Causes of the Great DepressionUnequal Distribution of Wealth, High Tariffs

Overproduction in Industry and Agriculture,

Farm Crisis, War Debts,

Stock Market Crash

Though historians disagree over the exact cause, most identify a few main sources of the problem

Installment buying, using credit and paying back in small amounts allowed people to buy cars and new products they didn’t have the money to pay for up front

Buy Now! Pay Later!

Rural Poverty in the 1920s

Although the nation’s wealth grew by the billions, it wasn’t evenly distributed

The products available to many in the urban areas were still considered luxuries for those in rural areas—most of whom still did not have electricity

The top 1% had a 75% increase in their disposable income while the other 99% saw about 9% increase

Most Americans had no savings

Taxable Income Increases

1923 192965

70

75

80

85

90

95

Realized Income

Realized Income

Dollars repre-sented Billions

War Debts

At the end of World War I, European nations owed the United States $10B

They had no way of paying it back because of their devastated economies

Coolidge wanted the debts paid—this forced the Allies to demand payments from Germany

Europe could then not purchase American goods—this did not help the U.S. economy

High Tariffs

In 1922, the U.S. passed Fordney-McCumber Act which put high tariffs in place on industrial products (this action forced Americans to buy local products—which doesn’t help foreign economies that are trying to recover from the war)

Other countries retaliated by taxing American goods heavily and world trade declined

The decline in world trade contributed to the global depression

Overproduction in Industry

Factories were turning out lots of products—wages weren’t rising enough for workers to buy them

The surplus products couldn’t be sold overseas because of the high tariffs and lack of money in Europe

Farm Overproduction

Farm incomes dropped in the 1920s because of surpluses

Price of farm land fell from $69/acre in 1920 to $31 in 1930

In 1929 average annual income for an American family was $750 but was only $273 for farm families

30% of Americans still lived on farms

Decline in farm products

Agricultural Product

1912-1913 1932-1933

Corn (per bushel) 0.56 0.20

Wheat (per bushel) 0.88 0.41

Oats (per bushel) 0.34 0.17

Butter (per pound) 0.21 0.13

Butterfat (per pound)

0.25 0.16

Wool (per pound) 0.24 0.10

Hogs (per cwt) 7.50 3.80

Milk (per cwt) 1.79 0.90Per cwt= per 100 pounds

Election of 1928

Hoover WinsAl Smith was Catholic and many did not trust him, Hoover was very popular for having fed starving Europeans following World War I and for his work as Secretary of Commerce

“We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing among us.” 1928

Hands Off

President Hoover was himself a self-made man

“I do not believe that the power and duty of the General Government ought to be extended to the relief of individual…though the people support the Government the Government should not support the people.” 1930

Farm CrisisFarmers who had been suffering during the 1920s suffered further declines during the Great Depression as wholesale food prices collapsed.

Farmers then had little or no money to purchase equipment to maintain their farms and many could not pay their mortgages and lost their farms

Foreclosures

A foreclosure happens when an owner cannot pay for their mortgage and the bank repossesses the property to sell it

Speculation

Speculating is buying stocks out of a desire to get rich quickly rather than investing because of a sound investment

What’s wrong with this kind of investment?

The Crash on Black Thursday

Many people date the beginning of the Depression at October 24, 1929, Black Thursday, the day the stock market crashed.

This was traumatic for those who owned stock as sales volume broke all records. But the decline in overall stock prices was only about 2.5%measured by the New York Times index of 50 stocks.

Most of the decline still laid in the future; the market hit bottom on July 7 of 1932 when the Times index was only 33.98, a decline of over 89% from its high of 311.90 of September 19, 1929.

Reasons for the crash

Stocks were overpriced due to speculation—meaning they weren’t worth their sale price

There was also lots of fraud and illegal activity due to a lack of regulations and rules of trading

Many had made their purchases with borrowed money. Bad idea.