The Great Depression 19291941


Depression
- an economy with high
unemployment, falling income,
failing business, decline in
production and sales.
The Great Depression
- An extreme economic slump in
America in the 1930s
Causes of
The Great Depression
1. Consumer Debt
2. Income Gap
3. Overproduction
4. Global Depression
5. Stock Market Crash –Oct. 29th
1929 – immediate cause or
trigger.
6. Banking Crisis
7. Business Cycle
1. Consumer Debt
After WWI, there was an increased
demand for goods but in actual fact
people could not afford to buy all of
the goods they wanted.
SOLUTION?
Installment
Plan – buy now, pay later.
The uneven
distribution
of wealth
didn’t stop
the poor and
middle class
from wanting
to possess
luxury items,
such as cars
and radios…
By the end of the
1920s, 60% of the
cars and 80% of the
radios were bought on
installment credit.
Once the economy began
to slow down, and people
started losing their jobs,
they were not able pay off
their debts.
2. Income Gap


Consumers lacked sufficient income to
purchase goods; farmers’ income fell.
Workers’ income failed to keep pace with
prices. Wages were as little as 20
– 25 cents per hour!
 Even the best employer Ford
Motor Company paid only
$5.00/Day for a 6AM-6PM shift!
Income distribution in 1929
1
5
29
65
$10,000 and Over
$5,000-$9,999
$2,000-$4,999
$1,999 and under
2
1.5
1
0.5
1933
1932
1931
1930
1929
1928
1927
1926
0
1925
Price per Bushel (in
dollars)
Wheat Prices 1925-1933
Year
Question 1: How much did a bushel of wheat cost in 1925?1932?
How might this graph explain why farmers were hit so hard
during the Great Depression?
3. Overproduction of Goods



High demand for goods created increase
in production.
During WWI farmers and businesses
produced excess of goods. After the war
the demand for goods fell.
This led to overproduction, people weren’t
buying, businesses lost money, laid off
workers and eventually went out of
business.
Unemployed (in millions)
Unemployment 1925-1933
14
12
10
8
6
4
2
0
1925 1926 1927 1928 1929 1930 1931 1932
Year
Question 2: How many people were
unemployed in 1925? In 1929? In 1932?
What conclusion can you draw from that?
4. Global Depression
 World
trade declined in the
1920s.
 European countries had massive
war debts to pay
 European consumers were not
able to buy American goods.
 American industries were stuck
with surplus goods.
5. Stock Market Crash
 Just
as one could buy goods
on credit, it was easy to
borrow money
to invest in the stock market;
This was called
“margin investing”
(or “buying on margin.”)
Small investors were
more eager to invest in
the Stock Market
in large numbers
because the
“margin requirement”
was only 10%.
This meant that you would
buy $1,000 worth of
stock with only 10% down,
or $100.
People leapt at the chance
to invest
in business!
How did the Stock Market
Crash?





March 1928 – Stock
prices soared and the
number of shares
traded rose sharply
People rush to invest
Stock prices were 400
percent higher
Investors became
cautious, stop investing
Fewer buyers drove
prices down
October 29th, 1929
“Black Tuesday”




Confidence in stock
market failed
Investors began selling
stocks
Margin calls- Banks
wanted their money
from brokers, and
brokers wanted their
money from investors.
Neither was able to
pay and the stock
market crashed.
Average Montly Value $
Stock Prices 1925-1933
30
25
20
Great Crash
15
10
5
0
1925 1926 1927 1928 1929 1930 1931 1932 1933
Year
Question 3: What was the average stock value in 1929? 1932?
What can you infer from the information in this graph?
Why did the market crash?

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Many people bought stocks on margin—
like a loan
Companies lied about their profits — No
regulation
Republican Presidents in the 1920s
believed in laissez faire—no control on
businesses
Stock market was not regulated by
government
With the loss of
confidence in stocks,
people began to lose
confidence in the security
of their money
being held in banks.
Customers raced to their
banks to withdraw
their savings.
6. Bank Failures
Banks made unsound loans; bank failures
resulted when the loans could not be
repaid.
 25% of the Banks in the US closed
 Bank Runs and banks closing their doors
led to people
losing their
life savings.

Bank Failures
4500
4000
3500
3000
2500
2000
1500
1000
500
1944
1942
1940
1938
1936
1934
1932
1930
1928
1926
1924
1922
0
7. Business Cycle

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Regular ups and downs in the economy.
The economy naturally goes through ups and
downs ( Boom and Bust periods )
BOOM/PROSPERITY/PEAK
HIGH DEMAND – Leads to - MORE
PRODUCTION which leads to HIGHER
EMPLOYMENT and MORE DEMAND but it
eventually produces INFLATION
Business Cycle
SLOWDOWN/Bust
 INFLATION/OVERPRODUCTION
Leads to LESS PRODUCTION = LAY OFFS
= LESS SPENDING = LOWER
CONFIDENCE = LESS INVESTMENT =
HIGHER UNEMPLOYMENT UNTIL
SURPLUSES ARE USED UP and the
economy recovers
 So
the economy in a free
enterprise goes through
economic prosperity,
recessions and depressions as
a result of a regular business
cycle.