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Chapter 24 The Great Depression Mr. Robson, Hicksville High School Election of 1928 • Herbert Hoover (R) • Al Smith (D) • Hoover rides the wave of prosperity to White House • Continues Laissez-Faire policies of Harding, Coolidge Mr. Robson, Hicksville High School I.A. The Coming Depression • • • • Causes? By 1927 – Economic Slowdown (Recession began) Stock Market speculation continues to push stocks higher (1928-29 40% growth) Margin Buying helped fuel growth Unbridled speculation began to worry some – including Hoover Mr. Robson, Hicksville High School I.A. The Coming Depression Causes? • Hoover “warns” banks, raises interest rates 1% at a time of economic contraction – “had no desire to stretch the powers of the federal government” • Summer 1929 – Dire economic numbers. • All leading indicators point to crisis as higher interest rates take affect Mr. Robson, Hicksville High School I.A. The Coming Depression • • • • Causes? Black Thursday (Oct. 24) Hoover “Fundamental business of the country…is on a sound and prosperous basis” Black Tuesday – Oct. 29, 1929 Waves of panic selling Mr. Robson, Hicksville High School International Problems STOCK MARKET CRASH AND FINANCIAL PANIC MONETARY POLICY CAUSES OF THE GREAT DEPRESSION UNEQUAL DISTRIBUTION OF WEALTH INDUSTRY OVER PRODUCTION AGRICULTURE Mr. Robson, Hicksville High School I.A. The Coming Depression Causes? • Investors Lose • Banks Lose – invested in stocks and lent $ to others to invest • Bank Deposits NOT insured – many middle class lost savings • Crushed confidence in American system Mr. Robson, Hicksville High School Mr. Robson, Hicksville High School I.A. The Coming Depression Causes? Theories? • 1920’s Prosperity – NOT for all • Agriculture, Textiles, mining • Unequal Distribution of Wealth –Tax Policy • Labor makes little real wage gain in 20’s • When market collapses, average American does not have enough $ to Mr. Robson, Hicksville High School revive economy 80 70 60 50 TOP .01% BOTTOM 42% TOP 1% BOTTOM 99% 40 30 20 10 0 THE CHART ABOVE SHOWS THAT IN 1929 THE TOP 1/10TH OF 1 % OF THE POPULATION EARNED AS MUCH MONEY AS THE BOTTOM 42% OF THE POPULATION. THE SECOND TWO BARS SHOW THAT THE TOP 1% OF THE POPULATION SAW A 75% INCREASE IN THEIR INCOME WHILE THE OTHER 99% SAW ONLY A 9% INCREASE IN THEIR INCOMEHicksville IN THE 1920’S. Mr. Robson, High School 1929 CHART SHOWING WAGES OF UNSKILLED WORKERS. NOTICE HOW LITTLE THE WAGES CHANGED DURING THE SUPPOSED PROSPERITY OF THE 1920’S 700 600 500 400 300 200 100 0 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 Mr. Robson, Hicksville High School I.A. The Coming Depression Causes? • 1920’s Prosperity – NOT for all • Purchasing power is affected by this unequal distribution of wealth • This fact is hidden for much of 20’s due to installment buying Mr. Robson, Hicksville High School I.B. The Coming Depression Deepening Crisis • Self-Perpetuating • More contraction = less confidence = less spending and investment = More Contraction = …. • Bank Failures cause others to withdraw $, makes things worse Mr. Robson, Hicksville High School I.B. The Coming Depression • • • • Deepening Crisis Federal Reserve – supposed to be a “lender of last resort” – fail! Monetary Policy – Federal Reserve increases discount rate = contraction in $ supply Just when banks need $ to avoid failure, Fed refuses to act Americans save $ instead of spending Mr. Robson, Hicksville High School I.C. The Coming Depression • • • • Worldwide Depression World Trade dysfunctional since WWI By late 20’s, European nations struggle under heavy debt and trade imbalances with U.S. Collapse in U.S. = less investment in Europe, fewer European goods bought ***Interdependent world economy*** Mr. Robson, Hicksville High School I.C. Worldwide Depression Hawley-Smoot Tariff • Under pressure from his party and despite opposition from almost every economist at the time, Hoover raises tariff rated to an all time high • Europe responds in kind…severely limiting world trade. Mr. Robson, Hicksville High School Mr. Robson, Hicksville High School Mr. Robson, Hicksville High School Causes • Economists (and politicians) argue over the true cause • Keynesian View – pro-business laissez-faire government did nothing to stop the reckless business practices of the 20’s. Modern Industrial economies require government intervention in order to “balance” unbridled Mr. Robson, Hicksville High School capitalism FDR’S PHILOSOPHY KEYNESIAN OR "PUMP PRIMING" ECONOMICS BASED ON THE WORK OF ECONOMIST JOHN MAYNARD KEYNES. MONEY SHOULD BE INVESTED IN THE PEOPLE, THE WORKING CLASS. SPENDING WOULD THEN INCREASE WITH NEW MONEY IN CIRCULATION. AS SPENDING INCREASED IT WAS EXPECTED THAT BUSINESS WOULD EXPAND TO MEET THE NEW DEMAND AND HIRE NEW WORKERS. THIS WOULD BRING ON MORE SPENDING AND MORE GROWTH. THIS PLAN WAS THE OPPOSITE OF THE REPUBLICAN PLAN ASCRIBED TO BY HOOVER. SUPPLY SIDE OR "TRICKLE DOWN" ECONOMICS. MONEY WAS TO BE INVESTED AT THE TOP, IN BUSINESS. THEN BUSINESSES WOULD EXPAND, HIRE NEW WORKERS AND THIS IN TURN WOULD SPUR ON SPENDING AND FURTHER ECONOMIC GROWTH. Mr. Robson, Hicksville High School Causes • Conservative View (Milton Friedman) – Government was the culprit. While the stock market may have been over inflated, the crash was a normal correction in the business cycle were in not for the government interfering – particularly with the Hawley-Smoot tariff and the Fed’s monetary policyMr. Robson, Hicksville High School The Coming Depression • • • • • • Stats – 1929-1932 GDP – $103.1 billion to $58 billion Construction down 78% 9000 bank failures ***consumer price index down by 25% - deflation, bank failures Corporate profits - $10 billion to 1 billion Robson, Hicksville High School Unemployment 3.2 %Mr.to 24.9 percent II.A • • • • • Hard Times Invisible Scar Most Americans kept jobs, but wages hours etc. affected Uncertainty Experiences varied by class, race, age, geography Elderly hit hard Middle class downward social mobility Mr. Robson, Hicksville High School II.A Hard Times Invisible Scar • Many begin to question Horatio Alger ethic of hard work – begin to alter Americans view of “rugged individualism” • Many turned to volunteer relief organizations – churches, relatives etc. Mr. Robson, Hicksville High School II.A Hard Times Invisible Scar • With charities overwhelmed, some have to turn to state/local governments for relief – humiliating at the time Mr. Robson, Hicksville High School II.B . Hard Times Families face the Depression • Women’s role as homemaker changed little • Middle class families still consumed goods – deflation, credit • Movies, cigarettes, gas (cars) held stable Mr. Robson, Hicksville High School II.B . Hard Times Demographics • Marriage and divorce rate falls • Birth rate decreases (as expected) • Increased access to contraception • Birth control begins to fall into realm of health (and economic) issue Mr. Robson, Hicksville High School II.B Hard Times Demographics • Married women expand in workforce despite resistance • Most still believed in separate roles • More finish H.S.- College still privilege Mr. Robson, Hicksville High School II.C Hard Times Popular Culture • Movies – 60% attend once a week! • Mea West, Fred Astaire, Ginger Rogers, Marx Brothers • More than just entertainment, social commentary – Mr. Smith Goes to Washington Mr. Robson, Hicksville High School II.C Hard Times Popular Culture • Movies – 60% attend once a week! • Mea West, Fred Astaire, Ginger Rogers, Marx Brothers • More than just entertainment, social commentary – Mr. Smith Goes to Washington Mr. Robson, Hicksville High School II.C . Hard Times Popular Culture • Radio – Music (Benny Goodman, Duke Ellington), Variety Shows (Jack Benny), and Serials (Lone Ranger, Superman) • Amos ‘n’Andy • Church attendance increases, Family time – reading, board games (Monopoly) Mr. Robson, Hicksville High School III.A. • • • • • Harder Times African Americans Made hard times harder – Scottsboro Case- brings attention to legal system in South Lynching increase – incentive to migrate Harlem – 50% unemployment – 1935 Race riot. Shift to Democratic Party begins Mr. Robson, Hicksville High School III.B. Harder Times Dust Bowl Migrants • Wheat demand in WWI encourage farmers to over farm land • 1930’s – terrible drought, wind and loss of natural vegetation = dust bowl. • Prompts mass exodus from plains to California on Route 66 Mr. Robson, Hicksville High School Mr. Robson, Hicksville High School Mr. Robson, Hicksville High School Mr. Robson, Hicksville High School Mr. Robson, Hicksville High School III.C. Harder Times • Mexicans - Many returned to Mexico (political and economic reasons) • Most, not all, migrant farm workers • Asians – Many also returned • Japanese fare best • Filipinos – 1934, Tydings-McDuffie Act – grants independence, no longer citizens Mr. Robson, Hicksville High School III.D. Herbert Hoover • Believed depression was temporary downturn • Contrary to myth – he does act • Agricultural Marketing Act (1929) • Lowers Taxes, then raises them! • Public Works spending increases Mr. Robson, Hicksville High School IV.A. Herbert Hoover • Supported Glass-Steagall Banking Act (1932)– props up failing banks • Reconstruction Finance Corporation (RFC) – 1st Federal Institution to intervene in economy during peacetime • Provided loans to big businesses to stimulate production. Benefits would then “trickle down” to Americans • No significant impactMr.–Robson, too Hicksville cautious High School IV.A. Herbert Hoover • RFC easy to politicize – He refused to provide DIRECT relief to unemployed – felt it would undermine “American Individualism” Mr. Robson, Hicksville High School .IV.B. • • • • Herbert Hoover Discontent Hoover comes to symbolize the GD Hoovervilles, Hoover Blankets, Hoover Flags Protest – Farm Holiday Association, Labor Strikes, Communist Party Bonus Army (Marchers) Mr. Robson, Hicksville High School SOME BONUS MARCHERS BROUGHT THEIR FAMILIES Mr. Robson, Hicksville High School THE ELECTION OF 1932 500 ROOSEVELT HOOVER OTHER 400 300 ROOSEVELT HOOVER 200 POPULAR VOTE 100 0 ROOSEVELT HOOVER ELECTORAL VOTES FOR EACH CANDIDATE ALMOST 57% OF THE ELECTORATE VOTED