Excessive Use of Credit and Consumer Debts
During World War I, American
consumers had cut down their
civilian spending due to the
war efforts. Following WWI,
the 1920s was known as a
prosperous time. Consumers
became more willing to
buy on credit.
Installment buying, using credit
and paying back in small amounts,
was introduced which allowed
people to buy cars, radios and
other new products of the 1920s.
The excessive use of credit,
however, resulted in high
consumer debts and
increased financial
instability.
1
Unequal Distribution of Wealth
High Tariffs and War Debts
Overproduction in Industry and
Agriculture
1928 Presidential Election
Farm crisis
Federal Reserve Monetary Policy
Stock Market Crash and Financial Panic
2
Historians disagree as to the causes of the Great
Depression. Most scholars would include:
MONETARY
POLICY
HIGH TARIFFS
AND WAR
DEBTS
STOCK MARKET
CRASH AND
FINANCIAL PANIC
CAUSES OF
THE GREAT
DEPRESSION
UNEQUAL
DISTRIBUTION
OF WEALTH
INDUSTRY
OVER
PRODUCTION
AGRICULTURE
3
UNEQUAL DISTRIBUTION OF WEALTH
Although the nation's
wealth grew by billions
throughout the 1920s, it
was not distributed
evenly.
The top 1% received a
75% increase in their
disposable income while
the other 99% saw an
average 9% increase in
their disposable income.
80% of Americans had
no savings at all.
Happy Feet song
Disposable income is money remaining after the necessities of life have 4
been paid for.
The chart shows that 99% of the population received a
9% increase in their income, while the top 1% saw
their income rise by 75%.
1,230,000 Americans
80
70
60
50
TOP 1%
BOTTOM 99%
40
30
121,770,000 Americans
20
10
0
1929
5
Chart showing wages of unskilled workers. Notice how
little the wages changed during the supposed prosperity
of the 1920’s.
700
600
500
400
300
200
100
0
1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941
6
HIGH TARIFFS AND WAR DEBTS
At the end of World War I, European nations owed over $10
billion ($115 billion in 2002 dollars) to their former ally, the
United States. Their economies had been devastated by war and
they had no way of paying the money back.
The U.S. insisted their former allies pay the money. This forced
the allies to demand Germany pay the reparations imposed on her
as a result of the Treaty of Versailles. All of this later led to a
financial crisis when Europe could not purchase goods from the
U.S. This debt contributed to the Great Depression.
In 1922, the U.S. passed the Fordney-McCumber Act, which
instituted high tariffs on foreign-made industrial products. A tariff
is a tax on imports. Other nations soon retaliated and world trade
declined helping bring on the great depression. Later the
Smoot-Hawley Tariff Act of 1930 raised U.S. tariffs on over
20,000 imported goods to record levels. It was intended to
protect American industries from foreign competition; in
reality, it caused other countries raised their tariffs on
American exported products and further increased global 7
economic instability.
OVERPRODUCTION IN INDUSTRY
Factories were
producing products,
however wages for
workers were not
rising enough for them
to buy them.
Too few workers
could afford to buy the
factory output.
The surplus
products could not be
sold overseas due to
high tariffs and lack of
money in Europe.
8
FARM OVERPRODUCTION
Due to surpluses and
overproduction, farm incomes
dropped throughout the 1920’s.
The price of farm land fell from $69
per acre in 1920 t0 $31 in 1930.
Agriculture was in a depression
which began in 1920, lasting until
the outbreak of World War II in
1939.
In 1929 the average annual income
for an American family was $750,
but for farm families it was only
$273.
The problems in the agricultural
sector had a large impact since 30%
of Americans still lived on farms.
Surplus ears of
corn
9
President Hoover’s belief in self-reliance
would later affect his ideas about how to best
solve the upcoming depression
"I do not believe
that the power and
duty of the General
Government ought
to be extended to
the relief of
individual suffering.
. . . The lesson
should be constantly
enforced that
though the people
support the
Government the
Government should
not support the
people."
(1930)
President and Mrs. Hoover
10
STOCK MARKET CRASH AND FINANCIAL
PANIC
The stock market was not sufficiently regulated
in the 1920s. Millions of average Americans began
speculating in the stock market in the 1920s. Speculating
is buying risky stocks out of a desire to get rich quick,
rather than investing in the long-term growth of the
economy. This contributed to the outbreak of the Great
Depression in 1929.
11
Major reasons for the stock market crash in
October 1929
Stocks were
overpriced due to
speculation, meaning
they were not worth
their sale price
Massive fraud and
illegal activity
occurred due to a
lack of regulation
and rules
Margin buying, or
buying using credit
Federal reserve
policy
12
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
Federal Reserve Monetary Policy
The Federal Reserve System was
created in 1913 to help stabilize the
economy by establishing a central
banking system for the U.S. A major
goal is to deal with bank panics.
Monetary policy manipulates the
money supply to help strengthen
the economy.
At the beginning of the
Great Depression, the Fed
officials decided not to
intervene in the banking
crisis, and banks failed as
depositors panicked and
withdrew their funds.
Many scholars argue their
idleness worsened the
situation.
14
• The U.S. was not the only
country gripped by the
Great Depression
• Much of Europe suffered
throughout the 1920s
• In 1930, Congress
passed the toughest tariff
in U.S. history called the
Smoot- HawleyTariff
• It was meant to protect
U.S. industry yet had the
opposite effect
• Other countries enacted
their own tariffs and soon
world trade fell 40%
SMOOT-HAWLEY
TARIFF
THE DUST BOWL
• A severe drought and
over-use of farmland
gripped the Great Plains
in the early 1930s
• Wind scattered the
topsoil, exposing sand
and grit
• The resulting dust
traveled hundreds of
miles
Kansas Farmer, 1933
Migration Routes from the Dust Bowl Regions
Mexican Repatriation
•
The Mexican Repatriation refers to a mass
migration that took place between 1929 and
1939, when as many as 500,000 people of
Mexican descent were forced or pressured to
leave the US. The event, carried out by
American authorities, took place without due
process. Some 35,000 were deported, amongst
many hundreds of thousands of other
immigrants who were deported during this
period. The Immigration and Naturalization
Service targeted Mexicans because of "the
proximity of the Mexican border, the physical
distinctiveness of mestizos, and easily
identifiable barrios."
•
These actions were authorized by President
Herbert Hoover and targeted areas with large
Hispanic populations, mostly in California,
Texas, Colorado, Illinois, and Michigan.
This federal policy was intended to reduce the
size of the agricultural labor force during the
Great Depression.
It made the Great Depression the only era in
history during which more people left than
entered the United States.
•
•
THE NEW DEAL
The student understands changes over time in
the role of government. THe student is expected
to:
- evaluate the impact of New Deal legislation on
the historical roles of state and federal
government.
AMERICA
GETS BACK
TO WORK
FDR LAUNCHES NEW
DEAL
• FDR promised a “new deal” for the
American people.
• New Deal was a series of programs
designed to fight the effects of the
Great Depression.
• New Deal programs particularly
targeted at helping the unemployed
people.
ROOSEVELT’S
FIRESIDE CHATS
• FDR communicated
to Americans via
radio
• His frequent
“Fireside Chats” kept
Americans abreast of
the government’s
efforts during the
Depression and
restored confidence
to citizens during this
trying time.
AMERICANS GAIN
CONFIDENCE IN BANKS
• Next, FDR passed the
Glass-Steagall Act which
established the Federal
Deposit Insurance
Corporation
• The FDIC insured
account holders up to
$5,000 and set strict
standards for banks to
follow (today = $250,000)
LEGACIES OF THE NEW
DEAL
• FDIC – banking insurance critical to sound
economy
• Deficit spending has became a normal feature
of government
• Social Security is a key legacy of the New Deal
in that the Feds have assumed a greater
responsibility for the social welfare of citizens
since 1935
• The federal government took an active role in
protecting and promoting Americans' individual
economic well-being.
THE IMPACT OF THE NEW
DEAL
• Federal authority was drastically
expanded.
• American people developed new
attitudes about the role and
function of government.