The Great Depression
Mr. Rosamilia’s “A Series of Unfortunate Events” – it wasn’t just ONE event that led to the stock
market crash
4 Long-Term Causes
1- Important industries struggled, including:
 Agriculture, Railroads, Textiles, Steel, Mining
VS.
 Lumber, Automobiles, Housing, Consumer goods
 Old industries are being replaced by new ones and new ones can’t keep up
2- No industry suffered as much as agriculture
 During World War I European demand for American crops soared
 After the war demand plummeted
 Farmers increased production sending prices further downward
 Falling prices, debt, loss of farms, banks failed
 Price supports to prevent farmers from going broke blocked by Cal (McNary Haugen Bill)
Coolidge was Republican and believed in limited government
3- By the late 1920s, American consumers were buying less
 Rising prices, stagnant (not getting higher) wages and overbuying on credit were to blame
 Most people did not have the money to buy the flood of goods factories produced
Consumers
Farming
Industry
American
Economy
4- 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
Republican Herbert Hoover ran against Democrat Alfred E. Smith in the 1928 election
 Hoover emphasized years of prosperity under Republican administrations
 Hoover won an overwhelming victory
The 1929 Crash
During the 1920s, the U.S. stock market underwent rapid expansion, reaching its peak in August 1929, after
a period of wild *speculation and *buying on margin. By then, production had already declined and
unemployment had risen, leaving stocks in great excess of their real value.
*speculation (to assume)- Speculation in stock means to buy stock with the assumption that it can always
be sold at a profit
*buying on margin- a person purchases a stock by using a bit of his or her own money and borrowing the
rest.
For example, to purchase a $100 stock the buyer might put up $20 and borrow $80 to make up the entire
price. If the $100 price of the stock dropped to $70, then selling the stock at $70 would not even pay back
the loan from the broker. The investor, owing $80 but having only $70, would have to come up with more
cash. This is what happened not to one share but to millions of shares when the market dropped in October
1929. Investors could not come up with enough cash to meet their "margin calls," demands by the brokers
for more cash.
Black Tuesday (October 29), in which stock prices collapsed completely and 16,410,030 shares were traded
on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of
investors, and stock tickers ran hours behind because the machinery could not handle the tremendous
volume of trading.
The stock market crash was NOT a LONG TERM cause but an ___________________ one for the Great
Depression.
The Financial Collapse
How did Americans respond to the crash?
What happened to American banks?
Hawley Smoot Tariff
U.S. legislation (June 17, 1930) that raised import duties (tax collected on stuff coming into the
U.S) to protect American businesses and farmers, adding considerable strain to the international
economic climate of the Great Depression.
Effects
 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
Was the Hawley Smoot Tarriff successful in protecting American businesses?
Why?