Tuesday, April 7• Welcome back! • Please submit your Prohibition work on the

front table. Thank you!• Bellringer:– To what extent (how much) do you think

the government should regulate people’s moral behavior? Explain your position, and give examples to support it. • Note: Moral behavior is what people should do

or how they should behave.

The Roaring Twenties

Prohibition

Political corruption

Social changes

Entertainment and the arts

Labor vs. industry

Think …• What was the economy of the United States

like in the 1920s? • What was going well?• What changes were occurring (new

inventions, discoveries, developments, etc.), and how did those things change American life?

• Were there any signs of potential economic or financial trouble on the horizon?

Key questions

• How did the “Roaring 20s” come to an end?

• What caused the Great Depression?

• What caused the stock market crash?

The economy of the 1920s

• Using the textbook, complete the note guide on the economy of the 1920s.

• Be on the lookout for answers to the questions we just discussed!

The Great Depression

Paying the price of the 1920s

What caused the Depression?

• There were many reasons to believe the U.S. economy was soft in the 1920s– Example: Farmers were in a depression

throughout the decade• Historians still argue over the exact causes of

the Depression• But there is widespread agreement about

some things that contributed to it

Causes of the Great Depression

Unequal distribution of wealth

High tariffs and war debts

Monetary policy

Agricultural overproduction

Industrial overproduction

Consumer behavior

Stock market crash; financial panic

Causes of the Great Depression

• The 1920s was known as a prosperous time, but not for everyone

• Consumer behavior was also a contributing factor

• People were buying things they couldn’t afford

The nation's wealth grew by billions throughout the 1920s

But it was not distributed evenly

UNEQUAL DISTRIBUTION OF WEALTH

The top 1 percent received a 75 percent increase in their disposable income

The other 99 percent saw an average 9 percent increase in their disposable income (money leftover when the necessities are paid for).

80 percent of Americans had no savings at all

Put these numbers in chart form!

UNEQUAL DISTRIBUTION OF WEALTH

0

10

20

30

40

50

60

70

80

1929

TOP 1%

BOTTOM 99%

• 99 percent of the population: Income grew 9 percent

• The top 1 percent of the population: Income rose 75 percent.

65

70

75

80

85

90

1923 1929

income

The economy grew by billions throughout the 1920s. Total realized income rose from $74.3 billion in 1923

to $89 billion in 1929

0

100

200

300

400

500

600

700

1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

But that prosperity was NOT reflected in the wages of unskilled workers.

RURAL POVERTY IN THE 1920’S

HIGH TARIFFS AND WAR DEBTS

• At the end of World War I, European nations owed over $10 billion ($115 billion in 2002 dollars) to the U.S.

• But they had no way of paying the money back, because their economies had been devastated by the war

• When the U.S. insisted on payment, the Allies turned to Germany to demand that they pay their reparations, as outlined in the Treaty of Versailles

• But Germany couldn’t pay, either … so the U.S. loaned money to Germany to pay the Allies, who then used that money to pay … the United States

HIGH TARIFFS AND WAR DEBTS

• Europe could not purchase goods from the U.S., leading to a financial crisis

• This debt contributed to the Great Depression.

• The Fordney-Mc Cumber Act (1922) instituted high tariffs on industrial products

• Tariff: tax on imports

• Other nations soon retaliated with their own tariffs

• World trade declined, helping to bring on the Great Depression

•Factories were producing products, but …

•Wages for workers were not rising enough for them to buy them

•Few workers could afford to buy the factory output

•The surplus (extra) products could not be sold overseas due to high tariffs and lack of money in Europe

OVERPRODUCTION IN INDUSTRY

Agricultural overproduction • During WWI, more crops were needed, so

production increased• After WWI, prices declined, to farmers had to grow

more crops to hold steady• What happens to prices when supply rises?

• Farmers went into debt and could not pay their bank loans off

• When they weren’t repaid, banks foreclosed on farms, leaving farmers and their families homeless

FARM OVERPRODUCTION• Due to surpluses and overproduction, farm incomes dropped throughout the 1920s

Surplus ears of corn

FARM OVERPRODUCTIONAgriculture was in a depression

from 1920 until World War II began in 1939

Surplus ears of corn$273

$750

FARM OVERPRODUCTION

•Why did this matter?

•Problems in the agricultural sector had a large impact …

•30 percent of Americans still lived on farms

Surplus corn

YEAR WHEAT CORN OATS POTATOES PEANUTS

1919 216.3 150.7 76.7 191.1 9.33

1920 182.6 61.0 53.8 133.2 5.26

1921 103.0 52.7 32.2 113.5 3.99

1922 96.6 75.2 37.4 68.6 4.68

1923 92.6 83.5 40.7 91.5 6.78

1924 124.7 105.3 47.8 71.5 5.68

1925 143.7 69.9 38.8 166.3 4.56

1926 121.7 75.3 40.1 136.3 4.97

1927 119.0 84.9 47.1 108.9 5.04

1928 99.8 84.3 40.7 57.2 4.90

1929 103.4 79.8 41.9 131.5 3.83

U.S. Department of Agriculture’s yearbook from 1934 shows the unstable prices of foodstuff

1910 1918 1932

Average gross receipts

2177 3837 1512

Average expenditures

770 1655 1019

Balance 1407 2182 493

Farmers’ profits dropped …

… leading to foreclosures

Foreclosure: When an owner cannot pay his mortgage, the bank repossesses the property to

sell it

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 lb) 0.21 0.13

Butterfat (per lb) 0.25 0.16

Wool (per lb) 0.24 0.10

Hogs (per cwt) 7.50 3.80

Milk (per cwt) 1.79 0.90

American farm products price declines

Federal Reserve Monetary Policy• The Federal Reserve System was created in 1913 established a central banking system for the U.S. to help stabilize the economy

• A major goal is to deal with bank panics

• Monetary policy manipulates the money supply to help strengthen the economy

• At the beginning of the Great Depression, the Fed did not address failing banks, and many scholars argue their idleness worsened the situation

• Millions of average Americans began speculating in the stock market in the 1920s

• Speculating: Buying risky stocks out of a desire to get rich quick, rather than investing because of a sound investment.

Wanting it now!• Heavily influenced by the start of modern

advertising, millions of Americans began buying goods on credit.

• They adapted the idea of credit to the stock market, where they bought stocks “on margin.”

• As a result of the higher demand, stocks went up!

• Installment buying

• Used credit and paying back in small amounts

• Introduced in the 1920s

• Pro: It allowed people to buy cars, radios and other new products of the decade

• Con: People accrued (piled up) more debt

Hoover based his winning platform on continued prosperity …

“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

from among us.” ~1928

Hoover accepting

the Republican nomination

for president

1928 presidential election:

New York Gov. Al Smith (D)

vs.

Secretary of Commerce Herbert Hoover (R)

Al Smith

Many were suspicious of

Smith, who was Catholic

But Hoover was popular for

feeding starving Europeans after

WWI

Hoover and the farm crisis

Candidate Hoover: "The most

urgent economic problem . . . is

agriculture. It must

be solved.”

"I do not believe that the power and duty of

the General Government ought to be extended to the relief of individual suffering. . . . The lesson should be

constantly enforced that though the people

support the Government the

Government should not support the people."

(1930)

President Hoover’s belief in self-reliance would later affect his ideas about how to best solve the

upcoming depression

President and Mrs. Hoover

‘The party is over’• The stock market crash– Stocks soared 300 points in five years–DJIA peak: Sept. 3, 1929 at 381.17 • This is known as a “bull market”

– There were warnings …• “Stock prices have reached a permanent high

plateau.”• “A crash coming, and it may be a terrific one.”

–But few people heeded them