The Great Depression

1. The Great Depression

3. THE NATION’S SICK ECONOMY As the 1920s advanced, serious problems threatened the economy while Important industries struggled, including: • Agriculture • Railroads • Textiles • Steel • Mining • Lumber • Automobiles • Housing • Consumer goods

4. THE STOCK MARKET • By 1929, many Americans were invested in the Stock Market • The Stock Market had become the most visible symbol of a prosperous American economy • The Dow Jones Industrial Average was the barometer of the Stock Market’s worth • The Dow is a measure based on the price of 30 large firms

5. STOCK PRICES RISE THROUGH THE 1920s • Through most of the 1920s, stock prices rose steadily • The Dow reached a high in 1929 of 381 points (300 points higher than 1924) • By 1929, 4 million Americans owned stocks New York Stock Exchange

6. THE 1929 CRASH • In September the Stock Market had some unusual up & down movements • On October 24, the market took a plunge . . .the worst was yet to come

7. On October 29, 1929, now known as Black Tuesday, the bottom fell out 16.4 million shares were sold that day – prices plummeted People who had bought on margin (credit) were stuck with huge debts

9. WALL STREET ON THE DAY OF THE CRASH, OCTOBER 1929

10. The "Era of Get Rich Quick" was over. In a single day, sixteen million shares were traded--a record--and thirty billion dollars vanished into thin air. Westinghouse lost two thirds of its September value. DuPont dropped seventy points. Jack Dempsey, America's first millionaire athlete, lost $3 million. Cynical New York hotel clerks asked incoming guests, "You want a room for sleeping or jumping?"

11. What happened?

12. The 1920s were a prosperous time but the prosperity was not equally shared Many people bought new products with the installment plan People were investing in the stock market

14. By mid-November, investors had lost about $30 billion

15. Reasons for the Stock Market Crash Where Did the Money Go?

16. Speculation • As stock prices rose, more people began to speculate • Practice of making high risk investments in hopes of making a huge profit • People bought shares of stock they thought would rise in value quickly • After the price went up, they would sell the stock for a profit

17. Buying on the Margin • Practice allowed investors to purchase stock by paying a down payment or smallpercentage of the stock’s price (10 to 50%) and borrowing the rest of the cost of the stock from the stockbroker • Broker held the shares of stock as collateral • As long as the stock prices rose, the investor could sell the stock at a high price, pay off the loan & still make a profit

18. If the value of the stock dropped, the investor either had to come up with the rest of the money to pay the stock broker for the loan or the stock broker sold the stock With easy money available to investors, buying and selling of stock fueled the market spiral upward

19. Monetary Policy – Easy Money • Banks made money readily available at low interest rates to more and more people, who used the money to buy stocks • Banks loaned stockbrokers up to 75% of the stock purchases • When the crash hit, stock brokers could not repay the bank loans • Banks lost depositors savings

20. Lack of Stock Market Regulation • a. There were no guidelines on the buying and selling of stock • b. Corporations printed more stock and investors bought the stock on the margin

21. Black Thursday, October 24, 1929 • Prices in the stock market started to decline bringing about a panic at the New York Stock Exchange • 13 million shares of stock were traded • As stock prices dropped, brokers put out margin calls • If the investor couldn’t pay for the stock, the broker sold the stock and the investor lost the entire savings

22. Black Tuesday, October 29, 1929 • October 25, 1929 • A group of bankers, such as J.P. Morgan, pooled their money to buy the stocks to stop the panic and restore confidence in the stock market A record 16.4million shares of stock were sold causing a collapse of the stock market Cost investors $30 billion

24. The Great Depression

25. THE GREAT DEPRESSION • The Stock Market crash signaled the beginning of the Great Depression • The crash alone did not cause the Great Depression, but it hastened its arrival Alabama family, 1938 Photo by Walter Evans

26. THE GREAT DEPRESSION Great Depression was a severe economic decline that lasted from 1929 until the US entered WWII in 1941. It is characterized by heavy unemployment

29. CAUSES OF THE GREAT DEPRESSION • Overproduction of Industry & Agriculture • Under Consumption U.S. demand low, despite factories producing more • Over Speculation • Tariffs & war debt policies • Easy credit • Unequal distribution of income • Psychological Causes, Pessimism

30. Economic Causes • Overproduction • a. Factories & industries produced more goods than they could sell • Electric assembly line increased productivity • Eventually factories reduced production which resulted in workers being laid off

31. OVERPRODUCTION IN INDUSTRY FACTORIES WERE PRODUCING PRODUCTS BUT WAGES WERE NOT RISING FAST ENOUGH. TOO FEW WORKERS COULD AFFORD TO BUY THE FACTORY OUTPUT. THE SURPLUS PRODUCTS COULD NOT BE SOLD OVERSEAS DUE TO HIGH TARIFFS AND LACK OF MONEY IN EUROPE. .

32. Farmers produced more food than they could sell, which caused food prices to decline • Farm income dropped

33. DECLINE IN FARM PRICES IMPACTED FARMER’S INCOME

34. FARM OVERPRODUCTION IN 1929 THE AVERAGE ANNUAL INCOME FOR AN AMERICAN FAMILY WAS $750, BUT FOR FARM FAMILIES IT WAS ONLY $273. THE PROBLEMS IN THE AGRICULTURAL SECTOR HAD A LARGE IMPACT SINCE 30% OF AMERICANS STILL LIVED ON FARMS.

35. Under consumption • Purchasing power of the American consumer was not great enough to buy all of the good being produced • - consumers lacked sufficient income • - workers & farmers incomes lagged behind • - foreign countries were unable to purchase American products because of tariffs, war debts, and reparations

36. Over speculation • More and more people were speculating on the stock market • speculation – practice of making high risk investments with the idea of selling stock when its value rose in hopes of making a profit • Stock market boom was based on borrowed money and optimism instead of real value

37. Protective Tariffs Hurt Trade • Protectionists imposed trade barriers onimports in hopes of increasing demand for American goods at home and to raise revenue from tariffs • High tariffs, such as the Hawley Smoot tariff in the 1830s kept European countries from selling their products in the US, which lessened their ability to buy American products • European countries imposed their trade barriers against US products

38. HIGH TARIFFS AND WAR DEBTS AT THE END OF WORLD WAR ONE, EUROPEAN NATIONS OWED OVER $10 BILLION ($115 BILLION IN 2002 DOLLARS) TO THEIR FORMER ALLY, THE UNITED STATES. THEIR ECONOMIES HAD BEEN DEVASTATED BY WAR AND THEY HAD NO WAY OF PAYING THE MONEY BACK. THE U.S. INSISTED THAT THEIR FORMER ALLIES PAY THE MONEY. THIS FORCED THE ALLIES TO DEMAND GERMANY PAY THE REPARATIONS IMPOSED ON HER AS A RESULT OF THE TREATY OF VERSAILLES. ALL OF THIS LATER LED TO A FINANCIAL CRISIS WHEN EUROPE COULD NOT PURCHASE GOODS FROM THE U.S. THIS DEBT CONTRIBUTED TO THE GREAT DEPRESSION. IN 1922 THE U.S. PASSED THE FORDNEY-MC CUMBER ACT WHICH INSTITUTED HIGH TARIFFS ON INDUSTRIAL PRODUCTS. OTHER NATIONS SOON RETALIATED AND WORLD TRADE DECLINED HELPING BRING ON THE GREAT DEPRESSION.

39. Unequal Distribution of Wealth & Income • Despite rising wages in the 1920s, income distribution was unequal • 1% of the population had incomes 650% greater than the 11% at the bottom. Same 1% controlled 34% of the savings • 71% of families earned less than $2,500 a year; 80% had no savings • Economy dependent on the spending & investments of the wealthy, who either saved or invested their money. This meant less real spending

40. TOTAL REALIZED INCOME ROSE FROM 74.3 BILLION IN 1923 TO 89 BILLION IN 1929

41. THE CHART ABOVE SHOWS THAT IN 1929 THE TOP 1/10TH OF 1 % OF THE POPULATION EARNED AS MUCH MONEY AS THE BOTTOM 42% OF THE POPULATION. THE SECOND TWO BARS SHOW THAT THE TOP 1% OF THE POPULATION SAW A 75% INCREASE IN THEIR INCOME WHILE THE OTHER 99% SAW ONLY A 9% INCREASE IN THEIR INCOME IN THE 1920’S.

42. RURAL POVERTY IN THE 1920’S

43. CHART SHOWING WAGES OF UNSKILLED WORKERS. NOTICE HOW LITTLE THE WAGES CHANGED DURING THE SUPPOSED PROSPERITY OF THE 1920’S

44. Psychological Causes – Pessimism Hopelessness and loss of confidence affected the American people Consumers refrained from buying Businesses limited expansion Banks restricted loans 25% of the nation’s workers were unemployed

46. People lose their jobs. Even more people Lose their confidence And spend less money Causes of the Depression Demand drops. Fewer goods are sold. The Spiral Of Depression In order to stay in business companies cut wages Companies are forced to cut costs by laying people off People lose their confidence & start saving their money Demand drops even further.

47. HERBERT HOOVER ELECTED PRESIDENT, 1928 "We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us.“ 1928 HERBERT HOOVER RAN ON A PLATFORM OF CONTINUED PROSPERITY

49. THE GREAT DEPRESSION BEGINS

50. Brother, Can You Spare a Dime," lyrics by Yip Harburg, music by Gorney Harburg (1931) • They used to tell me I was building a dream, and so I followed the mob, • When there was earth to plow, or guns to bear, I was always there right on the job. • They used to tell me I was building a dream, with peace and glory ahead, • Why should I be standing in line, just waiting for bread? • Once I built a railroad, I made it run, made it race against time. • Once I built a railroad; now it's done. Brother, can you spare a dime? • Once I built a tower, up to the sun, brick, and rivet, and lime; • Once I built a tower, now it's done. Brother, can you spare a dime? • Once in khaki suits, gee we looked swell, • Full of that Yankee Doodly Dum, • Half a million boots went slogging through Hell, • And I was the kid with the drum! • Say, don't you remember, they called me Al; it was Al all the time. • Why don't you remember, I'm your pal? Buddy, can you spare a dime? • Once in khaki suits, gee we looked swell, • Full of that Yankee Doodly Dum, • Half a million boots went slogging through Hell, • And I was the kid with the drum! • Say, don't you remember, they called me Al; it was Al all the time. • Say, don't you remember, I'm your pal? Buddy, can you spare a dime?