1. The Beginning of the GREAT DEPRESSION

2. 1. What was the general economic trend of the 1920’s?
1920’s a decade of extreme economic growth
Industries producing more consumer goods with more efficiently
Unemployment: averaged 3%

3. What is GNP?
Sum total of all final goods and services produced within a country during a specific time period (year).
Calculated by adding: Total wages and salaries +
Profits of incorporated and unincorporated businesses +
Rental incomes +
Interest incomes = GNP

4. 3. What industry drove the expansion of the American economy in the 1920’s?
1919: 6.7 million cars in U.S.
1929: 27 million cars in U.S.
1929: 4 out of 5 American families owned a car
12.7% of American manufacturing (1929)
1 in 12 workers employed in Auto industry

5. Automobiles in the 1920’s

6. The Stock Market What is a Stock?
A portion of ownership in a corporation
Increases in value based on success of business

7. Many Americans buying on CREDIT
1920’s: Many Americans used credit buy consumer goods (cars, electronics)
End of 1920’s: Credit was “drying up”
Americans had so much debt that they couldn’t afford to continue purchasing
Consumer sales decreased Leading to decrease in profits of companies

8. What is Buying on Margin?

9. What did Roger Babson warn in September 1929?
 "Sooner or later a crash is coming, and it may be terrific." 

10. 3 Reasons for the “Crash”
Inequality of wealth distribution
70% made less than $2,000 per year.
Top 5% controlled 30% of economic wealth.
Production overtook consumption
Businesses producing more than consumers demanding (production efficiency/credit limits)
Businesses start reporting decreased profits
Boom & Bust Cycle
“Boom” (increased buying of stocks) followed by “Bust” (rapid decrease in value of stocks)

11. “Boom to Bust” Stock Market “Bubble”
Shares of stock rising because of so many investing in stock market (high demand) NOT based on the actual earnings of the stock/business.
Stock prices became artificially high (“bubble”)
As corporations reported lower earnings, investors start cashing in stocks.
Other investors panic & try to sell . . .

12. Selling leads to…
THE STOCK MARKET CRASH

13. “BLACK THURSDAY” Thursday October 24, 1929
Investors begin selling stocks leading to plummeting (falling) price of stocks.
12.9 shares of stock sold
Panic stops when group of 6 bankers “pool” their money & buy stocks.

14. “Black Thursday” leads to anxiety and fear in Americans

15. Stocks stabilize on Friday & Saturday
Monday October 28, 1929
More investors start to pull out of stock market. Market decreases 13%

16. “Black Tuesday” Tuesday October 29, 1929
Investors “panic” that stock prices are decreasing…
Investors sell over 16 million shares of stock Stock Market decreases another 12%

19. Video on the Crash of 1929

20. The Great Depression

21. Causes of the Great Depression
Stock Market Crash of 1929
$40 Billion dollars in stockholder money gone
Led to decrease in confidence.
Investors & businesses less likely to invest
Banks had invested money in the stock market & lost it

22. Causes of the Great Depression
2. Lack of diversification in the economy
1920’s prosperity depended largely on construction & automobile industry
Late 1920’s: construction & auto industries declining
Construction: 1926: $11 Billion  1929: $9 Billion
Automobiles: Decreases 33%

23. Causes of the Great Depression
3. Extremely unequal distribution of wealth leads to overproduction.
Wages didn’t rise in proportion to manufacturing productivity (Manufacturing increases/consumption decreases)
71% of Americans live on below $2,500 per year
Americans too poor to buy the goods American industry is producing
Americans stop purchasing  Businesses decrease production  Workers eliminated  Raising unemployment

24. Causes of the Great Depression
4. Credit & Investment
Farmers heavily in debt to banks for land & equipment
Crop prices decrease (86%)  Farmers unable to repay loans  Farms foreclosed Unemployed farmers
Investors who had “bought on margin”
Lenders “call in” loans Investors go broke and default or lost investments
Banks investing deposits in the stock market
Loose money. Constrict credit. Bank runs. Bank failures

25. Causes of the Great Depression
5. Destabilizing of American/European Trade
After WWI, Europe reliant on American agriculture & manufacturing. Part of reason for U.S. economic growth of 20’s.
European demand for American goods declines in late 1920’s.
European manufacturing & agriculture rebuilding
European economic troubles due to post-War debt
Hawley-Smoot Tariff (1930)
American protective tariff against foreign goods.
33 foreign governments react by raising tariffs on U.S.
Fewer exports  fewer goods sold  decreased production  Decreased profits  Rising unemployment

26. The Effects of the GREAT DEPRESSION

27. What happened to many banks?
Many banks “speculated” in the Stock Market in 1920’s (Invest w/depositors $)
After the Crash, some banks closed because they lost depositors savings in the 1929 Stock Market Crash.
Fear & uncertainty leads to BANK RUNS

28. What is a Bank Run? Bank Run:
When a large number of people withdraw their money from a bank at the same time out of fear the bank will “go under”

29. 1929 – 1933: 9,000 banks close
Depositors lost $2.5 Billion
Banks stopped lending money & calling in loans

30. What happened to farms?
Many farmers in debt to banks for land & equipment
Price of agricultural goods decreases Decreased
income for farmers

31. Thousands of farmers unable to make payments to banks for land/equipment loans
1933: 364,000 farms foreclosed on

32. The Dust Bowl To make matters worse . . .
Irresponsible farming practices
Drought
Wind storms lead to dust storms

34. What happened to employment?
As GDP fell, unemployment increased
1930: 4.2 million unemployed (9%)
1933:12.6 million unemployed (25%)

35. What was the unemployment rate in Harlem in 1932?
50%

36. What was life like for the unemployed?
“They hung around street corners and in groups. They gave each other solace. They were loath to go home because the were indicated, as if it were their fault for being unemployed. A jobless man was a lazy good-for-nothing. The women punished the men for not bringing home the bacon, by withholding themselves The men suffered from depression They were ashamed of themselves They avoided home.” – Nathan Ackerman (Psychiatrist)