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					      ISSUE 1:
The Great Depression

What is a depression?

A depression in an economic sense is:

      A period of drastic decline in a national or international economy, characterized by
       decreasing business activity, falling prices, and unemployment.

The Great Depression what happened?

   •   In the 1920’s Americans bought shares on the stock market. As a result share prices
       kept rising and rising

   •   Many people bought shares on ‘credit’ and expected to sell them at a higher price to
       make a profit, then settle their debt (speculation)

   •   By 1928 the share prices did not rise as much as previous years.

   •   Companies were not selling as much goods and therefore their profits fell causing
       people to be less eager to buy shares.

   •   many speculators started selling their shares, when others saw this many followed.

   •   This was the immediate cause of the wall street crash.

   •   On Thursday 24th October this is known as Black Thursday. 13 million shares were
       sold, prices plummeted as there were hardly any buyers. Bankers invested $250M
       into the share market to encourage others to stay and to buy rather than sell. It
       temporarily worked and prices stopped falling.

   •   On Monday 28th October panic started again and shares were sold at falling prices.

   •   On Tuesday the 29th October, over 16 million shares were sold by panic investors for
       little to nothing. Shareholders lost a total of $8000 million that day.

   •   Share prices continued to fall up till mid November, but by then the Damage had
       been done.

   •   This was a very crazy time for America, which then spread to many places over the
       world. Everybody in America was involved in the stock market whether they could
       afford it or not.
       Causes of the Great Depression

            SHORT TERM                                       LONG TERM
   •   Speculation and doubt                       •   Overproduction

                                                   •   Income equalities

                                                   •   Government policies

                                                   •   Decline in Export markets

                                                   •   Decline in Agriculture

Short Term Causes
Speculation and Doubt

   •   Buying shares on the stock market for a quick profit (speculators)

   •   The 1920’s were a time of great prosperity. Prices were rising causing more profits
       for companies, and increasing the share value for those companies.

   •   By 1929 buying shares was like a fever.

   •   But some people started having doubts. In 1929 when profits from companies
       started decreasing (due to fact that not enough people were buying goods from

   •   Many people thought that if profits were decreasing, then so would share prices, so
       people began to sell their shares over a short period of time. On Black Thursday
       when $13M shares were sold, followed by ‘Terrifying Tuesday’ were $16.5M were

   •   By the end of the year the value of shares had dropped by $40B. Thousands of
       people who borrowed money to buy shares were in debt and ruined. (Many
       committed suicide)
    Long Term causes
    As well as short term causes there were long term causes which had contributing
    factors developing over time


•   Mass production methods meant that goods could be produced quickly and in large

•   However this would then leave the American market to be saturated.

•   Mass productions of cars, radios, refrigerators, vacuum cleaners, cameras and other
    consumer goods, were being produced far too much.

•   For a while these items were being soaked up by:

•   -Consumer spending (especially by the rich)

•   -people buying on credit

•   -overseas buyers

•   So eventually markets reached a saturation point:

•   -demand for products fell

•   -high prices drove away smaller consumers

•   -overseas markets began to close off.

•   By 1929 industries began to produce less and less and workers were being laid off.

•   Larger industries began taking over smaller industries and laying off men.

•   This led to jitters on the stock market and contributed to the crash of 1929.
       Income inequalities

   •   An unequal distribution of wealth can also be contributed, as many American no
       longer wanted to buy consumer goods, there were also millions who could not
       afford to buy.

   •   In 1928 a survey showed that 60% of families earned less than $2000 a year- the
       minimum needed to survive.

   •   Workers wages rose in the 1920’s but not compared to companies profits. Between
       1923 and 1929, wages rose 8% where profits rose 72%

   •   Big bosses took 84% of the total income of industries and by 1929, bosses were still
       raising prices and denying workers of a pay rise. Working people found it difficult to
       buy the goods that companies were producing.

Government Policies

   •   The USA government had put tariffs on foreign goods in the 1920’s. (taxes)

   •   Therefore other foreign governments did the same to American goods, so American
       businessmen found it very difficult to sell their goods abroad. Therefore adding to
       the overproduction problem

Decline in Export Markets (Economic Nationalism)

   •   After WWI European farmers had increased their crop production again, making it
       harder for farmers to sell to the European markets.

   •   American farmers also had competition from Canada, Australia and Argentinean
       producers who were cheaper than the Americans on the world market.

   •    Tariffs: American goods became too expensive for Europeans- again contributing to
       the overproduction.

       Decline in Agricultural production

   •   After the tariffs on international goods, many farmers especially in the mid west
       went bankrupt.

   •   Farmers in the south were share croppers (rented land to produce goods, in turn
       paid landlord through goods) In 1920’s the landlords took greater portions.

   •   In other areas, farmers produced too much food which led to declining prices. This
       inturn meant that the farming communities had less money to buy their goods in
       order to produce food. Leading to starvation
What were the effects of the crash?

   •   Uncertainty about future

   •   unemployment

   •   Closure of banks and businesses

   •   Protests- people lined up to get food

   •   Crime level rose

   •   Political extremist emerged

   •   People moved from country to city in search of work

   •   High suicide rate


We have to remember that not everyone was affected by the depression. Some actually
prospered, by buying up companies cheaply and supplying goods at prices people could not

The Government made various attempts to find a solution to the problem
‘New Deal’

   •   President Hoover was considered uncaring to the common people of the USA, he
       tried to restrict government work in attempt to pour money into big businesses.

   •   In 1932 he was thrown out of office and the American people elected Franklin D
       Roosevelt as the new president.

   •   President Roosevelt promised the ‘New Deal’

   •   As part of the New Deal, Roosevelt set up government agencies to provide:

   •   Relief:        help the poverty stricken- who had no food or homes

   •   Recovery:      reduce unemployment and get the economy moving again

   •   Reform:        avoid future depression
Government Laws were established to:
   •   Ensure businesses paid fair wages and charged fair prices

   •   Ensure people had a right to join unions

   •   Guarantee pensions to people who couldn’t provide for themselves

   •   Set up an unemployment insurance scheme

   •   Ensure loans for householders who couldn’t afford mortgages

   •   Clear slums and establish building programs

   •   Increase taxes for the wealthy

   •   Pass trade agreements that reduced American tariffs.

Farmers Relief Act’

   •   Roosevelt also introduced the Farmers Reflief Act, which enabled:

   •   The Farmers Relief Act:

       paid compensation to farmers to reduce production

The National Insurance Recovery Act

This involved:

-public works Administration: allocating money for roads and schools

   -   National recovery Administration: abolishing child labour and introducing an 8 hour
       working day

   -   Social securities Act: giving money to state governments to provide pensions and
       unemployment insurance (like centrelink)

   -   Federal Emergency Relief Administration: giving money to States to employ people
       in government projects like road building, dam construction, ect.
The Tennessee Valley Authority

   •   Constructed dams to provide cheap electricity and organised conservation, irrigation
       and forest planting to prevent erosion.

Unfortunately there was a Global Spread of the Depression
What countries suffered?

   •   European and Asian countries experienced a similar depression as a result of:

→ stock market crashes

→ overproduction

→Government programs

→withdrawal of American loans


   •   We must remember that the effects of the Great depression do vary from country to
       country. In your exam you may be asked to talk about one or more countries. Some
       were worse affected than others.

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