The Causes of the Great Depression

Ch. 14

Twenties Prosperity • during the 20s many American believed that the US was a place of unlimited growth,

opportunity and achievement • economic boom of the 1920s:

– national income rose 43% ($61 billion to $87 billion)

– technological advances allowed factories to increase the # of goods produced.

– by 1929, US stock market was at an all-time high.

Depression Foreshadowed • by late 1929, US economy begins to show signs of trouble

– Increase in unemployment – farmers begin to lose land to foreclosure – stock prices drop

• Stock Market crash alone did not cause the Great Depression, which lasted 10 years, there were six other factors:

Postwar Economic Boom

#1. Republican Economic Polices

Domestic Economic Polices - Coolidge followed by Hoover, believed in trickle-down economics

• Trickle-Down Economics: belief that America’s wealthiest citizens’ prosperity would “trickle-down” to the middle and lower classes. – Andrew Mellon – wealthy businessman and Coolidge’s

Secretary of Treasury, argued for gov to provide business and the wealthy with tax cuts, then they would reinvest the money in

the US economy.

– trickle down failed - led to an increased gap between rich and poor. Businesses increased the use of machines rather than people and kept the money themselves.

International Economic Polices – effects of WWI

1) European nations could not repay the US (lent $10 billion). US would not reduce amount owed.

2) US began lending European nations more money. England and France fell

deeper into debt and defaulted on loans.

3) Led to: European nations without the means to invest money in American goods. (they could not pay back loans

and could not afford to buy American goods or invest in its economy.)

Republican Economic Polices

#2 – Unequal Distribution of Wealth = Gap

between Rich and the Poor

during the 1920s, most of the country’s wealth were in the hands few a people.

• 1% of American population = possessed over 59% of the country’s wealth

– Rich were getting richer = average American income increased by 9%, while the rich Americans income increased to 75%.

• 60% of Americans = lived on or below the minimum subsistence level (standard of living) of $2,000 a year.

– Minority populations = African-Americas, Latinos and other non-whites were even poorer.

• Companies replaced workers = with machines and kept

workers wages low and used profits to expand facilities.

• Purchasing power is lost

– Banks and business tried to encourage consumer spending by allowing people to buy things on credit

– Result = Americans fell deeper and deeper in debt

– Led to = only a few had purchasing power (means of buying goods),

sales dropped and companies began to fail.

Left-Side “Graphing the G.D.”

Directions: 1. Attach graphs to the left-side of spiral.

2. Plot each set of data on the corresponding graph.

– Connect the coordinates with a line to create a line graph.

3. Using the graphs, answer the graphing questions “Graphing U.S. Economy During the Great Depression.”

4. Tape questions over graph.

#3 - Overproduction 1. Industrial Goods

– after WWI, technological advances in agriculture, electrical power, transportation and factory production changed the way American people lived and worked.

– Industrial production continued to increase during the 1920s:

• Consumers demand goods = after WWI demand was high.

Advertisement helped fuel consumer demand on products.

• Factories newly invented machines = allowed factories to produce more goods in less time.

– Result = saturation of the market = too many goods = surplus of goods

2. Agricultural Goods

– Technological advances = new technology helped farmers become more efficient and they produced more food.

– But foreign demand decreases. European nation resumed farming and no longer needed US produce.

– Result: surplus of crops led to lower prices.

#4. Farming Industry a. Farming Industry Decline

– during the 1920s, farmers barrowed heavily from banks to pay for new, technologically advanced equipment

– Farmers were unable to pay back loans – Income dropped 50% (between 1929 and 1933)

– Result = farmers defaulted on their loans and lost their farms to bank foreclosures.

b. Farmers situation grew worse:

– Drought = farmers were hit with a severe drought in the mid- and southwestern US. The soil turned to dust and swept across the plain in black clouds.

– Result = Dust Bowl. Farmers begin fleeing the Dust Bowl and

headed west to California in search of work and land.

• over 1 million families lost their farms between 1930 and 1934.

– Okies = people referred to migrating farmers as Okies.

c. Shantytowns = makeshift shacks outside city limits because families could not afford a place to stay or where not welcomed within cities.

• Read “The Great Depression Takes Its Toll”.

• Answer the “Interpreting Text and Visuals” questions.

• Attach both to the Left-Side

Left-Side “The Dust Bowl”

#5 - Unchecked Stock Speculation

a. Stock Speculation - a person or organization makes a risky investment in hopes of making a quick, large profit. It was widespread in the 1920s.

• Real Estate and Stock Market Investors speculate = believed land in CA and FL would be profitable and a company’s profit would continue to increase.

– Led to = companies’ stock became artificially inflated, and did not reflect the company actual worth = drove up stock prices.

b. Stock Market Crash -1929 Stock Market Crash

– Analysts’ warned that the market could not continue to rise so many investors began selling their stock.

» Led to = stock prices began to fall > companies slowed down production > additional price drops.

» By October 24, 1929 investors flood the market trying to sell their stock at a loss of over $4 billion.

» Oct. 29, 1929, known as = “Black Tuesday” by the end of the day investors lost $16 billion.

» By mid-Nov, investors had lost about $30 billion.

#6. Banking Industry Collapse Unregulated Banking Institutions

– collapse of banking industry stock market crash triggered the collapse which had grown unstable over the 20s

a. Laissez-faire = a belief that gov should not interfere in or impose any regulation on business. – Laissez-Faire policy led to instability of the Republican policy and banks giving

too much credit to stock investors and brokers.

b. Buying on Margin = banks allowed investors to buy stocks on credit. It allowed investors with little money to buy large amounts of stock.

– Led to = hundreds of banks closed doors immediately, by 1932 = almost 6,000 banks closed (¼ of the nations banks had closed) • families lost all savings • investors could not sell stock so could not pay back loans • banks could not pay depositors money that they had used to fund the

loans. • Banks had no assets, no cash reserves, no new money coming in.

Left-Side

“G.D. Flow Chart” • Directions:

1. Choose one of the causes of the Great Depression

and create a flowchart. • Flowchart should clearly show how the cause you selected

impacted Americans in one or more of the ways.

2. Each flowchart should be composed of:

1. Minimum of four boxes

2. Written description in each box

3. an illustration or visual symbol.

1. Republican Economic Policy

2. Unequal Distribution of Wealth

3. Overproduction

4. Farming Industry

5. Stock Speculation

6. Banking Industry Collapse

“Farming Industry” a cause of the Great Depression

To increase

production,

farmers …

The effects of …