Download The Great Depression

Warm-up

Write an argument explaining
why the stock market crashed in
1929. Use insights you gained
from our simulation.
Standards

 8.E.1.1 Explain how conflict, cooperation, and
competition influenced periods of economic growth
and decline.
 8.H.2.1 Explain the impact of economic, political,
social, and military conflicts on the development of
North Carolina and the United States.
I. Life in the 1920s:

Herbert Hoover – won the election of 1928 because
people were pleased with the economy and didn’t want
a lot of change
-promised “a chicken in every pot, and a car in
every garage”
-also said, “I have no fears for the future of our
country, it is bright with hope.”
I. Life in the 1920s

 Hoover, viewed as having a strong belief in “big business”
and “small government”, was considered by some to have a
“laissez-faire” viewpoint as the Great Depression took hold.
 Hoover feared that too much intervention or coercion by the
government would destroy individuality and self-reliance,
which he considered to be important American values.
 As the economy quickly deteriorated in the early years of
the Great Depression, Hoover declined to pursue legislative
relief, believing that it would make people dependent on the
federal government.
Time.com
II. The Great
Depression:

Immediate Cause – the Stock Market
Crash:
 Prices of stock rose throughout the 20s
 By Sept. 1929, the Dow Jones average
reached 381
-Dow Jones – the price of stocks from
30 of the largest companies in the U.S.
II. The Great
Depression:

Thursday, October 24, 1929 – some
stockholders began to pull out of the market
– afraid of a crash
Tuesday, October 29, 1929:
-“Black Tuesday” -the day the stock market
crashed
-investors panicked and started selling before
their stock became worthless
-Dow Jones fell to 261 (41 in 1932)
-between $6 and $9 billion was lost
Effects of the Crash
• Investors leave stock market and invest in commodities like
gold.
• At the time, US economy was on the gold standard. Each
dollar would be traded for its exact value in gold. This led to
the government worrying that gold would run out.
• The FED decided to raise interest rates in order to raise value
of the dollar. This causes businesses to lose its liquidity.
Liquidity allows businesses to invest and grow.
• With no liquidity, businesses tend to cut back, which means
layoffs.
• Layoffs would drive the country into burdensome-high
unemployment.
II. The Great
Depression:

A. Hidden Causes:
1) Unequal distribution of wealth:
-people were very rich or very poor
-20% of the nation lived in poverty (late
1920s)
-over 70% of Americans had no savings
and couldn’t afford consumer goods that
were being produced
In 1929, $2,500 was considered by
economists as the income necessary to
support a family

Family Earnings in 1929
Less than $1,500
40%
40%
$1,500- $2,000
$2,000 and above
20%
Wages are on the decline (EX: Mining (84.5 cents in 1923
to just 62.5 cents in 1929))
Trickle-down?

 Wealthy Americans tended to spend less on
economy supporting goods and more on luxuries
 Wealth then becomes bottled-up
 Consequently, there is less demand to keep
employment and investment high
 Economic transactions then slow down
II. The Great
Depression:

2) Installment buying:
-the buyer pays a certain amount
down, and then pays the rest in
installments (payments) with interest
-easy credit
-some people created huge debts
Warmup (in notebook)

1. What kinds of economic problems cause
depressions?
2. Why should people care about inequalities
between the rich and the poor?
3. What happens when the middle class
shrinks?
4. How did the 1929 stock bubble build up?
II. The Great
Depression:

3) Bank failures:
-banks were poorly managed
-people lost money (sometimes
their life savings) when their bank
closed
-7,000 banks closed in the 1920s
II. The Great
Depression:

4) Increase in unemployment:
-new factory machinery required
fewer workers
5) High tariffs (tax on imports) on
foreign goods:
-decreased competition, which
increased prices of certain goods
II. The Great
Depression:

6) Huge farm surpluses:
-led to a drop in farm prices
-many farmers lost their farms
because no one needed their food
III. Daily Life during the
Depression:

Children were forced to work
Many people became homeless
-many of the homeless lived in small
villages made of cardboard boxes and
crates nicknamed “hoovervilles”
(named after Pres. Hoover who was
blamed for the Depression)

III. Daily Life during the
Depression:

 Some men and families became hobos – rode the
rails looking for work and food
 Many farmers had more food than they could sell
-people didn’t have the money to buy it
-some food was destroyed in an effort to decrease the
supply so prices could increase
GUTHRIE’S MUSIC
CAPTURED ERA
Singer Woody
Guthrie used music
to capture the
hardship of the
Great Depression
Guthrie traveled the
country singing
about America
Guthrie
Guthrie’s song about W-S
 http://www.youtube.com/watch?v=8kWMgQpgq-4
III. Daily Life during the
Depression:

 Droughts occurred on the Great Plains
-this region became known as the Dust Bowl
because it was so dry
-many moved west to CA looking for work because
the dust storms destroyed their crops
-these people were often called okies because most
were from OK
III. Daily Life during the
Depression:

 The Grapes of Wrath (1939) – novel written by John
Steinbeck about one family’s struggle in moving to
CA
 Pres. Hoover wasn’t willing to spend enough money
to provide relief to the people (believed economy
would fix itself)
III. Daily Life during
the Depression:

 Bonus Army March:
-in 1924 Congress approved a bonus payment to all
who served during WWI
-the money was to be paid in 1945
-June 1932- 20,000 veterans marched into Wash. D.C.,
set up camps, and said they wouldn’t leave until
they received their bonus
-Hoover ordered the police to remove the protesters
-2 veterans were killed – made Hoover look bad


A new economist comes
into play…

 John Maynard Keynes
 Draw and explain his business cycle
The General Theory of Employment,
Interest, and Money

In the classical model, unemployment caused
by the Great Depression should have been
solved by wage reductions that would
rapidly clear the labor market. However, this
did not seem to be happening.
Keynes argued that market forces are not an
adequate ‘adjustment mechanism’; only
government has the capacity and the
responsibility to stabilize the economy.
Keynes on gov’t role

 The role of government is to stimulate demand
through spending in times of economic slack.
 In times of economic downturn, this can be
achieved either through lowering tax rates or
increasing government expenditures.
 According to Keynes, governments should
gain deficits (debt) and borrow money in times
of downturn; these debts can be repaid through
higher taxation in times of economic growth.