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American HistoryAmerican History

Unit 17 – The Great Unit 17 – The Great DepressionDepression

Photo courtesy of Library of Congress

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The years after World War I actually The years after World War I actually planted the seeds for the Great planted the seeds for the Great

Depression.Depression.

These years were the “Roaring Twenties” and “Jazz Age”. It was a period marked by a general prosperity, “anything goes”

behavior, bootleg booze, speakeasies, “flappers” dancing the “Charleston”,

Ford Model T’s, ordinary people buying things on the installment plan, and the wealthy getting into the booming stock

market.

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World War IWorld War I

• Even before America entered World War I, American industries were reaping huge profits by selling the Allied powers everything they needed to carry on the war.

• This meant plenty of jobs at good wages for U.S. factory workers.

• Huge profits were also harvested by farmers.

• People with money began buying up agricultural land, thus inflating its value.

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When the Soldiers Came HomeWhen the Soldiers Came Home

• Although wages had risen, so had the cost of living.– Prices were up for food, rent, and clothing.

• A quart of milk went from 9 cents in 1914 to 42 cents in 1919!

• The prices of steak and eggs had almost doubled.

– Taxes were also higher.

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The Spring of 1919The Spring of 1919

• When the doughboys returned from the war, the wheels of industry were turning day and night.

• Businesses experienced a boom.

• The horizon looked bright.

• The word for life at this time was prosperity.

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Wall StreetWall Street• No where did the future look brighter than

on Wall Street.Wall Street – common name for the New York

financial district located in the lower portion of Manhattan (and also the name of an actual street in the area) where the New York and American stock exchanges are headquartered. It is also a generic term for anything associated with investing or the stock market.

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““On Margin”On Margin”

• The business of stock trading was so brisk that the clerks who did the paperwork complained that they could barely keep up with the buying and selling.

• Much of the buying was done “on margin,” a system in which only a portion of the price was paid immediately in cash.

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Buy Now, Pay LaterBuy Now, Pay Later• In the 1920’s, thanks to alluring ads for

enticing products, the idea of buying on credit was born.

• To make the idea of buying on credit appetizing to the average American, clever advertising men came up with a sweetener called “buying on the installment plan.”

• With money in your pocket and seemingly boundless prosperity, the old notion of saving for a rainy day was very out of date!

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Why Should A Manufacturer Why Should A Manufacturer Go Along With the Go Along With the Installment Plan?Installment Plan?

• Because of the basic reality of supply and demand.

• Throughout the 1920’s, supply and demand got out of balance.

• American manufacturers were churning out so much in the way of consumer goods that people’s demands weren’t keeping up with the supply of goods in overstocked warehouses.

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• This abundance was the result of an astonishing increase in the productivity of workers.

• In the 1920’s the output per worker in American industry leapt by nearly 2/3.

• However, this happened at a time when wages were not keeping up.

• As a result, manufacturers were making enormous profits.

• This was great, so long as workers bought what was being made!

• Hence, the appeal of the installment plan in moving products from shelves and off the sales floor.

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Reasons for the Wall Reasons for the Wall Street BoomStreet Boom

• You have underpaid workers turning out goods in record amounts that they can only afford to buy on credit.

• This enormous output at bargain labor costs creates wealth for people who already have far more than enough money, thereby widening the income gap.

• Those with more than enough money bought outrageous amounts of stock shares.

• Those who couldn’t afford to buy stock shares, did so anyway. . . On margin.

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How To Get Rich Without How To Get Rich Without WorkingWorking

• If you think that people bought and traded stocks so that they could own a piece of a prosperous or a promising company, you’re wrong.

• Most investors were more interested in finding stocks that they expected to go up in value so that they could sell them for a nifty profit.

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Making a KillingMaking a Killing

• The popular term for this was (and still is) “making a killing on Wall Street.”

• Economists call it “speculation.”

• Historians looking into the causes of the Great Depression cite this practice as one of the reasons for the bursting of the prosperity bubble in the autumn of 1929.

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The Economy of the Late 1920sThe Economy of the Late 1920s

• “Everybody ought to be rich”

• 200 large companies controlled 49% of all American industry

• Too many goods, not enough demand

• Farm prices fell after WWI

• Farmers not able to repay their debts

Income Distribution, 1929

1

5

29

65

$10,000 and Over

$5,000-$9,999

$2,000-$4,999

$1,999 and under

Figures courtesy of Prentice Hall

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The Market CrashesThe Market Crashes

• The market crash in October of 1929 happened very quickly.

• In September, the Dow Jones Industrial Average, an average of stock prices of major industries, had reached an all time high of 381.

• On October 23 and 24, the Dow Jones Average quickly plummeted, which caused a panic.

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• On Black Tuesday, October 29, 1929, most people sold their stocks at a tremendous loss.

• This collapse of the stock market is called the Great Crash.

• Overall losses totaled $30 billion.• The Great Crash was part of the

nation’s business cycle, a span in which the economy grows, and then contracts.

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Effects of the Great Crash, 1929Effects of the Great Crash, 1929Great Crash

Investors

Businesses and WorkersInvestors lose

millions.

Businesses lose profits.

Consumer spending drops.

Workers are laid

off.

Businesses cut investment and

production Some fail.

Banks

Businesses and workers cannot repay bank loans.

Savings accounts are wiped

out.

Bank runs

occur.

Banks run out of

money and fail.

World Payments

Overall U.S. production plummets.

U.S. investors have little or no money to

invest.

U.S. investments in

Germany decline.

German war payments to Allies fall off.

Europeans cannot afford

American goods.

Allies cannot pay debts to

United States.

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The Stock Market CrashThe Stock Market CrashFrom Riches to RuinFrom Riches to Ruin

• Many wealthy families lost everything

• Some even committed suicide

• Millions of people who never owned a single stock lost their jobs, farms and homes

• The crash triggered a much wider, long term crisis known as the Great Depression

• The Depression had a ripple effect that hurt the economies of other countries

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Unemployment 1925-1933

02468

101214

1925 1926 1927 1928 1929 1930 1931 1932

Year

Une

mpl

oyed

(in

mill

ions

)

Question 1: How many people were unemployed in 1925? In 1929? In 1932?

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Wheat Prices 1925-1933

0

0.5

1

1.5

2

1925

1926

1927

1928

1929

1930

1931

1932

1933

Year

Pri

ce p

er B

ushe

l (in

do

llars

)

Question 2: How much did a bushel of wheat cost in 1925?1932?

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Stock Prices 1925-1933

0

5

10

15

20

25

30

1925 1926 1927 1928 1929 1930 1931 1932 1933

Year

Aver

age

Mon

tly V

alue

$

Great Crash

Question 3: What was the average stock value in 1929? 1932?

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Bank Suspensions 1925-1933

0

1

2

3

4

5

1925 1926 1927 1928 1929 1930 1931 1932 1933

Year

Num

ber

of S

uspe

nsio

ns (i

n th

ousa

nds)

Question 4:How many banks were suspended in 1925? In 1933?

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Activity: Letter writingActivity: Letter writing• It is the day before Thanksgiving, 1929.

• You own a small shoe store. An investment broker convinced you to spend your life savings in the stock market. He told you that you could triple your money if you invest it with him. You even bought some stock on margin, thinking that you would be able to pay it off when your stock went up.

• To your absolute horror, the stock market crashed in October and completely wiped you out.

• Write a letter back to your husband or wife telling them what has happened. Make sure to use evidence for why this happened from your notes.

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The Great DepressionThe Great Depression

• The economic contraction that began with the Great Crash triggered the most severe economic downturn in the nation’s history—the Great Depression.

• The Great Depression lasted from 1929 until the United States entered World War II in 1941.

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• The stock market crash of 1929 did not cause the Great Depression.

• Rather, both the Great Crash and the Depression were the result of deep underlying problems with the country’s economy.

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The Election of 1928The Election of 1928

• Herbert Hoover (1874-1964) was a representative of the Anglo-Saxon class, born into an Iowa Quaker family.

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• Supporting business and Prohibition, Hoover was the Republican candidate for President in 1928. His campaign slogan promised:

"A chicken in every pot and a car "A chicken in every pot and a car in every garage."in every garage."

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The Hoover The Hoover AdministrationAdministration

• Once the Hoover Administration realized that the economy was not having another of its periodic, temporary re-adjustments, the question was how to provide relief to the unemployed.

• He warned the suddenly broke and out-of-work Americans that any lack of confidence in the economic future or the strength of U.S. businesses was “foolish.”

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• No matter how hard Herbert Hoover tried to be optimistic and encouraging to the American people, reality was sinking in.

• One observer noted, the stock market “continued to act like a rubber ball bounding down statistical stairs.”

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Poverty SpreadsPoverty Spreads• People of all levels of society

faced hardships during the Great Depression.

• Unemployed laborers, unable to pay their rent, became homeless.

• Sometimes the homeless built shacks of tar paper or scrap material. These shanty town settlements came to be called Hoovervilles.

Photo courtesy of Library of Congress

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Photo courtesy of Library of Congress

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HoovervillesHoovervilles

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• Farm families suffered from low crop prices.

• As a result of a severe drought and farming practices that removed protective prairie grasses, dust storms ravaged the central and southern Great Plains region.

• This area, stripped of its natural soil, was reduced to dust and became known as the Dust BowlDust Bowl.

• The combination of the terrible weather and low prices caused about 60 percent of Dust Bowl families to lose their farms.

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The Dust BowlThe Dust Bowl

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Poverty Strains SocietyPoverty Strains SocietySome people starved and thousands went hungry.Children suffered long-term effects from poor diet and inadequate medical care.

Impact on Health

Living conditions declined as families crowded into small houses or apartments.Men felt like failures because they couldn’t provide for their families.Working women were accused of taking jobs away from men.

Stresses on Families

Competition for jobs produced a rise in hostilities against African Americans, Hispanics, and Asian Americans.Lynching increased.Aid programs discriminated against African Americans.

Discrimination Increases

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Americans Pull TogetherAmericans Pull Together

• Throughout the country, people pulled together to help one another.

• Neighbors in difficult circumstances helped those they saw as worse off than themselves.

• When banks foreclosed on a farm, neighboring farmers would bid pennies on land and machines, which they would then return to the original owners. These sales became known as penny auctions.

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• Some Americans called for radical political and economic change.

• They believed that a fairer distribution of wealth would help to end the hard times.

• Jokes and humor helped many people to fight everyday despair.

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Signs of ChangeSigns of Change

Prohibition Is Repealed!Prohibition Is Repealed!• In February 1933, Congress passed the

Twenty-first Amendment, which repealed the eighteenth amendment prohibiting the sale of alcohol.

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The Empire State Building• 2,500 to 4,000 people

worked on the construction.

• The cost of construction was about $41 million.

• At that time, it was the world’s tallest building and had 102 stories and 67 elevators.

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The End of an EraThe End of an Era

• Many things that symbolized the 1920s faded away.

– Organized crime gangster Al Capone was sent to prison.

– Calvin Coolidge died.– Babe Ruth retired.

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Hoover’s Limited StrategyHoover’s Limited Strategy

• Hoover convinced business leaders to help maintain public confidence in the economy.

• To protect domestic industries, Congress passed the Hawley-Smoot tariff, the highest import tax in history.

• European countries also raised their tariffs, and international trade suffered a slowdown.

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• Hoover set up the Reconstruction Finance Corporation (RFC), which gave government credit to banks, industries, railroads, and insurance companies.

• The theory was that prosperity at the top would help the economy as a whole.

• Many Americans saw it as helping bankers and big businessmen, while ordinary people went hungry.

• Hoover did not support federal public assistance because he believed it would destroy people’s self-respect and create a large bureaucracy.

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• Finally, public opinion soured for Hoover when he called the United States Army to disband a protest of 20,000 unemployed World War I veterans called the Bonus ArmyBonus Army.

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A “New Deal” for AmericaA “New Deal” for America

• FDR promised a New Deal for the American people.

• He was ready to experiment with government roles in an effort to end the Depression.

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• As governor of New York, Roosevelt had set up an unemployment commission and a relief agency.

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• FDR’s wife, Eleanor, was an experienced social reformer.

• She worked for public housing legislation, state government reform, birth control, and better conditions for working women.

• When the Roosevelts campaigned for the presidency, they brought their ideas for political action with them.

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The Election of 1932The Election of 1932Franklin Roosevelt• Believed that government had a responsibility to

help people in need.• Called for a reappraisal of values and more

controls on big business.• Helped many Americans reassess the

importance of “making it on their own” without any help.

• Much of his support came from urban workers, coal miners, and immigrants in need of federal relief.

• Roosevelt won 57 percent of the popular vote and almost 89 percent of the electoral vote.

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Herbert Hoover• Believed that federal government should

not try to fix people’s problems.• Argued that federal aid and government

policies to help the poor would alter the foundation of our national life.

• He argued for voluntary aid to help the poor and argued against giving the national government more power.

• Hoover gave very few campaign speeches and was jeered by crowds.