14.1 The Nation’s Sick
Economy
What economic problems led to
the Great Depression?
Economic Troubles on the Horizon
• Even though the economy boomed during the
1920s, industries were actually barely making a
profit
• By the late 1920s, industries like auto
manufacturing, construction, and consumer
goods were losing money
• The biggest problems were with farming; where
demand for food dropped and farmers suffered
• Many lost their farms b/c they couldn’t pay their
mortgages
Continued
• Congress tried to help by passing price
supports, where the government would not allow
food prices to fall below a certain level; Coolidge
vetoed the bill and their incomes continued to
drop
• People were also buying less, and prices rose
faster than salaries
• Many bought goods on credit, where consumers
agree to make monthly payments with interest;
similarly to today, people accumulated debt they
couldn’t afford
Hoover Takes the Nation
• Few people recognized the problems with the
economy in 1928
• Herbert Hoover defeated the Democratic
challenger, Alfred E. Smith
• The Dow Jones Industrial Average, which is a
measure of 30 popular stocks, was way up at
the time, and people were rushing to buy stocks
• Many were engaging in speculation, buying risky
stocks in hopes of a quick profit
• To do that, they had to buy on margin, or pay a
small down payment and borrow the rest
The Market Crashes
• Stock prices did begin to fall in September 1929
• On Tuesday, Oct. 29, 1929, or Black Tuesday,
prices fell so sharply that people called it a
‘crash’
• People frantically tried to sell their shares, which
drove prices down further, and no one was
buying
• Many lost all their savings
• By mid-November, $30 billion had been lost
Financial Collapse
• The crash signaled the beginning of The Great
Depression, a period of bad economic times
where many were out of work that lasted from
1929 to 1940
• The crash didn’t cause the Depression, but it did
make things worse
• Banks suffered, and business began to close
• The Depression was worldwide; America’s
problems made the rest of the world’s worse
Continued
• The situation became worse when
Congress passed the Hawley-Smoot Tariff
Act, where Congress hoped that higher
tariffs would push Americans to buy goods
made in the U.S. and improve their
industry
• This only caused imports to decline, and
Europeans had less to spend on U.S.
goods
Causes
• Tariffs and war debt policies that cut down
the foreign market for American goods
• A crisis in the farm sector
• The availability of easy credit
• An unequal distribution of income