Myths and Misconceptions• Many people believe that the crash of the stock market was the cause of

the Depression. Not so, it was only a symptom.

• Many people also believe that Herbert Hoover’s laissez-fair economic philosophy prevented the federal government from taking steps to prevent the crisis. Hoover was proactive in trying to ease the impact of the depression, it was too little, too late.

• Many people think that the Great Depression was the only major economic crisis in U.S. history. Nope, but it was the worst.

• Many people do not realize that the Depression was global and affected almost every capitalist economy on earth

• Some believe that FDR and the New Deal ended the Depression. Wrong again, WWII ended the Depression

The Facts• In September of 1929 the U.S. economy began showing signs of

contraction (decline from the growth of the 1920’s)• August 1929, recession begins, GDP falls and unemployment rises.• Car sales fall 30% in 1929. • By 1929 farm incomes fall more than 50%• September 1929 stock prices begin to fall, the market crash on Black

Tuesday October 29th losing 90% of its value by 1932.• By 1932 US GDP fell 30%• 1929-1932 US factory production fell 46%• 1929-1932 US wholesale prices fell 32%• 1929-1932 US exports fell 70%• 1929-1932 US unemployment will reach 25%-33% (depending upon

where you lived

US Unemployment 1910-1960

Abstract of the US Department of Labor

US Farm Prices 1928-1932Housing and Crop Crisis

US Bureau of Labor Statistics

US Industrial Production

US GDP 1910-1960(GDP) is the market value of all final goods and services produced

within a country in a year.

Based on data from: Louis D. Johnston and Samuel H. Williamson, "What Was the U.S. GDP

Many did not realize how severe the downturn was until 1932, when the economy had technically “hit

bottom.”

Crop Surplus for farmers

Causes of the Great DepressionCauses of the Great Depression

Overproduction and Underconsumption

Of Goods

Buying stocks on margin

Uneven distribution

of wealth

1. Overproduction of Goods

• The “roaring twenties” was an era of great prosperity and economic growth.

• Manufacturers were pumping out 32% more products then the previous decades in turn corporate profits rose 62%.

• The availability of so many consumer goods, such as electric appliances, radios and automobiles, which made life easier.

• Americans felt they deserved to reward themselves after the sacrifices of World War I. A return to normalcy.

• This led to a high demand for such goods, so companies began to produce more and more, in order to meet that demand.

The Roaring 20’s• The new concept of

“credit” • People were buying

things now paying later:– Automobiles

– Appliances

– Clothes

• Fun times reigned

– Dancing

– Flappers

– Drinking

3. Crop Surplus for farmers• In 1929, Agriculture still makes up half of the US economy• During World War I, with European farms in ruin, the American

farm was a prosperous business.• Increased food production during World War I was an economic

“boom” for many farmers, who borrowed money to enlarge and modernize their farms.

• The government had also subsidized farms (gave them top $) during the war, paying high prices for wheat and grains.

• Subsidy defined: direct (cash grants, interest-free loans),• Indirect: tax breaks, insurance, low-interest loans,

depreciation write-offs, rent rebates • When the subsidies were cut farmers couldn’t pay their debt.

2. Unequal distribution of Wealth• Mass advertising fed mass consumption to satisfy the needs of

mass production.• Businesses were investing profits in the stock market and not in

workers wages. So….• The uneven distribution of wealth grows. 1922 1% of the

population owns 36.7% of the nations wealth by 1929 it has grown to 44.2%

• Eventually business produced more than consumers could purchase. You can only own so many radios, cars, and appliances.

• August 1929 Recession begins, two months before the stock market crash. During this two month period, production fell 20%, wholesale prices at 7.5 %, and personal income fell 5%.

4. Buying Stocks on Margin (Credit)

So…• Over production of consumer goods and

agricultural goods means…• Supply was greater than demand.• A surplus of goods in the market begins to

drive prices down.• Declining prices means declining profits• Declining profits means stock values (for

corporations) begin to fall.• Oh my!!!

1929-1939• Stock market

crash was the catalyst or “spark”

• Didn’t realize the effect it would have

• No money to replenish what was borrowed

Many found being broke humiliating.

Why was this bad?• Credit system

– People didn’t really have the money they were spending

• WWI– The U.S. was a major

credit loaner to other nations in need

– Many of these nations could not pay us back

The Stock Market• People bought stocks

on margin (like credit)– If a stock is $100 you

can pay $10 now and the rest later when the stock rose

• But then stocks fall– Now the person has

less than $100 and no money to pay back

Stock Market: Buying on Margin

• Speculators expect the value of the stock to go up in price enough (at least 90% to break even) covering the balance.

• Buying on the margin encouraged thousands of small time, new (inexperienced) investors to purchase stocks

• As long as corporations were selling goods and turning a profit stock prices rose and buying on the margin was safe.

And then….

• With people panicking about their money investors tried to sell their stocks in record numbers Oct. 29,1929

• Black Tuesday– This leads to a huge decline in stocks– Stocks were worthless now

• People who bought on “margin” now could not pay

• Investors (people who bought stocks) were average people that were now broke

• Herbert Hoover was president at the start

• Philosophy: We’ll make it!

• What He Did: Nothing• Preached self reliance and

charity• The poor were looking for

help and no ideas on how to correct or help were coming

• Farmers were already feeling the effects– Prices of crops went down– Crop surpluses– Many farms foreclosed

• People could not afford luxuries– Factories closed– Businesses failed– Banks had no money– People could not pay their taxes

– Schools shut down due to lack of funds• Many families became homeless and had to live in

“Hoovervilles”

“Hooverville”• Some families were

forced to live in shanty towns– A grouping of shacks

and tents in vacant lots

• They were referred to as “Hooverville” because of President Hoover’s lack of help during the depression.

Consequences of everyday living

• Marriage rate dropped

• Birth rate dropped

• Divorce on the rise

• Suicides increased

• Men and Children as young as 12 leaving home to find jobs

Many waited in unemployment lines hoping for a job.

People in cities would wait in line for bread to bring to their family.

Some families were forced to relocate because they had no money.

A drought in the Mid West leads to dust storms that destroyed

crops.

“The Dust Bowl”

The MidWest Was Buried

• Crops turned to dust=No food to be sent out

• Homes buried

• Fields blown away

• South in state of emergency

• Dust Bowl the #1 weather crisis of the 20th century

• http://www.youtube.com/watch?v=x2CiDaUYr90

Two Families During the Depression

A Farm Foreclosure

Some families tried to make money by selling useful crafts like baskets.

*FDR*• When he was

inaugurated unemployment had increased by 7 million.

• Poor sections (like Harlem) had 50% of the pop. unemployed

• Instated the “New Deal”

• Yea! Frankie!

• People everywhere were effected by the depression

• It wasn’t till President Roosevelt took over and tried to put the economy back together that people even saw a glimmer of hope

First Hundred Days

• Created a Brain Trust of Elite Harvard and Columbia Professors

• Congress pass over 70 pieces of legislation in the first 100 days

• First up:

• Fix the banking crisis

Fireside Chat on Banking

• http://www.youtube.com/watch?v=z9CBpbuV3ok

Major Historical HappeningsLife for African Americans...

• Jim Crow Laws

• Recovering from the Great Depression

• Racial Injustice

• Poor South

• Jim Crow laws were instituted in 1896 and were not abolished till the late 1950’s (even then still not completely).

FDR did little to help African Americans who were hit the

hardest

• Extremely high level of Poverty

• 50% jobless

• First hired (WWI) First Fired

• Inner cities begin to crumble