The Great Depression

What was the Great Depression?

• Time of economic crisis characterized by high unemployment during the 1930s, the beginning is marked by the stock market crash of 1929

Causes of the Great Depression

• Industry

• Agriculture

• Consumer spending

• Distribution of wealth

• Stock Market

Industry

• Key industries hardly made a profit– Declining demand after WWI– Railroads, textile industry

• Building of new houses declines– Affects other businesses that depend on

home construction (furniture making, lumber)

Agriculture

• Demand falls (and prices too) after WWI

• Farmers couldn’t pay off debts and eventually lost farms and rural banks failed

Consumer Spending

• Easy credit (installment) = pile of debt

• Prices going up + wages not going up + high levels of debt = consumers decrease their buying

Distribution of Wealth

• Rich get richer and about ½ of Americans make less than is needed for a minimum standard of living

• Unequal distribution meant consumers on average had too little money to buy the goods produced by American factories

Stock Market

Stock Market

What IS a stock???

• A share of stock is the smallest unit of ownership in a company. If you own a share of a company’s stock, you are a part owner of the company.

• If the company distributes profits to shareholders, you will likely receive a proportionate share.

Stock Market continued…

• About 1 in 20 American families invested in the stock market in the 1920's.

• People expected to make fortunes in the stock market, not realizing the risk that goes along with investing.

Buying on Margin

• In the 1920’s people "bought on the margin" - they would put up some of their money, and borrow the rest to buy the stock. When the stock went up, they would sell and pay off the loan.

The Crash

• On October 29th, 1929, after sharp declines in the market, stock prices bottomed out as people sold their stock for any price.

• Over 16,000,000 shares were sold

• By 1932, stocks had lost about 86% of their value

Financial Collapse

• After the crash, people panicked and withdrew their money from banks

Financial Collapse

• Some people couldn’t get their money though – the banks had invested their money in the stock market

• (no need to worry today – you’re money is insured by the FDIC – Federal Deposit Insurance Corporation)

Depression Affects the World

• European countries face depression too – busy recovering from the war and paying off high war debts

• The Great Depression limits America’s ability to import European goods which in turn made it difficult to sell American farm products and manufactured goods abroad

Depression goes global…

• Congress passes Hawley-Smoot Tariff Act – It establishes the highest tariff in US history

(raise tariff to make U.S. goods cheaper) – Designed to protect American farmers and

manufacturers from foreign competition– It had the opposite effect however– It reduced the amount of American currency

other countries had to buy American goods

Suffering and Hardship during the Depression

• Depression in the cities– People lost their jobs, were evicted from their

homes and ended up in the streets– Numerous shantytowns – little towns

consisting of shacks made of scrap materials sprang up

It gets worse….the Dust Bowl