The Great Depression
Causes: Economic problems (late 1920 s): 1. Post war economic boom is slowing down: War related industries suffer Consumer spending levels off Less foreign markets for goods (tariffs)
2. Agricultural slump: WWI boom is over & demand dropped (prices fell by as much as 40%) So Farmers increased production (to pay off loans) Increased supply caused prices to fall faster From 1919 to 1921 total farm income fell from $10 billion to $4 billion Banks began to foreclose on the farmers (seize their farms) As farmers began to default on their loans many rural banks failed (went out of business) Causing a ripple effect throughout the economy
2 1.5 1 0.5 0 Wheat Prices 1925-1933 1925 1926 1927 1928 1929 1930 1931 1932 1933 Year Price per Bushel (in dollars)
3. Consumers have less money to spend: Consumers faced: Rising prices Stagnant wages Unbalanced distribution of income (70% of the country earned $2,500 per year This meant 70% of the country lived at the poverty line) Credit problems (consumers bought too much on credit during the 1920 s, had to pay it back and cut out other spending)
Income Distribution, 1929 1 65 5 29 $10,000 and Over $5,000-$9,999 $2,000-$4,999 $1,999 and under
1928 Presidential Election 1. Hoover (R) won the Blue States and his opponent, Alfred E. Smith (D) won the Red States 2. Hoover got 58% of the popular vote and 83% of the Electoral Votes.
Terms: Stock: Stock Market Collapses: buying a % of a Company Stock Market (NY Stock Exchange): Where stocks are traded Dow Jones Industrial Average: A compilation of industry leading companies, an economic indicator Speculation: involvement in a risky economic proposition, you think it will be worth more later Buying on Margin: purchase a stock by paying a small amount of the cost, borrow the rest
Stock Market Collapses: Black Tuesday (Causes & effect): As the economy slowed, so did sales Over production meant companies were overvalued Once investors began to dump stocks, it couldn t be stopped 16.4 million stocks were dumped in one day By mid-november, investors had lost $30 billion As companies and investors lost everything, the crash sped up the economic collapse-helping to make the Great Depression worse
Stock Prices 1925-1933 Average Montly Value $ 30 25 20 15 10 5 0 1925 1926 1927 1928 1929 1930 1931 1932 1933 Year
Bank failures: As the economic panic set in, people rushed to banks to get their savings Banks only keep a % of the money deposited on hand, the rest is lent out or was invested in the Stock Market 1929 600 banks closed. By 1933 11,000 out of the countries 25,000 banks had failed Millions of people lost their life savings Business failures: Between 1929 and 1932 the Gross Domestic Product (GDP) was cut in half (from $104 billion to $59 billion) About 90,000 businesses go bankrupt Unemployment went from 3% (1.6 million workers) in 1929 to 25% (13 million workers) in 1933
Bank Failures Business Failures Banks (in thousands) 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 1928 '29 '30 '31 '32 '33 Businesses (in Thousands) 35 30 25 20 15 10 5 0 1928 '29 '30 '31 '32 '33
Unemployed (in millions) 14 12 10 8 6 4 2 0 Unemployment 1925-1933 1925 1926 1927 1928 1929 1930 1931 1932 Year
Causes of the Great Depression (US): 1. Tariffs & war debts cut down on foreign markets for US goods 2. Crisis in the farm sector 3. Overuse of credit 4. Unequal distribution of income BUT, this was a global depression The economies of Europe, Asia, Latin America and the US had become interconnected. When one suffered, they all suffered
World wide depression: Europe suffered throughout the 1920 s (high debts, lack of trade and reconstruction cost) 1930 Congress passed the Hawley-Smoot Tariff Act: Highest protective tariff in US history US trade fell by 40% within 3 years
Hardship and Suffering
Hardship and Suffering Cities: Shanty Towns (later called Hoovervilles ): Soup Kitchens/Bread lines: Rural areas: From 1929 to 1932 400,000 farms were lost from foreclosure
Caused by: Dust Bowl: Drought (early 1930 s) Native prairie grasses and trees gone Farmers had exhausted the land (overproduction) Farmers lost their farms and moved west
American Family Families broke a part Men went looking for jobs Women would stay behind a try to raise/survive the family Children Worked (sweatshops) Malnutrition, diet related diseases
Hoover s Response
Herbert Hoover: Born: Iowa Education: Stanford, degree in engineering Elected 31 st President of the U.S. Hoover s Views America must remain optimistic Economy was going to fixed itself Hands off government Encourage cooperation No direct relief or welfare
Hoover s response: 1. At first, President Hoover was against offering direct government relief Instead, he asked private charities, such as the YMCA & Red Cross to help
2. Used limited government relief in the form of works projects : Boulder Dam (re-named Hoover Dam) $700 million project to provide electricity to the Colorado river area This provided much needed jobs and hoped to jump-start the economy Hoover s response :
Hoover s response: 3. More direct government intervention: Federal Home Loan Bank Act (1932): lowered mortgage rates in an effort to stop bank foreclosures on farms Reconstruction Finance Corporation (1932):authorized $2 billion for emergency relief to banks, insurance companies, RR s and other large businesses ( Trickledown economics )
The Bonus Army: Veterans of WW I promised a bonus to be paid in 1945 (cash and a life insurance policy) They wanted the bonus in 1932 Congress rejected the idea Most of the 10,000 to 20,000 marchers left. After Congress voted not to pay the bonus, but about 2,000 stayed
Bonus Army Marchers (con t) Army was sent in under the command of General Douglas MacArthur and Major Dwight D. Eisenhower Orders to contain the protesters MacArthur decided to remove them from Washington DC They gassed the former soldiers and their families An 11 month old baby died and an 8 year old was blinded Americans were outraged and blamed Hoover