Chapter 13Chapter 13

The Great DepressionThe Great Depression

The Crash and Its AftermathThe Crash and Its Aftermath

►Section ObjectivesSection Objectives Describe the stock market crash of 1929 Describe the stock market crash of 1929

and explain why it occurred.and explain why it occurred. Explain how the crash led to the Explain how the crash led to the

Depression and describe some underlying Depression and describe some underlying causes of this downturn.causes of this downturn.

Discuss Hoover’s response to the Discuss Hoover’s response to the Depression and how the failure of his Depression and how the failure of his policies led to his defeat in the election of policies led to his defeat in the election of 19321932

Why did the Crash Occur?Why did the Crash Occur?

►Speculation—gambling in short term Speculation—gambling in short term investments, then selling for a profitinvestments, then selling for a profit

►The bought stocks on margin—increase The bought stocks on margin—increase buying power by buying stock at fraction buying power by buying stock at fraction of costof cost The stock was collateral for the loan—broker The stock was collateral for the loan—broker

would take stock if investor couldn’t repay would take stock if investor couldn’t repay loanloan

As long as prices were high, they could sell As long as prices were high, they could sell and make a profit…if prices remained highand make a profit…if prices remained high

CrashCrash

► Too much money was lent in margin loansToo much money was lent in margin loans► Brokers started selling stocks forcing prices Brokers started selling stocks forcing prices

down.down.► Brokers called on their margins (wanted money Brokers called on their margins (wanted money

from investors) they didn’t have the moneyfrom investors) they didn’t have the money► Brokers took stock and sold it—causing prices to Brokers took stock and sold it—causing prices to

go down further.go down further.► The ensuing panic caused the bottom to fall out The ensuing panic caused the bottom to fall out

of the market. Brokers failed to repay their of the market. Brokers failed to repay their loans to banks, and millions of people saw their loans to banks, and millions of people saw their savings vanish from the banks that had made savings vanish from the banks that had made the loans. No FDIC. Unemployment rose.the loans. No FDIC. Unemployment rose.

The Causes of the Great The Causes of the Great DepressionDepression

►The stock market crash in itself did not The stock market crash in itself did not cause the Great Depression. cause the Great Depression.

►Other underlying weaknesses in the Other underlying weaknesses in the economy combined to create the most economy combined to create the most devastating economic downswing in devastating economic downswing in the nation’s history.the nation’s history.

Underlying Causes of Underlying Causes of DepressionDepression

► Loss of income by farmers due to Loss of income by farmers due to overproduction and by workers in some overproduction and by workers in some industries (textile, lumber, mining, railroad, industries (textile, lumber, mining, railroad, automobile) because of a decrease in ordersautomobile) because of a decrease in orders—wages dropped and unemployment went—wages dropped and unemployment went As a result, under consumption ensuedAs a result, under consumption ensued

Wealth DistributionWealth Distribution

►Growing gap between rich and poorGrowing gap between rich and poor►Workers didn’t get pay increasesWorkers didn’t get pay increases

Reduced consumer power—all the goods Reduced consumer power—all the goods piled up in warehousepiled up in warehouse

Restricted Monetary PolicyRestricted Monetary Policy

►Federal Reserve—didn’t have enough Federal Reserve—didn’t have enough money in circulation that was large money in circulation that was large enough to allow the economy to enough to allow the economy to bounce back after stock market crashbounce back after stock market crash

Decline in Foreign TradeDecline in Foreign Trade

►Our weak economy hurt other nationsOur weak economy hurt other nations►We lent money to other countries—We lent money to other countries—

after WWIafter WWI►We began buying stock, and not We began buying stock, and not

putting it in bank—didn’t have as putting it in bank—didn’t have as much to loan other countriesmuch to loan other countries They didn’t have as much to buy our goodThey didn’t have as much to buy our good Also had high tariffs—blocked Also had high tariffs—blocked

international tradeinternational trade

Hoover’s ResponseHoover’s Response

►Realizing that people’s faith in the Realizing that people’s faith in the plummeting economy might hinder the plummeting economy might hinder the chances of recovery, Hoover claimed that chances of recovery, Hoover claimed that the economic downswing would soon the economic downswing would soon pass.pass.

►Following his faith in voluntary action, Following his faith in voluntary action, Hoover asked business leaders to pledge Hoover asked business leaders to pledge not to cut wages or production. He urged not to cut wages or production. He urged city and state governments to stimulate city and state governments to stimulate local economies through building projects.local economies through building projects.

Hoover’s response cont.Hoover’s response cont.

► Hoover funneled aid to farmers through the Agricultural Hoover funneled aid to farmers through the Agricultural Marketing Act, which helped farmers set up cooperative Marketing Act, which helped farmers set up cooperative marketing associations. However, the act could do marketing associations. However, the act could do nothing to help the thousands of individual farmers who nothing to help the thousands of individual farmers who went bankrupt in the early 1930s.went bankrupt in the early 1930s.

► Despite Hoover’s efforts, business conditions worsened. Despite Hoover’s efforts, business conditions worsened. The early 1930s saw declining incomes, rising The early 1930s saw declining incomes, rising unemployment, and mounting business failuresunemployment, and mounting business failures

► With the number of unemployed growing every month, With the number of unemployed growing every month, charity funds soon proved inadequate. The Federal charity funds soon proved inadequate. The Federal Reserve compounded the problem by squandering Reserve compounded the problem by squandering chances to rescue the collapsing banking system.chances to rescue the collapsing banking system.

Too Little Too LateToo Little Too Late

►Hoover introduced government programs Hoover introduced government programs to deal with the economic crisisto deal with the economic crisis

►Federal relief agency called Federal relief agency called Reconstruction Finance Corporation in Reconstruction Finance Corporation in 19321932 Give $2 billion in loans to banks, insurance Give $2 billion in loans to banks, insurance

companies, and RRcompanies, and RR Trickle-down method couldn’t relieve Trickle-down method couldn’t relieve

unemployment immediatelyunemployment immediately

Bonus ArmyBonus Army

►WWI veterans promised a bonus by WWI veterans promised a bonus by government payable in 1945government payable in 1945

►Feeling the problems of the depression, Feeling the problems of the depression, they wanted their bonus earlythey wanted their bonus early

►Marched and camped in Washington Marched and camped in Washington D.C.D.C.

►Congress defeated billCongress defeated bill►MacArthur forced the Bonus Army out MacArthur forced the Bonus Army out

using unnecessary means.using unnecessary means.

Chapter 13-2 The Dream on Chapter 13-2 The Dream on HoldHold

►Section ObjectivesSection Objectives Tell how the Depression affected rural and Tell how the Depression affected rural and

urban families differently.urban families differently. Describe how communities responded to Describe how communities responded to

hardship.hardship. Explain upheaval in the family during the Explain upheaval in the family during the

Depression.Depression.

Life on the FarmsLife on the Farms

►Foreclosure—couldn’t pay bankForeclosure—couldn’t pay bank►Penny Auctions—friends would buy goods Penny Auctions—friends would buy goods

cheap and give items backcheap and give items back►Okies—sold what they had and drifted for Okies—sold what they had and drifted for

work (California) at huge farms, competitionwork (California) at huge farms, competition►Tenant Farmers—affected and left to travel Tenant Farmers—affected and left to travel

for work, African Americans hurt mostfor work, African Americans hurt most►Mexican Americans—illegal aliens (Mexico)Mexican Americans—illegal aliens (Mexico)

Life in the CityLife in the City

►25% unemployment rate25% unemployment rate►Absence of activity—beggarsAbsence of activity—beggars►Unemployment patternUnemployment pattern►People lost everything and adjusted People lost everything and adjusted

their lifestyles, even wealthy.their lifestyles, even wealthy.►Hoovervilles—2 million on the roadHoovervilles—2 million on the road►Family roles affected—some families Family roles affected—some families

became stronger, some fell apartbecame stronger, some fell apart

Chapter 13-3 Life During the Chapter 13-3 Life During the DepressionDepression

►Car craze—status symbolCar craze—status symbol