Causes and Impact of the Great Depression in the 1930s

1. Readiness standards comprise 65% of the U. S. History Test Economics 16 B & C

2. Readiness Standard (6) The Student understands significant economic developments between World War I and World War II The Student is expected to: (B) Identify the causes of the Great Depression, including the impact of tariffs on world trade, stock market speculation, bank failures, & the monetary police of the Federal Reserve Board

3. HIGH EXPECTATIONS1929-1932

4. What is a “Depression”? “The Great Depression which followed the [stock market] crash of 1929 was the most devastating economic blow ever suffered by the nation. It lasted for more than ten years, dominating every aspect of American life during the 1930s. . . . It left enduring psychological scars—never again would the Americans who lived through it be quite so optimistic about their economic future. . . . The Depression led to a profound shift in American political loyalties.”

5. The Roots of the Great Depression—The Scorecard Hoover—Republican presidential candidate in 1928 Hoover “did not view business and government as antagonists. Instead, he saw them as partners, working together to achieve efficiency and affluence for all Americans. His optimistic view of the future led him to declare in his speech accepting the Republican presidential nomination in 1928 that ‘we in America today are nearer to the final triumph over poverty than ever before in the history of any land.”

6. Al Smith—Democratic Presidential Candidate in 1928 “Smith succeeded for the first time in winning a majority of votes for the Democrats in the nation’s twelve largest cities. A new Democratic electorate was emerging, consisting of Catholics and Jews, Irish and Italians, Poles and Greeks. Now the task was to unite the traditional Democrats of the South and West with the urban voters of the Northeast and Midwest. . . .

7. “[Smith] symbolized the emergence of the city as the center of twentieth-century American life. An older nation founded on rural values had given way to a new urban society in which the production and use of consumer goods led to a very different lifestyle. Just as nineteenth-century American culture had revolved around the farm and the railroad, modern America focused on the automobile and the city. . . . Only after World War II would the American people finally enjoy an abundance and prosperity rooted in the urban transformation that began in the 1920s.”

8. Lexicon of the 1920s • Speculate—purchase of land or stock by an investor at a low price, hoping that the price would rise giving the opportunity to make a quick profit • On Margin—investor paid only part of purchase price of stock in cash • Broker borrowed the remainder of the money from banks or corporations • Margin Call—broker asks investors buying on margin to put up more money to cover their loans on stocks that were now worth less

9. Financial Indicators in Farming and Industry Pointing to an Economic Slowdown in the 1920s • Wages of industrial workers failed to keep up with rising costs of goods • Workers could not purchase the goods that they made • Factories had to lay off workers • As workers lost their jobs, demand for goods fell further (a vicious cycle) • For farmers, increased supplies of crops kept crop prices down—a part of an agricultural decline that dated from 1919 • Meanwhile, the expenses of farmers’ increased (vicious cycle again) The Depression was an “equal & opposite reaction” to the frenetic economic activity of the 1920s

10. Hoover’s Beliefs and Backgrounds • Professional engineer • Very popular • Experienced Secretary of Commerce • Self-made millionaire • Efficiency expert • Humanitarian • Quaker • Believed in rugged individualism and efficiency • Supported laissez-faire

11. Causes for the Great Depression of the 1930s Faced with their own economic problems, European banks withdrew money from U. S. banks; a key Vienna bank failed, and the German economy collapsed • Excessive speculation in the stock market • U.S. factories produced more goods that American buyers could consume • Americans could not afford products coming off the assembly lines—a maldistribution of wealth

12. Causes for the Great Depression of the 1930s continued . . . • Agricultural decline over the previous decade • Corporate mismanagement • Monetary police of the Federal Reserve Board • Instability of the economic conditions of Europe • Impact of tariffs on worldwide trade

13. Readiness Standard (6) The Student understands significant economic developments between World War I and World War II The Student is expected to: (B) 3 Identify the impact of stock market speculation

14. Types of Investment Attracting Investors in the 1920s How Public Attitudes, Business, and Government Contributed to Conditions Leading to the Stock Market Crash of 1929 • Land • Stocks

15. The Stock Market Collapse and the Great Depression • “Black Thursday”—a wave of selling on the New York Stock Exchange. “The great crash in October [29,] 1929 put a sudden and tragic end to the speculative mania.” • By 1932, stock prices had fallen to 80% below their 1929 highs. Unemployment stood at 12 million workers or 25% of the American work force. Gross National Product (GNP) fell to 67% of its 1929 level.

16. How Could this Happen? • Public ignored warning signs of coming depression • Some people gambled on the stock market • Many banks made risky loans to speculators in the stock market • The government took no steps to regulate stock market prices

17. Impact of the Depression • Durable Goods—products designed to last several years before being replaced • Business Inventory—quantity of unsold goods on hand How Economic Relations Between Supply and Demand Became Unbalanced in the 1920s • Supply greatly exceeded demand in the late 1920s • Workers didn’t make enough money to purchase the products made by industry

18. Readiness Standard (6) The Student understands significant economic developments between World War I and World War II The Student is expected to: (B) 4 Identify the impact of bank failures

19. Role of a Weak Banking System in Leading to Economic Collapse • Banks that had loaned large sums to speculators tried to collect • Speculators were unable to repay the banks • Many banks collapsed, went bankrupt

20. Readiness Standard (6) The Student understands significant economic developments between World War I and World War II The Student is expected to: (B) 4 Identify the impact of monetary policy of the Federal Reserve system

21. Federal Reserve policies neither prevented the Depression nor revived the languishing American economy. • Failure to control the money supply led to the downward spiral in the value of money—deflation—& the devaluation of currency • Mismanagement of the money supply allowed stock of currency to fall by 33% (while simultaneously, the closure of 20% of U. S. banks reduced available currency by another 36%) • The Fed in 1931 also raised the interest rate from 1.5% to 3.5%

22. Readiness Standard (6) The Student understands significant economic developments between World War I and World War II The Student is expected to: (B) 1 Identify the impact of tariffs on world trade • In 1928, Hoover ran on a platform of higher tariffs designed to protect farmers from European competition. • Congress passed the Smoot-Hawley Tariff Act in 1930 • Hoover signed the bill although economists protested • It is unlikely that tariffs alone caused the Great Depression, but they fostered global protectionism; world trade declined by 66% from 1929 to 1934

23. Readiness Standard (6) The Student understands significant economic developments between World War I and World War II The Student is expected to: (C) 1 Analyze the effects of widespread unemployment

24. Impact of Massive Unemployment and Grinding Poverty on American Society • It reduced the standard of living • It sapped people’s sense of personal worth • It made homelessness and hunger major social problems

25. The Depression Phenomenon of the Hobo • Migratory worker or homeless, penniless vagabond • Itinerant workers willing to do labor • They were itinerant, poor, and far from home and support, plus the hostility of many train crews

26. Ironically, the Great Depression had less impact on the poor than the middle class. Poor folk already knew how to exist in the midst of poverty. But depressed economic condition with no letup in sight was a powerful psychological blow to a middle class with high expectations, to white collar professionals too proud to ask for charity. Even the well-to-do had to forfeit many of their traditional luxuries. During the decade, youths dropped out of college and vagrancy increased.

27. Readiness Standard (6) The Student understands significant economic developments between World War I and World War II The Student is expected to: (C) 2 Analyze the effects of deportation & repatriation of people of European & Mexican heritage & others

28. Great Depression Deportations • Federal Bureau of Immigration (after 1933, the Immigration and Naturalization Service) and local authorities rounded up Mexican immigrants and naturalized Mexican American citizens and shipped them to Mexico to reduce relief roles. • More than 400,000 repatriados, many of them citizens of the United States by birth, were sent across the U.S.-Mexico border from Arizona, California, and Texas • Texas's Mexican-born population was reduced by a third. Los Angeles lost a third of its Mexican population.

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