Causes of The Causes of The DepressionDepression

Mr. ButtellAMH

HonorsWBHS

CRASH and DEPRESSIONCRASH and DEPRESSION

The stock market:The stock market:

the public invests in the public invests in cos. by purchasing cos. by purchasing stocks; in return for stocks; in return for this they expect a this they expect a profitprofit

b/c of booming 1920's b/c of booming 1920's economy, $ was economy, $ was plentiful, so banks plentiful, so banks were quick to make were quick to make loans to investors loans to investors

also investors only also investors only had to pay for 10% of had to pay for 10% of the stock's actual the stock's actual value at time of value at time of purchasepurchase

this was known as this was known as BUYING ON BUYING ON MARGINMARGIN, and the , and the balance was paid at balance was paid at a later datea later date

this encouraged this encouraged STOCK STOCK SPECULATIONSPECULATION – buying and – buying and selling stocks quickly to selling stocks quickly to make a quick buckmake a quick buck

buying & selling, stock buying & selling, stock value increased (Ex: G.E value increased (Ex: G.E stock $130 stock $130 $396/share) $396/share)

this quick turnover didn't this quick turnover didn't aid cos. aid cos. they needed they needed long term investments so long term investments so they could pay bills (stock they could pay bills (stock value was like an illusion)value was like an illusion)

unscrupulous traders unscrupulous traders would buy and sell shares would buy and sell shares intentionally to inflate a intentionally to inflate a given co.'s stock valuegiven co.'s stock value

all of this gave a false all of this gave a false sense of sense of security/confidence in the security/confidence in the American marketAmerican market

beginning in Oct. beginning in Oct. 1929, investors’ 1929, investors’ confidence confidence dropped, leading to dropped, leading to a market collapsea market collapse

all tried to sell at all tried to sell at once and bottom once and bottom fell out of market fell out of market = = panic sellingpanic selling… … (many bankruptcies (many bankruptcies as banks called in as banks called in loans)loans)

only a tiny minority only a tiny minority of people traded on of people traded on the stock the stock exchange, but they exchange, but they possessed vast possessed vast wealth, and the wealth, and the crash had a crash had a ripple ripple effect effect on the on the economy economy

For the poor.......For the poor.......

mass consumption was mass consumption was already low (poor already low (poor could afford to buy could afford to buy little)little)

unemployment rose unemployment rose no gov't assistance at no gov't assistance at firstfirst

since people could not since people could not buy, productivity was buy, productivity was cut back = further cut back = further unemploymentunemployment

so w/ additional so w/ additional unemployment unemployment purchasing power purchasing power declined again declined again reduced productivity reduced productivity yet again = yet again = ((ECONOMIC CYCLEECONOMIC CYCLE))

UnemploymentUnemployment

Purchasing PowerPurchasing Power ProductivityProductivity

PRODUCTIVITY AND PRODUCTIVITY AND UNEMPLOYMENTUNEMPLOYMENT

in 1920's U.S. Eco. was based on the in 1920's U.S. Eco. was based on the productivity – purchasing power - employment productivity – purchasing power - employment cyclecycle

for many goods to be produced, purchasing for many goods to be produced, purchasing demand had to be there: this resulted in high demand had to be there: this resulted in high employment and a healthy economyemployment and a healthy economy

b/n 1924-27, U.S. productive capacity doubled b/n 1924-27, U.S. productive capacity doubled but it was b/c of technological innovationbut it was b/c of technological innovation

electricity and mechanical advances made electricity and mechanical advances made for better production, but no new jobs were for better production, but no new jobs were added to the economyadded to the economy

so more consumer goods were available, but so more consumer goods were available, but there weren't more people to buy them there weren't more people to buy them ((OVERPRODUCTIONOVERPRODUCTION))

a 2nd major problem: a 2nd major problem: uneven dist. of wealthuneven dist. of wealth

0.1% at top owned as 0.1% at top owned as much as bottom 42% of much as bottom 42% of American families (42% American families (42% below below poverty linepoverty line))

of the 58% above the of the 58% above the poverty line, most fell poverty line, most fell into the into the middle classmiddle class category - they were not category - they were not wealthywealthy

this middle class this middle class depended on their depended on their salaries and when salaries and when productivity declined productivity declined they lost their jobsthey lost their jobs

and b/c of low savings, and b/c of low savings, they had to cut back on they had to cut back on their purchasestheir purchases

this decline in this decline in consumption among the consumption among the middle class ruined the middle class ruined the whole countrywhole country

Pres. Hoover’s responses…Pres. Hoover’s responses…

Govt. should not play active Govt. should not play active rolerole

policy of policy of VOLUNTARY NON - VOLUNTARY NON - COERCIVE COOPERATION COERCIVE COOPERATION where he gave tax breaks in where he gave tax breaks in return for private sector return for private sector economic investmenteconomic investment

European countries were to European countries were to purchase American goods purchase American goods instead to stimulate American instead to stimulate American economyeconomy

in early 1931 these measures in early 1931 these measures appeared successful, but appeared successful, but then......the then......the TARIFF WARSTARIFF WARS

Democrats in Congress Democrats in Congress passed a high tariff (passed a high tariff (HAWLEY HAWLEY SMOOTSMOOT) to protect U.S. ) to protect U.S. industry (hoped to stimulate industry (hoped to stimulate purchasing of U.S. goods)purchasing of U.S. goods)

this turned out to be a fatal this turned out to be a fatal error...error...

Congress did not understand Congress did not understand that the world had become that the world had become a a GLOBAL ECONOMYGLOBAL ECONOMY

in retaliation other countries in retaliation other countries passed high tariffs and no passed high tariffs and no foreign markets purchased foreign markets purchased American goods, so U.S. American goods, so U.S. productivity decreased againproductivity decreased again

AMERICANS REACT TO AMERICANS REACT TO HOOVERHOOVER

Hoover was increasingly Hoover was increasingly unpopular, but he continued unpopular, but he continued to try... to try... he persuaded he persuaded Congress to establish the Congress to establish the RECONSTRUCTION FINANCE RECONSTRUCTION FINANCE CORPORATION (RFC)CORPORATION (RFC)

had power to make had power to make emergency loans to banksemergency loans to banks

but it was too little too but it was too little too late…late…

and Hoover wouldn't involve and Hoover wouldn't involve himself in any programs of himself in any programs of direct gov’t aid to direct gov’t aid to individuals -didn't want to individuals -didn't want to erode Americans sense of erode Americans sense of "RUGGED INDIVIDUALISM""RUGGED INDIVIDUALISM"

people were frustrated - isolated protest people were frustrated - isolated protest movements movements

EX: Dairy farmers frustrated w/low price of milk EX: Dairy farmers frustrated w/low price of milk refuse to sell (dump it)refuse to sell (dump it)

EX: WW1 veterans (pensions discontinued by EX: WW1 veterans (pensions discontinued by congress) march on Washington = congress) march on Washington = BONUS MARCH BONUS MARCH (by (by BONUS ARMYBONUS ARMY))

they reached Washington by 1931, set up they reached Washington by 1931, set up shantytowns = shantytowns = HOOVERVILLESHOOVERVILLES (food scraps = (food scraps = HOOVER-MEALSHOOVER-MEALS, hitchhiking journeys , hitchhiking journeys = HOOVER = HOOVER RIDESRIDES))

after one year they were forcibly dispersed by the after one year they were forcibly dispersed by the Army (MacArthur/Eisenhower)Army (MacArthur/Eisenhower)