Chapter 14-1

Economic Troubles on the Horizon

• As the 1920’s progressed serious problems began to appear on the economic front

• Many could not earn a decent living, many businesses began to struggle, & farmers produced a surplus of crops & livestock causing prices to hit bottom

Industries in Trouble

• The prosperity of the ‘20’s marked the cracks that began to show by the end of the decade

• Key industries such as the steel industry & railroads barley showed a profit

• Mining & lumbering industries that had prospered during the war years now severely struggled

• Coal mining was particularly hit as new forms of energy were developed

• Perhaps the most important indicator was the fate of the housing industry which new builds would take a drastic fall

Farmers Need a Lift• Farmers took a huge hit as prices would fall to their lowest levels in decades• During the war farmers were able to sell their crops to the government as well as

waring nations• Also during the war new technology & farming practices increased production to

all time levels• In order to keep up with demand farmers took out loans for equipment, seed, etc. • When the demand dropped & prices fell farmers were left with debt & no way to

meet their obligations causing many to lose their farms• Congress tried to pass legislation to buy surplus farm products, but it was vetoed

by President Coolidge, twice

Consumers Have Less Money To Spend

• By the late 1920’s Americans were buying less goods mainly due to rising prices & stagnant wages

• There was also an unbalanced distribution of wealth as a minority of Americans held the majority of wealth which led to many buying goods on credit

Living on Credit

• Although many Americans appeared to be prosperous during the ‘20’s many were living beyond their means as they were living on credit

• Many bought goods & agreed to pay later• When the economy took the downturn many

were unable to meet their obligations• Unable to meet the debt that they already had

many Americans were forced to cut back on new purchases

Uneven Distribution of Income• During the 1920’s the wealthiest Americans wealth rose by 75% while the

rest of Americas wealth rose by a mere 9%• More than 75% of Americas families earned les than $2,500 which was

considered the minimum for a decent living• Approximately only 50% of American homes had electricity or heat• Most Americans did not have the means to participate in the economic

boom of the ‘20’s & were left behind

Hoover Takes Over A Nation• The 1928 election would pit the

Democratic candidate Alfred Smith versus the Republican candidate Herbert Hoover

• Hoover had never run for public office while Smith was a career politician

• Hoover would count on one major point, the prosperity of the ‘20’s under Republican guidance

• In the end Hoover achieved an overwhelming victory

Dreams of Riches in the Stock Market

• By 1929 economists had begun to warn of an impending disaster• Most Americans however were unphased by the warnings• The stock market had become the single most visible symbol of American prosperity• Throughout the ‘20’s the Dow Jones Industrial Average, the most widely used barometer, had steadily

rose• This Bull Market, a period of rising stock prices, seamed to have an endless ceiling• Many Americans began to speculate or buy stocks at inflated prices with the hopes they would rise

even higher• Many of the stock purchases were on the margin or buy now & pay later when the value had risen• This caused an increase in the value of the stocks but was not a true value of the companies• When the price of stocks began to fall many could not meet the margin call & would lose everything

The Stock Market Crashes• In early September 1929 stock prices

peaked & the fell• Confidence in the market was

shaken as investors began to panic selling their shares

• On October 24 the market took another plunge & investors again began to unload their investments

• The next day, known as Black Tuesday, investors attempted to get what they could for their stocks before prices fell any further

• The market had crashed & millions of Americans had lost everything

Crowd gathering on Wall Street after the 1929 crash.

Financial Collapse

• The market crash would signal the beginning of the Great Depression

• This would last from 1929-1940• The crash did not cause the depression, but it

did hastened it & make it more severe

Bank & Business Failures• After the crash many began withdrawing

savings from the banks• The issue was that many could not get

their money as the banks had invested in the stock market & did not have the cash, it was lost…..

• As a result many banks were forced to close while those who had savings in those institutions were left with nothing

• By 1933 11,000 of the nations 25,000 banks had closed

• In the business world the GNP or Gross national Product, the nations total amount of goods & services, was cut in half resulting in layoffs for millions of Americans

Worldwide Shock Waves• The United States was not the only country gripped by the depression as it was also felt

around the world• Many nations especially in Europe were still trying to recover from WWI• The depression made the problems worse as Americans could no longer afford to by

imported goods & other nations could no longer afford to buy American products & farm goods

• In 1930 Congress attempted to protect American goods by enacting the Hawley-Smoot Tariff which raised tariffs on all incoming goods

• This would backfire as other nations enacted similar tariffs reducing the amount of goods that could be exported to those nations

• Within a few short years trade had fallen 40%

Causes of the Great Depression

• Many differ on the exact causes of the depression but they do share in a common set of factors– Policies that cut down the market for goods– Farm prices bottomed– Availability of easy credit– Unequal distribution of wealth

Causes of the Great Depression

• As newly mechanized factories were cranking out goods at a record pace & demand was falling coupled with tariffs that would limit markets the American economy was doomed

• Add failing banks, easy credit, & a sick stock market Americans would have to endure a period of despair the likes that have never been seen