Causes of The Great Depression

Hoover Elected President

• Election of 1928 takes place during prosperity– Hoover runs campaign on Republicans

prosperity record of the 1920’s• Wins by landslide (444 to 87 electoral votes)• Next Republican to win Presidency will be in 1952

as a result.

– Hoover is blamed for the Great Depression• Why doesn’t Hoover do anything?

Leading Causes of Depression• Industries don’t reinvest profits into

new machinery• Farmers overproduce as Europe

recovers from the War. Ag. Prices plummet by 40%

• Unequal distribution of income, too much money in the hands of too few people.

• Easy Credit, buy now pay later. What happens when the job market fails?

Economic Troubles on the Horizon

• Economic prosperity in the 20’s lead to overproduction in many areas– People live on credit

• Average American earns less than $1,500 yr.

– Businesses overproduce• Need to find ways to sell products• Business encourages people to pile up credit.

Farmers Overproduce

• Excess supply leads to price drop• 27% of Americans farm

– Loss of farm income reduces demand for other products

– Factories start to lay off workers

Farm Production

Uneven Distribution of Income

• Income of top 1% of population income grows 75%

• Bottom 40% of population income grows 9%– Most people did not have the income to buy

what factories produced.

Unequal Distribution of Income

Stock Market Crashes

• After WWI stock market takes off.– Many Americans rush to buy stocks– Speculators inflate prices beyond reason– Many buy on margin (borrow to buy stock)– September 29 stock prices start to decline

• Confidence waivers• Speculators start to pull out

October 29, 1929

• Black Tuesday– Bottom falls out of

market– Record 16 million

shares sold that day– Millions of shares

offered for sale aren’t even bought

– $30 billion lost

Industry doesn’t reinvest Profits• Become uncompetitive to foreign

companies. As a result of the war, foreign factories are most modern in the world.

• Lose business to foreigners

Factories lay off workersMany men go on the road in search of work. Can’t find it and many towns pass laws against vagrancy.

Banks fail

• 650 banks fail in 1929• 6,000 fail by 1933

– Savings are wiped out• No FDIC Insurance.

– Banks stop lending to Americans and Europeans.

– Panic spreads to the rest of the World.

Bank Run

• http://www.youtube.com/watch?v=qu2uJWSZkck&feature=player_embedded

Great Depression Spreads to the Rest of the World

• As a result of the Depression, American cuts back on imports• Hurts other nations economies• They cannot import American goods as a

result

Protectionism• Tariffs and restrictions on imports limit

international trade• Hawley-Smoot Tariff

• Congress passed the highest tariff in American History

• Europe cannot pay off it’s debt without trade

• Factories in Europe have same problems as American factories, lay off workers

American Statistics

• 25% of labor force out of work

• Whole industries fail• Banks fail• People embarrassed to

ask for assistance, independent in nature

• American government does little to help• Laisse fairre

economics, no gov’t interference in the economy.

British Statistics

• 25% unemployment• Government insists

on balancing the budget, a bad move at this time

• Went off gold standard – Devalued the pound

Cut government workers pay

Germany• Foreign trade falls 75%• 33% unemployment• Withdraw of US loans

create depression• Government owned bank

fails – France lets bank fail to

destroy union with Austria

• Led to unstable government, rise of Hitler