THE GREAT DEPRESSION

Chapter 11

Appearances Versus Reality

Gross National Product (GNP): total value of goods and services produced by a nation ROSE 30% Explosive growth of

automobile FEELING of prosperity

encouraged spending

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

Appearances Versus Reality

STOCKS: OWNERSHIP IN A COMPANY If corporation

succeeds, value rises Corporation doesn’t

do well, loses value Stock market

performed spectacularly

Attitude was stocks wouldn’t go down

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

Appearances Versus Reality

FAITH IN BUSINESS AND GOVERNMENT Prosperity of 1920s

showed triumph of American business

“chief business of America is business” Calvin Coolidge

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

Appearances Versus Reality

HERBERT HOOVER Elected in 1928 Impressive record

of public service Businesslike

administrator

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

Appearances Versus Reality

DISTRIBUTION OF WEALTH: Small number of

people truly prospered Wealthiest 1% income

rose 60% Most workers saw 8% 70% of farmers didn’t

make enough Many reaching credit

limits

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

GNP = prosperity Stocks couldn’t

fail Faith in Business Herbert Hoover

Appearances Versus Reality

GNP = prosperity Stocks couldn’t

fail Faith in Business Herbert Hoover

CREDIT People bought

stocks on credit Made prices rise

sharply

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

Appearances Versus Reality

GNP = prosperity Stocks couldn’t

fail Faith in Business Herbert Hoover

BUYING ON MARGIN Investor wants 100

shares in a company $10/share = $1,000 Only pay for a

portion $500 Borrow other $500

from broker Pay off loan once

stock sold

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

Appearances Versus Reality

GNP = prosperity Stocks couldn’t

fail Faith in Business Herbert Hoover

BUYING ON MARGIN

As enthusiasm for investing grew, brokers required lower margins for purchases

Gave bigger loans 1929: buy stock

for 10% of cost

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

Appearances Versus Reality

GNP = prosperity Stocks couldn’t

fail Faith in Business Herbert Hoover

BUYING ON MARGIN If stock rose to $15, the

$1,000 investment would rise to $1,500

The investor would get back original $500, repay $500 loan, and still have $500 profit

If stock fell to $5/share the sale would only be $500 which would have to be used to sell off the loan. No profit, out original $500 investment

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

Appearances Versus Reality

GNP = prosperity Stocks couldn’t

fail Faith in Business Herbert Hoover

BUYING ON MARGIN MARGIN CALL:

Broker could force investors to repay loans if value fell

You’re in big trouble if your stock’s value falls

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

Appearances Versus Reality

GNP = prosperity Stocks couldn’t

fail Faith in Business Herbert Hoover

THE FEDERAL RESERVE Nation’s central bank Takes actions and sets

policies to regulate nation’s money supply

Keeps economic activity healthy

Unable to keep business from loaning investors money

APPEARANCES: PROSPERITY

REALITY: ECONOMIC WEAKNESS

•Stock Market reaches it’s high point•Many people began to recognize signs of trouble•Sales began sagging•Rumors spread that big investors were getting ready to take money out of market

September 3, 1929

•Nervous investors began selling stocks•Others noticed increased activity and joined selling•Few people willing to buy millions of stocks flooding market, stock market prices plunged, triggering greater panic to sell•Toward the end of the day, a number of leading bankers joined to buy stocks to prevent further collapse

Thursday, October 24, 1929

•Market returned to normal•Some stocks gained value

Friday, October 25, 1929

•Good feelings from Friday gone•Market sank like a stone

Monday, October 28,1929

•Panic completely overtook the markets•Investors dumped more than 16 million shares•Affected strongest companies•BLACK TUESDAY•Stock market lost $16 Billion

Tuesday, October 29, 1929

View image of man with car, read insetsSummarize effects of crash in graphic organizer

326-327

The MOST severe economic downturn in the history of the US (and the World)

25% Unemployment 5,000 Banks closed Hundreds of Thousands Homeless

Great Depression (1929-1941)

BANK RUNS: nervous depositors rushed to withdraw savingsThousands of Banks closed forever

Bank Failures

Reaches 25%Businesses go out of business, people lose jobs, stop shopping, more businesses go out of business

UnemploymentBusiness

es Closes

People out of work

Stop Shoppin

g

People lose jobs, houses, possessionsHOBOES: homeless who ride the rails looking for workHOOVERVILLES: pop-up villages of shacks for homeless

Homelessness

Angry at the banksShame at losing everything

Emotional Toll

The Dust Bowl

By 1931 much of the Great Plains were in a drought (period of below-average rainfall)

DUST BOWL Farmers had cut down all the grass to plant

crops Much of the earth lay bare to the elements Wind Storms would come up and blow dust

for miles OKIES: farmers who fled the Great Plains

West to look for work (named after Oklahoma)

Hoover Responds

RUGGED INDIVIDUALISM: It’s up to the people to pull themselves up, not the federal government

HOOVER DAM: example of how businesses should cooperate

COOPERATIVES: farmers buy together to get lower prices

SMOOT HAWLEY ACT: Raised prices for imported goods (hoped to make Americans buy US goods) Slowed trade

Raised taxes to balance budget

Franklin Delano Roosevelt (FDR)

Wealthy family from New York New York Senator Democrat Married to Eleanor Roosevelt FIRESIDE CHATS: radio

addresses – felt like family HUNDRED DAYS: period of

critical government activity where FDR sprung into action

The New Deal – The Three Rs

NEW DEAL: Plan to fix the Economy RELIEF: for those suffering

effects of GD RECOVERY: of the depressed

Economy REFORMS: to prevent another

GD DIRECT RELIEF: Federal

Government directly helping individuals during the Great Depression

New Deal Programs

CCC AAA NIRA PWA TVA EBA NLRB FHA

CWA WPA SEC FDIC REA FSA SSA

•Temporarily closed banks to find problems in banks and fix them•Created by the Glass-Steagall Act•(first Fireside Chat explained this)•Reform

Emergency Banking Act

Protected depositors money in case banks closedReform

Federal Deposit Insurance Corporation

Gave men 21+ jobs planting trees and building parksRelief

Civilian Conservation Corps

Gave farmers SUBSIDY to plant less to raise pricesRecovery

Agricultural Adjustment Act

Hired artists to document and improve the Great Depression (paintings, pictures, writings, etc)Relief

Works Progress Administration

Brought affordable electricity to thousands by building dams and introducing new farming techniquesRecovery

Tennessee Valley Authority

Provides a pension to retired workers 65+Relief

Social Security Act

During the Great Depression

Art & Culture

Art

Grant Wood:

“American Gothic” (1930)

Shows American ideals – hard work, domesticity

Movies

Gone with the Wind(1939)idealizes the South during the Civil War

Wizard of Oz(1939)Teaches young girl that there is “no place like home”

Radio

War of the WorldsOctober 30,193810:50