American Gothic by Grant Wood, 1930

Adam Smith, Dead Scottish Economist

Supply• The amount of a product or service

that is available for consumers.

• High supply results in falling prices.

• Low supply results in rising prices.

• Too much of something results in worthlessness.

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Demand• The desire or need consumers

have for a product or service

• High demand results in rising prices.

• Low demand results in lower prices.

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The Relationship• Supply and demand are related. • If supply increases, demand

decreases. • If supply decreases, demand

increases.

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Supply

Demand

When supply and demand are equal, prices of goods stabilize.

Business Cycle• The economy moves in cycles.

• Boom - It expands when business grows and money is easily available.

• Bust - It contracts when business declines, people lose jobs, and money is harder to earn.

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Business Cycle

A slow economic period characterized by high

unemployment, homelessness, business failure, and poverty

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Dow Jones Industrial Average

• An average of the prices of stocks of major industries available on the market

• It indicates the health of the economy

• From Jan 1928 to Sept 1929 – the Dow had climbed from 191 to 381

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Or . . . how the

bottom

fell out

Contributing Factors• Agricultural overproduction

• Industrial overproduction

• High tariffs

• War debts

• Unequal distribution of wealth

• Over speculation in the stock market

• Financial panic

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Farmers’ Troubles

During World War I • Europeans were desperate for food

shipments from the U.S. (Demand increased)

• The U.S. govt. passed price supports, promising farmers high prices for produce.

• Farmers began overproducing.

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Continued

Farmers’ Troubles

At the end of World War I

• U.S. govt. removed price supports.

• Europeans grew more self-sufficient.

• Demand for our farm products fell.

• Farm prices fell drastically.

• Also farmers were in debt for new technology, such as tractors.

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Farmer

Tractor

Boy, Am I in debt!

Decline in Overseas Trade

• Exports dropped 50% during the 1920s because of less demand after WWI

• We raised tariffs, so nations in Europe raised theirs – a “tariff war”

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Unpaid War DebtsEuropean nations refused to pay

their WWI debts, claiming they had already paid “in blood”

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Economic Disparity(unequal distribution of wealth)

• Disparity – unfairness, inequality

• The rich grew richer, while the poor grew poorer.

• Few “middle class”

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Overuse of Credit

• Most Americans were in debt for the first time in U.S. history, especially farmers.

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Stock Market Dangers

• Over speculation

• Buying stocks on margin

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Buying Stocks “on the Margin”

• You pay only a fraction of the price of the stock. If the stock increases in value, you keep the profit. If the stock decreases in value, you have to pay the broker, or sell the stock at a loss. Very risky, especially since there were no regulations on this practice.

Black Thursday• Thursday, October 24, 1929

• Dow Jones Average had fallen 21 points the closing hour the day before.

• Investors began to sell their shares of stock before the prices fell more.

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Black Tuesday• Tuesday, October 29, 1929

• Investors started to panic

• 16.4 million shares were sold on the stock market.

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The “Great Crash”• Stock prices continued to fall.

• Investors continued to sell their shares of stock at a loss.

• By November, the Dow had fallen to 198.7 (down from 381 in Sept.)

• Total stock market losses were $30 billion.

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Record High 381

Record Low 199

The Crash

The Crash Makes World

Headlines

Businesseslose

profits.

Investors lose

millions.

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Workersare

laid off.

Consumers spend less.

Businesses cut production.

Some fail.

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Banks run out of money

and fail.

Savings accounts are

wiped out.

Businesses and workers

cannot repay bank loans.

“Bank runs” occur.

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Hoovervilles• Nickname for the shanty towns

built by the homeless during the Depression.

• Shows the blame the people placed on President Hoover for not fixing the crisis.

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The Dustbowl• Over-farming and drought in the

Great Plains (Ok, Texas, Kansas)

• The topsoil began to blow away.

• Dust storms dropped tons of soil hundreds of miles away.

• Lasted 7 years (1931 – 1938).

• 60% of dustbowl families lost their farms – Many moved to California.

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John Steinbeck

• Wrote The Grapes of Wrath.

• Describes the lives of farmers and workers who lost everything during the Depression.

• Brings national attention to the problems facing the less fortunate.

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John Steinbeck

The Grapes of Wrath

Dorthea Lange

• Photographed hundreds of migrant workers coming to California from the Great Plains and sharecroppers in the South.

• Portrayed the desperation of families.

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From Lange’s “Migrant Mother”

Series

Her name was Florence. She was 34 years old.

Migrant Workers from Muskogee, OK

Southern Sharecroppers

Refugees from

Amarillo, TX

1936

Hoover’s Attitude• Believed in laissez-faire - self-regulating

economy with minimal government control.

• Believed that business would recover on its own by adhering to voluntary controls, such as minimum wage rates.

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Hawley-Smoot Tariff• 1930 - Highest tariff in history.

• Hoover hoped it would help American businesses by raising prices of imported goods.

• Caused a tariff war.

• Slowed international trade and the U.S. economy further.

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Representative Hawley and Senator Smoot

R.F.C.• Reconstruction Finance Corporation• Gave government credit to industries, RR’s,

insurance companies, and banks. • The theory was that prosperity at the upper

levels of society would trickle down to all of society.

• But the poor believed the government was only helping the rich.

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The Bonus Army• 1932 – 20,000 jobless WWI veterans

marched on Washington, demanding their pensions early.

• Hoover called in the Army.

• Troops under Gen. Douglas MacArthur forced the protesters away from the Capitol and set fire to their camp.

• Hoover was blamed for the debacle.

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Bonus March

Bonus Army Camp

Army called in

Troops burn down Bonus Army camp

The public blames Hoover for not doing enough to help.

Herbert Hoover, the Incumbent - Republican

Franklin Delano Roosevelt NY Governor - Democrat

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Continued

• Roosevelt promises Americans a “New Deal.”

• FDR wins by 7 million popular votes.

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• 1933

• Repealed the 18th Amendment

• Ends Prohibition

• FDR – “The country needs a beer.”

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• FDR’s relief, recovery, and reform program for the economy.

• Aggressive government action.

• “The only thing we have to fear is fear itself.”

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Can you find FDR in this

political cartoon?

Radio broadcasts FDR used to calm the fears of Americans during the Depression.

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What is this cartoonist suggesting about the

“New Deal”?

• On his 1st day in office, FDR declares a banking holiday.

• All banks are forced to close for one day.

• Once the bank proved its solvency, it was allowed to reopen.

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• The federal government would insure bank deposits, to prevent more banks from failing and boost peoples confidence about banks.

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• Securities and Exchange Commission• Regulated the stock-market to help

prevent another crash like the one in 1929.

• Can freeze trading when stocks drop too much, too fast.

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• Provides pensions, disability payments, and unemployment benefits to citizens who qualify.

• Helps provide for those with little or no income.

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• Civilian Conservation Corps

• Put young, single men to work maintaining parks, beaches, and forests to help reduce the crime rate.

• Paid $30/month.

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CCC Camp in Michigan

More CCC Camps

Civilian Conservation Corps Workers building a road in Ohio

CCC Advertisement

on a pillowcase on display at the CCC Museum in Michigan

CCC Staircase at Temperance River State Park

Civilian Conservation Corps Ludington Beach House at

Ludington State Park, Michigan

CCC cabin at Pokegon State Park in Indiana

•Civil Works Administration

•Provided jobs in construction of roads, parks,

airports.

Hobbie Airport, Houston, Texas

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• Agriculture Adjustment Administration

• Farmers were paid to reduce production of certain crops and livestock.

• It was hoped that the reduction in supply would lead to an increase in prices.

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• Tennessee Valley Authority

• Built hydroelectric power plants to provide cheap electricity and flood control.

Douglas Dam in Construction 1942

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Norris Dam

• Works Progress Administration

• Employed people in building construction and arts programs.

• Built the River Walk in San Antonio.

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San Antonio, Texas River Walk

San Antonio River Walk

• Many of FDR’s reforms were cancelled by the supreme court.

• FDR proposed legislation to add 6 more justices to the court.

• He would then appoint justices who would allow his reforms to stay in place.

• Critics accused him of trying to “pack the court” and create a dictatorship.

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1941 – The U.S. enters WWII. This helps end the Great Depression by creating jobs in factories providing for the war efforts.

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• Showed that only government intervention can end a major economic crisis through massive programs to create jobs and stimulate the economy.

• After the Great Depression, the public expected the government to be involved in the economy and business.

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