THE GREAT DEPRESSION BEGINS

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THE GREAT DEPRESSION BEGINS
By the late 1920s many Americans were used to
year after year of economic expansion. It was
easy to believe that the prosperity of the 1920s
would last forever. The crash at the end of the
decade shocked many Americans.
Photos by photographer Dorothea Lange
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LONG TERM CAUSES THE NATIONS SICK ECONOMY
As the 1920s advanced, serious problems
threatened the economy while Important industries
struggled, including

• Agriculture
• Railroads
• Textiles
• Steel
• Mining
• Lumber
• Automobiles
• Housing
• Consumer goods

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FARMERS STRUGGLE

• No industry suffered as much as agriculture
• During World War I European demand for American
  crops soared
• After the war demand plummeted
• Farmers increased production, sending prices
  further downward

Photo by Dorothea Lange
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CONSUMER SPENDING DOWN

• By the late 1920s, American consumers were buying
  less
• Rising prices, stagnant wages and overbuying on
  credit were to blame
• Most people did not have the money to buy the
  flood of goods factories produced

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GAP BETWEEN RICH POOR

• The gap between rich and poor widened
• The wealthiest 1 saw their income rise 75
• The rest of the population saw an increase of
  only 9
• More than 70 of American families earned less
  than 2500 per year

Photo by Dorothea Lange
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THE STOCK MARKET

• By 1929, many Americans were invested in the
  Stock Market
• The Stock Market had become the most visible
  symbol of a prosperous American economy
• The Dow Jones Industrial Average was the
  barometer of the Stock Markets worth
• The Dow is a measure based on the price of 30
  large firms

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STOCK PRICES RISE THROUGH THE 1920s

• Through most of the 1920s, stock prices rose
  steadily
• The Dow reached a high in 1929 of 381 points
  (300 points higher than 1924)
• By 1929, 4 million Americans owned stocks

New York Stock Exchange
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• The stock market
• the public invests in cos. by purchasing stocks
  in return for this they expect a profit
• b/c of booming 1920's economy, were plentiful,
  so banks were quick to make loans to investors
• also investors only had to pay for 10 of the
  stock's actual value at time of purchase
• this was known as BUYING ON MARGIN, and the
  balance was paid at a later date

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• this encouraged STOCK SPECULATION - people would
  buy and sell stocks quickly to make a quick buck
• b/c of all this buying selling, stock value
  increased (Ex G.E stock 130 ? 396/share)
• this quick turnover didn't aid cos. ? they needed
  long term investments so they could pay bills
  (stock value was like an illusion)
• unscrupulous traders would buy and sell shares
  intentionally to inflate a given co.'s stock
  value
• all of this gave a false sense of
  security/confidence in the American market

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PROBLEMS WITH THE RISING STOCK MARKET

• By the late 1920s, problems with the economy
  emerged
• Speculation Too many Americans were engaged in
  speculation buying stocks bonds hoping for a
  quick profit
• Margin Americans were buying on margin
  paying a small percentage of a stocks price as a
  down payment and borrowing the rest

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THE 1929 CRASH

• Stocks peaked in summer, 1929
• Prices started to drop as frightened investors
  who bought stocks on margin rushed to sell their
  stocks in order to pay off their loans
• Tuesday, October 29th Black Tuesday stock
  market crashed because so many people wanted to
  sell and so few wanted to buy
• People who had bought on margin (credit) were
  stuck with huge debts

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By mid-November, investors had lost about 30
billion
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• a 2nd major problem uneven dist. of wealth
• 0.1 at top owned as much as bottom 42 of
  American families (42 below poverty line)
• of the 58 above the poverty line, most fell into
  the middle class category - they were not
  wealthy they had jobs b/c of the
  industrialization consumerization of the
  American market place
• this middle class depended on their salaries and
  when productivity declined they lost their jobs
• and b/c of low savings, they had to cut back on
  their purchases
• this decline in consumption among the middle
  class ruined the whole country

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• Pres. Hoovers responses
• he didn't believe that the gov't should play an
  active role in the economy
• he persuaded bankers/business to follow his
  policy of VOLUNTARY NON - COERCIVE COOPERATION
  where he gave tax breaks in return for private
  sector economic investment
• Hoover also organized some private relief
  agencies for the unemployed
• he worked out a system with European powers that
  owed U.S. money as a result of WWI debts
  HOOVER MORATORIUM - put a temporary stop to war
  debt reparations payments
• Euro. countries were to purchase American goods
  instead to stimulate American economy

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• in early 1931 these measures appeared successful,
  but then......the TARIFF WARS
• Democrats in Congress passed a high tariff (SMOOT
  HAWLEY) to protect U.S. industry (hoped to
  stimulate purchasing of U.S. goods)
• this turned out to be a fatal error...
• Congress did not understand that the world had
  become a GLOBAL ECONOMY
• in retaliation other countries passed high
  tariffs and no foreign markets purchased American
  goods, so U.S. productivity decreased again

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THE GREAT DEPRESSION

• The Stock Market crash signaled the beginning of
  the Great Depression
• The Great Depression is generally defined as the
  period from 1929 1940 in which the economy
  plummeted and unemployment skyrocketed

Alabama family, 1938 Photo by Walter Evans
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FINANCIAL COLLAPSE

• After the crash, many Americans panicked and
  withdrew their money from banks
• Banks had invested in the Stock Market and lost
  money
• In 1929- 600 banks failed
• By 1933 11,000 of the 25,000 banks nationwide
  had collapsed

Bank run 1929, Los Angeles
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