What explains the decline in personal income beginning in 1929?
The Stock Market Crash (’29) and Great Depression (‘30s)
What were the causes of the Great Depression and
how did the depression affect the lives of Americans?
I. Background:
Business Cycle
Peak
Expansion
Recession
(Business Slump)
*Decrease Production
*Decrease Wages
*Layoffs
*Increase
production
*Wages high
Depression
Measure of GDP (Gross Domestic Product) (longer business
downturn)
Estimated total value of all final goods.
What basically determines the ups and downs
in the business cycle?
SUPPLY and DEMAND
Case in Point: Model T Ford
Henry Ford’s company mass produces Model T. Assembly line production
makes the process quick and affordable. Company makes money, investors
make money, workers make money….
WHAT HAPPENS WHEN EVERYONE WHO WANTS A MODEL T HAS
ALREADY PURCHASED ONE????
Expansion
*Increase
production
+
*Wages high
+
Case in Point: Model T Ford
Henry Ford’s company meets the demand for Model T. Supply meets Demand.
WHAT WOULD HAPPEN IF HENRY FORD CONTINUED PRODUCING
MODEL T’s AT THE SAME RATE DURING PEAK AS HE HAD DURING
EXPANSION?
Peak (Supply meets demand)
=
Case in Point: Model T Ford
Henry Ford must reduce production to meet lower demand for Model T.
Company does not make as much money, investors do not make as much
money, and some workers may be laid off.
Recession
(Business Slump)
*Decrease Production
*Decrease Wages
*Layoffs
-
Stock Market measures health of economy / business by
buying and selling stock (supply and demand.)
Stock- ownership in company.
New York Stock Exchange
What role does the stock market play in the Business Cycle?
Business
distributes
stock (shares)
to shareholders.
STOCK MARKET
What role does the stock market play in the Business Cycle?
Business
distributes
stock (shares)
to shareholders.
STOCK MARKET
Business
earns
money.
What role does the stock market play in the Business Cycle?
Business
distributes
stock (shares)
to shareholders.
STOCK MARKET
Dividends
(portion of earnings)
given to
stockholders.
Business
earns
money.
What role does the stock market play in the Business Cycle?
Stockholders
buy more
shares of stock
in company.
Business
distributes
stock (shares)
to shareholders.
STOCK MARKET
Dividends
(portion of earnings)
given to
stockholders.
Business
earns
money.
Price of stocks in the stock market reflects
the expectation of shareholders.
Expectation / Speculation stock prices high = stock grows or remain high
Expectation / Speculation stock prices low = stock goes down
Peak
Expectation
high and
people buy
Expectation
low and people
stop buying
II. Causes and Effects of
Great Depression
1. Over speculation of stocks
using borrowed money that
could not be repaid when
the stock market crashed
in 1929.
Economy 1920s
*optimistic
*prosperity
*wages high
*confidence in business
***Over speculationStocks overvalued
*uneven distribution of wealth
*80% people had no savings
*installment buying-Debt
*stock on margin-borrowed $
*over production
*laissez faire gov’t
Oct. 29, 1929
Black Tuesday
GREAT DEPRESSION
The trading floor of the New York Stock Exchange just after the crash of
1929. In a single day-Black Tuesday- a record sixteen million shares were
traded and thirty billion dollars vanished into thin air.
II. Causes and Effects of
Great Depression
2. The “ripple effect” of the
stock market crash.
Investors
lose
money
1929
Stock Market
Crash
Many investors lost
everything in the
stock market
Income drops 40%
Investors
lose
money
1929
Stock Market
Crash
Factories
lay-off
workersno insurance
86,000 businesses fail
13 million workers
left unemployed
Typical scene outside
an employment agency.
Local missions
sponsor soup
kitchens to feed
the unemployed.
How did massive unemployment impact
the nation’s psychological state?
Feelings of shame, depression,
hopelessness.
Investors
lose
money
1929
Stock Market
Crash
Factories
lay-off
workersno insurance
Banks fail,
people take
money out of
banks
Federal Reserve failed to prevent widespread collapse of
banking system leading to severe contraction in
the nation’s supply of money in circulation.
“Run on the Bank” (1933)
Investors
lose
money
1929
Stock Market
Crash
Farm
foreclosures,
banks need
money
Factories
lay-off
workersno insurance
Banks fail,
people take
money out of
banks
Farmers worst hit by
Great Depression. New machinery
increased crop yields, but surpluses
meant crop prices remained low—
Mortgaged farms are lost.
(1933-1934) Farmer’s plight in Great Plains made
worse by drought and the consequent
dust storms-- “Dust Bowl.”
“Black Blizzard”
Consumed by “Dust Bowl”“dust pneumonia,” brown snow reaches northeast.
25% of farmers migrate
out of “Dust Bowl.”
“Okies” escape the
dust storms and move
to California.
(Steinbeck’s novel,
Grapes of Wrath)
Cause and Effect: Graphic Practice
CAUSE
EFFECT
Over speculation of stocks
Local missions sponsor soup
kitchens and bread lines
Federal Reserve failed to prevent
collapse of banking system in late
1920s and ’30s, severe
contraction in nation’s money
supply
Banks need money
“Okies” escape Great Plains for
California
Cause and Effect: Graphic Practice
CAUSE
Over speculation of stocks
EFFECT
Stock Market Crash, 1929 -followed by Great Depression
Local missions sponsor soup
kitchens and bread lines
Federal Reserve failed to prevent
collapse of banking system in late
1920s and ’30s, severe
contraction in nation’s money
supply
Banks need money
“Okies” escape Great Plains for
California
Cause and Effect: Graphic Practice
CAUSE
EFFECT
Over speculation of stocks
Stock Market Crash, 1929 -followed by Great Depression
Factories lay off workers, no
insurance
Local missions sponsor soup
kitchens and bread lines
Federal Reserve failed to prevent
collapse of banking system in late
1920s and ’30s, severe
contraction in nation’s money
supply
Banks need money
“Okies” escape Great Plains for
California
Cause and Effect: Graphic Practice
CAUSE
EFFECT
Over speculation of stocks
Stock Market Crash, 1929 -followed by Great Depression
Factories lay off workers, no
insurance
Local missions sponsor soup
kitchens and bread lines
Federal Reserve failed to prevent Banks close as people make a “run
collapse of banking system in late on the bank” to take money out
1920s and ’30s, severe
contraction in nation’s money
supply
Banks need money
“Okies” escape Great Plains for
California
Cause and Effect: Graphic Practice
CAUSE
EFFECT
Over speculation of stocks
Stock Market Crash, 1929 -followed by Great Depression
Factories lay off workers, no
insurance
Local missions sponsor soup
kitchens and bread lines
Federal Reserve failed to prevent Banks close as people make a “run
collapse of banking system in late on the bank” to take money out
1920s and ’30s, severe
contraction in nation’s money
supply
Banks need money
Foreclosure of family farms, farmers
not able to pay their debt in cash
“Okies” escape Great Plains for
California
Cause and Effect: Graphic Practice
CAUSE
EFFECT
Over speculation of stocks
Stock Market Crash, 1929 -followed by Great Depression
Factories lay off workers, no
insurance
Local missions sponsor soup
kitchens and bread lines
Federal Reserve failed to prevent Banks close as people make a “run
collapse of banking system in late on the bank” to take money out
1920s and ’30s, severe
contraction in nation’s money
supply
Banks need money
Foreclosure of family farms, farmers
not able to pay their debt in cash
Drought in Great Plains creates
“Dust Bowl.”
“Okies” escape Great Plains for
California
Investors
lose
money
GlobalGermany cannot
Factories
repay WWI debt,
lay-off
France and
workers1929
England
no insurance
cannot repay Stock Market
debt
Crash
Farms
foreclosures,
banks need
money
Banks fail,
people take
money out of
banks
German post-WWI Inflation1 dollar worth 100,000 marks
Unable to pay war reparations.
Poor in streets of Germany
Dawes Plan and Young PlanU.S. loans money to Germany to pay reparations, ends after
stock market crash.
What is strange about this financial arrangement?
III. Limited role of government: Hoover
Herbert Hoover (R)
(1929- 1933)
Overall view:
Voluntary aid
(neighbor helping neighbor)
Gov’t help would destroy
people’s self respect
Insisted things would get
better soon…
“no one is actually starving”
What is the problem with Hoover’s approach?
Bad Decisions:
Tariff Act of 1930 or Hawley-Smoot TariffHigh protective tariff that produced
retaliatory tariffs in other countries,
strangling world trade.
Reconstruction Finance Corporation (RFC)Loans to banks and business, appeared
as though Hoover only willing
to help the rich.
People blame Hoover for Great Depression:
Shantytowns = Hoovervilles
Empty pockets = Hoover flags
Newspaper = Hoover blankets
Hooverville
Hoover’s reputation gets worse….
“Bonus Army” Incident20,000 WWI vets protest in D.C. They want pensions. There is a
few violent skirmishes and army is called out to drive them out.
Write a letter to President Hoover explaining how you feel
about the “Bonus Army” incident and what you think he
should do to solve the problems of the Great Depression.
Election of 1932
Hoover (R)
FDR (D)
Why did FDR win by such a wide margin in 1932?
FDR offered a NEW DEAL
for the American people.
(Jan-March 1933)
Wait for FDR to
come into office…
IV. Active role of government: FDR
Franklin Delano Roosevelt (D)
(1933-1945)
New Deal- government programs to
solve problems of Great Depression
and put people back to work.
3 “R’s” : Relief, Recovery, Reform
At inauguration, FDR rallied a frightened nation in which 1 in 4
workers were unemployed.
“We have nothing to fear, but fear itself.”
New Deal in Action:
Corrected unsound banking and investment practices:
“Bank Holiday”
Federal Deposit Insurance Corporation (FDIC)Insured deposits up to 5,000.
“Fire Side Chats” reassure American people
New Deal Alphabet Soup:
Works Progress Administration
(WPA)Gov’t building projects,
direct payment to people for
immediate help.
New Deal Alphabet Soup:
Civilian Conservation Corps
(CCC)-
Young men to work building roads,
parks, planting trees…$ to families
***Blue Ridge Parkway
New Deal Alphabet Soup:
National Recovery
Administration (NRA)Gov’t set prices and
limited production.
“The making of industrial policy…should no longer be left to the
market place and the price mechanism but should be placed
in the hands of administrative bodies.” Gardiner Means—Economist
Growing militancy of unions.
Wagner Act- protected right of workers to join unions
and collective bargaining and set min. wage
and hours.
Agricultural Adjustment Administration (AAA)Recovery programs were designed to bring
nation out of depression over time. Crop subsidies.
Educational programs to promote soil conservation.
Social Security Act - Offered safeguards for workers,
unemployment insurance, aid to disabled, elderly,
and dependent children.
What explains the results of the 1936 election?
Why does Democratic control of the White House mark an
important turning point in U.S. political history?