Great Depression & New Deal
Part I. What Caused the Great
Depression?
The stock market crash of 1929 was the
event that started the Great Depression.
The depression was caused by several
weaknesses in the economy.
Was the Stock Market Crash THE
Cause? No.
• The percentage of American households
owning stock in 1929 was probably less
than ten percent. Today it's about 50
percent -- largely because of retirement
plans like 401(k)s.
• ULTIMATELY THE EFFECTS OF THE
CRASH WERE IN A LOT OF WAYS
PSYCHOLOGICAL.
http://marketplace.publicradio.org/features/crash_1929/story_01.html
The Banking Problem
• The crash took an especially heavy toll on the
nation's banks. Many had made loans to stock
market speculators that could never be paid off - and simply ran out of money.
• During the Depression, more than 9,000 banks
failed nationwide. The stock market crash and
subsequent bank failures cost ordinary
Americans billions of dollars -- and left many
wondering whether their money was safe
anywhere.
http://marketplace.publicradio.org/features/crash_1929/story_01.html
Purchases
Producers
Wages (Jobs)
Consumers
Primary Causes of the Great
Depression
1. Not Enough Buyers
• 40% of all families lived in poverty—before the
crash
• The richest 1% owned 59% of the nation’s
wealth.
• The poorest 87% owned only 10% of the
nation’s wealth.
• Therefore, demand for many products was low.
• The market for luxury goods was destroyed by
the crash.
2. Too Much Debt
• People began buying many goods on
credit, often more than they could afford
• 80% of all families had no savings
• What happened when people couldn’t pay
back loans?
3. Over-speculation in Stocks
• A “Get Rich Quick” attitude caused many
to speculate.
• People risked everything by buying “on the
margin.”
• When the market collapsed, these
investors lost everything—banks collapsed
because loans weren't repaid
4. Overproduction & Layoffs
• Industries were producing much more than
could be sold.
• They were forced to lay off workers and
lower prices.
• The cycle gets worse…
5. Farming Crisis
• Farmers suffered through droughts and
low prices.
• With low prices, farmers were unable to
repay their loans or purchase goods.
• More banks collapsed.
6. Government Mistakes
• The government set low interest rates
before the crash and raised them
afterward.
• Stock market speculation was
unregulated.
• Bank deposits were not guaranteed.
Part 2: The Effects of the Great
Depression
Christmas Day Breadlines in New York
City, 1931
Summary of effects
•
•
•
•
Unemployment: 25%
Homelessness
Hunger
Psychological
depression
• More Cooperation
Part 3: Solutions
• At first, President
Hoover favored the
traditional government
approach—do little
and wait for things to
get better.
• Private charities were
responsible for helping
the poor
Hoover’s Attitude
“I do not believe that the power and duty of
the general government ought to be
extended to the relief of individual
suffering…though people support the
government, the government should not
support the people.”
--Herbert Hoover, 1930
Discussion: why do you think
Hoover believed this?
Desperate times call for desperate
measures…
• Hoover himself began to change his
views…
• Hoover started some huge projects (like
the Hoover dam)
• Tariffs were raised, but this backfired
• Hoover supported programs to help banks
extend loans to struggling businesses
Election of 1932
• By 1932, the
American people
wanted new
leadership.
• Democrat Franklin
Delano Roosevelt
(FDR) easily defeated
Hoover.
• Roosevelt promised
the American people
a New Deal.
FDR’s Inaugural address
“The only thing we have
to fear is fear itself”
Part 4: The New Deal
• The New Deal was FDR’s plan to help the
nation get through the great depression by
enacting many government programs
designed to provide:
Relief
Recovery
Reform
Examples of New Deal programs include…
Federal Emergency Relief
Association
• FERA helped fund
local relief efforts.
• However, FDR
wanted to avoid
government
“handouts”
• So…
Public Works Programs
Government jobs helped people
get by…
But who would pay their salaries?
FDR endorsed deficit spending
• The government has a deficit when it
spends more than it collect in taxes. This
money is borrowed to be paid back in the
future.
• When is it appropriate for the government
to deficit spend?
Other Programs:
FDIC
• The Federal Deposit
Insurance
Corporation
guaranteed bank
deposits—this helped
restore confidence in
banks.
Wagner Act
• Guaranteed the right of workers to join
labor unions.
Social Security Act
• Collects Social Security taxes from all
workers.
• Pays government pensions to retired
people and disabled people
Results of the New Deal
•
•
•
•
Helped people get by, eased suffering
Provided hope
It did NOT end the depression (WWII did)
Tradition of a more active and more
expensive government