TSWU

Discover how the pattern of conspicuous consumption in the 1920s led America

into the Great Depression

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Click the mouse button or press the Space Bar to display the answer.

The Postwar Economic Boom

• Years following WWI known as “Roaring 20’s”

• Many Americans believed U.S. a place of unlimited growth, opportunity, and achievement.

• During 20’s Americans were earning more money than ever before. Between 1922 and 1929 national income rose 43%

• Americans had more $ to spend, especially on automobiles, but also radios, refrigerators and etc.

• Business profits rose by 80%

• By 1929 stock market was at an all time high.

• The number of stocks traded doubled between 1927 and 1929

• By late 1929 cracks were beginning to show in the U.S. economy.

• Unemployment was on the rise, farmers were losing their land & stock prices were dropping.

• Number of Americans living in poverty was on the rise.

• Stock market crash launched the longest and most devastating depression in U.S. history.

Postwar Economic BoomThe stock market crash

DID NOT CAUSE THE GREAT DEPRESSION it was one of many complex factors.

• Historians agree on 6 key factors; 1) Republican economic policies. 2) Unchecked stock speculation combined with unregulated banking. 3) Overproduction of goods. 4) The decline of the farming industry. 5) Unequal distribution of wealth.6) The collapse of the stock market system.

Republican Economic Policies “The business of America is business.” Calvin Coolidge

• Republicans implemented many pro-business policies.– Andrew Mellon, secretary of Treasury, key proponent of trickle down economics,

believing that economic policies that benefited big business and America’s wealthiest citizens would eventually benefit all Americans.

– Prosperity would “trickle down” from upper classes to the middle and lower classes.– Mellon slashed taxes for big business & reduced personal taxes for wealthy people.

• Despite Mellon’s projections, the wealth did not trickle down to the American worker – Corporations devoted profits to expanding facilities, increasing production, and lining

their own pocketbooks.– Owners kept workers’ wages low. – Trickle-down economics simply increased the income gap between rich and poor.

• Coolidge’s administration refused to forgive war debts from WW I.– Rather than forgive them, as other European nations had, he simply rescheduled loan

payments and pushed Europe deeper in debt.– America’s economy is directly effected by other nation’s economic activity

Stock Exchange

SpeculationReal Estate Speculation• The practice of speculation- a person or organization makes a

risky investment in the hope of making a quick, large profit– Early in the decade many investors speculated on real estate.

• The migration to California of over one million people prompted investors to buy massive tracts of land and sell them sight unseen.

• The California real estate boom belly-up in the mid 1920’s when the amount of land for sale far exceeded demand for new housing.

– In 1925 many investors left California and went to Florida.

Many bought land sight unseen, which made scams inevitable.– Unsuspecting buyers owned alligator infested swampland.– Others held “beachfronts” that were actually 6 ft under at high tide.– Eventually there were no more buyers and the boom was followed by

a crash and decline in property values.

Stock Market Speculation• Real estate speculators turned to the stock market.

– Investors believed stock market would continue to go up indefinitely and companies’ profits would continue to increase.

– Speculators bought large amounts of stocks they thought would go up. – Then they turned around and sold the stock at a higher price making a

quick, easy profit.

• In this system the value of many companies' stock became artificially inflated and did not reflect companies actual worth.– Rampant speculation drove stock prices higher and higher.– Some analysts and investors predicted the market was headed for a

fall.• Even President Hoover warned investors to curb their

speculation and began to sell some of his own stack.

This…

Leads to this

Overproduction

• During the 1920’s U.S. industry enjoyed a postwar boom that lasted until the end of the decade.– Postwar technological changes completely changed the way

American people lived and worked.

• By 1929 companies had more plants than they actually needed, and the market was saturated with goods that few Americans could afford to buy.– Companies had no concept of the Supply-Demand curve– New technology also helped farmers produce more goods than ever

before.– Farmers were often stuck with surplus crops they couldn’t sell or

could only sell at a low price = loss of profit.– Government had not issued any subsidies

Farming

• Farming has historically been the backbone of the American economy.– By 1929 farming was in deep decline.– During 20’s farmers borrowed billions to pay for new,

technologically advanced equipment.

• As farmers failed to sell surplus crops they became unable to repay their bank loans, including mortgages.– Banks often could not auction off foreclosed farms and

ended up taking a loss.– Many banks collapse under pressure of non-backed loans

Farmers

• Farmers situation grew worse as the 20’s continued.– Between 1929 and 1933 farmers income dropped by 50%

– Couldn’t farm due to the lack of rain & depletion of topsoil

• Property values decreased by billions of dollars.– A severe drought, known as the Dust Bowl, hit Midwestern

and southwestern U.S.

– Over 1 million families lost farms between 1930 and 1934.

• The unrelenting poverty of the American farmer contributed to the nation’s overall economic decline and dramatized the gap between “haves” and “have-nots”.

Distribution of Wealth

• During the 1920’s most of country’s wealth remained in the hands of a few people at top of economic pyramid.– As decade wore on, the gap between rich & poor grew wider,

and the distribution of wealth grew increasingly unequal.

• 1929 FTC reported that 1% of American population possessed over 59% of country’s wealth.– Experts also estimated that over 60% of U.S. families lived on

or below the minimum subsistence level of $2,000/year.

– Like farmers, other workers struggled to survive in the 20’s.

– Many workers were replaced by machines. Low wages made workers as impoverished as farmers.

Richest 2 %

Middle Class5 %

Poor &

Poverty

90%

The Crash

• Analyst’s warnings that the bull market could not continue forever made some investors nervous.– In 1929 many investors began selling their stocks while

they could still get a high price.

– As investors began withdrawing from the market, prices started to fall.

• As stock prices fell, companies slowed production, which in turn led to additional price drops.– By October,1929 prices were on a devastating

downward spiral.

Buying on Margin1. Small % down payment for stock / bond, then the rest on credit2. i.e.: $100.00 a. 10% down for purchase (Cash) b. 90% credit (Margin) * Repay the margin when you cashed in on the stok (95-98%

returns)3. Allowed almost everyone to participate—Bull Market

October 1929 1. Economy begins to “overheat”; govt. slowly raises the interest rate to lower

the circulation of liquid cash 2. Stock Market analyst Roger Babson warned of a “crash coming, which is

going to be immense” 3. Buyers in the market become worried, and buy few stocks = lower points =

lower prices = concern b/c this means they are not getting the return they hoped for.

4. October 24, 1929—Black Thursdaya. Nervous…buyers begin to sellb. By the end of the day the market has dropped 31 pointsc. Friday, Oct 25; the market levels off, and investors are ok, but still

anxiousd. Monday, Oct 28; the market looses 11points

Bank loans broker

money at x% interest

Broker loans you money

at x% + y% interest

Broker pays bank back;

Bank makes $$

You pay broker back;

Broker makes $$

October 29, 1929-Black Tuesday

- After three days of stagnant growth, the market plummets 49 points - People panic, begin to sell all of their stock…but there is a problem

a. As prices fall, lenders begin to collect on their margins; but when lendee’s try to sell, they are not able to collect as much of a

return/lossb. When they cannot collect the full return of their bond / stock they cannot pay the full margin back to the lender

iii. When all is said and done on Tues—15 million shares “dumped”

Banking Crisis1. Customers were beginning to default on loans / Banks loose liquid assets 2. When word that lenders are not getting their money back, they go w/d

i. All at once means the bank cannot give you your money / banks begin to close

3. People across the nation hear that banks are closing…4. By the Spring of 1930, over 25%of banks have been forced to close5. Domino Effect of the banking system