2 WHATDUNIT? The Great Depression Mystery THE AMERICAN ECONOMY WENT FROM UNPRECENTED PROSPERITY IN THE 1920s TO UNPRECIDENTED MISERY IN THE 1930sWHY?
3 THE BUSINESS CYCLE: THE UP’s & DOWN’s OF THE ECONOMY
4 Laissez Faire Economic Policy Prior to the Great Depression the US. Government ignored the business cycles of the US economy. The Government until FDR believed that the American Economy could fix itself.The Great Depression is aTurning Point in US History!
5 Government Today is in charge of the US Economy! Presidents win or lose elections based on economic performance! Government control over one third of our $10 trillion economy!!
6 THE BUSINESS CYCLE BOOM/PROSPERITY/PEAK HIGH DEMAND DESIRE FOR MORE PROFITS = GREATER INVESTMENT = MORE PRODUCTION = HIGHER EMPLOYMENT = MORE DEMAND = HIGHER PRICES (INFLATION)
7 THE BUSINESS CYLCLE CONTRACTION/SLOWDOWN INFLATION/OVERPRODUCTION LESS PRODUCTION = LAY OFFS = LESS SPENDING = LOWER CONFIDENCE = LESS INVESTMENT = HIGHER UNEMPLOYMENTUNTIL SURPLUSES ARE USED UP
8 BUSINESS CYCLE TROUGHS BUSINESS CYCLE TROUGHSRECESSION = TWO SUCCESSIVE 1/4’s (3 MONTH PERIODS) OF DECLINING GDP ($ OF GOVT, CONSUMER AND BUSINESS SPENDING)DEPRESSION = UNEMPLOYMENT GREATER THAN 12%
9 THE BUSINESS CYCLE EXPANSION/RECOVERY HIGHER DEMAND SURPLUS REDUCTION = MORE PRODUCTION = RECALL OF WORKERS = MORE PURCHASING= INCREASED INVESTMENTS = ECONOMIC GROWTH
10 A DIFFICULT LEARNING EXPERIENCE FOR THE U.S.!! THE GREAT DEPRESSIONA DIFFICULT LEARNING EXPERIENCE FOR THE U.S.!!
11 CAUSES OF THE GREAT DEPRESSION AGRICULTURAL OVERPRODUCTIONPOOR ENVIRONMENTAL POLICIES & PRACTICEEASY MONEY (CREDIT)INDUSTRIAL OVERPRODUCTIONUNEVEN DISTRIBUTION OF WEALTHOVERSPECULATION +MARGIN BUYING
12 AGRICULTURAL OVERPRODUCTION INCREASED TECHNOLOGYGOOD GROWING CONDITIONSSUPPLY GREATER THAN DEMANDDrop in priceFarmers couldn’t paydebts
13 The Great Dust Bowl Over use & Over grazing No soil conservation No crop rotationNo soil conservationNo wind breaksLoss of natural grasses and animalsClimatic change – the drought of the 30’s
14 EASY MONEY (CREDIT) Increasing debt + stagnant wages + INTEREST RATES ON LOANS WERE TOO LOW = TOO MUCH BORROWING INTEREST RATES ON SAVINGS WERE TOO LOW = TOO MUCH SPENDING (INFLATION) EXCESSIVE REAL ESTATE CONSTRUCTION = OVERSUPPLYIncreasing debt + stagnant wages +Rising prices = decreased buyingGHS Rules
15 INDUSTRIAL OVERPRODUCTION WAGES NOT KEEPING UP WITH INFLATIONSUPPLY GREATER THAN DEMANDDeclining demand after WWIKey industries barley making profit
16 UNEVEN DISTIBUTION OF WEALTH Many Poor and Very Few Rich!Workers earn so little they can’t buythe products they produce!Wages were as little as 20 – 25 cents per hour!Even the best employer Ford Motor Companypaid only $5.00/Day for a 6AM-6PM shift!Almost ½ of America earned less than the min amountNeeded for a a decent standard of living
17 Prices in the 1920’s & 1930’s Great Prices But? 6 Room House $3000 BB Gun $2Chevy 2 Door $540Blanket $1Chrysler 4 door $1000Potatoes 2 cents a poundMen’s Suit $11Bedroom set $50Baseball Glove $1.19Butter 28 cents a poundWomen’s Coat $6Gas 20 cents/gallonShoes $2Vacuum cleaner $18Hamburger cents a pound
18 Prices in the 1920’s & 1930’s Hamburger 1 pound for 1 hours work 6 Room House – 12,000 hrs.Gas - 45 minutesChevy 2 Door – 2160 hrs.Vacuum cleaner - 72 hoursChrysler 4 door – 4000 hrs.Bedroom set hrs.BB Gun – 8 hoursBlanket - 4 hoursBaseball Glove – 5 hoursShoes - 8 hoursMen’s Suit - 44 hoursPotatoes 10 minutes work/poundWomen’s Coat - 24 hoursButter 1 pound for 1 hours work
19 Salaries 1920’s and 1930’s Bus driver: no power steering or brakes? First minimum wage under FDR?$1300 or $0.43/hr$0.25/hrTeacher?Highest paid production workers in the 1920’s – Ford Motor Company?$1227$5.00/day or $0.48/hr.WaitressFarm Prices: Potatoes, Cotton, Pork?$520 or $0.20/hr$0.01/pound potatoesFarmhand$0.05/pound cotton$216 or $0.07/hr$0.05/pound pork
20 The refrigerator cots $700 but wages for the worker on the left were $2.50 per day.Henry Ford paid anunprecedented $5/dayfor a 6AM-6PM dayswork!The first B-9 refrigerator built in Dayton, Ohio, October 10, 1921, is shown here as itcame off the assembly line at the old Delco Light plant. Delco-Light, a subsidiary ofGeneral Motors, specialized in home light-generating systems. Corporate officialsthought that the household refrigerator could compliment home lighting sales. Theywere to realize the Frigidaire potential later in the decade. Frigidaire was to grow intoa division in its own right with products in one out of every four homes in the UnitedStates. This old unit sold for over $700.
25 “Cycle of Disaster” – many businesses went bankrupt Businesses cutproductionWorkers sufferedfrom wage cutsand lay offs.Demand forgoods fell.People hadlittle or nomoney to spend.
26 CAUSES OF THE GREAT DEPRESSION AGRICULTURAL OVERPRODUCTIONPOOR ENVIRONMENTAL POLICIES & PRACTICEEASY MONEY (CREDIT)INDUSTRIAL OVERPRODUCTIONUNEVEN DISTRIBUTION OF WEALTHPOOR MONETARY POLICYOVERSPECULATION +MARGIN BUYINGPOOR FISCAL POLICYHIGH TARIFFS
27 Time Payments Begin in the 20's! EASY MONEY (CREDIT)INTEREST RATES ON LOANS WERE TOO LOW = TOO MUCH BORROWING INTEREST RATES ON SAVINGS WERE TOO LOW = TOO MUCH SPENDING (INFLATION) EXCESSIVE REAL ESTATE CONSTRUCTION = OVERSUPPLYTime Payments Begin in the 20's!GHS Rules
28 POOR FISCAL POLICYHOOVER ADMIN. & CONGRESS CUT SPENDING & RAISED TAXES TO BALANCE THE BUDGET INSTEAD OF INCREASING SPENDING & CUTTIN G TAXES TO “JUMP START” THE ECONOMYEX. TEMPORARILY DEFICIT SPENDING
29 HIGH TARIFFSWE TAXED FOREIGN IMPORTS TO PROTECT OUR PRODUCTS UNDER HOOVER THE HAWLEY SMOOT TARIFF IS PASSED – THE HIGHEST PROTECTIVE TARIFF IN US. HISTORY!!! FOREIGN NATIONS TAXED IMPORTS FROM THE U.S. IN RETALIATIONHIGHER PRICES FED UNDERCONSUMPTIONNATIONS STOPPED PAYING WWI DEBTS TO THE U.S.
30 How Bad Was the Great Depression? Unemployment – wanting to work and not being able to find a jobUnderemployment – working but not getting to work full time56% of African Americans and 40% of White Americans
31 Unemployment Statistics for 1932 The Depressions Cruelest Year 16,000,000 to 25,000,000 in 193225% of the workforceIn 2003 that would mean: 32,500,000 unemployed!For our workforce today in the 2000’s5.8% in 20037,200,000
33 Underemployment 21% of the workers who kept their jobs saw hours cut 20% of workers whokept their jobs took pay cutsSome worked only for food or a place to sleep – No pay jobs!
34 Child Labor!Some businesses fired the adults and hired kids as replacement workers Child laborers were paid $0.06/hr.
35 Business Failures & Bank Runs 85,000 businesses failed!Bank Runs led to peoplelosing their life savings25% of the Banksin the US closed
36 Job Posting Snow shoveling jobs in Chicago Rumor of a job opening led to nearriots as1000’sshowed up hoping to workSnow shoveling jobs in Chicagoled to fist fights for shovels asover 5,000 showed up for 10 jobs.
37 Depression Era Survival Sleep in the Library or Museum during the day walk the street at nightRide the subway all night in New YorkMove to a HoovervilleLose your home or apartment: sleep in the park
38 Depression Era Survival Wash in the bus depotor train stationMake your own soap:Pork-fat + ashes + salt + sunHole in your shoe?Put a roof shingle in the bottom
39 Depression Era Survival Rent a hot bed for $0.05Hot because it was rented out for 8 hours and it never cooled offEat in a soup kitchen or stand in a breadline.
40 Depression Era Survival Prison had 3 hots and a cotEven the chain gangs of the South had 3 meals and a place to stayPrison over starvation?
41 Depression Era Survival Hobos and bums250,000 children under age 18Need a blanket use newspapersNeed a house use cardboardRiding the Rails