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Chapter 30: The Causes of the Great Depression. What caused the most severe economic crisis in American history ?. Black Tuesday. October 29, 1929 The U.S. Stock Market lost 90% of its value. When the stock market crashed, it triggered the economic collapse. - PowerPoint PPT Presentation
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Chapter 30: The Causes of the Great Depression
What caused the most severe economic crisis in
American history?
Black Tuesday
• October 29, 1929• The U.S. Stock
Market lost 90% of its value.
• When the stock market crashed, it triggered the economic collapse
The Causes of the Great Depression
1. A Speculative Boom Leads to a Spectacular Crash– A “bull market” versus a “bear market”
• A rise in stock prices versus a drop in stock prices• The 1920’s could be characterized as a bull market
– The ability to buy on margin• $1000.00 buys $10,000.00 worth of stock• Price goes up, sell the stock, pay the broker, the rest is profit• IF the price goes up…
• Speculation – a risky investment to get rich quick– Stock prices were not accurately reflecting the real
value of the companies
The Causes of the Great Depression
2. A Banking Crisis Wipes Out People’s Savings–Where do you think
the money was coming from that brokers were lending?
– Bank runs fueled the panic
– Banks were not safe anymore
The Causes of the Great Depression3. Overproduction Puts Too Many Goods in
Stores– Assembly line and mass production increases
output with decreasing demand– Not enough consumers to buy all the products
4. A widening Wealth Gap Leads to Rising Debt– Profits for business owners did NOT lead to
increasing wages– An estimated 40% of Americans lived in poverty
5. High Tariffs Hurt Foreign Sales‒ Limited U.S. market and now a limited
international market
The Causes of the Great Depression
6. Farmers Were the First to Experience the Pain of Underconsumption– When the war
ended, their markets disappeared
– Farmers lost everything as banks seized their property for payment of debts
As industry declined,
companies laid off workers.
Workers who lost their jobs could
not pay their debt and reduced
consumption.
Industries produced less since people were buying
less.
Government Actions Make a Bad Situation Worse
• The Role of the Fed (The Federal Reserve)–Manages the nation’s money supply
• Discount Rate = the rate of interest the Fed charges banks to borrow money
– Low interest rates make borrowing easy (the story throughout the 1920’s)
– 1931 the Fed raises the discount rate, raising interest, decreasing the money in circulation, depriving businesses of the capital they needed
• The Hawley-Smoot tariff sets record high rates to protect American industry but destroys international trade– Farmers and businesses lose overseas markets
• The Great Depression was a global event
A Bad Situation Gets Worse
Chapter 31: The Response to the
Economic CollapseHow did the federal
government respond to the economic collapse that
began in 1929?
The Story of the Bonus Army• May, 1932: veterans flocked to
Washington D.C. for payment of a bonus due in 1945 (they needed the money now)– By summer, 12,000 WWI vets were
there• President Herbert Hoover believed in
self-reliance, rugged individualism and hard work, not handouts
• He ignored the veterans at first then with tear gas, tanks and armed soldiers, he cleared out the Bonus Army
• The nation was stunned
How To Respond: Three Perspectives
• The Conservative Response: Let the economy stabilize–Maintain the status quo– Opposed to large scale government
interference– The economy will
stabilize if left alone– It is all part of the
business cycle– Any government
intervention should only be at the local level
How To Respond: Three Perspectives
• The Liberal Response: The government must help– Government is needed to protect individuals
from dangerous working conditions, monopolies, unsafe food or economic catastrophe/hardships
– Called for the funding of public works = government funded construction projects
– New taxes to raise money for social welfare– The government needs to take an active role
in the capitalist system to help by working closely with businesses
How To Respond: Three Perspectives
• The Radical Response: Capitalism must go– Radicals desire sweeping social, political or
economic change (could be through democratic means or via revolution)
– Communism would allow government planners to distribute wealth according to people’s needs
– The working class would rise up against the “greedy capitalists”
Hoover’s Conservative Response• Local communities, churches and
private charities could take care of their own
• Hoovervilles were on the rise• A liberal response was needed when
his conservative response was failing– RFC to issue government
loans to banks, railroadsand other big businesses
– A “trickle down” theory
• Hoover (R) vs. Franklin D. Roosevelt (D)• FDR promised America a “New Deal”
•New Deal—relief for needy, economic recovery, financial reform•With “Brain Trust,” FDR formulates policies to alleviate problems
The Election of 1932
The 100 Days• Passes over 15 major New Deal laws • Emergency Banking Relief Act permits Treasury Dept. to inspect banks and decide which are insolvent, sound, or need loans–Public confidence in banks revived
• Federal Securities Act—companies must give all information on stocks–Securities and Exchange Commission created to
regulate stock market• FDR gets law allowing production of some alcoholic beverages–21st Amendment repeals prohibition by end of 1933
• Tennessee Valley Authority creates jobs renovating, building dams
The 100 Days•NIRA establishes codes of fair practice for industries–Creates National Recovery Administration (NRA)–NRA sets standards, prices, limits production–Creates the Public Works Administration
• Federal Emergency Relief Administration—aid to states to provide direct relief to the needy• The Agricultural Adjustment Act sets prices on farm crops while trying to reduce overproduction• CCC provides jobs for 250,000 single men 18-25 years old working in forests, parks, etc
Chapter 32: The Human Impact of the Great Depression
How did ordinary Americans endure the hardships of the Great
Depression?
The Country in Economic Distress• Unemployment– From 1929 - 1933 almost 1 in 7
businesses failed– 1929: 3.1% unemployment / 1933: 25% – The unemployed had little to spend,
businesses lost customers, so they closed = increasing unemployment
• Farms lost half their value– Foreclosure (lose the farm, the $, the
home, the livelihood)– Tenant farmers and sharecroppers in the
South fared even worse • Mississippi annual income fell from $239.00 in
1929 to $117.00 in 1933
Financial Stress Affects Families• Financial stress leads to
psychological stress as adults lose their jobs, status, authority and self-respect
• Marriage and birth rates declined• Divorce rates declined– Couldn’t afford to live separately– Couldn’t afford the legal fees
• Families lost their homes = eviction• Teenagers left home in search of
work
Financial Stress Affects Families• Hoovervilles spring up• Estimated that 1 in 5 New York children
were malnourished and a lack of proper nutrition made people vulnerable to disease– Couldn’t afford medical care– Soup kitchens and breadlines multiplied
The Dust Bowl: Natural Disasters
Intensify the Suffering
• The drought of 1931 lasted for several years, and millions of people had fled the area by the time it lifted.
• Agricultural practices in the 1930s left the area vulnerable to droughts creating desertification• Overfarming• Increased grazing• Land once covered with protective grasses was now bare, with
no vegetation to hold the soil in place.• When wind storms came, they stripped the rich topsoil
and blew it hundreds of miles. The dust sometimes flew as far as the Atlantic Coast.
• Dust mounds choked crops and buried farm equipment, and dust blew into windows and under doors.
Like the Joads in the Steinbeck novel, The
Grapes of Wrath, families head to
California to escape the Dust Bowl
While droughts continued in the West, floods plagued the East and indicated a need for federal action
Struggling to Get By• 80,000 students drop out of college between 1932 –
1933• Took any jobs available simply to keep a paycheck
coming (better than receiving a government handout)• Those who were still employed worked fewer hours for
less pay• Americans responded
favorably– Charitable giving
increased– Even Al Capone
financed a soup kitchen• Public assistance though,
was running out
Chapter 33: The New Deal and Its LegacyHow did the expansion of government during the
New Deal affect the nation?
The “First” New Deal• Shoring up the Financial Sector– Emergency Banking Act, FDIC, SEC
• Shoring up Free Enterprise– NIRA creates the NRA• An increase in government
regulation and economic planning• Helps business with price controls
to limit competition• Unions get minimum wages and
collective bargaining• The unemployed get more public
works projects
• To help farmers– AAA to reduce production and raise prices
• To promote economic development– TVA to “electrify” the Tennessee Valley and
provide flood and erosion control• To help homeowners– Home Owners’ Loan Corp. to
help meet mortgage payments– FHA to insure loans
• To help the “forgotten man”– CCC for jobs – FERA for direct relief
New Deal Critics• From the Right (conservatives)– Too radical, too much, unconstitutional
• From the Left (liberals)– Not enough action, not enough help• Dr. Francis Townsend proposes a $200.00
monthly payment for everyone over the age of 60• Charles Coughlin (a “radio” priest) claims
FDR has out-Hoovered Hoover and wasn’t doing enough• Huey Long, a Louisiana senator, launches a
“Share our Wealth” campaign for guaranteed jobs and guaranteed incomes
The Second New Deal• Beginning in 1935: more legislation–When is the next election going to
occur?• WPA hires musicians, writers, artists,
construction workers– Eventually the WPA hires 7% of the
American workforce
The Supreme Court Attacks the New Deal
• Strikes down the N.I.R.A.– No presidential power to
issue “codes of fair competition”
• Strikes down the A.A.A.– “beyond the powers
delegated to the federal government”
• FDR tries to add additional justices to “pack” the Court in his favor– Bad idea, much public anger over
the scheme
…And Even More• Wagner Act (National Labor Relations
Act)– The Bill of Rights for organized labor– Union membership climbs to 28% of the
total labor force• Social Security– Retirement and disability
The Impact(s) of the New Deal• A good deal for workers
– Secured the right to form unions– Secured the right to bargain collectively
• A mixed deal for women– The influence of FDR’s wife Eleanor was huge– An unprecedented number of female workers
were hired by FDR’s administration– Not all women fared well as society was slow
to change• A disappointing deal for African-Americans– Oppression didn’t change– Even New Deal agencies practiced segregation
The Impact(s) of the New Deal• A better deal for American Indians
– Commissioner of Indian Affairs, John Collier, reversed some harmful policies of previous administrations
• A tough deal for Mexican Americans– The AAA didn’t help migrant Mexican farm
workers–Mexican laborers were not citizens and not
entitled to any New Deal relief• A New Deal Coalition for Democrats–Women + minorities + industrial workers +
immigrants + southern whites + city dwellers
Foundation for the modern welfare state (government responsibility) and
deficit spending becomes the norm