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Chapter 30: The Causes of the Great Depression

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1 Chapter 30: The Causes of the Great Depression
What caused the most severe economic crisis in American history?

2 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

3 The Causes of the Great Depression
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 $ buys $10, 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

4 The Causes of the Great Depression
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

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6 The Causes of the Great Depression
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 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 High Tariffs Hurt Foreign Sales Limited U.S. market and now a limited international market

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8 The Causes of the Great Depression
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

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10 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.

11 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

12 A Bad Situation Gets Worse

13 Chapter 31: The Response to the Economic Collapse
How did the federal government respond to the economic collapse that began in 1929?

14 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

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17 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

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19 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

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22 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”

23 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, railroads and other big businesses A “trickle down” theory

24 The Election of 1932 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

25 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

26 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 years old working in forests, parks, etc

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28 Chapter 32: The Human Impact of the Great Depression
How did ordinary Americans endure the hardships of the Great Depression?

29 The Country in Economic Distress
Unemployment From 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 $ in 1929 to $ in 1933

30 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

31 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

32 The Dust Bowl: Natural Disasters Intensify the Suffering

33 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.

34 Like the Joads in the Steinbeck novel, The Grapes of Wrath, families head to California to escape the Dust Bowl

35 While droughts continued in the West, floods plagued the East and indicated a need for federal action

36 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

37 Chapter 33: The New Deal and Its Legacy
How did the expansion of government during the New Deal affect the nation?

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39 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

40 To promote economic development
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

41 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 $ 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

42 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

43 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

44 …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

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46 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

47 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

48 Foundation for the modern welfare state (government responsibility) and deficit spending becomes the norm


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