Causes of the Great Depression. Prosperity Hides Trouble Republican The Roaring Twenties had been a Republican decade. Harding and Coolidge Both Presidents.

Causes of the Great Depression

Prosperity Hides TroubleThe Roaring Twenties had been a RepublicanRepublican decade.

Harding and CoolidgeBoth Presidents watched the country grow increasingly prosperous.

ConsumptionConsumption went up and the stock market went up.Republicans took credit for the economy and Americans agreed.

Herbert Hoover1928 RepublicanRepublican National

Convention

Nominated Herbert HooverHoover

He was born in Iowa but orphaned.

Went to Stanford and earned a degree in Geology.

He became a mining engineer and traveled the world.

He became wealthy and retired from engineering and devoted the rest of his life to public service.

He was first noticed during WWIWWI.

He coordinated the Belgium relief program and then as head of the FoodFood Administration.

He served as Secretary of CommerceCommerce in the Harding and Coolidge administrations.

Problems Plague Agriculture

Farmers made up ¼¼ of the American workforce during the 1920’s.

To meet demands during WWI, they increased foodfood production and harvest and bought more land to farm.

They sunk money into tractors and other mechanizedmechanized equipment.

Huge debts loomed over their heads.

After the war, crop demandsdemands fell dramatically.

Farmers were failing to sell their crop surplusessurpluses and pay the debts they owed to banks.

The result was a ruralrural depression.

Farmers did not share in the good times of the 20’s.

The majority lived on creditcredit month to month.

Wealth is Distributed Unevenly More than 6060% of all American families had yearly

incomes of less than $2,000$2,000.

2424,000 of the country’s wealthiest families enjoyed annual incomes of more than $100,000$100,000, which was 5050% more than what most families were earning.

Since there was so few wealthy, there was no way they alone could buy enough consumer goods to keep the economy booming.

A healthy economy needs more people to buy more products, which in turn creates even more wealth.

From the overproductionoverproduction of the farmers to the undersconsumptionundersconsumption of the lower-income industrial worker, created instabilityinstability.

Easy Credit Hides Problems Americans bought

cars, appliances, radios, etc. on credit.

By the end of the decade, 80% of radiosradios and 60% of carscars were purchased on installment plans.

Americans bought stocksstocks on credit.

With each year, Americans were accumulating more debt.

Too many people were living beyond their means for too long.

The Stock Market Crashes

Early 1929, stock prices soaredsoared.

Many economists agreed that too much money was being poured into stock speculationspeculation.

Investors were risking their money that stock increases would turn into quickquick profits.

Sept. 3, 1929- the stock market began to lag.

Prices peakedpeaked and then started going downdown.

By the end of Oct. the decline gave way to a free fall.

Dow JonesDow Jones average dropped 2121 points in

11 hour on Oct. 23

People and investors lost confidence and that very attitude kept the market up for so long.

The Stock Market Crashes

Oct. 24-investors became nervous and began selling their stocks.

–Stock in General Electric once sold for $400/share and was now worth $283/share.

• Oct. Oct. 2929, Black Tuesday, Black Tuesday-more than 1616 million shares were sold and the market collapsed.

–Billions of dollars were lost–Fortunes were wiped out in a just a few hours–People who bought stock on installment plans were financially ruined.

The Great Depression Begins

1929-1941-economy faltered and unemployment soared.

The stock market crash did notnot start the depression by itself, it did spark a chain of events that collapsed the U.S. economy.

The Banks Collapse The crisis in confidenceconfidence continued as

frightened people tried to withdraw their money from their banks.

–RunRun- requests by the majority of a bank’s depositors to withdrawwithdraw money. –1929- 641641 banks failed.–1930- 1,3501,350 failed.–1931- 1,7001,700 went under.

• Federal ReserveFederal Reserve-regulates the amount of money in circulation.

–During the 20’s, the “Fed” cut interest interest ratesrates in order to stimulate economic growth.–1929- the Fed limited the money supply to discourage lending but there was too little money in circulation to help the economy come back up after the crash.–When stock prices fell, investors went to their banks to secure whatever hard money they had left, the banks were cleaned out of currency and were forced to close.

Businesses Close and Unemployment Rises

ReducedReduced consumer spendingspending

ProductionProduction is cutbackcutback to maintain price levels.

LayoffsLayoffs to reduce payrollpayroll.

Company stock fell forcing companies to close plants and layoff workers.

–August, 1931- Henry Ford closed several Detroit factories, putting nearly 75,00075,000 people out of work.

•Americans lost their jobs.–No jobsjobs= No $$= SpendingSpending less $$.–1933, 2525% of Americans had no job.

Tariffs Government wanted to

protect American business from foreignforeign competition.

–1930-Congress passed the Hawley-SmootHawley-Smoot Tariff which raised prices of foreign imports to such a level that they could not compete in the American market.

•European countries retaliatedretaliated and did the same thing.

–The H-S Tariff only added to the problems.–It hurt international trade which was disastrous to the globalglobal economy.

Depression Goes Global 1930-GermanyGermany stops paying reparationsreparations which violates

the Treaty of Versailles that ended WWI.

European countries experienced the same cycle of business failures, bank collapses, and high unemployment rates.

WorldwideWorldwide

DepressionDepression

U.S. profits U.S. profits plummet.plummet.

U.S. investors U.S. investors have little or no have little or no money to invest money to invest abroad.abroad.

European European nations cannot nations cannot pay off war pay off war debts.debts.

European production European production plummets.plummets.

Europeans Europeans cannot afford cannot afford American American goods.goods.

What Caused the Great Depression?

Historians and Economists disagree on the exact causes.

–John Maynard KeynesKeynes-believed the lacklack of gov’t. interferenceinterference in the economy was the reason.–He thought the gov’t. should spend more money to keep people employed when the economy slows.–Milton Friedman- believed that the reason was a contraction in the money supplysupply. The twin events of the stock market crash and the run on banks left too little money in circulationcirculation.

•Problems with consumptionconsumption, coupled with an uNeVeNuNeVeN distribution in wealthwealth and overspeculationoverspeculation in the stock market, created the conditions which with poor or misinformed economic decisions by Congress and President Hoover resulted in the Great Depression.