Causes of Great Causes of Great DepressionDepressionChapter 22Chapter 22

Economy in the 1920s: Economy in the 1920s: Booming EconomyBooming Economy

WWI brought US out of recessionWWI brought US out of recession Americans generally optimisticAmericans generally optimistic 1925—stock market value: $27 Billion1925—stock market value: $27 Billion Stock market value in Oct. 1929 $87 Stock market value in Oct. 1929 $87

BillionBillion Average wages increased by 40% since Average wages increased by 40% since

WWIWWI Unemployment below 4%Unemployment below 4%

Republicans in ChargeRepublicans in Charge

Progressive reform endsProgressive reform ends Income taxes on the wealthy go Income taxes on the wealthy go

downdown Efforts to help businessesEfforts to help businesses

Anti-trust efforts endAnti-trust efforts end Protective tariffs riseProtective tariffs rise

Republicans in ChargeRepublicans in Charge

Americans obsessed with the Americans obsessed with the business world in 1920sbusiness world in 1920s

Three Republican presidents in a Three Republican presidents in a row reflects the public’s emphasis on row reflects the public’s emphasis on businessbusiness

Welfare Capitalism—Welfare Capitalism—approach to approach to labor relations whereby employers labor relations whereby employers improved benefits & pay to workers improved benefits & pay to workers w/out demands from unionsw/out demands from unions

Economic Danger SignsEconomic Danger Signs

Uneven prosperityUneven prosperity Rich got richer; Huge corporations Rich got richer; Huge corporations

dominated business worlddominated business world

Buying on creditBuying on credit Increase in personal debt; people bought all Increase in personal debt; people bought all

the new stuff even if they couldn’t afford the new stuff even if they couldn’t afford themthem

Economic Danger SignsEconomic Danger Signs Risky activity in stock marketRisky activity in stock market

““Get rich quick” attitudeGet rich quick” attitude Encouraged Encouraged speculation—practice of speculation—practice of

making high risk investments in hopes of making high risk investments in hopes of getting a high returngetting a high return

Stockbrokers encouraged Stockbrokers encouraged buying on marginbuying on margin—allowed investors to buy stock for a —allowed investors to buy stock for a fraction of its price & borrow the restfraction of its price & borrow the rest

Supply & DemandSupply & Demand Overproduction and under-consumption Overproduction and under-consumption

slowed economy in late 1920sslowed economy in late 1920s

Stock Market CrashStock Market Crash

Dow Jones Industrial AverageDow Jones Industrial Average——average of stock prices of major average of stock prices of major industries—industries—climbed to 191 by early climbed to 191 by early 19281928

March 4, 1929—rose by another 122 March 4, 1929—rose by another 122 pointspoints

Sept. 3, 1929—reached all time high of Sept. 3, 1929—reached all time high of 381381

Stock Market CrashStock Market Crash

After peak in Sept. stock prices fell slowlyAfter peak in Sept. stock prices fell slowly Oct. 23—Dow Jones average dropped 21 Oct. 23—Dow Jones average dropped 21

points in 1 hourpoints in 1 hour Oct. 24—dropped another 24 pointsOct. 24—dropped another 24 points Oct. 29—Black Tuesday: a record 16.4 million Oct. 29—Black Tuesday: a record 16.4 million

shares sold (average was 4-8 million)shares sold (average was 4-8 million) Nov. 13—market had fallen to 198.7 (from 381)Nov. 13—market had fallen to 198.7 (from 381) Losses totaled $30 Billion!!!Losses totaled $30 Billion!!!

Causes of the DepressionCauses of the Depression

Stock market crash was NOT the Stock market crash was NOT the cause!!! Only the final strawcause!!! Only the final straw

Over-speculation: Investors bought Over-speculation: Investors bought stocks w/ borrowed $, then used stocks stocks w/ borrowed $, then used stocks as collateral to buy more stocks (stock as collateral to buy more stocks (stock market boom based on borrowed $ and market boom based on borrowed $ and optimism instead of real value)optimism instead of real value)

Causes of the DepressionCauses of the Depression Gov’t policies: Federal Reserve cut interest Gov’t policies: Federal Reserve cut interest

rates to spur economic growth; in 1929 limited rates to spur economic growth; in 1929 limited the money supply to discourage lending—after the money supply to discourage lending—after crash too little $ in circulation to help economy crash too little $ in circulation to help economy recoverrecover

Unstable economy: Economy lacked a firm Unstable economy: Economy lacked a firm base; wealth distributed unevenly--$ in hands base; wealth distributed unevenly--$ in hands of a few wealthy families who saved rather than of a few wealthy families who saved rather than spent their $. Industry produced more goods spent their $. Industry produced more goods than were consumed (workers & farmers didn’t than were consumed (workers & farmers didn’t share in economic boom)share in economic boom)

Unevenness of the 1920s prosperity made Unevenness of the 1920s prosperity made rapid economic recovery impossiblerapid economic recovery impossible

Impact of the DepressionImpact of the Depression

Impact on workers and farmersImpact on workers and farmers http://www.youtube.com/watch?v=gplaqa2yhttp://www.youtube.com/watch?v=gplaqa2y

Rgg&feature=fvwRgg&feature=fvw http://http://www.youtube.com/watch?vwww.youtube.com/watch?v

=1_nG9LX0Ioo&feature=related=1_nG9LX0Ioo&feature=related Banks closeBanks close

http://http://www.youtube.com/watch?vwww.youtube.com/watch?v=qu2uJWSZkck&feature=related=qu2uJWSZkck&feature=related

Impact on WorldImpact on World