The Great Depression 1929- 1941 Depression Depression - an economy with high unemployment, falling income, failing business, decline in production and.

The Great Depression The Great Depression 1929-19411929-1941

DepressionDepression

- an economy with high - an economy with high unemployment, falling income, unemployment, falling income, failing business, decline in failing business, decline in production and sales.production and sales.

The Great Depression

- An extreme economic slump - An extreme economic slump in America in the 1930sin America in the 1930s

Causes of Causes of The Great DepressionThe Great Depression

1. Consumer Debt2. Income Gap3. Overproduction4. Global Depression5. Stock Market Crash –Oct.

29th 1929 – immediate cause or trigger.

6. Banking Crisis 7. Business Cycle

1. Consumer Debt1. Consumer Debt

After WWI, there was an increased demand for goods but in actual fact people could not

afford to buy all of the goods they wanted.

SOLUTION? Installment Plan – buy now, pay later.

The uneven The uneven distribution distribution of wealth of wealth

didn’t stop didn’t stop the poor and the poor and

middle class middle class from wantingfrom wanting

to possess to possess luxury items, luxury items, such as cars such as cars and radios…and radios…

By the end of the By the end of the 1920s, 60% of the 1920s, 60% of the cars and 80% of cars and 80% of the radios were the radios were

bought on bought on installment creditinstallment credit..

Once the economy began to slow down, and

people started losing their jobs, they were not able pay off their debts.

2. Income Gap2. Income Gap Consumers lacked sufficient income to

purchase goods; farmers’ income fell. Workers’ income failed to keep pace

with prices. Wages were as little Wages were as little as 20 – 25 cents per hour! as 20 – 25 cents per hour!

Even the best employer Ford Even the best employer Ford Motor Company paid only Motor Company paid only $5.00/Day for a 6AM-6PM $5.00/Day for a 6AM-6PM shift!shift!

Income distribution in 1929Income distribution in 19291

5

29

65

$10,000 and Over

$5,000-$9,999$2,000-$4,999

$1,999 and under

Wheat Prices 1925-1933

0

0.5

1

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2

1925

1926

1927

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Year

Pri

ce p

er B

ushe

l (in

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rs)

Question 1: How much did a bushel of wheat cost in 1925?1932?

How might this graph explain why farmers were hit so hard during the Great Depression?

3. Overproduction of Goods3. Overproduction of Goods

High demand for goods created increase High demand for goods created increase in production. in production.

During WWI farmers and businesses During WWI farmers and businesses produced excess of goods. After the war produced excess of goods. After the war the demand for goods fell.the demand for goods fell.

This led to overproduction, people This led to overproduction, people weren’t buying, businesses lost money, weren’t buying, businesses lost money, laid off workers and eventually went out laid off workers and eventually went out of business.of business.

Unemployment 1925-1933

02468

101214

1925 1926 1927 1928 1929 1930 1931 1932

Year

Une

mpl

oyed

(in

mill

ions

)

Question 2: How many people were unemployed in 1925? In 1929? In 1932?

What conclusion can you draw from that?

4. Global Depression4. Global Depression World trade declined in the World trade declined in the

1920s.1920s. European countries had massive European countries had massive

war debts to pay war debts to pay European consumers were not European consumers were not

able to buy American goods.able to buy American goods. American industries were stuck American industries were stuck

with surplus goods. with surplus goods.

5. Stock Market Crash5. Stock Market Crash

Just as one could buy goods on Just as one could buy goods on credit, it was easy to borrow credit, it was easy to borrow money money to invest in the stock market; to invest in the stock market; This was called This was called “margin investing”“margin investing” (or “buying on margin.”)(or “buying on margin.”)

Small investors Small investors were more eager to were more eager to

invest ininvest inthe Stock Market the Stock Market in large numbers in large numbers

because the because the “margin “margin

requirement”requirement” was only 10%.was only 10%.

This meant that you This meant that you would buy $1,000 would buy $1,000

worth of stock with worth of stock with only 10% down, only 10% down,

or $100. or $100.

People leapt at the People leapt at the chance to invest chance to invest

in business!in business!

How did the Stock Market How did the Stock Market Crash?Crash?

March 1928 – Stock March 1928 – Stock prices soared and the prices soared and the number of shares number of shares traded rose sharplytraded rose sharply

People rush to investPeople rush to invest Stock prices were Stock prices were

400 percent higher400 percent higher Investors became Investors became

cautious, stop cautious, stop investinginvesting

Fewer buyers drove Fewer buyers drove prices downprices down

October 29October 29thth, 1929 , 1929 ““Black Tuesday””

Confidence in stock Confidence in stock market failedmarket failed

Investors began Investors began selling stocksselling stocks

Margin calls- Banks Margin calls- Banks wanted their money wanted their money from brokers, and from brokers, and brokers wanted brokers wanted their money from their money from investorsinvestors..

Neither was able to Neither was able to pay and the stock pay and the stock market crashed.market crashed.

Stock Prices 1925-1933

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5

10

15

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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?

What can you infer from the information in this graph?

Why did the market crash?Why did the market crash?

Many people bought stocks on Many people bought stocks on marginmargin——like a loanlike a loan

Companies lied about their profits — No Companies lied about their profits — No regulationregulation

Republican Presidents in the 1920s Republican Presidents in the 1920s believed in believed in laissezlaissez fairefaire—no control on —no control on businesses businesses

Stock market was not regulated by Stock market was not regulated by governmentgovernment

With the With the loss ofloss of confidenceconfidence in stocks, in stocks, people began to lose people began to lose

confidence in the confidence in the security of their money security of their money

being held in banks.being held in banks.

Customers raced to Customers raced to their banks to their banks to

withdraw withdraw their savings. their savings.

6. Bank Failures6. Bank Failures Banks made unsound loans; bank

failures resulted when the loans could not be repaid.

25% of the Banks in the US closed 25% of the Banks in the US closed Bank Runs and banks closing their Bank Runs and banks closing their

doorsdoorsled to people led to people losing their losing their life savings.life savings.

Bank Failures

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450019

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1924

1926

1928

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1944

7. Business Cycle7. Business Cycle Regular ups and downs in the economy.Regular ups and downs in the economy. The economy naturally goes through ups The economy naturally goes through ups

and downs ( Boom and Bust periods )and downs ( Boom and Bust periods )

BOOM/PROSPERITY/PEAKBOOM/PROSPERITY/PEAK HIGH DEMAND – Leads to -HIGH DEMAND – Leads to - MORE MORE

PRODUCTION which leads to HIGHER PRODUCTION which leads to HIGHER EMPLOYMENT and MORE DEMAND but it EMPLOYMENT and MORE DEMAND but it eventually produces INFLATION eventually produces INFLATION

Business CycleBusiness Cycle

SLOWDOWN/BustSLOWDOWN/Bust INFLATION/OVERPRODUCTIONINFLATION/OVERPRODUCTION

Leads to LESS PRODUCTION = LAY Leads to LESS PRODUCTION = LAY OFFS = LESS SPENDING = LOWER OFFS = LESS SPENDING = LOWER

CONFIDENCE = LESS INVESTMENT = CONFIDENCE = LESS INVESTMENT = HIGHER UNEMPLOYMENT UNTIL HIGHER UNEMPLOYMENT UNTIL

SURPLUSES ARE USED UP and the SURPLUSES ARE USED UP and the economy recoverseconomy recovers

So the economy in a free So the economy in a free enterprise goes through enterprise goes through

economic prosperity, economic prosperity, recessions and recessions and

depressions as a result of a depressions as a result of a regular business cycle. regular business cycle.