Where would you go if you wanted to see this statue? What does this statue represent?

Discuss the weaknesses in the economy of the 1920s

Explain how the stock market crash contributed to the coming of the Great Depression

Describe how the Depression spread overseas

Farmers had bought more land and mechanized farm equipment to meet the increased demands created by World War 1. They contracted huge debts that followed them into the 1920s.

After the war, demand for crops fell while amount of crops being produced remained the same. Farmers were not making enough money to pay off their debts.

Result was a rural depression worsened by several natural disasters. Any downward slide in the economy was likely to hit America’s struggling farmers first and hardest.

While wages rose gradually, worker productivity increased astronomically.

The rich became richer while industrial workers simply became less poor.

This uneven distribution created problems: The wealthiest few did not buy enough to

keep the economy going Healthy economy needs more people to buy more

products, which in turn creates more wealth.

Americans didn’t notice these economic problems because of the expansion of credit.

In the past, Americans had feared debt and would not buy something until they had the cash to pay for it. Easy credit in the 1920s changed this behavior. Bought everything on installment plan: by end of decade

80% of radios and 60% of cars were purchased on installment credit. Even stock was bought on credit.

Every year, Americans accumulated more debt. The growing credit burden could only mask the

fact that Americans were living beyond their means for only so long before the economy imploded.

How does the stock market work? The stock market is basically a huge system of gambling Stock: piece of ownership of a company Companies need financial assistance for growth and so sell stocks. If a

company you have invested in makes profits, it shares that profit with you. If company loses money however, you lose money too.

There are many different ways to invest in the stock market. In its basic form, you buy a certain number of stocks at a certain price. If the stock market goes up because more people are buying stock, the price of your stock will go up as well. If you sell your stock, you make the difference between the amount that the stock cost when you bought it and the price that it is now. You do not get money until you sell your stock: therefore, if you had a lot of money because the stock market was rising, but you decide not to sell and then the stock market falls, you lose all of the money that you would have made.

Buying and selling in the stock market is based on confidence in the company and in the market. If confidence is high, stock market goes up. If confidence is low, stock market drops. It can only drop so much before it crashes: this is what happened in 1929.

Bear market: period of falling stock prices Bull market: period of rising stock prices

The climate of optimism indicated everyone was meant to get rich

Buying stock on margin allowed investors that wouldn’t have been able to afford any stock buy it

Stocks were bought based on speculation

In September, 1929 stock prices began to fall. By the end of October, the slide gave way to a free fall. Dow Jones dropped 21 points in one hour on October 23 Investors concluded that boom was over and lost

confidence: this is what had kept the market up for so long. They raced to pull their money out of the stock market

Black Tuesday: October 29, the bottom fell out. More than 16 million shares were sold as the stock market collapsed. Billions of dollars were lost. Whole fortunes were wiped out

in hours. Speculators who had bought stock on margin lost everything that they had

The Wall Street Stock Market Crash

Although the crash did not start the depression by itself, it sparked a chain of events that quickened the collapse of the U.S. economy Banks collapse Businesses close Hawley-Smoot Tariff

The country’s banking system was one of the first institutions to feel the effects of the crash.

Run on the banks: people had lost their confidence and wanted their money. They tried to withdraw it from the banks. Banks did not have enough actual specie and so they failed, people could not get their money and the banks were forced to close. 1929: 641 banks failed 1930: 1,350 failed 1931: 1,700 failed

It's A Wonderful Life: Run on the Bank Scene

The collapse of stock prices combined with reduced consumer spending caused many business leaders to believe that their companies would only survive if there were production cutbacks and layoffs.

As businesses closed plants and fired workers to save money, more Americans lost their jobs. As unemployment grew and incomes shrank, consumers spent less money. So businesses cut production even more, closing more plants and firing more workers. “Snowball effect” By 1933, nearly 25% of all workers had lost their jobs

The government hoped to reverse the downward slide by protecting American products from foreign competition.

Hawley-Smoot Tariff: passed by Congress in June, 1930. Raised prices on foreign imports to such a level that they could not compete in the American market. Inspired European countries to retaliate and

enact protective tariffs of their own, Closed markets and helped destroy

international trade and was one of the causes of the depression spreading across the globe

The European problems of reparation payments, war debt payments, and international imbalance of trade created a shaky economic structure that collapsed in the early 1930s. Germany ceased their reparation payments and US

agreed to suspend France and Britain’s war debt payments. Because of internal depression, US could no longer give other European countries the loans that they had depended on, and so the European countries experienced the same cycle of business failures, bank collapses, and high unemployment.