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The Great Depression Mr. Stikes SSUSH17 The student will analyze the causes and consequences of the Great Depression. a. Describe the causes, including overproduction, underconsumption, and stock market speculation that led to the stock market crash of 1929 and the Great Depression. b. Explain factors (include over-farming and climate) that led to the Dust Bowl and the resulting movement and migration west. c. Explain the social and political impact of widespread unemployment that resulted in developments such as Hoovervilles. Causes of the Great Depression a. Describe the causes, including overproduction, underconsumption, and stock market speculation that led to the stock market crash of 1929 and the Great Depression. Long Term Causes of Great Depression Overproduction excessive production, production in excess of need or stipulated amount. [Random House Dictionary, © Random House, Inc. 2012. ] Underconsumption Consumption of less than is produced; consumption of less than the usual amount. [Webster’s Revised Unabridged Dictionary, © C. & G. Merriam & Co. 1913. ] Speculation engagement in business transactions involving considerable risk but offering the chance of large gains, especially trading in commodities, stocks, etc., in the hope of profit from changes in the market price. [Random House Dictionary, © Random House, Inc. 2012. ] Long Term Causes of Great Depression Buying on margin Buying securities with the aid of borrowed money [http://campus.murraystate.edu/academic/faculty/lguin/Schematic/Margin.htm.] Dow Jones Industrial Average (DJIA) Stock index of 30 of the top blue chip stocks on the New York Stock Exchange – basically, when it is up, prices are up & vice versa [http://www.personalfinance.duke.edu/glossary-term/dow-jones-industrial-average. ] Stock Ownership of a portion of a company that gives you: 1) a vote on company policy, including picking the board of directors and 2) a right to a percentage of company earnings [http://hspm.sph.sc.edu/courses/Econ/Classes/Stocksandflows/Stocksandflows.html. ] A piece of stock is called a “share” Causes of the Depression Federal Reserve Founded in 1913 to help keep economy stable System made up of 12 regional banks and a board of directors Controls US monetary policy The control of the supply and cost of money Practically, the Fed: Sets interest rates Sells government securities Set bank reserve levels Stock Market Crash of 1929 Black Thursday, October 24, 1929: Many stocks sold; those who bought on margin are forced to sell to pay back loans Bankers agreement (led by J.P. Morgan and Co.) – buy stocks above market value Public confidence in markets shaken Attempt to prop up market, restore confidence Friday-Saturday, October 25, 1929: Market holds steady Stock Market Crash of 1929 Black Monday, October 28, 1929: Average stock price (DJIA) dropped 13% 2nd worst day in the history of the market Black Tuesday, October 29, 1929: Rush to sell at opening bell 16,410,030 shares traded Average stock price (DJIA) dropped another 12% 3rd worst day in the history of the market Causes of the Depression “Prosperity Decade” of the 1920’s High employment Low inflation 30% rise in industrial production US produced ½ of world’s industrial output Per capita income: 1919 – $520 1929 – $681 Causes of the Depression “False Positives” Widespread poverty 60% of nation lived on less than $2,000 annually 40% of nation lived on less than $1,500 annually Wealth disparity Richest 1% of Americans earned 19% of all profits in 1929, versus 12% in 1919 Causes of the Depression “False Positives” Lower wages in key industries like mining, manufacturing, transportation Ex. coal miner’s avg. hrly. wage: $0.845 in 1923 vs. $0.625 in 1929 93% of non-farm population saw disposable income fall during 1920’s 5,000 of nation’s 30,000 banks failed between 1920 and 1929 Causes of the Depression “False Positives” Depression of farm prices Revival of European agriculture after WWI Introduction of Australian and Argentinean products to world markets Long term debt for farmers High taxes for farmers Causes of the Depression Federal Reserve during the Depression Slowed growth of monetary supply leading up to stock market crash “Liquidity crisis” No cash to spend for local banks or businesses Causes of the Depression Tariffs Fordney-McCumber Tariff of 1922 Return to isolationism Raised tariffs to an average of 38.5% on imported goods Hawley-Smoot Tariff of 1930 Goal: raise tariffs on agricultural products, increase domestic prices/production Actual result: decrease in exports, perhaps retaliation DID YOU KNOW: Economic historians debate whether or not HawleySmoot made the Great Depression worse. Traditionally, historians have argued this protectionism further damaged the American economy. Newer studies, however, show the tariff being responsible for about 21% of the decline in GDP. Tariffs Rates under Fordney-McCumber vs. Smoot-Hawley (equivalent ad valorem rates) Product Fordney-McCumber Smoot-Hawley 29.72% 36.09% Earthenware, and Glass 48.71 53.73 Metals 33.95 35.08 Wood 24.78 11.73 Sugar 67.85 77.21 Tobacco 63.09 64.78 Agricultural Products 22.71 35.07 Spirits and Wines 38.83 47.44 Cotton Manufactures 40.27 46.42 Flax, Hemp, and Jute 18.16 19.14 Wool and Manufactures 49.54 59.83 Silk Manufactures 56.56 59.13 Rayon Manufactures 52.33 53.62 Paper and Books 24.74 26.06 Sundries 36.97 28.45 38.48 41.14 Chemicals TOTAL: Source: U.S. Tariff Commission, The Tariff Review, July 1930, Table II, p. 196. The Dust Bowl b. Explain factors (include over-farming and climate) that led to the Dust Bowl and the resulting movement and migration west. Farm Problems Overfarming Need to produce more to make same amount of money Leads to poor soil quality, etc. Debt Needed to borrow to produce more High interest rates and low prices led to more debt Farm Problems Natural Phenomenon Boll Weevil In Georgia by 1915 Forced farmers to abandon fields Many farms fore closed Sharecropping increased Drought Georgia’s worst drought in history: 1930-1931 Typical Georgia farm family during the Depression: No electricity No running water No indoor bathroom Inadequate diet (mainly of molasses, fatback & cornbread) No education system to speak of Few rural clinics, hospitals, or health care workers Much sicknesses (tuberculosis and malaria were common) Conditions were described as "depleted soil, shoddy livestock, inadequate farm equipment, crude agricultural practices, crippled institutions, a defeated and impoverished people." Arthur F. Raper, Preface to Peasantry: A Tale of Two Black Belt Counties (1936) Farm Problems Natural Phenomenon Dust Bowl Period of environmental disaster during the 1930’s in the Great Plains Caused huge dust storms of top soil to blow throughout the country Causes of the Dust Bowl Overfarming / Overgrazing Sod on the Great Plains was thin, leaving it vulnerable to being overfarmed and overgrazed Drought "Fleeing a dust storm” Farmer Arthur Coble and sons walking in the face of a dust storm, Cimmaron County, Oklahoma. Arthur Rothstein, photographer, April, 1936. From the Library of Congress. “Black Blizzard” A black blizzard over Prowers Co., Colorado, 1937. From Western History Collection, University of Oklahoma. “Black Blizzard” A black blizzard over Prowers Co., Colorado, 1937. From Western History Collection, University of Oklahoma. “A dust cloud approaches a small town in Oklahoma.” http://www.weru.ksu.edu/new_weru/multimedia/dustbowl/big/weokla.jpg Dust storm approaching Stratford, Texas Dust bowl surveying in Texas Image ID: theb1366, Historic C&GS Collection Photo Date: April 18, 1935 Location: Stratford,Texas Credit: NOAA George E. Marsh Album Results of the Dust Bowl Environmental Disaster Lost between 2.5 and 5 inches of topsoil over almost 25 million acres of land in the Great Plains Movement west Over 1,000,000 migrant farm workers moved west by 1939 Social and Political Impact of the Great Depression c. Explain the social and political impact of widespread unemployment that resulted in developments such as Hoovervilles. Daily Life in the Depression Unemployment / Loss of income > 3 million in 1929 4 million in 1930, 8 million in 1931, 12 1/2 million in 1932 About ¼ of American families did not have one wage earner ¾ of American workers were part-time “Hoovervilles” Towns of shacks and shantys set up by people out of work Bread Lines Dow Jones Industrial Average,1920-1939