The Nation’s Sick Economy CHAPTER 14 – SECTION 1

Economic Troubles  1920s- superficial prosperity  Many Americans were struggling financially  Industries struggled  Farmers were in debt  Economic issues signaled the end of an era

Industries in Trouble  Superficial prosperity = weaknesses that would lead to the Great Depression  Basic industries such as railroads, textiles, and steel were hardly making a profit  Railroads lost business

Industries in Trouble  Coal mining was hit  Hydroelectric power, fuel oil, and natural gas  By the 1930s- energy usage from coal was reduced by half  Less homes were built during this time  Jobs fell

Farming Problems  During WWI  prices rose and international demand for crops such as wheat and corn soared  Farmers planted more and took out loans for land and equipment  Demand fell after the war

 Prices declined by 40%  Farmers boosted production in hopes of selling more crops  Depressed prices further  farm income declined from $10 billion to $4 million  Farmers went into debt  Lost their land

 Farms defaulted on their loans  Many rural banks failed  Auctions were held to recoup some of the banks’ losses  Congress tried to help farmers  McNary-Haugen bill  Called for federal price supports  Government would buy surplus crops at guaranteed prices  Sell them on the world market

 President Coolidge vetoed the bill twice  “Farmers have never made money. I don’t believe we can do much about it.”

Consumer Problems  Farmer income falls  bought fewer goods and services  Americans buying less  Rising prices, stagnant wages, unbalanced distribution of income, overbuying on credit

Living on Credit  Installment Plan  Americans were living beyond their means  Businesses encouraged Americans to pile up a large consumer debt

Uneven Distribution of Income  During the 1920s – rich got richer, poor got poorer  Income of the wealthiest 1% rose by 75%  Rose 9% for Americans in general  More than 70% of families earned less than $2,500 per year  Considered necessary for the standard of living  Many people could not afford luxurious goods  Prosperity rested on a fragile foundation

Reality  Half of city homes had electric lights or a furnace for heat  1/10 had an electric fridge

Election of 1928  Nation was still in period of economic prosperity  Republican candidate – Herbert Hoover  Democratic candidate – Alfred E. Smith

Election of 1928  Hoover had served as secretary of commerce under Harding and Coolidge  Mining engineer from Iowa  Never ran for public office  Did not like having public attention  Smith was a career politician  Served four terms as governor of NY  Very personable

Election of1928  Hoover had one major advantage:  Years of prosperity under Republican administrations in the 1920s  ¨We in America are nearer to the final triumph over poverty than ever before.¨  Most Americans were happy with Republican leadership

Stock Market  some warned of weaknesses in the economy  Most Americans did not believe this  People invested in the stock market in increasing numbers  Most visible symbol of a prosperous economy

 Dow Jones Industrial Average – measures the health of the stock market  Based on the stock prices of the 30 largest firms trading on the New York Stock Exchange  Dow reached a high of 381  Bull market – period of rising stock prices  Americans were eager to take advantage of this

 People were engaging in speculation  Bought stocks and bonds on the change of a quick profit  Buying on a margin- investing money they borrowed  Government did little to regulate the market

Stock Market Crashes  September 1929, stock prices peaked and fell  Confidence fell  Some investors quickly sold their stock and pulled out  October 24- the market took a plunge  October 29 – Bottom fell out of the market  Shareholders frantically tried to sell their stocks as prices declined  Number of shares dumped that day was a record 16.4 billion  People were stuck in debt

 By mid-November – investors had lost $30 million  Equal to the amount of money spent in World War I  Stock market bubble had finally burst

Financial Collapse  The stock market crash signaled the beginning of the Great Depression  Period from where economy plummeted and unemployment soared  Crash alone did not cause the Great Depression  Hastened the collapse of the economy and made the Depression even more severe

Bank and Business Failures  People panicked and withdrew their money from the banks  Some could not get money back because banks invested in the stock market  banks had closed  ,000 of USA’s 25,000 banks had failed  Government did not insure bank accounts  Millions lost their savings

 Gross national product – (total output of goods and services) was cut in half between 1929 and 1932  90,000 businesses went bankrupt  Automobile and railroad industry  Millions of workers lost their jobs  ¼ of workers lost their jobs  Unemployment went from 3% to 25% in 1933

 The Great Depression was not just in the United States  Happened all around the world  WWI  Europe in depression  War debts  Germany had to pay the allies for war reparations  Inflation

 Hawley-Smoot Tariff – highest protective tariff in US history  Designed to protect American farmers and manufacturers from foreign competition  Had the opposite effect  Tariff prevented other countries from earning American currency to American goods  Made unemployment worse in countries that could no longer export goods to Europe  Many countries raised their own tariffs

Causes of the Great Depression  Tariffs and war debts cut down the foreign market  A crisis in the farm sector  Availability of easy credit  Unequal distribution of income