TSW: Discover how the pattern of conspicuous consumption in the 1920s led America into the Great Depression

EQ: Economically, what comparisons can you make between the U.S. in the late 1920s and today?

The Postwar Economic Boom

Americans had more money to spend, especially on automobiles, but also radios, refrigerators and etc.

Business profits rose by 80% By 1929 stock market was at an all time

high. The number of stocks traded doubled

between 1927 and 1929.

By late 1929 cracks were beginning to show in the U.S. economy.

Unemployment was on the rise. Farmers were losing their land Stock prices were dropping. Number of Americans living in poverty was

on the rise. Stock market crash launched the longest

and most devastating depression in U.S. history.

The Postwar Economic Boom

The Crash did not cause the Depression, rather it was one of many complex factors.

Historians agree on 6 key factors;

1) Domestic and international economic policies.

2) Unchecked stock speculation.

3) Weak, unregulated banking

4) Overproduction of goods.

5) The decline of the farming industry.

6) Unequal distribution of wealth

The Postwar Economic Boom

US Banks felt so confident in the Bull Market of the 1920’s they decreased the number of loans made to foreign countries.

This caused foreign countries to purchase less American made products.

In June 1930 Congress passed the Hawley-Smoot Tariff, raising the average tariff rate to the highest level in history.

In turn, foreign countries raised tariff rates on the US damaging American sales abroad.

Domestic & International Economic Policies

The Federal Reserve also failed to raise interest rates to curb excessive speculation.

By keeping rates low, it encouraged member banks to make risky loans and it led business leaders to think the economy was still expanding, which in turn, meant businesses would keep producing (borrowing money to make this happen).

When the depression finally hit, companies were forced to lay off workers to cut costs in order to repay their loans.

Domestic & International Economic Policies

Unchecked Stock Speculation

Unchecked Stock Speculation

Real Estate Speculation The practice of speculation- in which a person or

organization makes a risky investment in the hope of making a quick, large profit - was widespread during the 1920’s.

Early in the decade many investors speculated on real estate. The migration to California of over one million people prompted investors to buy massive tracts of land.

The California real estate boom went bust in the mid 1920’s when the amount of land for sale far exceeded demand for new housing.

Stock Market Speculation Real estate speculators turned their attention to the stock

market. Speculators bought large amounts of stocks they thought

would go up. Then they turned around and sold the stock at a higher price making a quick, easy profit.

In this system the value of many companies' stock became artificially inflated and did not reflect companies actual worth.

Rampant speculation drove stock prices higher and higher.

Even President Hoover warned investors to curb their speculation and began to sell some of his own stock.

Unchecked Stock Speculation

The Crash

Analyst’s warnings that the bull market could not continue forever made some investors nervous.

In 1929 many investors began selling their stocks while they could still get a high price.

As investors began withdrawing from the market, prices started to fall.

As stock prices fell, companies slowed production, which in turn led to additional price drops.

By October,1929 prices were on a devastating downward spiral.

Monday, October 28, investors again rushed the exchange and sold their stocks at a loss of over $4 billion.

October 29, “Black Tuesday,” orders to sell at any price swamped the stock market. In just hours people lost fortunes it had taken an entire decade to make.

By the end of Black Tuesday investors had lost $16 billion. The Great Depression had officially begun. The stock market crash triggered a collapse of the U.S. banking

industry. When banks folded their customers had no way to get money

back.

The Crash

Overproduction During the 1920’s U.S. industry enjoyed a postwar

boom that lasted until the end of the decade. Postwar technological changes completely changed

the way American people lived and worked. By 1929 many companies had more plants than they

actually needed, and the market was saturated with goods that few Americans could afford to buy.

New technology also helped farmers produce more goods than ever before.

Farmers were often stuck with surplus crops they couldn’t sell or only at a low price

Farming

Farming has historically been the backbone of the American economy.

By 1929 farming was in deep decline. During 20’s farmers borrowed heavily to pay for new,

technologically advanced equipment. As farmers failed to sell surplus crops they became

unable to repay their bank loans, including mortgages.

Banks often could not auction off foreclosed farms and ended up taking a loss.

Many banks collapse under pressure of farmers problems and stock market crash.

Farmers

Farmers situation only grew worse as the Depression deepened.

Between 1929 and 1933 farmers income dropped by 50%

Property values decreased by billions of dollars. A severe drought, known as the Dust Bowl, hit

Midwestern and southwestern U.S. Over one million families lost their farms between

1930 and 1934. The unrelenting poverty of the American farmer

contributed to the nation’s overall economic decline and dramatized the gap between haves and have-nots.

Distribution of Wealth

During the 1920’s most of country’s wealth remained in the hands of a few people at top of economic pyramid.

As decade wore on, gap between rich and poor grew wider, and the distribution of wealth grew increasingly unequal.

1929 FTC reported that 1% of American population possessed over 59% of country’s wealth.

Experts also estimated that over 60% of U.S. families lived on or below the minimum subsistence level of $2,000. Per year.

Like farmers, workers struggled to survive in 1920’s. Many workers were replaced by machines. Low wages made workers as impoverished as farmers.