The Great Depression
● Decrease in demand for American goods after WWI ● Installment Buying/Buying on Margin ● Decrease in Purchasing Power ● Bank Failures ● Economic interdependence globally ● Stock Market crash of 1929 What happened?
● Roaring Twenties! ● Landslide decade for the Republican Party ● Times were good so ppl kept electing Rep. candidates b/c they associated them w/ the prosperity ● Republicans took credit for the prosperity as well Prosperity Hides Troubles
● Why popular? ● American Dream: was orphaned as a child, Stanford grad, mining engineer who worked all over the world ● Public servant: success in WWI w/ the Food Administration ● Secretary of Commerce during the Harding + Coolidge presidencies. ● Stressed the importance of competition in market ● Fought for cooperation b/w owners, workers, and gov’t ● Wins the 1928 presidential election! Optimism Sweeps Hoover to Victory
● BUT!!!!!!!!!!! Herbert Hoover (R) v. Al Smith (D)
● During the 1920s – Americans were living on credit ● Caused a debt bubble ● Income Inequality ● 1920 – 1929: Income of top 1% rose by 75%, average income in America only rose 9% ● Rising cost of goods > wage increases ● Goods flooded the market but no one could fully afford them Decrease in Purchasing Power
● Sept, 1929 – prices hit an all time high then dropped ● Dropped again on Oct. 24, some shareholders dumped their stocks → this day is called Black Thursday. ● Then, 7 months into Hoover’s presidency the NYC Stock market crashed ● Oct. 29, 1929 – Black Tuesday 16.4 million shares sold at very low prices, millions couldn’t even find buyers ● By November, investors lost $30 billion October 29, 1929 Stock Market Crashed!
● Some investors were buying on margin – borrowing $ to buy stocks ● Many engaged in speculation → gambling on stock increases to turn a quick profit (to pay back loans) ● Business cycle: Stock Market
Great Depression Business Cycle
The Dow → NYSE/NASDAQ top 30
The Great Depression Begins ● During the 20s, the Fed cut interest rates to encourage spending and stimulate economic growth ● 1929 – Fed worried about speculation + cut $ supply The Banks Collapse: ● After the crash, many people panicked and withdrew $ from banks ● Many ppl couldn’t get their $ b/c the banks had invested their savings + the Fed cut supply ● 1929: 641 commercial banks failed ● 1930: 1,350 banks failed ● 1931: 1,700 banks failed
● Between 1929 and 1933 ● GNP fell from $104 billion to $59 billion ● 90,000 businesses went bankrupt ● Unemployment went from 3% to 25% Business Failures
● Hawley-Smoot Tariff: established the highest protective tariff in U.S. history ● Designed to protect American farmers and businesses from foreign competition ● Countries retaliated by raising their own tariffs ● World trade fell 40% over the next few years U.S. Reaction
● Europe relied on American support to rebuild after WWI and on American imports ● Due to the Depression America could not afford to import many goods ● ∴ the issue compounded Depression Abroad
● Milton Friedman - ● Argued it was caused by too big a contraction in the $ supply ● John Maynard Keynes - Argued that the lack of gov’t interference in the economy caused the G.D. ● Said that problems w/the wealth gap, speculation, consumer spending etc could have been controlled by gov’t intervention What Caused the Great Depression?
● Friedrich von Hayek ● G.D. due to externally inflicted wounds. ● ‘Money glut’ explanation ● Loose monetary and fiscal policy enabled Americans to live beyond their means. ● Kept money too cheap for too long ● Created an asset bubble that burst ● TOc TOc What Caused the Great Depression?
● Please find 5 statistics Great Depression using the internet. Do not use the same statistics we already discussed today. ● Ex) do not discuss GNP, unemployment, etc ● mTOc mTOc If time: