1. The Crash & Great Depression
APUSH

2. The “Spark” in the US: Fall of the Market
Economic slowdown, summer of ’29…
The Crash…
Black Tuesday: October 29th, 1929
Huge losses
Nov ‘29 = $30 billion ↓
Stock Market recovered, but…
Above: The NYSE
Below: A run on a bank

3. Short Term Causes: How we went from a Crash to a Depression
Loss of easy way to raise $$$
9,000 banks close ‘30-’33 (shrinks money supply)
Deflation and low consumer spending ↓
Businesses lower prices, production and workers

4. Long Term Causes Overexpansion & Overproduction
Companies expanded too fast
Built up surplus  cutbacks in production & workers
Automation  faster production  less workers needed
Insufficient Investment
Investment was based on profits
When profits ↓ so did investment
Poor distribution of US income
Really wealthy & really poor
Economy dependent on luxury spending
Bad Corporate Structure
Some companies focused on profit & dividends, not reinvestment
Bad Banking Structure
Unlinked system  runs & closures
World Economic slump
High US tariffs cuts off trade
Europe defaults on US loans
Federal Reserve
Refused to lower interest rates to inflate the economy…
Above: Broken windows at GM during the Flint, Michigan sit-down strike of Below: Relief line in San Antonio, TX 1939.

5. Monetary Policy in a Nutshell
Oct Sept 1931: money supply ↓ by 10%
Oct Jan 1932: discount rate ↑
Money supply ↓ another 12%
Meant to defend US$ & prevent outflow of gold
Believed the money supply was sufficient so banks
held onto excess reserves
Feb Jan 1933: Money supply mildly ↑
Banks wanted reserves rather than lend money
Jan Mar 1933: Federal Reserve ↑ discount rate
From : Monetary supply never expansionary
Like Fiscal Policy, aggressive Monetary Policy was never tried
At best, passive monetary policy attempted (no cut backs or expansion)
The money supply was allowed to ↓ 30% from
The Fed did back up some banks, but allowed ½ to falter
Underlying Beliefs
No central coordination
Belief in the Gold Standard
Belief that excess reserves signaled sufficient liquidity
But it wasn’t sufficient & led to ↑ interest rates & ↓ of private investments

6. An (other) Economist’s Way of Looking at It
Initial Stock Market Crash sets in motion a multiplier effect
National Income, or Y = C + I + G + (X – M)
C & I (Consumption & Investment)
C & I drops due to Stock Market crash
Overall impact of just 2% of the economy
Credit and Deflation
1920s spending based on credit
People stop borrowing to pay back debts
X & M (Exports & Imports)
Smoot Hawley Tariff & retaliation
G (Gov’t spending): The Keynesian Fiscal Solution?
Decrease taxes
Large and intentional increases in G
Never tried due to:
Balanced budget mentality
Idea that gov’t would misallocate resources
Idea that G would crowd out I
Idea that gov’t shouldn’t be a relief agency
Which are true and which are false?

7. Consequences of the Depression’s Severity
GNP - 25% decline
Capital investment down
(16.2 billion to 333 million)
Global Depression
Other countries couldn’t purchase American Products
Farm prices & incomes down
Industrial unemployment up to 33%
Unprecedented duration
Government did little
Laissez Faire mentality

8. Depression in Urban America
Dire situation in cities
Cleveland 50%
Akron, 60%
Toledo 80%
Poverty seen as sign of personal failure
20,000 suicides
Public charities overrun
Immigration & birth rates ↓
A line of men waiting for work

9. Depression in Rural America
The “Dust Bowl”
TX, OK, KS, NE, CO, NM
Causes:
Act of God: Insects, high temps, draught, wind…
Man-made Disaster: Over cropping, over grazing & improper farming methods
“Okies” migrate West
The Grapes of Wrath
Not everyone went
7 of 10 people stayed it out
Gov’t policies ineffective

10. Reflection Questions: First discuss with your table partner before writing your answers
In what ways was the economic downturn of the 1930s similar to the current downturn? How was it different? Explain.
Explain how the Stock Market Crash marked the beginning of the Great Depression but that it was not the cause of it.
List two things that you learned that were interesting &/or that you will remember easily a month from now.