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CHAPTER 9
Lesson 1 - The Great Depression
Great Depression
What was the
Great
Depression?


Great Depression: A period lasting
from 1929 to 1941 in which the
economy suffered and unemployment
soared.
What caused this decade-long
depression?
 Many
different things…
Global
Economic
slowdown
Uneven
Distribution
of income
Less
consumer
spending
Causes
Hawley-Smoot
Tariff
Great
Depression
Speculators=
buying on
margin
Contraction of
money supply
Run on
banks =
banks fail
Stock
Market
Crash
The Great Depression
Prosperity
Hides Trouble


Herbert Hoover became the President in
March 1929 (Republican).
Farmers



bought/mortgaged more land and equipment
during WWI to meet the demands for food (1/4
of the U.S. Workforce).
Farms were getting bigger and yielding bigger
crops at harvest.
Hard-pressed to pay their debts, forced to sell in
a glutted and competitive world market, and
confronted by several natural disasters, farmers
did not share in the boom of the 1920s.
Uneven Distribution of Wealth
An uneven
distribution of
income led to
unstable economic
footing




During the 1920s the rich became much,
much richer, while industrial workers
simply became less poor.
The wealthiest few did not buy enough
to keep the economy booming.
A healthy economy needs more people
to buy more products, which in turn
creates even more wealth (Under
consumption).
Americans bought automobiles,
appliances, radios, and other goods on
credit (Living Beyond Their Means).
The Stock Market Crash
1920s Stock
Market



Stock = a
share of
ownership in a
corporation
Stock market
= a system for
buying and
selling stocks
NYSE = New
York Stock
Exchange
The 1920s had been a time of economic growth and
optimism
Stock prices rose dramatically in the late 1920s
Typically, a stock’s price reflects investors’ perception of
the company’s value



For example, if a company has strong sales and is expected
to have good sales in the future, investors might see that as a
good sign and invest in the company.
This would cause the value of the company to increase – and
stock prices would rise.
As this happened over time, many investors bought stock
on the chance that they could turn a quick profit.



These investments were not based on the ACTUAL value of
the company, but on the perceived chance of a return on
their investment.
This is called SPECULATION
*When the excitement about a stock ends, prices can drop
quickly
The Stock Market Crash
Contributing
Factors to the
Stock Market
Crash




Speculation:
Practice of
making high-risk
investments in
hopes of
obtaining large
profits.
Many speculators saw opportunities to get rich quick.
Many speculators borrowed money to buy stock. This
is called BUYING ON MARGIN
Buying on Margin can be risky – if prices decline
(below original value), investors still owe money they
borrowed, but the stocks are worthless.
Speculators who were “buying on margin” were
investing in companies, with money that wasn’t
theirs…



This created an artificial “bubble” in which stock values
did not reflect the REAL values of companies
When REAL values of companies started to be realized,
investors lost confidence
September 3, 1929, the stock market began to sputter
and fall (Loss of Confidence).
The Stock Market Crash



Black Tuesday:
(October 29, 1929)
More than 16 million
shares of stock were
sold as the stock
market collapsed in the
Great Crash.
Entire Fortunes were
Wiped Out
Investors who bought
Stock on Margin Lost
Everything
BLACK TUESDAY
Banking Panic

After the stock market
crash, frightened bank
depositors feared for
their money and tried
to withdraw it from
their banks.

Led to a “run” on banks
that resulted in banks
losing all of their
reserves. (bankruptcy)
PANIC!!!
Business Cycle: Periodic growth and
contraction of the economy. (leave space blank
above – we will draw in class tomorrow)
Federal Reserve Monetary Policy
The role of the
Federal Reserve

In 1929, worried about investor overspeculation,
the “Fed” limited the money supply to
discourage lending.



As a result, there was too little money in circulation
to help the economy after the stock market crash.
Not enough banks belonged to the Federal
Reserve system, so the FED could not bail them
out with loans when the panics ensued…
Business leaders believed that the survival of
their companies depended on production
cutbacks, to maintain price levels, and layoffs,
to reduce payroll (Led to High
Unemployment/Closing of Businesses).
Unemployment
increases
Purchasing Power
Decreases
Productivity
Decreseases
Employment Cycle: For goods to be purchased, purchasing power had to be
high. If unemployment was high, it resulted in less purchasing power, and thus,
less production and more unemployment.
Protective Tariffs
Protectionist
trade policies
lead to global
disaster

To protect American businesses, the government passed
the Hawley-Smoot Tariff:
 Raised prices on foreign import.
 Destroyed international trade.
 Led to retaliation from other countries – which led to
a further slow down of trade
*The European problems of reparation payments, war
debt payments, and international imbalance of trade
had already created a shaky economic structure.

The Great Depression had become a global nightmare.