Download Causes of the Great Depression

What were the Causes of the Great Depression?



The economic hard times occurred 1929-1941.
The worst economic crisis of the century
Over 25 % of the people were unemployed


Farmers lost crops and some people even died of
starvation
Many lost their homes and were separated
Directions: Web Search to answer the following questions
Visit website # 1: http://www.thegreatdepressioncauses.com/
Visit website # 2: http://www.digitalhistory.uh.edu
Cause #1: Unequal Distribution of Income
Website 1: On the homepage click on Great Depression, then on Causes
 What caused the false sense of prosperity? 1920s when America was too dependent on
production, automobiles were the leading industry, and there was a great disparity
between rich and poor (uneven distribution of wealth between industry and agriculture).

How many people were living below the poverty line? More than 60% of the population

How much wealth did the top 1% of society own? 40% of the nation’s wealth
Cause # 2: Overproduction of Industry and Agriculture
Website 2: Click on Great Depression, textbook, “Why it Happened,” and scroll down to the
paragraph that starts with “the farm sector”
 Farm prices had been depressed ever since the end of World War I. What was life like for
farmers? Strapped with long-term debts, high taxes, and a sharp drop in crop prices,
farmers lost income. Rural consumers stopped buying farm equipment, causing millions
of farmers to default on their debts. This then put more pressure on the banking system.

How much was a farmer’s income by 1930 compared to a city’s worker? 30%
Cause # 3: High Tariffs and War Debts
Website 2: Scroll down to the paragraph that starts with “Finally”
 Tariff: a tax imposed by a government on imported or exported goods

What did Republican Tariff polices do? They damaged the economy by depressing
foreign trade

Congress passed the Hawley-Smoot Tariff of 1930 - What did it do?
It raised tariff rates to unprecedented levels. Also, American tariffs suppressed or
restrained international trade.
The tariffs made it difficult for European nations to pay off their debts, which led to foreign
countries imposing trade barriers of their own, choking off U.S. exports. By 1933,
international trade had plunged.
Cause # 4:Government Policies
Website 2: Scroll down to “The Federal Reserve”
 How did the Federal Reserve weaken the economy? It slowed the growth of the money
supply, then allowed the money supply to fall dramatically after the stock market crash,
which produced a crisis because consumers were unable to repay their loans and
businesses did not have the money to finance business operations.
Website 2: Scroll down to: “Unlike most of Western Europe”
 The United States had no federal system of unemployment insurance. Who was
responsible for most of the relief? How were those groups able to help people?
The state and municipal governments (working in cooperation with private charities that
were created to handle temporary emergencies) were responsible for most of the relief
burden.

Who was hit the hardest? Why? Poor Southerners were hit the hardest because their
states had virtually no relief funds.
Cause # 5: Stock Market Speculation
Website 1: On the homepage click on “Stock Market”
 What day was Black Tuesday? October 29, 1929, the day the stock market crashed,
marked the start of the Great Depression in America.

What caused it? What was the impact? Dow Jones continued to rise, fueling more
speculative investment. Then prices started to quickly drop, which caused investors to
panic and begin selling their stocks in massive quantities. As a result, the stock market
took a nosedive. Over a two-day period, the market lost 24% of its value and certain
stocks couldn’t be sold at any price.
Website 1: On the homepage click on Causes then under “Speculation And Overleveraged”
 What was buying stocks on margin? Investors only needed 10% of the price of the stock
to be able to complete the purchase.

This false sense of hope and speculation in the stock market led people to massive selloff when the stock market crashed.
Cause #7:Weak Banking System
Website 1: On the homepage click on “Banks”
 How many banks disappeared in 1933? 11,000 of the nation’s 25,000 banks disappeared

Why were there problems with the banks? Loans went bad as businesses and farmers
went belly up, and the banks had no money to lend to hundreds of thousands of
customers who began withdrawing their deposits (run on banks).

What solution improved this problem? How much money is insured then and today?
FDR announced a three-day bank holiday to stop the run on banks by halting all financial
transactions. When the banks reopened, nearly 1,000 banks had been saved. Then, in
1934, the Federal Deposit Insurance Corporation (FDIC) was established to insure
depositors’ funds. Prior to the fall of 2008, FDIC insured bank accounts up to $100,000.
The Bush Administration changed those levels to $250,000.
Cause # 7: A Cycle of Disaster
Website 2: Click on Great Depression, textbook, “Why it Happened,” and scroll down to the
paragraph that starts with “Because of the banking crisis”
 What were the effects of the Great Depression?
Thousands of small businesspeople failed because they couldn’t secure loans. More went
bankrupt because they lost their working capital in the stock market crash. Consumers
further weakened the economy because they built up consumer installment and mortgage
debt by taking out loans. To repay these loans, consumers had to cut back on their
spending, which resulted in reductions in production and worker layoffs.

How did the cycle repeat itself? Unemployed workers spent even less money, which
caused the cycle to repeat itself, i.e., more reductions and layoffs.
How does the Great Depression compare to today?
Website 2: On the homepage click on Great Depression, textbook, then under “The Great Depression
in Global Perspective”
Respond to this prompt on Schoology!
Using the information provided on the website, describe how the conditions of the Great Depression compare to today.
The conditions of the Great Depression of 1929 compare to today in several ways. First, the Great
Depression of 1929 dragged on with no end in sight, unlike the economic turmoils of today which are
relatively “brief.” Secondly, the Great Depression of 1929 had a more global impact, sparking extreme
social unrest in foreign countries, which led to the rise of military dictatorship, fascism, militarism,
and/or totalitarian communism in an effort to relieve the effects of the Depression, maintain order, and
revive their economies. In contrast, the economic turmoils of today affect only a handful of nations.
Third, the Great Depression transformed America politically and economically. For example, the
government, today, is more involved in the well-being of others and offer more programs to protect the
people, such as national old age pensions, unemployment compensation, aid to dependent children,
public housing, federally subsidized school lunches, insured bank deposits, minimum wage, regulation
of the stock market, and improved labor relations (i.e., collective bargaining). The government also
now helps farmers through federal price supports and rural electrification. In the end, the Great
Depression of 1929 changed the general public’s attitude and led Americans to view the federal
government as the ultimate protector of people’s well-being.