CAUSES OF THE GREAT DEPRESSION-

Absolutely Transformative event that will change the role of government

Photos by photographer Dorothea Lange

Wall Street “greed is good” a street in

lower

Manhattan

where the

New York

Stock

Exchange

is located;

symbol of

American

finance

Stock Certificate

How does the stock market work?

You buy 100 shares of stock of

x $5.00 per share How much money

have you invested? $500.00

Scenario #1

stock increases to $20 per share

100 shares of stock

x $20.00 per share

How much are your 100

shares of stock now worth?

$2,000.00

How much profit have you

made?

$2,000.00 stock value

- $500.00 initial investment

$1,500.00 net profit

How does the stock market work?

You buy 100 shares of stock of

x $5.00 per share How much money

have you invested? $500.00

Scenario #2

stock decreases to $1 per share

100 shares of stock

x $1 per share

How much are your 100

shares of stock now worth?

$100.00

How much money have you

lost?

$100.00 stock value

- $500.00 initial investment

$400.00 net loss

Buying Stocks on Margin: Scenario A

investor stock broker

Hello, sir. I

would like to

purchase 100

shares of stock

in the Ford

Motor

Company. How

much is it going

to cost me?

Buying Stocks on Margin: Scenario A

investor stock broker

Well, Ford

stock costs

$10 per

share. You

want to

buy 100

shares?

Figure it out

yourself,

smartguy!

Buying Stocks on Margin: Scenario A

investor stock broker

Ummm…

100 shares

x $10 per share

= $1,000.00

Oh, well. I only

have $100. I can’t

afford 100 shares.

Buying Stocks on Margin: Scenario A

investor stock broker

No, problem!

Just give me

$100 and you

can owe me

the rest!

Buying Stocks on Margin: Scenario A

investor stock broker

Like, how much

would that be?

Let me think…

$1,000 worth of stock

- $100 paid

= $900 owed

Alright, it’s

a deal!!

Buying Stocks on Margin: Scenario A

investor stock broker

Six months later, Ford stock doubles to $20 per share.

My 100 shares

are now worth...

100 shares

x $20 per share

$2,000

Buying Stocks on Margin: Scenario A

investor stock broker

That’s great!

Now pay me

the $900 you

owe me!

Buying Stocks on Margin: Scenario A

investor stock broker

No problemo! It

was a pleasure

doing business

with you!

Buying Stocks on Margin: Scenario A

investor

Now let’s figure out how

much money I made!

$2,000 net worth

- $900 owed

$1,100 profit

- $100 initial investment

$1,000 net profit

Buying Stocks on Margin: Scenario B

investor stock broker

Six months later, Ford stock decreases to $1 per share.

My 100 shares

are now worth...

100 shares

x $1 per share

$100

Buying Stocks on Margin: Scenario A

investor stock broker

Too bad,

hotshot! You

still owe me

$900!

Buying Stocks on Margin: Scenario A

investor stock broker

But I’m broke!

What am I going

to do!

Buying Stocks on Margin: Scenario A

investor stock broker

I don’t care

what you do as

long as you pay

me back!

New York Stock Exchange

The largest organized securities market in the United

States, founded in 1792. The Exchange itself does not

buy, sell, own, or set the prices of securities traded there.

The prices are determined by public supply and

demand.

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 Market’s

worth

• The Dow is a measure

based on the price of 30

large firms

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

BULL MARKET A prolonged period in which investment prices rise

faster than their historical average. Bull markets can

happen as a result of an economic recovery, an

economic boom, or investor psychology.

BEAR MARKET

A prolonged period of falling prices. A bear market in

stocks is usually brought on by the anticipation of

declining economic activity

Bull Vs. Bear Markets

· Millions of Americans invested in the

bull market, becoming rich as stock

prices rose.

Rampaging Bull: Stocks Surge

• 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 stock’s price as a

down payment and

borrowing the rest Buying on Margin

http://www.caglepost.com/cartoon/Tab/46262/Bull+Market.html

http://mutualfunds.about.com/library/graphics/1929crash.jpg

* Unquestioned faith

in the bull market

helped lead to the

Great Depression!

Some people

began to buy

stocks on margin,

which is similar to

installment buying.

CAUSES OF THE GREAT

DEPRESSION

Photos by photographer Dorothea Lange

CAUSES • Decrease in consumer

spending

• Unequal distribution of

wealth

• Overproduction of goods

• Huge farms surpluses

• War debts not paid back

• Buying on margin

(Credit)

• Stock Market Crash

Black Tuesday,Oct. 23,

1929

EFFECTS • Under consumption of goods

and services---not buying

goods

• Families had limited income

to purchase goods

• Led to falling prices of goods

• Led to drop in farm prices

• Banks didn’t get back their

$$$

• Speculation on stocks

• Investors buy stocks on credit

• Wealth on paper

• Total collapse of US economy,

lassiez faire and capitalism

events

THE NATION’S SICK

ECONOMY

• Agriculture

• Railroads

• Textiles

• Steel

• Mining

• Lumber

• Automobiles

• Housing

• Consumer goods

As the 1920s advanced, serious problems

threatened the economy while

Important industries struggled, including:

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

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

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

THE 1929 CRASH

• In September the Stock Market had some unusual up & down movements

• On October 24, the market took a plunge . . .the worst was yet to come

• On October 29, now known as Black Tuesday, the bottom fell out

• 16.4 million shares were sold that day – prices plummeted

• People who had bought on margin (credit) were stuck with huge debts

By mid-November, investors

had lost about $30 billion

• Bankers call brokers

wanting their money!

• Brokers go to investors to

collect their money to pay

the bank loans borrowed by

broker for investor

• Orders to sell any any

price… swamped the

market--nobody would buy

• Brokers go under--stocks

are worthless--investors

loose their savings!

• Run on the Banks: People

begin to panic and go to

banks---try to withdraw their

money…Banks don’t have

any money to give back

• Banks close---people lost

their savings

• Businesses close---could not

pay back loans to banks.

• Workers loose their jobs

• No money to buy consumer

products

• Sales fall---more businesses

shut down

• More workers lose their

jobs domino effect

Great

Crash Investors

Businesses and Workers Investors lose

millions.

Businesses lose profits.

Consumer spending drops.

Workers are laid

off.

Businesses cut investment and

production. Some fail.

Banks

Businesses and workers cannot repay bank loans.

Savings accounts are wiped

out.

Bank runs

occur.

Banks run out of

money and fail.

World Payments

Overall U.S. production plummets.

U.S. investors have little or no

money to invest.

U.S. investments in

Germany decline.

German war payments to Allies fall off.

Europeans cannot afford

American goods.

Allies cannot pay debts to

United States.

Great

Crash Investors

Investors lose millions.

Businesses lose profits.

Great

Crash Investors

Businesses and Workers Investors lose

millions.

Businesses lose profits.

Consumer spending drops.

Workers are laid

off.

Businesses cut investment and

production Some fail.

Great

Crash Investors

Businesses and Workers Investors lose

millions.

Businesses lose profits.

Consumer spending drops.

Workers are laid

off.

Businesses cut investment and

production Some fail.

Banks

Businesses and workers cannot repay bank loans.

Savings accounts are wiped

out.

Bank runs

occur.

Banks run out of

money and fail.

World Payments

Overall U.S. production plummets.

U.S. investors have little or no

money to invest.

U.S. investments in

Germany decline.

German war payments to Allies fall off.

Europeans cannot afford

American goods.

Allies cannot pay debts to

United States.

Great

Crash Investors

Businesses and Workers Investors lose

millions.

Businesses lose profits.

Consumer spending drops.

Workers are laid

off.

Businesses cut investment and

production Some fail.

Banks

Businesses and workers cannot repay bank loans.

Savings accounts are wiped

out.

Bank runs

occur.

Banks run out of

money and fail.

World Payments

Overall U.S. production plummets.

U.S. investors have little or no money to

invest.

U.S. investments in

Germany decline.

German war payments to Allies fall off.

Europeans cannot afford

American goods.

Allies cannot pay debts to

United States.

Effects of the Stock Market

Crash

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 fail

• By 1933 – 11,000 of the

25,000 banks nationwide

had collapsed Bank run 1929, Los Angeles

Banks lost their investments in the Market

after the Crash

Millions of Americans were caught in the panic of

the Stock Market crash.

Went to their banks to withdraw their savings

accounts.

Banks loaned out their $$$ and had no reserve funds to give customers

withdrawing their savings.

Once banks ran out of $$$ they closed their doors and

left people stranded.

1929 = 659 and by 1933 = 5190

HAWLEY-

SMOOT TARIFF

• The U.S. was not the only

country gripped by the

Great Depression

• Much of Europe suffered

throughout the 1920s

• In 1930, Congress

passed the toughest tariff

in U.S. history called the

Hawley- Smoot Tariff

• It was meant to protect

U.S. industry yet had the

opposite effect

• Other countries enacted

their own tariffs and soon

world trade fell 40%

DEBTS

•US high tariffs (Hawley-Smoot

Tariff) caused Great Britain and France to

not trade with US.

•US became “economic

isolationist”.

•Because of this, Great Britain and

France did not pay back war debts to

the US.

•GB and France defaulted on their debt because they had paid in blood.

US INVESTORS WALL

STREET

BANKERS

GERMANY

PRIVATE

LOANS

US TREASURY GREAT

BRITAIN FRANCE ALLIED

WAR DEBT

PAYMENTS

WAR DEBT

PAYMENTS

“REPARATIONS”

A Wise Economist

Asks A Question

Bank failures crushed the average American

who put faith in the banks to save their

money.

When they went to withdraw their money, it had been lent out so

they lost savings.

GNP DROPS,

UNEMPLOYMENT SOARS

• Between 1928-1932, the U.S. Gross National Product (GNP) – the total output of a nation’s goods & services – fell nearly 50% from $104 billion to $59 billion

• 90,000 businesses went bankrupt

• Unemployment leaped from 3% in 1929 to 25% in 1933

25% to 40% of

workers out of work

Was able to lower it to

14%

The Great Depression (1929-1941)

THE GREAT DEPRESSION BEGINS

• 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

• The crash alone did not cause the Great Depression, but it hastened its arrival

Alabama family, 1938 Photo by Walter Evans

HARDSHIPS DURING

DEPRESSION

• The Great Depression brought hardship, homelessness, and hunger to millions

• Across the country, people lost their jobs, and their homes

• Some built makeshifts shacks out of scrap material

• Before long whole shantytowns (sometimes called Hoovervilles in mock reference to the president) sprung up

SOUP KITCHENS

• One of the common

features of urban

areas during the era

were soup kitchens

and bread lines

• Soup kitchens and

bread lines offered

free or low-cost food

for people Unemployed men wait in line for food

– this particular soup kitchen was

sponsored by Al Capone

CONDITIONS

FOR MINORITIES • Conditions for African

Americans, immigrants and Latinos were especially difficult

• Unemployment was the highest among minorities and their pay was the lowest

• Increased violence (24 lynchings in 1933 alone) marred the 1930s

• Many Mexicans were “encouraged” to return to their homeland

RURAL LIFE DURING THE

DEPRESSION

• While the Depression

was difficult for

everyone, farmers did

have one advantage; they

could grow food for their

families

• Thousands of farmers,

however, lost their land

• Many turned to tenant

farming and barely

scraped out a living

Between 1929-1932 almost ½ million farmers lost their land

THE DIRTY 30s: THE

DUST BOWL

• A severe drought gripped the Great Plains in the early 1930s

• Wind scattered the topsoil, exposing sand and grit

• The resulting dust traveled hundreds of miles

• One storm in 1934 picked up millions of tons of dust from the Plains an carried it to the East Coast

Kansas Farmer, 1933

Dust storm approaching Stratford, Texas - 1934

Storm approaching Elkhart,

Kansas in 1937

Dust buried cars and wagons in South Dakota

in 1936

HARDEST HIT REGIONS

• Kansas, Oklahoma,

Texas, New Mexico,

and Colorado were

the hardest hit

regions during the

Dust Bowl

• Many farmers (Okies)

migrated to

California and other

Pacific Coast states Boy covers his mouth to avoid

dust, 1935

Photographer Dorothea Lange captures a family

headed west to escape the dust storms

Grapes of Wrath

HOBOES

TRAVEL

AMERICA • The 1930s created the term “hoboes” to describe poor drifters

• 300,000 transients – or hoboes – hitched rides around the country on trains and slept under bridges (thousands were teenagers)

• Injuries and death was common on railroad property; over 50,000 people were hurt or killed

Deep psychological impacts, such as helplessness,

powerlessness, helplessness, changed sense of

reality, especially on men.

Birthrates and Marriages declined.

EFFECTS OF DEPRESSION

• Suicide rate rose more than 30% between 1928-1932

• Alcoholism rose sharply in urban areas

• Three times as many people were admitted to state mental hospitals as in normal times

• Many people showed great kindness to strangers

• Additionally, many people developed habits of savings & thriftiness

HOOVER

STRUGGLES WITH

THE DEPRESSION

• After the stock market crash, President Hoover tried to reassure Americans

• He said, “Any lack of confidence in the economic future . . . Is foolish”

• He recommended business as usual

Herbert

Hoover

HOOVER’S PHILOSOPHY

• Hoover was not quick to

react to the depression

• He believed in “rugged

individualism” – the idea

that people succeed

through their own efforts

• People should take care of

themselves, not depend on

governmental hand-outs

• He said people should

“pull themselves up by

their bootstraps” Hoover believed it was the individuals job to

take care of themselves, not the governments

HOOVER WINS

1928 ELECTION

• Republican Herbert Hoover ran against Democrat Alfred E. Smith in the 1928 election

• Hoover emphasized years of prosperity under Republican administrations

• Hoover won an overwhelming victory

Young Hoover supporters in 1928 vs. 1932

HOOVER’S SUCCESSFUL

DAM PROJECT

• Hoover successfully organized and authorized the construction of the Boulder Dam (Now called the Hoover Dam)

• The $700 million project was the world’s tallest dam (726 feet) and the second largest (1,244 feet long)

• The dam currently provides electricity, flood control and water for 7 western states

Any dam questions?

HOOVER TAKES ACTION:

TOO LITTLE TOO LATE • Hoover gradually softened

his position on government intervention in the economy

• He created the Federal Farm Board to help farmers

• He also created the National Credit Organization that helped smaller banks

• His Federal Home Loan Bank Act and Reconstruction Finance Corp were two measures enacted to protect people’s homes and businesses

Hoover’s flurry of activity came

too late to save the economy or

his job

BONUS

ARMY

• A 1932 incident further damaged Hoover’s image

• That spring about 15,000 World War I vets arrived in Washington to support a proposed bill

• The Patman Bill would have authorized Congress to pay a bonus to WWI vets immediately

• The bonus was scheduled to be paid in 1945 --- The Army vets wanted it NOW

BONUS ARMY

TURNED DOWN

• Hoover called

the Bonus

marchers,

“Communists

and criminals”

• On June 17,

1932 the Senate

voted down the

Putnam Bill

Thousands of Bonus Army soldiers

protest – Spring 1932

BONUS MARCHERS CLASH

WITH SOLDIERS

• Hoover told the Bonus

marchers to go home–

most did

• 2,000 refused to leave

• Hoover sent a force of

1,000 soldiers under the

command of General

Douglas MacArthur and

his aide Dwight

Eisenhower

AMERICANS SHOCKED AT

TREATMENT OF WWI VETS

• MacArthur’s 12th infantry gassed more than 1,000 marchers, including an 11-month old baby, who died

• Two vets were shot and scores injured

• Americans were outraged and once again, Hoover’s image suffered

Hoover had little chance to be re-elected in 1932