The Crash and Depression NOTES FOR COLLEGE ECON. Section 3: The Economy in the Late 1920s People expected the “Coolidge prosperity” to continue in Hoover’s

The Crash and Depression

NOTES FOR NOTES FOR

COLLEGE ECONCOLLEGE ECON

Section 3: The Economy in the Late 1920s People expected the People expected the

“Coolidge prosperity” “Coolidge prosperity” to continue in to continue in Hoover’s presidency.Hoover’s presidency.

1928 Statistics Life expectancyLife expectancy

Men: 59Men: 59 Women: 63Women: 63

Economy Appears Healthy Stock Market is a Stock Market is a

weathervane for the weathervane for the economy.economy. Since 1914: Wages Since 1914: Wages

were up 40%were up 40% Unemployment Unemployment

VERY low: 4%VERY low: 4% ““Food, shelter and Food, shelter and

clothing for all.”clothing for all.”

Everybody Ought to be Rich High confidence in High confidence in

business.business. Many people were Many people were

investing in businesses – investing in businesses – even things that were even things that were risky.risky.

Labor Stability: “welfare Labor Stability: “welfare capitalism”capitalism” Better wagesBetter wages Paid benefits & Paid benefits &

vacationvacation

Economic Danger Signs Uneven ProsperityUneven Prosperity Personal DebtPersonal Debt Playing the Stock Playing the Stock

MarketMarket Too many goods, too Too many goods, too

little demandlittle demand Trouble for farmers Trouble for farmers

and workersand workers

Economic Danger Signs: Uneven Prosperity Stock Market success Stock Market success

meant mostly the rich meant mostly the rich got richer.got richer.

1929: 200 businesses 1929: 200 businesses controlled 49% of the controlled 49% of the wealth of the nation.wealth of the nation.

Economic Danger Signs: Uneven Prosperity 1929: 24,000 families 1929: 24,000 families

– only .1% of the of – only .1% of the of the population – had the population – had incomes of over incomes of over $100,000.$100,000.

They held 34% of the They held 34% of the country’s TOTAL country’s TOTAL savings.savings.

Economic Danger Signs: Uneven Prosperity 71% of the people in 71% of the people in

the US earned LESS the US earned LESS than $2,500.than $2,500.

80% had NO savings80% had NO savings Most families needed Most families needed

EVERYONE – EVERYONE – including children – to including children – to work to support the work to support the family.family.

Economic Danger Signs: Uneven Prosperity Government tax policy Government tax policy

made it worse.made it worse. Taxed the poor Taxed the poor

more and gave big more and gave big breaks to the rich.breaks to the rich.

Thought taxing the Thought taxing the rich interfered with rich interfered with business expansion.business expansion.

Economic Danger Signs: Personal Debt Most Americans were Most Americans were

living on credit.living on credit. Believed that future Believed that future

income would income would cover their debts.cover their debts.

Bought radios, Bought radios, vacuum cleaners, vacuum cleaners, cars, cars, refrigeratorsrefrigerators

Economic Danger Signs: Playing the Stock Market ““Get-rich-quick” Get-rich-quick”

attitude in 1920s.attitude in 1920s. SPECULATION: SPECULATION:

Practice of making Practice of making high-risk investments high-risk investments in hope of getting a in hope of getting a huge return.huge return.

Economic Danger Signs: Playing the Stock Market Investors could purchase Investors could purchase

stock (a share of stock (a share of ownership in a company)ownership in a company)

BUYING ON MARGINBUYING ON MARGIN Purchase stock for a Purchase stock for a

fraction of the price.fraction of the price. 10% down – borrow the 10% down – borrow the

rest.rest. If stock went UP in If stock went UP in

price – you could pay price – you could pay off the loan for the off the loan for the

stock and the intereststock and the interest..

Economic Danger Signs: Too Many Goods, Too Little Demand Overproduction causes Overproduction causes

prices to go DOWN.prices to go DOWN. ““Ripple Effect”Ripple Effect”

1925 Ford had to 1925 Ford had to cut making cars, cut making cars, because too many because too many were not being sold.were not being sold.

Affected steel, Affected steel, rubber and glass.rubber and glass.

Jobs got cutJobs got cut

Economic Danger Signs: Too Many Goods, Too Little Demand Between 1928 – 1929 Between 1928 – 1929

housing construction housing construction fell by 25%.fell by 25%.

People weren’t feeling People weren’t feeling quite so secure about quite so secure about their futures.their futures.

Economic Danger Signs: Trouble for Farmers and Workers Farmers had gone into Farmers had gone into

debt to buy more land debt to buy more land and machinery to and machinery to grow more ag goods.grow more ag goods.

1920s – Farmers 1920s – Farmers unable to pay their unable to pay their loans because of bad loans because of bad farm prices.farm prices.

Economic Danger Signs: Trouble for Farmers and Workers

Many farmers lost Many farmers lost their farms.their farms.

Enough farmers not Enough farmers not paying their loans paying their loans made the banks that made the banks that had loaned the money had loaned the money fail.fail. 6,000 rural banks 6,000 rural banks

failed in 1920sfailed in 1920s

Economic Danger Signs: Trouble for Farmers and Workers 1927 and 1928 1927 and 1928

Congress tried to pass Congress tried to pass laws to help farmers.laws to help farmers. Coolidge vetoed Coolidge vetoed

themthem It wasn’t the It wasn’t the

government’s job to government’s job to provide assistance provide assistance to farmers.to farmers.

Laissez - FaireLaissez - Faire

Economic Danger Signs: Trouble for Farmers and Workers Many laborers did not Many laborers did not

have higher wages and have higher wages and benefits.benefits.

Rayon mills in Rayon mills in Tennessee: Women Tennessee: Women worked worked 56-hour56-hour weeks earning weeks earning 16-18 16-18 centscents an hour. an hour.

$10 a week!!!!$10 a week!!!!

Setting the SceneSetting the Scene

October 29, 1929October 29, 1929

CRASH!CRASH!

The Market CrashesThe Market Crashes

NOTE: A stock’s NOTE: A stock’s value SHOULD be value SHOULD be based on the based on the company’s earnings company’s earnings and assets.and assets.

BUT: Demand and BUT: Demand and speculation can make speculation can make a stock price go up a stock price go up even more.even more. Think of auctionsThink of auctions

The Market CrashesThe Market Crashes

Leads to Leads to OVERVALUED OVERVALUED stocks.stocks.

Then, if you borrowed Then, if you borrowed money to get the stock money to get the stock ……

CRASCRASHH

People asked “How did this happen?”People asked “How did this happen?” Black Thursday:Black Thursday:

Some banks and brokers Some banks and brokers began to call in loans after began to call in loans after stocks began to fall in stocks began to fall in value.value.

People who had bought People who had bought General Electric at $400 General Electric at $400 had to sell for $283.had to sell for $283.

In one day $3,000,000,000 In one day $3,000,000,000 was lost!was lost!

Black Thursday: October 23, 1929Black Thursday: October 23, 1929

4 – 8 million shares of 4 – 8 million shares of stock were sold.stock were sold.

Reassurances from Reassurances from stock specialists and stock specialists and the President.the President.

““The nation’s business The nation’s business is on a sound and is on a sound and prosperous basis.”prosperous basis.”

Black Tuesday: October 29, 1929Black Tuesday: October 29, 1929

To stop the panic of To stop the panic of Thursday, bankers Thursday, bankers pooled their money to pooled their money to buy up stocks to make buy up stocks to make things look stable for things look stable for Friday and MondayFriday and Monday


THAT is what THAT is what happened to ALL happened to ALL stocks.stocks. Investors lost moneyInvestors lost money Businesses lost profitsBusinesses lost profits Workers were laid offWorkers were laid off Banks who had loaned Banks who had loaned

money failed when money failed when people couldn’t pay people couldn’t pay back their loans.back their loans.

October 29, 1929October 29, 1929 Because investors Because investors

were consumers – they were consumers – they had NO money to buy had NO money to buy things.things.

Businesses couldn’t Businesses couldn’t sell products.sell products.

Laid off workers.Laid off workers. Who couldn’t buy Who couldn’t buy

things then.things then. Businesses failed.Businesses failed.

October 29, 1929October 29, 1929 Because investors Because investors

couldn’t pay loans couldn’t pay loans back to banks ..back to banks ..

Because businesses Because businesses couldn’t pay back couldn’t pay back loans to banksloans to banks

Because banks had Because banks had also been speculating also been speculating on the stock market on the stock market with savers’ money …with savers’ money …


Banks are rumored to Banks are rumored to be failingbe failing

Bank runs to try to get Bank runs to try to get money out of banks.money out of banks.

But THERE WAS NO But THERE WAS NO MONEY!MONEY!

BANKS FAIL and BANKS FAIL and close.close.

October 29, 1929October 29, 1929 Because Americans have Because Americans have

no money to investno money to invest Global investments fallGlobal investments fall Unemployment happens in Unemployment happens in

other countriesother countries The rest of the world can The rest of the world can

not afford US goodsnot afford US goods Europe can’t pay off their Europe can’t pay off their

war debts to US businesseswar debts to US businesses Closes more US factoriesCloses more US factories

October 29, 1929: The Great CrashOctober 29, 1929: The Great Crash It wasn’t enough!It wasn’t enough! Tuesday – people Tuesday – people

panicked.panicked. 16 million shares were 16 million shares were

sold.sold. When there is more When there is more

supply than demand supply than demand PRICES GO PRICES GO

DOWN, DOWN, DOWN, DOWN, DOWN, DOWN DOWN, DOWN

October 29, 1929: The Great CrashOctober 29, 1929: The Great Crash

Overall losses Overall losses $30,000,000,000$30,000,000,000

The business cycle – a The business cycle – a period in which the period in which the economy grows then economy grows then contracts.contracts.

The Ripple Effect of the CrashThe Ripple Effect of the Crash

Someone who thought Someone who thought and lived like they had and lived like they had a million dollarsa million dollars Found out they only Found out they only

had $100.had $100.

Ripple Effect on the EconomyRipple Effect on the Economy

Risky loans hurt banksRisky loans hurt banks Banks earn their Banks earn their

profits on the profits on the interest they earn interest they earn for loaning out for loaning out money.money.

Gave out HUGE Gave out HUGE amounts of loans on amounts of loans on very risky loans.very risky loans.

Ripple Effect for the economyRipple Effect for the economy

Consumer borrowing:Consumer borrowing: Banks also make Banks also make

money on loans they money on loans they make to consumers to make to consumers to buy cars, appliances, buy cars, appliances, etc.etc.

Consumers lost money Consumers lost money and / or their jobs and and / or their jobs and could not pay their could not pay their debts to the bank.debts to the bank.

Ripple Effect on the EconomyRipple Effect on the Economy Bank Runs: Bank Runs:

People rushing to the bank People rushing to the bank to get their money out.to get their money out.

Banks didn’t have enough Banks didn’t have enough money in the vaults to give money in the vaults to give people withdrawing.people withdrawing.

Banks had to call in loans Banks had to call in loans to get some money.to get some money.

Consumers and businesses Consumers and businesses did not have the moneydid not have the money


Savings wiped outSavings wiped out By 1933 9 million By 1933 9 million

savings accounts savings accounts had vanished.had vanished.


Cuts in ProductionCuts in Production Businesses had no Businesses had no

money to keep money to keep producing goods.producing goods.

Few people had the Few people had the money to buy money to buy goods.goods.


Rise in unemploymentRise in unemployment Businesses laid off Businesses laid off

workers.workers.


Further cuts in Further cuts in production as production as unemployment grew unemployment grew and incomes shrank, and incomes shrank, consumers spent less consumers spent less and less money and and less money and businesses produced businesses produced still fewer goods.still fewer goods.

Economic ContractionEconomic Contraction

An economic decline An economic decline marked by falling marked by falling output of goods and output of goods and services. services. THE GREAT THE GREAT

DEPRESSIONDEPRESSIONLasted until Lasted until

19411941

The Great Depression: Impact on Workers and FarmersThe Great Depression: Impact on Workers and Farmers

August 1931 – Ford August 1931 – Ford closed its Detroit closed its Detroit factories.factories. 75,000 unemployed 75,000 unemployed

in one day.in one day. Millions others Millions others

unemployed.unemployed.

The Great Depression: Effect on Workers and FarmersThe Great Depression: Effect on Workers and Farmers

Because large Because large factories closed – factories closed – small businesses and small businesses and restaurants began to restaurants began to fail too.fail too. No customersNo customers No merchandiseNo merchandise Rich people laid off Rich people laid off

staff staff

The Great Depression: Effect on Workers and FarmersThe Great Depression: Effect on Workers and Farmers

Farm prices that were Farm prices that were already low, fell even already low, fell even more.more.

1929: 1 bushel of 1929: 1 bushel of wheat was $1.18wheat was $1.18

1932: 1 bushel of 1932: 1 bushel of wheat went for 42 wheat went for 42 centscents

DISASTER FOR DISASTER FOR FARMSFARMS

The Great Depression: Underlying CausesThe Great Depression: Underlying Causes

Unstable economyUnstable economy OverspeculationOverspeculation

Optimism was more Optimism was more than real value for than real value for goods.goods.

Government policiesGovernment policies Too late, the Too late, the

government in 1929 government in 1929 tried to stop the tried to stop the overspeculation.overspeculation.

Only made it worse.Only made it worse.

HoovervillesHoovervilles

How did people “get How did people “get by”?by”? Houses with Houses with

extended families.extended families. Drifted as hobos, Drifted as hobos,

migrant workersmigrant workers Shantytowns Shantytowns

“Hoovervilles”“Hoovervilles”

HoovervillesHoovervilles

Depression’s Effect on HealthDepression’s Effect on Health

““No one has starved.”No one has starved.” President HooverPresident Hoover

Effect on HealthEffect on Health

But some did.But some did. Thousands went Thousands went

hungry.hungry. Poor, hungry and Poor, hungry and

without shelter – more without shelter – more prone to illness.prone to illness. Particularly Particularly

children.children.

Impact on HealthImpact on Health In the country, people In the country, people

grew food. grew food. Used for food and to Used for food and to

barter for other goods.barter for other goods. In the cities, sold apples In the cities, sold apples

and pencils.and pencils. Begged for money and Begged for money and

food.food. Fought over restaurant Fought over restaurant

garbage.garbage.

Stress on FamiliesStress on Families

Men felt like failures Men felt like failures for not providing for for not providing for families.families.

Women were often Women were often fired for “taking” jobs fired for “taking” jobs from men.from men. Particularly if Particularly if

marriedmarried Women took low-paying Women took low-paying

jobs as domestics.jobs as domestics.

Discrimination IncreasesDiscrimination Increases Times created Times created

hostilities against hostilities against minorities.minorities. Whites were willing to Whites were willing to

take the low wages of take the low wages of Asian-Americans, Asian-Americans, Hispanics and African-Hispanics and African-Americans.Americans.

Mass deportation of Mass deportation of Mexican-Americans – Mexican-Americans – even though they were even though they were born in the USA!born in the USA!

President Hoover’s Response?President Hoover’s Response?

Said if Americans had Said if Americans had “confidence” things “confidence” things would get better.would get better.

Blamed other Blamed other countries not the countries not the American economy.American economy.

Tried to tell people the Tried to tell people the factories would factories would quickly reopen.quickly reopen.

President Hoover’s ResponsePresident Hoover’s Response

Voluntary ActionVoluntary Action Let volunteer Let volunteer

organizations like organizations like church charities and church charities and local governments local governments help people.help people.

It wasn’t It wasn’t Washington’s job Washington’s job to support and help to support and help people.people.

President HooverPresident Hoover After 1931, he did try After 1931, he did try

SOME federal SOME federal programs to help programs to help people – but it wasn’t people – but it wasn’t enough.enough. Hoover thought Hoover thought

government aid would government aid would cause people to lose cause people to lose their self-respect.their self-respect.

Offered the Classical Offered the Classical Economic Model’s tax Economic Model’s tax cuts to people.cuts to people.

Election of 1932Election of 1932

Republican: Herbert Republican: Herbert HooverHoover

Democrat: Franklin D. Democrat: Franklin D. RooseveltRoosevelt

Who do you think Who do you think won???won???

Election of 1932Election of 1932

Electoral MapElectoral Map

Documents

The Crash and Depression NOTES FOR COLLEGE ECON. Section 3: The Economy in the Late 1920s People expected the “Coolidge prosperity” to continue in Hoover’s