THE GREAT DEPRESSION BEGINS

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THE GREAT
DEPRESSION
BEGINS
By the late 1920s many Americans were
used to year after year of economic
expansion. It was easy to believe that
the prosperity of the 1920s would last
forever. The crash at the end of the
decade shocked many Americans.
Photos by photographer Dorothea Lange
LONG TERM CAUSES: THE
NATION’S SICK ECONOMY
As the 1920s advanced, serious problems
threatened the economy while
Important industries struggled, including:
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Agriculture
Railroads
Textiles
Steel
Mining
Lumber
Automobiles
Housing
Consumer goods
FARMERS STRUGGLE
Photo by Dorothea Lange
• 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
CONSUMER SPENDING
DOWN
• By the late 1920s,
American consumers
were buying less
• 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
GAP BETWEEN RICH &
POOR
• 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
Photo by Dorothea Lange
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
• The Dow Jones Industrial
Average was the barometer of
the Stock Market’s worth
• The Dow is a measure based
on the price of 30 large firms
STOCK PRICES RISE
THROUGH THE 1920s
• Through most of the
1920s, stock prices rose
steadily
• The Dow reached a high
in 1929 of 381 points (300
points higher than 1924)
• By 1929, 4 million
Americans owned stocks
New York Stock Exchange
• The stock market:
• the public invests in cos.
by purchasing stocks; in
return for this they
expect a profit
• b/c of booming 1920's
economy, $ were
plentiful, so banks were
quick to make loans to
investors
• also investors only had
to pay for 10% of the
stock's actual value at
time of purchase
– this was known as
BUYING ON MARGIN,
and the balance was
paid at a later date
• this encouraged STOCK
SPECULATION - people would
buy and sell stocks quickly to
make a quick buck
• b/c of all this buying & selling,
stock value increased (Ex: G.E
stock $130  $396/share)
• this quick turnover didn't aid
cos.  they needed long term
investments so they could pay
bills (stock value was like an
illusion)
• unscrupulous traders would buy
and sell shares intentionally to
inflate a given co.'s stock value
• all of this gave a false sense of
security/confidence in the
American market
PROBLEMS WITH THE
RISING STOCK MARKET
• 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 1929 CRASH
• Stocks peaked in summer, 1929
• Prices started to drop as
frightened investors who
bought stocks on margin
rushed to sell their stocks in
order to pay off their loans
• Tuesday, October 29th – Black
Tuesday – stock market
crashed because so many
people wanted to sell and so
few wanted to buy
• People who had bought on
margin (credit) were stuck with
huge debts
By mid-November, investors
had lost about $30 billion
• a 2nd major problem:
uneven dist. of wealth
• 0.1% at top owned as much
as bottom 42% of American
families (42% below poverty
line)
• of the 58% above the poverty
line, most fell into the middle
class category - they were
not wealthy; they had jobs
b/c of the industrialization &
consumerization of the
American market place
• this middle class depended
on their salaries and when
productivity declined they
lost their jobs
• and b/c of low savings, they
had to cut back on their
purchases
• this decline in consumption
among the middle class
ruined the whole country
• Pres. Hoover’s responses…
• he didn't believe that the gov't
should play an active role in the
economy
• he persuaded bankers/business to
follow his policy of VOLUNTARY
NON - COERCIVE COOPERATION
where he gave tax breaks in return
for private sector economic
investment
• Hoover also organized some private
relief agencies for the unemployed
• he worked out a system with
European powers that owed U.S.
money as a result of WWI debts =
HOOVER MORATORIUM - put a
temporary stop to war debt &
reparations payments
• Euro. countries were to purchase
American goods instead to
stimulate American economy
• in early 1931 these measures
appeared successful, but
then......the TARIFF WARS
• Democrats in Congress passed a
high tariff (SMOOT HAWLEY) to
protect U.S. industry (hoped to
stimulate purchasing of U.S.
goods)
• this turned out to be a fatal error...
• Congress did not understand that
the world had become a GLOBAL
ECONOMY
• in retaliation other countries
passed high tariffs and no foreign
markets purchased American
goods, so U.S. productivity
decreased again
THE GREAT DEPRESSION
Alabama family, 1938 Photo by Walter Evans
• 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
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 failed
• By 1933 – 11,000 of the
25,000 banks nationwide
had collapsed
Bank run 1929, Los Angeles
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