1. Causes of the Great Depression“We in America are nearer to the final triumph over poverty than ever before.” –Herbert Hoover
2. Learning Goal NJCCCS: 6.1.12.D.9.a Explore the global context of the Great Depression and the reasons for the worldwide economic collapse.
3. How did we get here?
4. Great Depression: (1929-1939) Shocking after a decade of unprecedented prosperity Impacted all areas of America life Damaged confidence in the future Rock bottom: 1932 Median incomes plunged to ½ what they had been in 1929 ¼ out of work
5. False Advertising Prosperity of the 1920s were superficial Causes of the Great Depression were complex and largely ignored throughout the decade
6. Causes of the Depression Uneven distribution of income Uneven distribution of corporate wealth Overproduction and under- consumption Easy Credit Large Scale international wealth distribution problems Speculation on the stock market Shortsighted government policies
7. I. Uneven Distribution ofincome The wealthiest 5% took in nearly 1/3 of the nation’s income Nearly ½ of the nation’s families earned less than $1,500 a year Henry Ford made roughly $14 million/year in the 1920s
8. Depressed Consumer Purchasing Power  Mellon’s Tax Cuts  Business increased profits while holding down wages.  50% increase in production during the 1920s  No increase in wages1.Cut the top income tax rate from 77 to 24 percent  Workers couldn’t afford2. Cut taxes on low incomes from 4 to goods/ relied on credit or 1/2 percent stopped spending3. Reduce the Federal Estate tax4. Efficiency in government  Less money circulating
9. 2. Uneven distribution ofcorporate wealth In1929, 200 Corporations controlled ½ of the corporate wealth. Some industries thriving (automobile), while others like agriculture declining steadily (Average income for a farmer: $273) The businesses that were thriving were somehow connected to either radio or automobile industries.
10. 3. Overproduction andunderconsumption For an economy to function properly: t(d)=t(s) In 1920s- there was an oversupply of goods. (Mech. of industry/farming partly responsible)
11. 4. Easy Credit  Installment plans  Borrowing on margin to buy stocks  Private banks loaned out millions → rising debt throughout the 1920s
12. 5. Large scale internationalwealth distribution problems America prospered in the 1920s, while Euro. Nation struggled to rebuild after the war. U.S. lent $7bil. To Euro. during war. Another $3bil by 1920. Dawes Plan of 1924 lent money to Germany [made them dependent of foreign markets]
13. Protective Tariffs Fordney-McCumber  Hawley-Smoot 1930 1922  raised U.S. tariffs on  raised American tariffs over 20,000 imported in order to protect goods to record levels factories and farms.  Led to a decrease in  Countries injured by imports/exports by more WWI- w/ Tariffs they than ½ would not be able to  Led to a rise in make payments to unemployment America on war loans  Farmers blame Tariff for Depression
14. 6. Speculation on the stockmarket By 1929 about 4 mil. Americans/ 3% of the population owned stocks Stockbrokers willing to lend up to 75% of stocks purchasing price Americans wanted to take advantage of the “bull market” (rising stock prices) Stock prices peaked in early Sept. 1929 10/24/1929 (Thursday) huge plunge 10/29/1929- “Black Tuesday” 16 mil. shares dumped
15. 7. Shortsighted governmentpolicies Mellon’s Tax cuts Protective Tariffs Fed Reserve Board fearing inflation, tightened credit [opposite action was needed to fight the slow down in purchasing)
16. The Role of Hoover in theGreat Depression* Passing Hawley-Smoot (1930) despite objections from 1000 Economists Maintaining Federal Relief was not necessary despite farm prices dropping to record lows and 4,340,000 Americans out of work, 32,000 businesses bankrupt and 5,000 banks failing Attempts made: creating road, public building and airport construction programs; increasing credit facilities, Reconstruction Finance Corporation (RFC)- with $2 bil. To banks, r.r., factories and farmers*source: http://www.u-s-history.com/pages/h1569.html
17. Depression’s effects Widespread bank failures Bankrupt businesses High unemployment Decrease in worldwide trade Increasing numbers of homeless persons Widespread hunger and illness