THE GREAT DEPRESSION
Chapter 11
Appearances Versus Reality
APPEARANCES: PROSPERITY

Gross National Product
(GNP): total value of
goods and services
produced by a nation
 ROSE
30%
 Explosive growth of
automobile
 FEELING of prosperity
encouraged spending
REALITY: ECONOMIC WEAKNESS
Appearances Versus Reality
APPEARANCES: PROSPERITY

STOCKS: OWNERSHIP
IN A COMPANY
 If
corporation
succeeds, value rises
 Corporation doesn’t do
well, loses value
 Stock market
performed
spectacularly
 Attitude was stocks
wouldn’t go down
REALITY: ECONOMIC WEAKNESS
Appearances Versus Reality
APPEARANCES: PROSPERITY

FAITH IN BUSINESS
AND GOVERNMENT
 Prosperity
of 1920s
showed triumph of
American business
 “chief business of
America is business”
 Calvin
Coolidge
REALITY: ECONOMIC WEAKNESS
Appearances Versus Reality
APPEARANCES: PROSPERITY

HERBERT HOOVER
 Elected
in 1928
 Impressive record of
public service
 Businesslike
administrator
REALITY: ECONOMIC WEAKNESS
Appearances Versus Reality
APPEARANCES: PROSPERITY




GNP = prosperity
Stocks couldn’t fail
Faith in Business
Herbert Hoover
REALITY: ECONOMIC WEAKNESS

DISTRIBUTION OF
WEALTH:
Small number of people
truly prospered
 Wealthiest 1% income rose
60%
 Most workers saw 8%
 70% of farmers didn’t
make enough
 Many reaching credit limits

Appearances Versus Reality
APPEARANCES: PROSPERITY




GNP = prosperity
Stocks couldn’t fail
Faith in Business
Herbert Hoover
REALITY: ECONOMIC WEAKNESS

CREDIT
 People
bought stocks
on credit
 Made prices rise
sharply
Appearances Versus Reality
APPEARANCES: PROSPERITY




GNP = prosperity
Stocks couldn’t fail
Faith in Business
Herbert Hoover
REALITY: ECONOMIC WEAKNESS

BUYING ON MARGIN
 Investor
wants 100
shares in a company
 $10/share = $1,000
 Only pay for a portion
 $500
 Borrow other $500
from broker
 Pay off loan once stock
sold
Appearances Versus Reality
APPEARANCES: PROSPERITY




GNP = prosperity
Stocks couldn’t fail
Faith in Business
Herbert Hoover
REALITY: ECONOMIC WEAKNESS




BUYING ON MARGIN
As enthusiasm for
investing grew, brokers
required lower
margins for purchases
Gave bigger loans
1929: buy stock for
10% of cost
Appearances Versus Reality
APPEARANCES: PROSPERITY




GNP = prosperity
Stocks couldn’t fail
Faith in Business
Herbert Hoover
REALITY: ECONOMIC WEAKNESS

BUYING ON MARGIN



If stock rose to $15, the
$1,000 investment would
rise to $1,500
The investor would get
back original $500, repay
$500 loan, and still have
$500 profit
If stock fell to $5/share the
sale would only be $500
which would have to be
used to sell off the loan.
No profit, out original
$500 investment
Appearances Versus Reality
APPEARANCES: PROSPERITY




GNP = prosperity
Stocks couldn’t fail
Faith in Business
Herbert Hoover
REALITY: ECONOMIC WEAKNESS

BUYING ON MARGIN
 MARGIN
CALL: Broker
could force investors to
repay loans if value
fell
 You’re in big trouble if
your stock’s value falls
Appearances Versus Reality
APPEARANCES: PROSPERITY




GNP = prosperity
Stocks couldn’t fail
Faith in Business
Herbert Hoover
REALITY: ECONOMIC WEAKNESS

THE FEDERAL RESERVE
 Nation’s
central bank
 Takes actions and sets
policies to regulate
nation’s money supply
 Keeps economic
activity healthy
 Unable to keep
business from loaning
investors money
September 3, 1929
Stock Market reaches it’s high point
•Many people began to recognize
signs of trouble
•Sales began sagging
•Rumors spread that big investors
were getting ready to take money out
of market
•
Thursday, October 24, 1929
Nervous investors began selling stocks
•Others noticed increased activity and joined
selling
•Few people willing to buy millions of stocks
flooding market, stock market prices plunged,
triggering greater panic to sell
•Toward the end of the day, a number of leading
bankers joined to buy stocks to prevent further
collapse
•
Friday, October 25, 1929
Market returned to normal
•Some stocks gained value
•
Monday, October 28,1929
Good feelings from Friday gone
•Market sank like a stone
•
Tuesday, October 29, 1929
Panic completely overtook the markets
•Investors dumped more than 16 million
shares
•Affected strongest companies
•BLACK TUESDAY
•Stock market lost $16 Billion
•
326-327
View image of man with car, read insets
Summarize effects of crash in graphic organizer
Great Depression (1929-1941)
The MOST severe economic downturn in the
history of the US (and the World)



25% Unemployment
5,000 Banks closed
Hundreds of Thousands Homeless
Bank Failures
:
nervous depositors
rushed to withdraw
savings
Thousands of Banks
closed forever
Unemployment
Reaches 25% Businesses
Closes
Businesses go out of business, people lose jobs,
stop shopping, more businesses go out of
business

Stop
Shopping
People out
of work
Homelessness
People lose jobs, houses,
possessions
: homeless who ride
the rails looking for work
: pop-up
villages of shacks for homeless

Emotional Toll
Angry at the banks
Shame at losing
everything

The Dust Bowl




By 1931 much of the Great Plains were in a drought
(period of below-average rainfall)
Farmers had cut down all the grass to plant crops
Much of the earth lay bare to the elements
Wind Storms would come up and blow dust for miles
: farmers who fled the Great Plains West to look
for work (named after Oklahoma)
Hoover Responds
: It’s up to the people to
pull themselves up, not the federal government
: example of how businesses should
cooperate
: farmers buy together to get lower
prices
: Raised prices for imported
goods (hoped to make Americans buy US goods)


Slowed trade
Raised taxes to balance budget
Franklin Delano Roosevelt (FDR)




Wealthy family from New York
New York Senator
Democrat
Married to Eleanor Roosevelt
: radio addresses –
felt like family
: period of critical
government activity where FDR sprung
into action
The New Deal – The Three Rs
: Plan to fix the Economy
: for those suffering effects of GD
: of the depressed Economy
: to prevent another GD
: Federal Government
directly helping individuals during the
Great Depression
New Deal Programs








CCC
AAA
NIRA
PWA
TVA
EBA
NLRB
FHA







CWA
WPA
SEC
FDIC
REA
FSA
SSA
Emergency Banking Act
Temporarily closed banks to find problems in
banks and fix them
•Created by the Glass-Steagall Act
•(first Fireside Chat explained this)
•Reform
•
Federal Deposit Insurance Corporation
Protected depositors money in case banks closed
Reform
Civilian Conservation Corps
Gave men 21+ jobs planting trees and building
parks
Relief
Agricultural Adjustment Act
Gave farmers SUBSIDY to plant less to raise
prices
Recovery
Works Progress Administration
Hired artists to document and improve the Great
Depression (paintings, pictures, writings, etc)
Relief
Tennessee Valley Authority
Brought affordable electricity to thousands by
building dams and introducing new farming
techniques
Recovery
Social Security Act
Provides a pension to retired workers 65+
Relief
Art & Culture
During the Great Depression
Art


Grant Wood:
“American
Gothic”
(1930)
Shows
American
ideals – hard
work,
domesticity
Movies


Gone with the Wind
(1939)
idealizes the South during
the Civil War
Wizard of Oz
(1939)
Teaches young girl that
there is “no place like home”
Radio

War of the Worlds
October 30,1938
10:50