CausesofGreatDepression

(1)

Causes of the Great

Depression

(2)

The Business of America in the 20s

 Calvin Coolidge (President)

 _{fit pro-business spirit of the}

1920s

 Famous quote:

 _{“The chief business of the}

American people is business . . .the man who builds a

factory builds a temple – the man who works there

worships there”

(3)

The Business of America in the 20s

 President Coolidge (Republican) successor Herbert Hoover

 favored governmental policies that kept taxes down and business

profits up

 Tariffs were high, which helped American manufacturers

 Government interference in business was minimal

(4)

American Standard Of Living Soars



1920-1929

 (prosperity)

 Americans owned 40% of the world’s wealth

 average annual income rose 35% during the 1920s (for top earners)

(5)

A

Superficial

Prosperity



Many during the

1920s believed the

prosperity would go

on forever

 Wages

 Production

 GNP

 stock market

 all rose significantly

(6)

Problems on the Horizon?

• _Businesses

expanded recklessly

• _{Iron & railroad}

industries faded

• _{Farms nationwide}

suffered losses due to overproduction

• _{Too much was}

(7)

So, why does the era of

prosperity known as the

(8)

• The Stock Market:

–In the 1920s, the stock market soared

& people speculated with stocks

•

bull market – upward trend in stock

market

–Many people borrowed money to pay

for stocks, called buying on margin

Causes of the Great Depression

(9)

Buying Stocks

on Margin

Causes of the Great Depression

(10)

–There was no regulation of the

market & some companies altered

stock values to raise profits

•

bear market – downward trend in

stock market

(11)

• The Stock Market:

–On October 29, 1929 (Black

Tuesday) the stock market crashed

–People rushed to sell, prices

plummeted, & investors lost $30

billion

–Speculators who bought on the

margin, could not pay off their debts

–Many lost their savings

Causes of the Great Depression

(12)

– Speculators who bought on the margin, could not

pay off their debts

– Many lost their savings

“Wall Street Lays An Egg”

-

Daily Variety (Oct. 30, 1929)

(13)

The U.S. stock market had only about 3

million active buyers & sellers but the

(14)

2. Banking Crisis (3 Strikes!)

1. Loans to farms and industries

• Overproduction

• STRIKE ONE!

• Small banks <- big banks

2. Loans to individuals

• Over-extension of credit (Stock)

• STRIKE TWO!

3. Loans to foreign nations

• WWI Debt Structure

• GE -->FR/G.B.-->U.S.

• STRIKE THREE!

(15)

Bank Run

(16)

3. Overproduction

• Eventually, more products are created than people can buy

• WWI ends leading to a decline in demand for agricultural products. • Too much food led to a 40%

drop in crop prices

• Farmers unable to pay back banks

(17)

Causes of the Great Depression

(18)

Profits for Coal Mining Profits for Railroad

Companies

Corporate Profits for Coal and Railroad Industries,

1920-1930

(19)

4. Underconsumption

Industry

•Mass-production of consumer goods led to overproduction

+

•Underconsumption (What

happens when we all own cars, and houses, and we have

(20)

Too much inventory…Not enough buyers

(21)

5. Unequal distribution of wealth -- purchasing power (wealth gap)

• Gap between wealth GREW during the ‘20s • 70% of Americans

were considered poor • Most of the spending was done by 30% of population

(22)

Distribution of Wealth in the 1920s

* An income of

$2,500 per

year was

considered the

minimum

amount

needed for a

decent

(23)

6. Hawley Smoot Tariff

• Highest Tariff in U.S. history

• Tax on imports

• Foreign nations respond by taxing American exports

• By 1932 exports fell to 1/5th of 1929 total

• Huge tariff meant even less consumer demand • Exacerbates the