Causes of The Great Depression Unit 6 Great Depression Causes #1 Overproduction of Goods The rate of industrial and agricultural production achieved during WWI couldn't possibly be sustained during peacetime. • Glut: excess accumulation of goods • Supply > Demand – Excess Inventory of Goods – Consumers Buy Less – Workers Laid off – A number of key industries, such as steel, textiles, and railroads barely made a profit. • Falling Agricultural Prices – Perhaps more than any other part of the economy, agriculture suffered in the 1920's. – During WWI, international Demand (D) for crops = Rising prices (P) – Farmers had taken out loans in order to plant more crops and buy more land & equip. – After WWI, D for farm products fell – Decline in crop prices by 50% or more. – To compensate, farmers produced more in the hope of selling more crops, but this only made prices drop further. – Farmers who had gone into debt couldn't pay off loans – Many small, rural banks began to fail. #2 -The economy depended heavily on only a few industries. The Automobile and housing construction industries fueled the economic boom of the 1920's. When the market for cars & houses began to dry up, the entire economy was affected. Housing Automobiles –Building –Motels materials –Materials (rubber, –New furnishings steel) –New equipment –Roads –New appliances –Gas stations –Jobs in –Restaurants construction #3 Living on Credit Many Americans were living beyond their means during the 1920's by buying on credit. Installment plan •When people began to have trouble paying off debts, they cut back on spending •People using credit to live beyond their means = consumers buy less > Workers laid off > Fewer goods sold > Excess inventory >>> Glut # 4 Uneven Distribution of Income •Between 1920 & 1929, the income of the wealthiest 1% of the pop rose by 75% compared with a 9% increase for Americans as a whole. • Unequal distribution of income = Most Americans could NOT buy goods brought about by the technological advances of the 1920„s #5 The Stock Market Crash of 1929 October 29, 1929 ~ Black Tuesday • REASONS – > Banking institutions that permitted unsound investments in stocks and bonds. – Insufficient legal controls in stock exchanges • TERMS – Speculators -people who bought stocks and bonds on the chance they might make a quick or large profit, ignoring the risks. Speculators were able to buy stocks on margin far beyond their ability to pay. – Margin -paying a small % of the stock's price as a down payment and borrowing the rest (EASY CREDIT). Stockholders were willing to lend buyers up to 75% of a stock's purchase price. • PROBLEM – In early September, 1929, stock prices peaked, then began to fall. As a result, confidence in the market began to waiver. Investors began pulling out of the market by selling their stocks. This made the price of stocks drop even more. – On Black Tuesday, the bottom completely fell out of the market (it laid and egg). People and corporations frantically tried to sell their stocks before prices plunged even • The individual investors who had bought stocks on margin acquired huge debts as prices fell. • The rush on the stock market produced the following cycle: > Speculators who couldn't pay off their loans went bankrupt > Loss of jobs > D for goods dropped > Overstocked factories closed • Financial Collapse > After the crash, many Americans panicked and rushed to the withdraw their $ from banks. > Many banks couldn't cover their customers withdrawals because they had invested in the stock market and lost $ just as individuals had. • Result By 1933, around 6,000 banks - 1/4 of the nations total - failed. > The government didn't insure bank accounts, so these bank failures wiped out around 9 million peoples' savings accounts. > People who went to the bank to retrieve their savings came home with nothing. > Many people were forced to live in shantytowns called "Hoovervilles" after president Hoover. Economic Crisis Look at the pictures and read the captions. Write some notes on each. #1 Billboard depicting American prosperity, displayed in run-down, barren area. In this slide we see a billboard extolling America as the land of the world‟s highest standard of living. Ironically, the billboard is in a location that does not reflect that. The 1920‟s was a decade of seeming prosperity, yet there were many significant economic problems. #2 “Fishing on Wall Street” political cartoon. In this slide we see a political cartoon showing Wall Street stockbrokers “hooking” Americans to invest in stocks through speculation and buying stock on margin. #3 Bank customers rush to get money out of a failing bank. In this slide we see a group of depositors standing outside the Union Bank in New York in April 1933, hoping that this bank would not join others in the epidemic of bank failures of that year. •To increase efficiency, farmers during the 1920‟s bought expensive machinery and fertilizers, and thus were often in debt. The efforts at efficiency worked so well that there was an overabundance of production, and farm prices fell. •Severe dust storms in the early and mid-1930‟s ruined crops and forced many hungry farmers to abandon their farms. •Farm problems had tremendous national implications, as about one-third of Americans at this time were farmers. •Between 1930 and 1934 one million families lost their farms. Many of those families moved west in search of jobs and in hopes of eventually buying fertile farmland. •“The houses were left vacant on the land, and the land was vacant because of this. Only the tractor sheds of corrugated iron, silver and gleaming, were alive. . .The doors of the empty houses swung open, and drifted back and forth in the wind. Bands of little boys came out from the towns to break the windows and to pick over the debris, looking for treasures. . .The weeds sprang up in front of the doorstep, where they had not been allowed, and grass grew up through the porch boards. . .Splits started up the sheathing from the rusted nails. A dust settled on the floors. . .“ (The Grapes of Wrath, p. 157-159) •“Maybe we can start again, in the new rich land-in California, where the fruit grows. We‟ll start over. But you can‟t start. Only a baby can start. You and me-why, we‟re all that‟s been. . .This land, this red land, is us; and the flood years and the dust years and the drought years are us. We can‟t start again.‟~ (The Grapes of Wrath, p. 119) #5 Unemployed man sells apples for five cents. In this slide we see a New Yorker selling apples on a street corner. Note how well dressed he is. •In the beginning of the Depression, unemployed workers could expect little or no help from the government. •Many unemployed persons who had faith in the economic system tried relentlessly to create business successes. •The level of individual desperation created by the Depression was symbolized by the apple sellers, many of whom lost life savings in failed banks. #6 Unemployed man with a sign pleading for a job. In this slide we see a man on a Detroit street with a sign explaining that he wants work, not charity. This illustrates the work ethic and the value our society placed on self-reliance during this time. •By 1932 unemployment in the United States had reached about 25%. •To be unemployed sapped individual self- worth, especially in this era. As a result, most of the unemployed went to great lengths to try to get a job. •Thousands of businesses had failed, and those that were operating usually were struggling and not hiring. •Many unemployed men left their families to roam the land seeking work. #7 Americans line up to receive free food. In this slide we see people in Huntington, Pennsylvania, lining up to receive “Federal Surplus Commodities.” This process was commonly referred to as standing in a bread line. • Bread lines were established to feed the hungry. • Most who accepted handouts felt shame, humiliation, and degradation. • Hundreds of thousands were forced by poverty and hunger to accept charity. #8 Unemployed steelworkers on edge of “Hooverville” huddling by ash can fire at Christmas time. In this slide we see a photo of unemployed steelworkers outside a shack they built for winter shelter. •Throughout the early 1930’s “Hoovervilles” sprung up in most major cities. •Increasing unemployment, low wages, and business and bank failures contributed to the growing number of homeless people in the Depression. •“Hoovervilles” were so named because many believed that President Herbert Hoover did not do enough to help the poor. •The homeless built shacks out of such things as tin, cardboard, and orange crates; some even lived in condemned buildings or abandoned railroad boxcars. #9 President Hoover in the Oval Office with advisors. In this slide we see President Hoover with political and diplomatic advisors in the Oval Office. •Hoover’s Republican advisors initially believed that depression was an inevitable part of the economic cycle, and thus not cause for serious concern. •In 1930 Hoover attempted to restore people’s faith in the economy and urged business leaders not to panic by cutting production. •Hoover opposed direct relief action by the federal government but urged a massive relief effort by private charities and volunteer organizations. •In late 1931 Hoover pushed for the creation of the Reconstruction Finance Corporation, which was designed to make loans to banks and other businesses. The bill was passed by Congress in 1932. •Hoover’s popularity diminished as the Depression wore on, and, rightly or wrongly, he became a scapegoat for the misery created by the Depression. #10 F.D.R. rides in a campaign rally in October, 1932. In this slide we see F.D.R. riding in the backseat of a car during a campaign rally in Indianapolis a month before the 1932 presidential election. A crowd cheers and waves; a conspicuous banner reads, “Abolish Bread Lines. Vote For Roosevelt.” •The Democratic Party chose Roosevelt largely due to his name recognition and the successful relief plan he had created for the unemployed as governor of New York. •Roosevelt, in contrast to Hoover, pledged to take “bold, persistent” action to try to combat the problems of the Depression. •Roosevelt gained support from city dwellers, farmers, immigrants, and the working class as he promised America “a new deal.” •Roosevelt loved campaigning, and, unlike Hoover’s, his crowds were adoring. •In the 1932 presidential election, Roosevelt won 580/0 of the popular vote and 472 out of the 531 #11 Political cartoon of confident F.D.R. and haggard Hoover on Christmas Eve, 1932. In this slide we see a political cartoon of F.D.R. saying confidently to a worn- out Hoover, “Just leave„em, Herb. I‟ll do it all after March fourth.” On Hoover desk are such problems as debt settlement, farm relief, and the forgotten man. The caption reads, “Christmas Eve Preparation.” Throughout the 1932 election campaign, F.D.R. radiated charm and confidence. Despite the economic calamity the nation faced, he voiced optimism and promise for the nation. As a lame-duck, Hoover urged F.D.R. to carry out certain policies that he deemed essential. F.D.R., who rejected Hoover’s economic policies, refused. So strained was their relationship that they barely spoke to one another on inauguration day.
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