STANDARD: ECON 3.1 MARKET ECONOMY
3.6 CHANGES IN ECONOMIC ACTIVIT Y
 Opening: The Nation’s Sick Economy
 Work Period: Great Depression Notes and video
 Closing: Hardship and Suf fering During the
Depression
THE NATION’S SICK ECONOMY
As the 1920s advanced, serious problems threatened the
economy while
Important industries struggled, including:
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A griculture
Railroads
Textiles
Steel
Mining
Lumber
Automobiles
Housing
Consumer goods
CONSUMER SPENDING DOWN
 By the late 1920s,
American consumers were
buying less (demand
declined)
 Rising prices, stagnant
wages and overbuying on
credit were to blame
 Most people did not have
the money to buy the flood
of goods factories
produced (overproduction)
A SUPERFICIAL PROSPERIT Y
Many during the
1920s believed the
prosperity would go
on forever
Wages for most
workers fell while
productivity
increased
GAP BETWEEN RICH & POOR
WIDENED
Photo by Dorothea Lange
 The gap between rich
and poor widened
 The wealthiest 1% saw
their income rise 75%
 The rest of the
population saw an
increase of only 9%
 More than 70% of
American families
earned less than
$2500 per year
THE UNFORTUNATE CYCLE
Companies did not pass on
their prosperity to their
employees by paying them
more, so workers couldn’t
afford to buy the products
they made.
When consumers reached
their limit of installments,
they had to stop spending.
No spending means lay offs for workers.
FARMERS STRUGGLE
Photo by Dorothea Lange
 During World War I European
demand for American crops
soared
 After the war, they faced
international competition,
depressed prices, debt and
taxes
 Farmers defaulted on bank
loans causing banks to fail
BEFORE the crash in 1929.
 Fewer banks= limited
number of loans for everyone
else.
REPUBLICAN
ADMINISTRATIONS
 Gov’t abandoned policy of
progressivism and limited
regulation of Big Business
(unlike Sherman Anti-Trust
and trust-busing of TR)
 Return to laissez-faire
meant corporations became
increasingly powerful
 The tariff was raised and
the Supreme Court
overturned child labor and
minimum wage laws for
women
 Income taxes for wealthy
slashed, and they invested
in luxury goods and the
stock market instead of
new factories
THE STOCK MARKET
 By 1929, many Americans
were invested in the Stock
Market
 The Stock Market had
become the most visible
symbol of a prosperous
American economy (“get rich
quick”)
SEEDS OF TROUBLE
 By the late 1920s,
problems with the
economy emerged
 Speculation: Too many
Americans were engaged
in speculation – buying
stocks & bonds hoping for
a quick profit
 Margin: Americans were
buying “on margin” –
paying a small percentage
of a stock’s price as a
down payment and
borrowing the rest
The Stock Market’s bubble was about to
break
THE 1929 CRASH
 In September the Stock Market
had some unusual up & down
movements
 On October 24, the market
took a plunge . . .the worst
was yet to come
 On October 29, now known as
Black Tuesday, the bottom fell
out
 16.4 million shares were sold
that day – prices plummeted
 People who had bought on
margin (credit) were stuck
with huge debts
By mid-November, investors had
lost about $30 billion
THE GREAT DEPRESSION
 The Stock Market crash
signaled the beginning of
the Great Depression
 The Great Depression is
generally defined as the
period from 1929 – 1940
in which the economy
plummeted and
unemployment
skyrocketed
 The crash alone did not
cause the Great
Depression, but it
hastened its arrival
FINANCIAL COLLAPSE
 After the crash, many
Americans panicked and
withdrew their money
from banks
 Banks had invested in
the Stock Market and
lost money
 In 1929- 600 banks fail
 By 1933 – 11,000 of the
25,000 banks nationwide
had collapsed
Bank run 1929, Los Angeles
THE FEDERAL RESERVE
 The Federal Reserve (1913),
the nation’s central bank, has
the capacity to regulate the
money supply by making loans
to banks, which then make
loans to businesses, which hire
workers, who buy products.
 Early in the 1920s, the Fed
pursued easy credit policies.
 Charged low interest rates
which helped fuel stock market
speculation mania.
 In the late 1920s, the Fed tried
to tighten money in order to
curb stock market speculation,
ultimately discouraging lending.
GNP DROPS, UNEMPLOYMENT SOARS
 Between 1928-1932, the
U.S. Gross National
Product (GNP) – the total
output of a nation’s
goods & services – fell
nearly 50% from $104
billion to $59 billion
 90,000 businesses went
bankrupt
 Unemployment leaped
from 3% in 1929 to 25%
in 1933
HAWLEY-SMOOT TARIFF
 To protect American industry from
foreign competition, Congress
passed the toughest tariff in U.S.
history called the Hawley- Smoot
Tariff
 It was meant to protect U.S. industry
yet had the opposite effect-limited
international trade.
 Foreigners were unable to sell their
goods in US markets and did not
have dollars to buy American goods.
 Other countries enacted their own
tariffs and soon world trade fell 40%
PRESIDENT HOOVER
 Went farther than any
other president and urged
companies to voluntarily
maintain wages and
hours.
 Lower consumer demand
made this impossible and
companies laid off
workers and cut hours.
 Advocating “rugged
individualism”, Hoover
urged that prosperity was
“just around the corner”
“Hoovervilles”
“Hooverflags”
“Hooverblankets”
HARDSHIPS DURING DEPRESSION
 The Great Depression
brought hardship,
homelessness, and hunger to
millions
 Across the country, people
lost their jobs, and their
homes (25% unemployed)
Many wandered from town to
town selling apples and
pencils door to door.
 No system of unemployment
insurance
 Wages and hours were cut
and people bought only
essential goods.
 “Runs” on the banks (people
tried to withdraw all of their
money) caused banks to
collapse
EFFECTS OF DEPRESSION
 Families undernourished
 Schools closed (couldn’t pay
teachers)
 Marriages delayed
 Birthrate fell
 Men abandoned families
 Some families worked
together
 Women/children forced to
work
 States and charities couldn’t
fix the problem
 Needed the gov’t to step up.