THE START OF THE GREAT DEPRESSION

Definition  Depression – A period marked by less business activity, much unemployment, falling prices and wages, etc.

Causes of the Great Depression  Post WWI effects on the economy  Trouble for farmers  Too many people in debt  Uneven distribution of wealth

Post WWI Effects on the Economy After WWI the countries of Europe did not have to buy all their products from us. They started making their own goods. High protective tariffs cut into trade. Tariffs are taxes on goods coming into the country. If people in Europe can’t sell stuff to us, they won’t have money to buy our stuff. European countries also put high tariffs on our goods to retaliate. During the war, many European countries borrowed money from American banks. After the war, because of the tariffs and the slow down of their economy, they could not pay back those loans, putting American banks in financial trouble.

Trouble for Farmers Because of new equipment, farmers were producing more crops on the same amount of land. This overproduction caused prices to drop and farmers could not pay back their loans. European countries did not need to buy food from us after the war, they started growing their own food.

New Farming Technology

Uneven Distribution of Wealth During the 1920’s, the rich were getting richer and the poor were getting poorer. This impacted the economy by the end of the decade. The poor people could not afford to buy all the new appliances that the businesses were producing. After all the rich people had several cars and a house full of appliances, there was no one left to buy the stuff. The businesses started filling warehouses with unsold goods and had to lay workers off.

Rich and Poor

Rich and Working Class

Too Many People in Debt During the 1920’s, people got over-extended with easy credit. To buy all of the new things (cars, refrigerators, washing machines, vacuum cleaners, etc.) many people used the installment plan. This plan meant that people would make monthly payments on the products. When people lost their jobs or the banks called the loans, many lost everything. Some people were playing the stock market on credit. They could buy on margin which meant that they could buy stock by putting 10% down and promising to pay the other 90% later. If the stock value went up, they make a lot of money. If the value went down, they often couldn’t pay the banks the 90% owed.

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