Download Causes of the Great Depression

The Great Depression
1929-1939
What is a “Depression”?
A “depression” is a prolonged
recession, which is when economic
activity is in decline
 All economies go through a Business
Cycle, that naturally includes periods of
economic growth & prosperity (“boom”),
followed by periods of recession
 A depression is a serious downturn in the
economy (“bust”)

Recession / Depression?
 There
is an old joke among
economists that states:
A recession is when
your neighbor loses his job.
A depression is when you lose
your job.
Business Cycle
Stage 1 - Expansion
 Incomes rise – full employment
 Cost of goods and labour rise
= inflation
Stage 2 Contraction
• Few jobs created
• Goods and service production decline
Stage 3 Recession
• Sharp drop in employment
• Prices of goods fall
•(if prolonged – DEPRESSION)
Business Cycle – cont’
Business Cycle – cont’
Business Cycle cont’
Stage
1 – Expansion
– Involves inflation, recovery, prosperity – leads to
a “peak”
Stage
2 – Contraction / Early Recession
– decline in growth
Stage
3 – Recession - “trough”
– Sharp drop in growth, jobs, price of goods
– Depression – prolonged recession
The business cycle or economic cycle refers to the fluctuations of
economic activity about its long term growth trend. The cycle involves
shifts over time between periods of relatively rapid growth of output
(recovery and prosperity), and periods of relative stagnation or decline
(contraction or recession). Despite being named cycles, these
fluctuations in economic growth and decline do not follow a purely
mechanical or predictable periodic pattern.
Causes of
the Great
Depression
(1929-1939)
http://www.youtube.com/watch?v=gplaqa2yRgg
1. Overproduction & Stockpiling

During the 1920s
– many industries expanding & profits were
spent on adding to factories or building
new ones
– Huge supplies of manufactured goods were
simply stockpiled (kept in warehouses
unsold) due to overproduction
(producing too much too quickly so
that goods did not sell)
Eventually unsold goods caused
factory owners to panic, so they:
 Slowed down production
 Laid off workers
Overproduction – cont’

Laid off workers:
 Had less $$ to spend on
buying goods, so
 Sales slowed down even
more
* Basically = industrial capacity
of both USA and Canada
expanded beyond the ability of
the consumer to consume
# of Jobs
&
Manufacturing
Sales
Down
2. Stock Market Speculation
& Crash

October 29, 1929
= Black Tuesday –
the Stock Market
crashed
– Catalyst that
triggered all other
factors
– was an indicator
that something
was already wrong
with the system
Stock Market Explanation


Stock Market works by
companies selling stocks / shares
in their company to investors
(people with $$$) to get money
to run their companies
In return, investors get a share
of the profits of the company
(how much depends on the
amount of shares they own)
– If the company does well – stock
values rise
– Stockholders may choose to sell
shares at a profit, or hold on to
them in the hopes that they will
continue to increase in value, and
therefore make even more money
down the road
shareholders
company
Stock Market & Crash cont’
In 1920’s – “Speculation” process took
place:
 many investors bought stock shares “on
margin” or borrowed money

 borrowed money to buy stocks with the
hope that in a short time, the stock’s worth
would rise, and they could sell at a large
profit
– Then they could sell the stock, re-pay
the loan, and keep a large profit
http://video.google.com/videosearch?hl=en&client=safari&rls=en&q=buying
%20stocks%20on%20margin&um=1&ie=UTF8&sa=N&tab=wv#q=buying+stocks+on+margin+1920s&hl=en&emb=0&clie
nt=safari&qvid=buying+stocks+on+margin+1920s&vid=-
Stock Market & Crash cont’
When stocks began to decrease in value,
investors began to worry and lose confidence in
the companies whose shares they had
purchased
 Many wanted to sell stocks quickly, before prices
fell further, and this caused some to sell large
volumes of stocks
 More investors panicked when this happened, so
they sold their stocks, and the value of stocks
kept falling and falling

Stock Market Crash – cont’

Result of panic:
downward spiral
– Stocks became
worthless
– Very few Canadians
actually owned stocks,
but:

Canadians mostly
affected by loss of jobs
and falling prices of
their products
3. Economic Protectionism
and Tariffs – made things Worse



Fig. 4-5 from p.82 in counterpoints
Answer questions on p. 82 regarding this
cartoon for marks. (/10)
Tariffs – duties
(money) collected by
the government on
goods coming into a
country
Because the USA did
not need the world’s
raw materials as much
as other countries, they
became protectionist
Protectionist –
government protected
home industries from
the competition of
foreign goods by
discouraging imports
through high tariffs
3. Protectionism & Tariffs cont’

American protectionism caused other
countries such as Canada to lose their
export markets
– American tariffs made Canadian wheat more
expensive in the USA, so Canadian farmers
suffered
– In reaction, Canada also imposed high
tariffs to protect its own industries and
products (known as “tariff barriers”)
– This cycle made the problem worse, as trade
was restricted even further
4. Reliance on
Staple Product Exports
 Canada’s
economy depended heavily
on a few basic products known as
staples
– i.e. wheat crops, timber, minerals
 Economy
did well – as long as other
countries bought staple products
Staple Products cont’
1925-1939 – wheat farmers grew
record crops, so could sell them at
record prices
 PROBLEM: the USA, Australia, and
Argentina also grew record crops in
1929, so the competition for sales was
extreme
 Canadian farmers – left with large
quantities of unsold wheat and prices
dropped dramatically

Wheat
prices
fell
5. Dust Bowl –
made matters worse

In addition: prairie farmers were faced
with terrible droughts over several
summers in a row – farmland turned into
“Dust Bowls”
Dust Bowl – made matters worse
Inadequate rainfall  crops died – farming
essentially stopped on Prairies
 With no wheat to be shipped & no flour to be
ground  railways & flour mills lost business

* Caused a chain reaction in many parts of the
Canadian economy
Dust Bowl Images
6. Economic Dependence
on the USA
Because the Canadian economy depended
so much on staples (#2), any decline in
foreign economies hurt Canada
 40% of exports sold to USA

– Therefore – when US economy failed,
Canadian economy followed
7. Trade Collapse
Canada's efforts to get
out of a recession by
raising export tariffs
only backfired due to
competition from other
countries and Canada's
lack of variety in its
exports
 Led to a near halt in
world trade

8. International Debt after WWI
The USA lent money to foreign
nations after WWI to help them
out of debt, so:
 Those nations came to depend
on their ability to sell their
products to the USA in order to
raise $$ to repay loans
 When the US turned to
protectionist measures,
international trade was reduced
and those countries lost their
ability to pay back loans

International
trade
Reduced =
Could not pay
back loans
Comparison with
2008 Economic Crisis
Understanding 2008 Crisis

http://www.youtube.com/watch?v=fPI8XF
fBxHk&feature=related

http://www.teachertube.com/view_video.
php?viewkey=0bb7c0c1bbe242ab0333
Questions to answer
in paragraph form:
Name and EXPLAIN the 8 main
causes of the Great Depression
discussed in this presentation.
2. What are some of the similarities
between the causes of the Great
Depression and the 2008
Economic Crisis?
1.
Using Statistics in History

See page 80-81 of counterpoints

In partners, look over the tables of
information carefully and answer
questions #1-4 on p. 81 for marks (/10)

You may hand one set of answers per
pair; but be sure to put BOTH names on
your paper. 