CAUSES OF THE GREAT DEPRESSION 1.Governmental Economic Policies 2.Unchecked Speculation 3.Weak and Unregulated Banking Industry 4.Overproduction of Goods.

CAUSES OF THE GREAT DEPRESSION

1. Governmental Economic Policies

2. Unchecked Speculation3. Weak and Unregulated

Banking Industry4. Overproduction of Goods5. Farming Industry Decline6. Unequal Distribution of

Wealth

Herbert Hoover(1929-1932)

Calvin Coolidge(1923-1928)

Andrew MellonSecretary of Treasury

Republican PoliciesTrickle-Down Economics: Economic policies that benefit big

business and America’s wealthiest citizens would eventually benefit all Americans, and that prosperity would “trickle down” from the upper classes to the middle and lower classes.

– Republican policies proposed that the wealthy and big business should receive significant tax cuts that they would in turn invest in the economy.

– However, wealth did not trickle down to the American worker in any significant way, instead, corporations devoted their profits to expanding their work facilities, increasing the production of goods, and lining their own pockets

– More facilities did not translate to more workers because factories were increasingly relying on machines.

– Ex: U.S.S. given $15 million in tax cuts, but to make up the loss the government taxed the middle and lower classes.

Real Estate Speculation• Speculation – when a person or

organization makes a risky investment in the hope of making a quick, large profit.

• Florida real estate boom became an example of frenzied speculation, get-rich-quick schemes, and, ultimately, unethical investment practices.– Speculators bought land at low

prices to sell for a profit to builders of resorts and homes.

– Scams – many people unknowingly bought alligator-infested swampland and “beachfront property” that was six feet underwater at high tide.

– Eventually there were no more buyers and the real estate market crashed leaving landowners who could not repay bank loans they used to purchase the property.

Unchecked Stock Market Speculation

• Investors believed that the stock market would go up indefinitely and that companies’ profits would continue to increase.

• Because of this investors bought large quantities of stock, turned around and sold them for a higher price, making a quick easy profit.

• The investors who bought the stock at the higher price would in turn sell it to other investors for an even higher price.

• The value of stock became artificially inflated and bore little correlation to the company’s actual worth.

Unchecked Stock Market Speculation

• Warnings that the bull market could not continue indefinitely made some investors nervous and many of them began to sell their stocks.

• As investors began to pull out of the market, stock prices started to fall. As stock prices fell, companies slowed production, which in turn led to additional price drops.

• By October 1929 the market was in a devastating downward spiral and investors lost over $16 billion.

The stock market crash on October 24, 1929 triggered a collapse of the U.S. banking industry , which had grown unstable over the course of the 1920’s due to the Republican policy of laissez faire (hands off of business) and banks over extension of loans to stock investors and brokers.

Stock Market & Banking IndustryCollapse

Banking Industry Collapse

• The stock market crash triggered a collapse in the banking industry.

• Banks had grown increasingly unstable over the course of the 1920s due to limited regulation and over-extension of credit to investors and brokers.

• By 1932 ¼ of all banks had closed

Overproduction

• There was a tremendous demand for goods after World War I as Americans bought material goods in an effort to forget the horrors of war.

• As factories began to produce goods in large numbers the market became saturated and the demand for goods drastically decreased by 1929.

Overproduction - Agricultural Goods

• American farmers prospered during WWI, supplying both the U.S. and European countries with corn, wheat and vegetables.

• After the war, technological advances allowed farmers to produce more than ever.

• Post WWI demand for agricultural products drastically dropped leaving farmers with more goods than they could sell.

• Prices dropped significantly.

• While statistics showed that Americans were more prosperous than ever during the 1920s, most of the country’s wealth remained in the hands of a few people at the top.

• In 1929 the Federal Trade Commission reported that 1% of American population possessed over 59% of the wealth.

• The average American citizen saw an increase in their income between 1920 and 1929 of 9% while the income of rich Americans rose by 75%.

• Caused instability of the U.S. economy.• Poor got poorer – were in debt from credit and by

the late 1920s they could barely buy their necessities.

• Sales dropped – rich could not make up for the loss as they were such a small group.