Causes of The Great Depression

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  • Mass production was too successful. Not enough consumers. New technologies and techniques improved farming production as demand decreased. Overproduction = products not selling. Underconsumption = people were not buying as much as was being produced. Farmers had made money supplying food for the Allies during the war. Consumption dropped, so did prices, resulting in less income for farmers, who then turned to credit to buy the consumer items of the day. For the first time in history the number of farmers decreased. Livestock slaughtered in attempt to control prices. Business, dwindled, companies cut back, so declared bankruptcy (sound familiar). Unemployment grew, leave people with debt and no money to consume. As businesses boomed in the first half of the 20s, workers saw gradual increases in their wages, but it still wasn’t enough to solve overconsumption. 1929 top 1% controlled 56% of the wealth, bottom 99% controlled 44% People compensated for the unequal distribution of wealth by buying on credit. When the wealth in concentrated, it prevents most of the people from buying stuff.
  • Germany had to borrow money from the US to pay off reparations to the Allies. Therefore, The Germans needed to sell stuff.To protect American business from foreign competition, Congress passed the Hawley-Smoot.In reaction, European countries, raised their own tariffs.Businesses with surpluses couldn’t sell their extra stuff to foreign markets.

Transcript

  • 1. Yee Haw!!
  • 2. President Herbert Hoover From a speech given October 22, 1928: ….When the war closed, the most vital of issues both in our own country and around the world was whether government should continue their wartime ownership and operation of many [instruments] of production and distribution. We were challenged with a... choice between the American system of rugged individualism and a European philosophy of diametrically opposed doctrines -doctrines of paternalism and state socialism. …. our American experiment in human welfare has yielded a degree of well- being unparalleled in the world. It has come nearer to the abolition of poverty, to the abolition of fear of want, than humanity has ever reached before. Progress of the past seven years is proof of it....
  • 3. Causes of the Great Depression
  • 4. Speculation and Crash • Bull Market • Buying on the Margin • Speculation • Black Thursday • Black Tuesday • Bear Market Speculative bubbles from the present?
  • 5. • Bank Runs
  • 6. Yee Haw Stock Market Crash 1929 Students selected the “Go for the Gold” option Some students bought bonanza chips Point values decreased dramatically, all but those who held tight lost everything they had and sometimes more Even those who played it safe lost their credit
  • 7. Overproduction, Underconsumption, and Concentrated Wealth • Mass production • Overproduction • Underconsumption • Wealth Gap • Downward spiral Speculative bubbles from the present?
  • 8. Businesses went bankrupt Unemployment Cannot afford to buy goods Profits shrank
  • 9. Government Assistance? • Tariffs worsen things • Hawley – Smoot Tariff Act 1929
  • 10. The Stock Market Crash of 1929 The Banks The Borrowers The Businesses The bank gives a $100 loans for $20 up front. The bank has $20. The bank gives a $150 loan for $30 up front. The bank has $50 The recipient takes a $100 loan from the bank. The recipient has $100. The recipient buys two shares of stock for $50 each. The recipient has $0. Buying with loaned money is referred to as buying on the margin. Speculation causes stock prices to rise to $75. The recipient takes another $150 loan. And buys two more shares of stock. The recipient has $0. European investors get nervous and start selling their stock investments. As prices fall, they gain momentum. The recipient attempts to sell all four of his stocks for $25 each, for a total of $100. The business sells two shares of stock for $100 and invests it in land. The businessman has $0 The land that the business bought was overpriced because of speculation and becomes worthless. The business no longer has enough money to operate.
  • 11. http://www.youtube.com/watch?v=Wil1ePlT1xs&feature=relmfu&safe=active 1. How did the Great Depression effect the characters in The Grapes of Wrath? 2. How did the characters deal with these circumstances? What did they do?