The Great Depression
How was a decade of prosperity followed
by a decade of hopelessness?
The 1920s: “The Good ole’ Days”
1920s
• jobs were plentiful
• home ownership had
doubled
1930s
• Over ¼ unemployed
– unemployment rate never
dropped below 14 percent until
1941
• 1/4th of work force worked
shorter hours reducing their
incomes
• Families were losing their
homes, and many starving.
“a permanent plateau of peace and
prosperity.”
1920s
1930s
• most home-owning
families enjoyed amenities
• Many families were going
hungry.
• 60% of all households had
automobiles
• 26% owned cars in 1920
• More teenagers were
attending high school;
fewer were working full
time.
• Children were riding
around in freight cars,
looking for work
The Great Depression
Causes of the Great Depression
1. Unequal distribution of
wealth
• 2% of people owned 60% of wealth
• 50% of families lived below poverty level
– Under $1500/yr
• Unequal balance between production &
distribution
2. Unequal distribution of corporate
power
• Government Policies benefited corporations and
those who were wealthy
• Abandoned anti-trust acts
• 200 companies owned 50 % of nation’s wealth
3. Poor Banking Structure
• Small, local banks owned by larger city ban
• Not backed up or regulated by government
• Lent out more than they took in
http://www.youtube.com/watch?v=qu2uJWSZkck
4. High Tariffs and War Debts
• European countries couldn’t pay WWI debt b/c
hit by depression
• Hawley-Smoot Tariff: placed a high tax on
imports
– countries retaliate and halt international trade
5. Overproduction in Industry &
Agriculture
• Purchase new machines with credit to increase
production
– Plan: pay off debt with “increased” income from
“increased” sales
6. Buying on Credit
• Americans bought most durable
goods(refrigerators, washing machines, radios,
cars…) on the installment plan: some money
down at first, followed by a year of monthly
payments + interest
– By the end of 1920s American consumers bought
the following on installment plans:
* 65 percent of vacuum cleaners
* 75 percent of washing machines
7. Playing the stock market
• People hoped to make a quick buck by
purchasing shares of businesses, also known
as ______.
– part ownership of a company so that when the
company prospers so do you!
– But…..if the business declines….you lose $$$$
Problems with playing the stock market
STOCK SPECULATION – risky move to buy stocks
at low price then sell at a high price
BUYING ON MARGIN: paying 10-50% of the
stock and borrowing the rest from a broker
Example of Buying on Margin
The Good
• EXAMPLE
– 1 share is $110 and
you pay $10
– You owe stockbroker
$100 with 10% interest
per month
– 2 months later the
stock doubled
($200)….you sold it
– You owe stock broker
$120 but make $70
(80-10)
The Bad
• EXAMPLE
– 1 share is $110 and
you pay $10
– You owe stockbroker
$100 with 10% interest
per month
– 10 months the stock
didn’t move and the
broker wants his
money…you sell the
stock for $100
– You owe stock broker
$90 + $100
=$190……YOU LOSE
Buying on margin
The good
• Stocks go up
• Borrowers sell at
high price
• Pay off…
– Loan
– Interest
+ make extra $$$
The bad
• High interest rates
• Demand payment
anytime
• If stocks fall then
don’t have money
to pay back
Short term trends that led to the Great
Depression
1. WEDNESDAY, October 23rd – Dow Jones dropped 21pts in an
hour before it closed
– Dow Jones Industrial Average = an average of stock prices of major
industries
2. BLACK THURSDAY October 24th –investors began to sell and
stock prices fell.
 JP Morgan & banks tried to stabilize market
3. BLACK TUESDAY/THE GREAT CRASH October 29th , 1929
– FEAR led to selling stocks
 16.4 million shares sold
 investors lost over 30 billion dollars
Short term trends that led to the Great Depression
The Ripple Effect Caused by the Crash
4. Bank Failures
– People are unable to pay loans to banks
- More banks close
- Fear leads to bank runs (people rushed to the
banks to withdraw)
5. Savings wiped out – By 1933 nine million
savings accounts vanished
Short term trends that led to the Great Depression
The Ripple Effect Caused by the Crash
6. Cuts in production – Businesses have no
money to produce.
Lack incentive due to lack of demand.
7. Businesses shut down
- By 1933 100,000 business closed down
8. Rise in unemployment – As businesses cut
back on production, workers are laid off.
- went from 1.6million(3%) to 15million(25%)