreditCredit• Many Americans purchased Many Americans purchased
new consumer products on new consumer products on creditcredit
• By 1929 purchases on credit By 1929 purchases on credit totaled $7 billiontotaled $7 billion
• Republican administration believed easy credit Republican administration believed easy credit policy would promote businesspolicy would promote business
• Economic experts warned such Economic experts warned such debt could cripple consumersdebt could cripple consumers
Banking CrisisBanking Crisis• The crash led to a major banking crisisThe crash led to a major banking crisis
• Borrowers who lost Borrowers who lost investments in the stock investments in the stock market could not repay market could not repay their loanstheir loans
• Some banks were forced to close - some investors Some banks were forced to close - some investors lost entire life savingslost entire life savings
• Led to bank runs - depositors panicked and tried Led to bank runs - depositors panicked and tried to withdraw savingsto withdraw savings
• Did not cause depression; stocks rallied late in Did not cause depression; stocks rallied late in year and business didn’t decline until spring of year and business didn’t decline until spring of 19301930
• 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 FailuresBusiness Failures• Many businesses suffered Many businesses suffered
from the banking crisisfrom the banking crisis
• 1929 U.S. GDP = $103 billion1929 U.S. GDP = $103 billion
• 1933 U.S. GDP = $56 billion1933 U.S. GDP = $56 billion
• As businesses failed - As businesses failed - unemployment roseunemployment rose
Income Gap &Consumer DebtIncome Gap &Consumer Debt• Between 1923-1929 Between 1923-1929
incomes of wealthiest incomes of wealthiest Americans increased by Americans increased by 63%, incomes of poorest 63%, incomes of poorest Americans decreased by Americans decreased by 4%4%
• This gap meant most This gap meant most people did not have the people did not have the buying power to boost buying power to boost economyeconomy
• 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
????????????
• 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 DepressionGlobal Depression• European countries were dealing with massive war European countries were dealing with massive war
debtsdebts
• World trade had rapidly declined during the late 1920sWorld trade had rapidly declined during the late 1920s
• U.S. contributed to the global depression by placing U.S. contributed to the global depression by placing high tariffs on imported goods high tariffs on imported goods Hawley-Smoot Tariff Hawley-Smoot Tariff ActAct
• Foreign consumers were unable to purchase Foreign consumers were unable to purchase American goodsAmerican goods
• Destroyed international tradeDestroyed international trade
As international trade falls, a global drop in business leads to a worldwide depression.
Hard Hard TimesTimes
UnemploymentUnemployment• 1929 - 1.5 million Americans were 1929 - 1.5 million Americans were
unemployed or about 3.7%, by 1931 - rose unemployed or about 3.7%, by 1931 - rose to 15 millionto 15 million
• Unemployment rate 1933-25%Unemployment rate 1933-25%
• Even for those who kept jobs, Even for those who kept jobs, wages fell dramatically wages fell dramatically
• Percentage of women in workforce Percentage of women in workforce actually increased in 1930sactually 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 CityLife in the City• During 1930s, federal government did little During 1930s, federal government did little
to assist city-dwellersto assist city-dwellers
• City governments, religious groups, & City governments, religious groups, & charities tried to provide relief to the needycharities tried to provide relief to the needy
• Hunger, homelessness, poverty, & Hunger, homelessness, poverty, & unemployment were widespreadunemployment were widespread
• Homeless often gathered Homeless often gathered in shantytowns, in shantytowns, “Hoovervilles“Hoovervilles””
Life on the FarmLife on the Farm• Farm prices droppedFarm prices dropped
• Farmers had more goods than Farmers had more goods than they could sell they could sell
• Many farmers were unable to keep their Many farmers were unable to keep their farms, houses, & equipmentfarms, houses, & equipment
• Many immigrant farmers Many immigrant farmers were forced to return were forced to return home 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.
• 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.
Millions of tons of topsoil were blown away in giant dust storms.
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.
Farmers who had lost their land, called Okies regardless of where they were from, were forced to leave.
Family Life in the Family Life in the 1930s1930s• Some families pulled Some families pulled together to help each other together to help each other with housing & foodwith housing & food
• In other cases, the In other cases, the Depression broke families Depression broke families apartapart
• Marriage rate fellMarriage rate fell• The Depression also The Depression also
affected the mental health affected the mental health & attitudes of many & attitudes of many AmericansAmericans
• Those who were still working felt guilty because friends and relatives were unemployed.
Minorities suffered even more during the depression.
• As Okies moved west to find work, Mexicans and Mexican Americans faced fierce competition for jobs.
• Local governments urged repatriation for Mexican Americans.
• Even in good times, African Americans were “last hired and first fired.”
• Many were thrown off southern farms where they
were sharecroppers.
Hoover’s Hoover’s PoliciesPolicies
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 ReliefOpposing Direct Relief Americans began to demand federal Americans began to demand federal
government provide food, shelter, government provide food, shelter, etc.etc.
Hoover rejected & urged Americans Hoover rejected & urged Americans to lift themselves upto lift themselves up
““Rugged Individualism” – Rugged Individualism” – success comes through success comes through individual effort & private individual effort & private enterpriseenterprise
Like most economists of the day, he Like most economists of the day, he believed that up and down swings in believed that up and down swings in the economy were a natural part of the the economy were a natural part of the business cycle.business cycle.
It was thought that strong businesses It was thought that strong businesses would weather storms without the would weather storms without the support support of the government.of the government.
Asked businesses to keep wages, employment, and prices at current levels
Called for tax cuts, lower interest rates, and public works
Asked wealthy to donate more money to charity
Hoover saw that he must do something:
But volunteerism failed:
• Towns and states didn’t have the necessary resources to deal with the depression.
• Hoover did not support direct federal aid to individuals.
Hoover put his faith in localism, a policy whereby problems are best solved at the local and state levels.
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.
In 1932, Hoover urged Congress to create the Reconstruction Finance Corporation (RFC). The RFC employed a policy known as trickle down economics.
Boosting the EconomyBoosting the Economy Andrew Mellon argued the Andrew Mellon argued the
government should not interfere – government should not interfere – let businesses handle itlet businesses handle it
At Hoover’s request, Congress & At Hoover’s request, Congress & state governments funded state governments funded several public-works several public-works programs programs
Hoover DamHoover 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 CrisisFarm Crisis Congress passed Congress passed
Agricultural Marketing Agricultural Marketing Act – set up Federal Farm Act – set up Federal Farm BoardBoard
FFB bought surplus corn, cotton, & wheatFFB bought surplus corn, cotton, & wheat
This did not work, crop prices still This did not work, crop prices still continued to fall. No regulation on how continued to fall. No regulation on how much farmers could grow.much farmers could grow.
Hoover recommended Home Loan Bank Hoover recommended Home Loan Bank Act in 1932Act in 1932
DiscontentDiscontent Radical protests – Communist Party Radical protests – Communist Party
& Socialist Party blamed capitalism & Socialist Party blamed capitalism for depressionfor depression
The Bonus Army – largest protest – The Bonus Army – largest protest – 10,000 WWI veterans protested in 10,000 WWI veterans protested in Washington D.C.Washington D.C.
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.
20,000 veterans set up camps and occupied vacant buildings. In July, police tried to evict them and riots erupted.
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 1932Election of 1932 Republicans reluctantly renominated Republicans reluctantly renominated
HooverHoover
Democrat nomination – Franklin D. Democrat nomination – Franklin D. RooseveltRoosevelt
Election revolved around Election revolved around depressiondepression
Roosevelt proposed “New Deal”Roosevelt proposed “New Deal”