Download The Great Depression

American History
Unit 17 – The Great Depression
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Photo courtesy of Library of Congress
The years after World War I actually planted
the seeds for the Great Depression.
These years were the “Roaring Twenties” and
“Jazz Age”. It was a period marked by a
general prosperity, “anything goes” behavior,
bootleg booze, speakeasies, “flappers”
dancing the “Charleston”, Ford Model T’s,
ordinary people buying things on the
installment plan, and the wealthy getting into
the booming stock market.
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World War I
• Even before America entered World War I,
American industries were reaping huge
profits by selling the Allied powers everything
they needed to carry on the war.
• This meant plenty of jobs at good wages for
U.S. factory workers.
• Huge profits were also harvested by farmers.
• People with money began buying up
agricultural land, thus inflating its value.
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When the Soldiers Came Home
• Although wages had risen, so had the cost
of living.
– Prices were up for food, rent, and clothing.
• A quart of milk went from 9 cents in 1914 to
42 cents in 1919!
• The prices of steak and eggs had almost
doubled.
– Taxes were also higher.
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The Spring of 1919
• When the doughboys returned from the
war, the wheels of industry were turning
day and night.
• Businesses experienced a boom.
• The horizon looked bright.
• The word for life at this time was
prosperity.
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Wall Street
• No where did the future look brighter than
on Wall Street.
Wall Street – common name for the New York
financial district located in the lower portion of
Manhattan (and also the name of an actual
street in the area) where the New York and
American stock exchanges are
headquartered.
It is also a generic term for anything
associated with
investing or the
stock market.
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“On Margin”
• The business of stock trading was so brisk
that the clerks who did the paperwork
complained that they could barely keep up
with the buying and selling.
• Much of the buying was done “on margin,” a
system in which only a portion of the price
was paid immediately in cash.
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Buy Now, Pay Later
• In the 1920’s, thanks to alluring ads for enticing
products, the idea of buying on credit was
born.
• To make the idea of buying on credit appetizing
to the average American, clever advertising
men came up with a sweetener called “buying
on the installment plan.”
• With money in your pocket and seemingly
boundless prosperity, the old notion of saving
for a rainy day was very out of date!
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Why Should A Manufacturer Go Along
With the Installment Plan?
• Because of the basic reality of supply and
demand.
• Throughout the 1920’s, supply and
demand got out of balance.
• American manufacturers were churning
out so much in the way of consumer
goods that people’s demands weren’t
keeping up with the supply of goods in
overstocked warehouses.
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• This abundance was the result of an astonishing
increase in the productivity of workers.
• In the 1920’s the output per worker in American
industry leapt by nearly 2/3.
• However, this happened at a time when wages
were not keeping up.
• As a result, manufacturers were making
enormous profits.
• This was great, so long as workers bought what
was being made!
• Hence, the appeal of the installment plan in
moving products from shelves and off the sales
floor.
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Reasons for the Wall Street Boom
• You have underpaid workers turning out goods in
record amounts that they can only afford to buy on
credit.
• This enormous output at bargain labor costs
creates wealth for people who already have far
more than enough money, thereby widening the
income gap.
• Those with more than enough money bought
outrageous amounts of stock shares.
• Those who couldn’t afford to buy stock shares, did
so anyway. . . On margin.
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How To Get Rich Without Working
• If you think that people bought and traded
stocks so that they could own a piece of a
prosperous or a promising company, you’re
wrong.
• Most investors were more interested in
finding stocks that they expected to go up in
value so that they could sell them for a nifty
profit.
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Making a Killing
• The popular term for this was (and still is)
“making a killing on Wall Street.”
• Economists call it “speculation.”
• Historians looking into the causes of the
Great Depression cite this practice as one
of the reasons for the bursting of the
prosperity bubble in the autumn of 1929.
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The Economy of the Late 1920s
Income Distribution, 1929
1
5
65
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• “Everybody ought to
be rich”
• 200 large
companies
controlled 49% of all
$10,000 and Over
American industry
$5,000-$9,999
29
• Too many goods,
$2,000-$4,999
not enough demand
$1,999 and under
• Farm prices fell after
Figures courtesy of Prentice Hall
WWI
• Farmers not able to
repay their debts
The Market Crashes
• The market crash in October of 1929
happened very quickly.
• In September, the Dow Jones Industrial
Average, an average of stock prices of
major industries, had reached an all time
high of 381.
• On October 23 and 24, the Dow Jones
Average quickly plummeted, which caused
a panic.
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• On Black Tuesday, October 29, 1929,
most people sold their stocks at a
tremendous loss.
• This collapse of the stock market is
called the Great Crash.
• Overall losses totaled $30 billion.
• The Great Crash was part of the
nation’s business cycle, a span in
which the economy grows, and then
contracts.
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Effects of the Great Crash, 1929
Great
Crash
World Payments
Investors
Investors lose
millions.
Businesses
lose profits.
Businesses
and Workers
Consumer
spending drops.
Workers
are laid
off.
Businesses cut
investment and
production Some
fail.
Overall U.S.
production
plummets.
Banks
Businesses
and workers
cannot repay
bank loans.
Savings
accounts
are wiped
out.
Allies cannot
pay debts to
United States.
Banks run
out of
money and
fail.
Europeans
cannot afford
American
goods.
Bank
runs
occur.
U.S. investors
have little or
no money to
invest.
U.S.
investments in
Germany
decline.
German war
payments to
Allies fall off.
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The Stock Market Crash
From Riches to Ruin
• Many wealthy families lost everything
• Some even committed suicide
• Millions of people who never owned a single
stock lost their jobs, farms and homes
• The crash triggered a much wider, long term
crisis known as the Great Depression
• The Depression had a ripple effect that hurt
the economies of other countries
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Unemployed (in millions)
Unemployment 1925-1933
14
12
10
8
6
4
2
0
1925 1926 1927 1928 1929 1930 1931 1932
Year
Question 1: How many people were unemployed in 1925? In 1929? In 1932?
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2
1.5
1
0.5
1933
1932
1931
1930
1929
1928
1927
1926
0
1925
Price per Bushel (in
dollars)
Wheat Prices 1925-1933
Year
Question 2: How much did a bushel of wheat cost in 1925?1932?
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Average Montly Value $
Stock Prices 1925-1933
Great Crash
30
25
20
15
10
5
0
1925 1926 1927 1928 1929 1930 1931 1932 1933
Year
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Question 3: What was the average stock value in 1929? 1932?
Number of Suspensions (in
thousands)
Bank Suspensions 1925-1933
5
4
3
2
1
0
1925 1926 1927 1928 1929 1930 1931 1932 1933
Year
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Question 4:How many banks were suspended in 1925? In 1933?
Activity: Letter writing
• It is the day before Thanksgiving, 1929.
• You own a small shoe store. An investment broker
convinced you to spend your life savings in the stock
market. He told you that you could triple your money if
you invest it with him. You even bought some stock on
margin, thinking that you would be able to pay it off
when your stock went up.
• To your absolute horror, the stock market crashed in
October and completely wiped you out.
• Write a letter back to your husband or wife telling them
what has happened. Make sure to use evidence for
why this happened from your notes.
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The Great Depression
•The economic contraction that began
with the Great Crash triggered the most
severe economic downturn in the
nation’s history—the Great Depression.
•The Great Depression lasted from 1929
until the United States entered World
War II in 1941.
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• The stock market crash of 1929 did not
cause the Great Depression.
• Rather, both the Great Crash and the
Depression were the result of deep
underlying problems with the country’s
economy.
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The Election of 1928
• Herbert Hoover
(1874-1964) was a
representative of
the Anglo-Saxon
class, born into an
Iowa Quaker
family.
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• Supporting business and Prohibition,
Hoover was the Republican candidate for
President in 1928. His campaign slogan
promised:
"A chicken in every pot and a car in
every garage."
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The Hoover Administration
• Once the Hoover Administration realized that
the economy was not having another of its
periodic, temporary re-adjustments, the
question was how to provide relief to the
unemployed.
• He warned the suddenly broke and out-ofwork Americans that any lack of confidence
in the economic future or the strength of
U.S. businesses was “foolish.”
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• No matter how hard Herbert Hoover tried
to be optimistic and encouraging to the
American people, reality was sinking in.
• One observer noted, the stock market
“continued to act like a rubber ball
bounding down statistical stairs.”
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Poverty Spreads
• People of all levels of society
faced hardships during the
Great Depression.
• Unemployed laborers,
unable to pay their rent,
became homeless.
• Sometimes the homeless
built shacks of tar paper or
scrap material. These
shanty town settlements
came to be called
Hoovervilles.
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Photo courtesy of Library of Congress
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Photo courtesy of Library of Congress
Hoovervilles
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Photo courtesy of Library of Congress
• Farm families suffered from low crop prices.
• As a result of a severe drought and farming
practices that removed protective prairie
grasses, dust storms ravaged the central and
southern Great Plains region.
• This area, stripped of its natural soil, was
reduced to dust and became known as the
Dust Bowl.
• The combination of the terrible weather and
low prices caused about 60 percent of Dust
Bowl families to lose their farms.
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The Dust Bowl
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Poverty Strains Society
Impact on
Health
Some people starved and thousands went
hungry.
Children suffered long-term effects from poor
diet and inadequate medical care.
Stresses on
Families
Living conditions declined as families crowded into small
houses or apartments.
Men felt like failures because they couldn’t provide for their
families.
Working women were accused of taking jobs away from men.
Discrimination Competition for jobs produced a rise in hostilities
against African Americans, Hispanics, and Asian
Increases
Americans.
Lynching increased.
Aid programs discriminated against African Americans.
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Photo courtesy of Library of Congress
Americans Pull Together
• Throughout the country, people pulled together
to help one another.
• Neighbors in difficult circumstances helped
those they saw as worse off than themselves.
• When banks foreclosed on a farm, neighboring
farmers would bid pennies on land and
machines, which they would then return to the
original owners. These sales became known
as penny auctions.
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• Some Americans called for radical political and
economic change.
• They believed that a fairer distribution of wealth
would help to end the hard times.
• Jokes and humor helped many people to fight
everyday despair.
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Signs of Change
Prohibition Is Repealed!
• In February 1933, Congress passed the
Twenty-first Amendment, which
repealed the eighteenth amendment
prohibiting the sale of alcohol.
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The Empire State
Building
• 2,500 to 4,000
people worked on
the construction.
• The cost of
construction was
about $41 million.
• At that time, it was
the world’s tallest
building and had
102 stories and 67
elevators.
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The End of an Era
• Many things that symbolized the 1920s
faded away.
– Organized crime gangster Al Capone was
sent to prison.
– Calvin Coolidge died.
– Babe Ruth retired.
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Hoover’s Limited Strategy
• Hoover convinced business leaders to help
maintain public confidence in the economy.
• To protect domestic industries, Congress
passed the Hawley-Smoot tariff, the highest
import tax in history.
• European countries also raised their tariffs,
and international trade suffered a slowdown.
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• Hoover set up the Reconstruction Finance
Corporation (RFC), which gave government
credit to banks, industries, railroads, and
insurance companies.
• The theory was that prosperity at the top would
help the economy as a whole.
• Many Americans saw it as helping bankers and
big businessmen, while ordinary people went
hungry.
• Hoover did not support federal public
assistance because he believed it would
destroy people’s self-respect and create a
large bureaucracy.
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• Finally, public opinion soured for Hoover when
he called the United States Army to disband a
protest of 20,000 unemployed World War I
veterans called the Bonus Army.
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A “New Deal” for America
• FDR promised a New
Deal for the American
people.
• He was ready to
experiment with
government roles in an
effort to end the
Depression.
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• As governor of
New York,
Roosevelt had set
up an
unemployment
commission and a
relief agency.
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• FDR’s wife, Eleanor, was an
experienced social reformer.
• She worked for public housing
legislation, state government
reform, birth control, and
better conditions for working
women.
• When the Roosevelts
campaigned for the
presidency, they brought their
ideas for political action with
them.
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The Election of 1932
Franklin Roosevelt
• Believed that government had a responsibility to
help people in need.
• Called for a reappraisal of values and more
controls on big business.
• Helped many Americans reassess the
importance of “making it on their own” without
any help.
• Much of his support came from urban workers,
coal miners, and immigrants in need of federal
relief.
• Roosevelt won 57 percent of the popular vote
and almost 89 percent of the electoral vote.
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Herbert Hoover
• Believed that federal government should
not try to fix people’s problems.
• Argued that federal aid and government
policies to help the poor would alter the
foundation of our national life.
• He argued for voluntary aid to help the
poor and argued against giving the
national government more power.
• Hoover gave very few campaign speeches
and was jeered by crowds.
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