The Great Depression and New Deal (1929 – 1941)

The Causes of the Depression and the Great Crash

The Economy of the Late 1920’s• 1928 Election showed faith in the

Republican Party. Herbert Hoover defeated Al Smith (D).

• Welfare Capitalism –Supported by Hoover - Employers undermined labor unions by giving more benefits to workers. Wages rose steadily and unemployment was under 4%. Consumption was up and American confidence was up.

• 1925 Stock Market = $25 Billion by Oct. 1929 = $87 Billion! “Everyone could be rich if they invested $15/ week for 20 years = $400 per month income until they died!”

1. The Rich got Richer and the Poor became less Poor!

• 0.1% of Americans had incomes over $100,000 & they had over 34% of all savings accounts.

• 71% of families earned $2500/ yr. or less.

• Workers were 40% more productive, but paid only 8% better!

• 1% made $10,000 +/ yr.

2. Easy Credit Hides the Gap Between the Rich and Poor – temporarily!

• Buying on Time and Installment Plans allowed people to spend money they didn’t have and people lived beyond their means (radios, cars, appliances, etc.)!

• Personal Debt Skyrocketed during the 1920’s!

3. Speculation on Stocks in the Bull Market of the 1920’s!

• Easy Credit led to Buying on Margin – 10% - 50% per share of stock up front and borrow the rest at high interest!

• Very risky, but as long as prices rose it was win/ win for everyone!

• Brokers could call in margins anytime.

• Led to inflation of stock prices!

4. Overproduction Led to Layoffs!

• Overproduction caused many durable goods to stockpile in warehouses!

• The auto industry began to slump after 1925 and related industries suffered too.

• Massive layoffs of workers resulted!

• Banks were hurt too! Why?

5. Farmers Suffered Earlier and More Often During the 1920’s!

• Farm prices fell from lofty heights after WW I (1914 – 1918)!

• One-fourth of America’s workers were farmers!

• Farmers often had to overextend on credit to survive.

• 6000 Rural Banks before the 1929 Crash!

• Farmers too overproduced!

Exit Slip – Causes of the Depression

1. T or F: Stock prices rose steadily during the 1920’s.

2. T or F: Most American families earned more than $2500 a year during the 1920’s.

3. T or F: Credit was harder to get for most Americans during the 1920’s.

4. T or F: Farmers prospered during the 1920’s as they had during WW I as farm prices continued to rise throughout the decade.

Review – 5 Causes of the Depression!

1. The Gap Between the Rich and the Poor.2. Easy Credit Led to Larger Amounts of

Personal Debt.3. Unregulated Stock Speculation!4. Industrial Overproduction of Durable Goods.5. Farmers Suffered First!

The Road to the Great Crash• 1928 – Dow Jones Industrial Average – the avg. price

of stock for major industries hit 191.• Think of Points on the Dow as $$$$’s• Mar. 4, 1929 – Dow hit 313 Points!• Sept. 3, 1929 – All time high of 381 Points! The Bull

Market had run its course.• It fell gradually until Oct. 23, 1929 when it fell 21

Points in one hour.• Black Thursday, Oct. 24, 1929 orders to sell by worried

investors caused it to plummet!

Black Tuesday, Oct. 29, 1929!

• To stop panic, a group of bankers pooled $ to start buying again, but be Monday, Oct. 28th they were falling again.

• Black Tuesday – a record 16.4 Million shares sold (compared to 6 Million on a average day)!

• By November 13, the Dow had fallen to 198.7 (381 on Sept. 3rd).

• i.e. GE had been $400/ share; now $283.

• $30 Billion evaporated!• At first only the 4 million

Americans who owned stock were affected; soon millions more!

The Impact of the Crash on Workers, Farmers, & Businesses

• Factories shut down leaving millions jobless! Ford Motor Co. left 75,000 out of work by Aug. 1931!

• 1932 –1 out of 4 Americans were unemployed!• Farm prices continued to fall. Wheat from $1.04

in 1929 to $0.38 in 1932; Cotton $0.17/ lb. To $0.065/ lb.

• Business failures large and small put others out of work and slashed many incomes and hours of those able to keep their jobs.

The Impact on Banks

• Bank failures went from rural to urban.

• 9 Million savings accounts vanished and runs on banks added to the problem!

• In 1931 alone– 1500 banks ran out of money!

• Federal Reserve – tightened the money supply – big mistake!

The Depression goes Worldwide

• International banking, manufacturing, & trade had made the world interdependent by 1930.

• France and Britain could not pay U.S. because Germany could no longer borrow from U.S. banks to pay reparations!

• Republican Tariff Policy (Hawley-Smoot Tariff – 1930) – a high import tax restricted international trade.

Exit Slip – The Crash

1. October 29, 1929 is known as “__________.”2. T or F: Most businesses were hurt by the Great

Crash.3. T or F: Banks prospered after the crash

because they were the only ones that had money.

4. This European nation suffered most during the Depression?A. Great Britain B. France C. Germany