Unit #4: Great Depression & New Deal Causes of the Great Depression

Intro Question Using what you know about the 1920’s, what do you think caused the Great Depression? Using what you know about the 1920’s, what do you think caused the Great Depression?

1920’s Economic Troubles Industries Industries –Railroads, steel, & textiles made little profit –Mining & lumbering grew during WWI but slowed after –Coal declined due to new energy form (electricity) –Less houses were built; decline in furniture-making, lumber

Farmers Farmers –Took loans during war to increase production which slowed once WWI ended; difficulty paying loans back –Farmers lost farms to banks; rural banks failed as farmers defaulted on payments – McNary-Haugen Bill : gov’t would buy crops at guaranteed price & sell on world market (price- supports )

1920’s Economic Troubles (cont.) Consumers had less $$ to spend Consumers had less $$ to spend –As incomes fell, consumers bought less –Widening gap between rich & poor Living on credit Living on credit –People & businesses accumulated huge debt; thus cut back on spending Uneven distribution of income Uneven distribution of income –Unequal distribution of income meant that not all Americans could participate fully in economic advances of 1920’s –Not everyone enjoyed prosperity of 1920’s

Stock Market Crashes September 1929 September 1929 –Stock prices peaked & then fell –Peoples’ confidence in market fell & quickly sold their stocks –As people pulled out, market declined rapidly Black Tuesday (Oct. 29, 1929) Black Tuesday (Oct. 29, 1929) –Bottom fell out of market –Shareholders frantically tried to sell before prices fell even more –People who bought stocks on credit had huge debts & lost most of their savings –Mid-November: market lost $30B (equal to U.S. spending in WWI)

Herbert Hoover becomes Pres. Election of 1928 Election of 1928 –Americans believed America was prosperous with Republican president so Hoover (R) won by landslide Dreams of Stock Market Dreams of Stock Market –Economists warned of weakening economy but Americans had faith in its “economic health” –Dow Jones Industrial Average: people who had money invested in the stock market  The Dow was “bull market;” stock prices rose in 1920’s –Market grew fast as people bought stock “on margin”  As market declined, those who bought on margin could not pay loans

Financial Collapse Withdrawals from banks Withdrawals from banks –People withdrew $$ from banks; however banks were NOT insured yet –Banks had no money; they had invested in market & lost Businesses declined Businesses declined – : national production fell $45B –90,000 businesses went bankrupt (car & railroad included) Unemployment rose Unemployment rose –3% in 1929; leaped to 25% (13M workers) in 1933 –Those who kept jobs saw wage & hour cuts

Worldwide Spread U.S. was supporting Europe in post-war recovery U.S. was supporting Europe in post-war recovery –Germany was paying reparations to Allies –Poor economy limited U.S. ability to buy foreign goods –This made selling U.S. farm products difficult abroad Hawley-Smoot Tariff (1930) Hawley-Smoot Tariff (1930) –Highest tariff in U.S. history –Designed to protect U.S. production from foreign competition –Made unemployment worse because no longer had European market –Other countries placed high tariffs; world trade fell by 40%

Causes of Great Depression Tariffs & war debt policies cut ability for foreign markets Tariffs & war debt policies cut ability for foreign markets Crisis in farm sector Crisis in farm sector Availability of easy credit Availability of easy credit Unequal distribution of income Unequal distribution of income

Reflection Question Now that you know the causes of the Great Depression, how do you think we can avoid getting in the same situation again? Now that you know the causes of the Great Depression, how do you think we can avoid getting in the same situation again?