Causes of The Great Depression

1. Causes of The Great Depression

2. Consumer Goods increase • After war what happens to factories? • With decrease in taxes after WWI people had more disposable income & business look to profit: (why were taxes down?) • New goods came on the market(Ford’s idea of assembly line is mass producing all consumer goods) • Washing machines, refrigerators, toasters, vacuums, air conditioners • Companies created new products for the home & started mass production of everything.

3. advertisements: small goods: razors, tissues, frozen foods, home hair color, band aids, deodorant. (Advertisers convinced you that you needed them to survive) • With more homes wired w/ electricity new consumer goods invented: Large goods: Refrigerators, vacuums, washing machines, radio, dishwasher, air conditioners, toaster (durable goods) • What's wrong with economy based on durable goods? (its why economy booming) • (what other time saw this kind of boom?) • Internet – dot com era

4. Easy Consumer Credit • One reason for economic boom 1920’s was use of individual borrowing or credit. • Prior to 1920’s debt/credit was shameful • Now attitudes change because people believe they can pay it back • how is gap between rich & poor contributing to this?)(what should been done?) • Raise wages! • “Buy now & pay later” became the advertising pitch & Americans racked up credit, buying all the new gadgets for their homes (convinced they couldn’t live w/ out these goods)(advertising works) • by 1929 $6 billion worth of goods were bought on credit but 80% Americans have no savings at all. • Today=$931b - 34% have no savings

5. Mass Advertising • New gadgets/inventions needed to be sold to the American people • Advertisers convinced public their need for these goods (ex. Deodorant – “your friends are too afraid to tell you”) • Ex. Easy credit plans, • envy of peers, l • inking product w/ famous people (testimonials) • Advertisers had communication access w/ people through radio

6. Stock Market Soars • Stock market experiences long period of rising prices (bull market) • 1920’s prolonged bull market convinced people to invest in stocks • Investors began buying stocks on margin (credit)= w/ $1000 investor could buy $10,000 worth of stock & the other $9,000 loaned by bank • bank earned commission on sale & interest on loan –profit motive! • no rules on how much banks have to hold in reserve so loaned most of it out & Held stock as collateral

7. All is good as long as stocks cont. to rise: if $10,000 stock rose to $11,000 investor could sell stock repay the loan & make $1,000 in profit. • Stocks rose 50 times higher then worth ofsharebecause of the demandfor the stocknot the worth of company (Bubble) (housing bubble of 2008)

8. How stocks work • Stock is piece of company & price is value of % of company –limited liability of corporation. • ex. $1m co. w/ 1m shares =$1.00 each – if co. worth goes up to $2m then each share worth $2 (profit $1 per share) • If company was making profits or had good future sales =stock price rise (& everything is ok) • Stock prices fell when companies earnings dropped (because warehouses started to fill up because lack of new customers for durable goods) • Speculation= buyers bet the market would cont. to climb & they would make money quick (buying stocks above worth of company to get quick return/profit)

9. Company1929 bubble priceActual Worth • Edison’s Electric-GE $440 $164 almost 3X • American Power $1,753 $641 2.5X • Brooklyn Gas $2,481 $99 24X • Consolidated Gas $1831 $801 2X • TransAmerica $673 $201 3X • American Superpower $711 $15 47X • *why was their a Increase of prices of stock above the actual worth of the company? • Demand for good or demand for stock??? • Worth of company or worth of stock?

10. What comes up must come down • Bull market lasted only as long as investors continue to put new money into market • Plus economy based on durable goods so once you have refrigerator don’t need one for decade • By 1929 , market running out of new customers. How did Imperialist deal with this? • New customers could have been Europeans (their economy destroyed) but reciprocal tariff shut us out why? (Haley-Smott Tariff raised again) • What Wilson 14 pt could have fixed this? • No trade barriers (no tariffs) • New customers could have been farmers but electric grid didn’t reach rural areas

11. By Sept. 1929 professional investors see no new customers & start to sell off their holdings. • Joseph Kennedy made $ off prohibition, then pulled $ out stock market when his shoe shiners playing same stock market he had his millions in!!! • Prices slipped / other investors followed / prices fell further -dominos

12. Stock Market Crash • Oct. 21, 1929 stock market plunged. • Oct. 24th stock market plummeted further • Oct. 29thBlack Tuesday prices took steepest dive yet (33% drop) • Stock market lost $10-15 billion in value. • $30 billion was lost. • ($30 billion) That equaled total wages earned in 1929

13. Banks Begin to Close • By 1929 banks had loaned $6 billion to stock speculators • Banks had put customer’s investments in stock market (hoping for higher returns) then if they loaned $ to customers (no regulations against this) • So when stocks collapsed banks lost $ on investments & lost $ from speculators who defaulted on loans.(stockbrokers dumped worthless stocks on banks)

14. Banks hid this fact & cooked the books for weeks until leaked out. • News of banking crisis sent customers running to get their $ = bank runs (banks only carry % of $ you give them)(so no $) (no reserve requirement yet!)(today 3-10%) • Banks begin to close w/ customers losing all their savings (today we have FDIC up to $250,000) • Show “Bust” America the Story of Us: 1:00-6:15 (tues didn’t finish)

15. Herbert Hoover is President 1928-32 FDR becomes President in March

16. Stock market crash was a trigger to other deep seeded issues that caused Great Depression:

17. Roots of the Great Depression (Causes) • 1. Uneven Distribution of Income = Factories produced more then consumers could consume. Needed new customers? How did Ford fix this? • Pay workers more! • How did we fix this during imperialism? • Gobble up new territory=customers • So how did they fix this in the 1920s? • So came up w/ installment plan but w/ monthly payments increasing buyers ($6b)(80% no savings) Today=$931b - 34% have no savings – what has Govt done to increase this under Trump?

18. 2. stopped buying new goodswhy? • because durable • Decrease in sales caused businesses to cut production clue: warehouses fill up • & as a result start to lay off employees (remember 80% of America has no savings)(no Unemployment or SS)

19. 3. Chain reaction: cut in radio sales caused decline in copper wire sales (copper miners lost jobs) wood cabinets (lumberjacks lost jobs) & glass radio tubes (glassmakers lost their jobs) domino effect

20. 4. 26,000 businesses collapsed • reasons= • 1. lack sales • 2. $ in banks lost in stock market.

21. 5. Loss of Export Sales • Many jobs might have been saved if Americans manufacturers sold more goods overseas(Recovering Europe desperate for these goods) why didn’t they???? • Conservative Republicans had raised the tariff in the 1920’s to protect American businesses AGAIN–Hawly-Smoot Tariff (highest ever) tariffs cause what? • WHATS WRONG WITH THIS & 16TH AMEND? • (didn’t grasp reciprocal tariffs yet) Foreign countries responded by raising their own tariffs (EACH SHUT OUT OF OTHER MARKETS) • This meant fewer American goods sold overseas (demand down)(SUPPLY UP) • Ability to produce goods outran its capacity to consume (supply over demand) (gap between rich & poor caught up with us)

22. 6. Federal Reserve Failure • Failure to prevent widespread collapse of the nation’s banking system • FED Actions =control $ supply • After Stock Market : Should have lowered interest rates to encourage new businesses but raised % to stop excessive borrowing (speculation) • Lead to a severe contraction in the nation’s supply of money in circulation. • Less $ in circulation means prices up during recession Jerone Powell

23. Depression worsens • $40 B. lost in Stock Market (total cost of WWI for U.S.) • never got loans from GB & France WWI becaue guilt clause made German economy plummet. • By 1930 4 m. jobless & 2 yrs later # tripled 12m ( 1 in 4 out of work 25%) • People w/ out jobs went hungry (bread lines blocks long to get free food) YMCA & Salvation Army

24. Families couldn’t pay rent or mortgage so homeless #s soar (evictions w/ belongings put on street) (quarter million homeless) • Cardboard homes in cities= Hoovervilles • Sick joke: Hotels clerks asked customers “for sleeping or jumping” • Unemployed began to wander country in search of work (Hobos)(jumping trains) • Hoover flags, “bad time hoovering over us”