Ben Isaacs, who lived in Chicago during the depression, described what happened to him: "I was in business for myself, selling clothes on credit. ... But ... banks closed down overnight. We lost everything. ... I couldn't pay the rent. ... I sold it [the car] for $15 in order to buy some food for the family. ... I would bend my head low [in the relief line] so nobody would recognize me. ..." (The quotations in this article are from Hard Times: An Oral History of the Great Depression

How do we go from this to this…? A stock market crash A Depression

What is a depression? A severe and prolonged downturn in economic activity A recession that lasts two or more years increases in unemployment, a drop in available credit, businesses producing less, bankruptcies and loan defaults high, reduced trade and commerce, value currency unstable A severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts two or more years. A depression is characterized by economic factors such as substantial increases in unemployment, a drop in available credit, diminishing output, bankruptcies and sovereign debt defaults, reduced trade and commerce, and sustained volatility in currency values. In times of depression, consumer confidence and investments decrease, causing the economy to shut down. Where a recession is a normal part of the business cycle, lasting for a period of months, a depression is an extreme fall in economic activity lasting for a number of years In the U.S., unemployment climbed to nearly 25% in 1933, remaining in the double-digits until 1941, when it finally receded to 9.66%.

Stock Market – The Trigger Foreseeable/LT Issues Unstable bc of speculation, buying on margin, no government regulation Depression People lose savings Banks lose profits invested in market -people & businesses do not have $ to invest! People are afraid to invest in good companies Stock market cannot rebound bc people not buying stock!

Banking Crisis Foreseeable/LT Issues No regulation of banks; invested people’s money in stock market; gave out too many loans/credit; defaults started BF stock market crash. Depression People FEAR banks and start withdrawing money (run on banks) money lost & banks cannot recover Savings lost when banks go under, so cannot spend $ People cannot get loans & no credit, so cannot expand businesses or buy stuff

Businesses going out of business Foreseeable/LT Issues Businesses invested in the stock market Uneven distribution of wealth meant people could not keep spending Depression Cannot get loans from banks People have less money to spend People afraid to spend money Businesses cannot grow & cannot stay open without customers “Here was the one from Jones and Co., saying ‘ Please ship fifty thousand of your new model.”

High unemployment Foreseeable/LT Issues all of the above Depression no jobs = cannot spend money businesses, cannot invest money in stock market, less money in banks people cannot put money in bank if people do not have money bc u/e 25% unemployed by 1933; more underemployed 1932, wage cuts averaged 18% Even if have a job, still not enough money to revive the economy 1 in 4 without a job; bad for individual yes, but when that large of a number more about the economy - economic recovery is about spending money

What could have helped us? More trade with other nations Instead we increase tariffs (Smoot-HawleyTariff 1930) Less foreign trade Retaliatory tariffs!

The economic ripple effect The Ripple Effect… People lose money in the market and become scared No money to invest or afraid so market cannot recover BC some banks go under people withdraw money from banks so then everyone loses money & banks cannot recover BC people do not have money to buy stuff and afraid to buy businesses go under BC businesses go under people are unemployed so even less people have money to spend: Businesses cannot recover Stock market cannot recover Banks cannot recover

Why was this foreseeable? How will this lead to a widespread Depression? Class Notes Stock Market Declines Banks Fail Businesses Failed High U/E

Businesses failed new businesses couldn’t be created Why Leads to a Depression Stock Market Declines Unstable bc speculation & buying on margin (margin call)– companies inflated values – (no knowledge) lack gov reg’l ($$$) Fear bc hear about brokers jumping off of buildings People lose all of their money (life savings) Banks invested in market – banks go under No one wants to invest in good companies bc afraid – market cannot rebound (less money to do it to) AS banks go under more businesses fail, stock price plummets Banks Fail No regulations on banks – loaned out tons of money (no guaranteed amount banks need to keep on hand) banks invested other people’s money in stock market based on assumption – market good & not all take out same time loaned/credit a lot of money to people – could not pay back (lose house what bank do with it???) During the 20s, there was an average of 70 banks (600?) failing each year nationally (west) the first 10 months of 1930, 744 banks failed – 10 times as many. In all, 9,000 banks failed during the decade of the 30s. By 1933, depositors saw $140 billion disappear through bank failures. Some banks fail – fear people withdraw not enough money on hand – more fail – more lose money – ripple effect /RUN cannot get loans, savings lost, no credit buy Businesses Failed Money invested in market share prices drop no one can afford to go to your business! Cannot get a loan if need money average person’s income not enough keep buying… uneven distri wealth – prod up 50% wages less Less jobs available (less money to spend) people afraid to spend money (no new businesses) the total value of goods and services produced annually in the United States fell from about $104 billion to about $56 billion. In 1932, the number of business closings was almost a third higher than the 1929 level. High U/E Businesses failed new businesses couldn’t be created People whose businesses (entrepeneur’s ran on credit – could not any more) Cannot spend money do not have take job – underemployed bc competition – cannot afford to spend In 1925, about 3 percent of the nation's workers were unemployed. The unemployment rate reached about 9 percent in 1930 and about 25 percent -- or about 13 million persons -- in 1933 In 1932, wage cuts averaged about 18 percent In 1932, the New York City Police Department estimated that 7,000 persons over the age of 17 shined shoes for a living. A popular song of the 1930's called "Brother, Can You Spare a Dime?"