Chapter 11: The Great Depression Begins
Section 1: The Great Crash n Learning Objectives for this section: ¨ Describe how the policies of Presidents Harding, Coolidge, and Hoover led to amazing economic growth & serious economic problems ¨ Learn about the federal reserve & its role in setting economic policies ¨ Understand causes of the Depression and steps taken to end it n Main Idea: The stock market crash of 1929 led revealed weaknesses in the American economy & helped trigger a spreading economic crisis
Bell Ringer For many Americans in the 1920’s it seemed like making money on Wall Street was a sure thing, As stock prices steadily rose, it was easy to ignore the warning signs in the fall of 1929. The economy had begun to slump. Consumers weren’t buying as much. Products were piling up on the factory floor. On Thursday October 24, rumors of trouble reached Wall Street. By the end of the day, the values of stocks traded on the stocks traded had plunged by four billion dollars. Years of investment were wiped out in a few
Review Questions: What economic warning signs began to appear in the fall of 1929? n Why do you think the warning signs were ignored? n
An Appearance of Prosperity Farmers struggled, but for most Americans the 1920 s were a time of economic prosperity n Between 1922 and 1928 the Gross National Product rose by 30% n What is the Gross National Product? n Spurred feelings of confident spending n ¨ By n 1929 1 in 5 Americans owned a car B/c of this steel, rubber, and oil industries also boomed
As industries succeeded, they employed more workers to keep up wit production needs n Unemployment rates were very low n Employers expanded welfare capitalism programs n What is Welfare Capitalism? n Very little interest or need for labor unions n Feelings of prosperity encouraged workers to purchase new products and engage in more entertainment than ever before (movies, sporting events, etc) n
Stock Market Expansion What is a stock? n Those investing in the stock market saw successful gains n Between 1920 and 1929, stock prices quadrupled n Increasing number of “ordinary” “working” Americans began to invest in the stock market n
Faith in Business and Government Presidents Harding and Coolidge favored hand off approach to business n President’s approach to business won them the favor of the American people as well n
The Election of 1928 n n n Coolidge decided not to run in 1929, Herbert Hoover ran for the Republican party Hoover had been in charge of food distribution during WW I & also directed relief efforts in Europe Hoover’s opponent was Al Smith Herbert Hoover ¨ Was n Quaker and supported prohibition Al Smith ¨ Was Catholic (the first to ever run for president), supported alcohol sales n Who won the Presidency?
Economic Weakness n Wealth Distribution ¨ Vastly uneven distribution of wealth ¨ 1% of population has income increase of 60% ¨ Working people had a salary increase of 8% n n By 1929, 70% of the population had wages below the level they need for a good standard of living Personal savings declined as well People had begun buying things on credit through the 1920’s and had exhausted their credit line People started to slow their rate of purchase, thus products began to back up
Credit and the Stock Market Investors also used credit to purchase stocks n What is Buying on Margin? n As investing became more popular, stock brokers required less money down to borrow $ to purchase stocks n
An Example of Buying on Margin Matt buys 100 shares of stock at $10 per share n All together his purchase was $1, 000 n He needs to put some money down, so he pays $500 and borrows $500 from the stock broker. If the stock rises to $15 per share, his stocks are now worth $1500. n He sells his stocks, pays off the stockbroker ($500) n $1500 -$500 (original investment)-$500 (broker loan) n How much has he profited? n
Reading Focus Question #2 n What were the basic economic weaknesses in the American economy in the late 1920’s?
The Federal Reserve What is The Federal Reserve? n It regulates the nation’s money supply n Became increasingly concerned about the loans being given n Decided to make it more difficult for brokers to get a loan and pass it on to investors n Brokers began to borrow from large corporations instead of banks n
In September 1929, Roger Babson issued a warning that sooner or later, a crash was coming n Most people ignored the warning n Other experts advised that Babson was wrong in his prediction n
The Stock Market Crashes n Signs of Economic Trouble ¨ Sales of manufactured goods had slowed ¨ Rumors that some large investors were preparing to take their money out of the market n On Oct. 24, 1929 some nervous investors began to sell their stock, people began to panic and sell their stock. With all the stock being sold, and no one buying prices dropped drastically
To stop the plunge, bankers got together and bought stocks. n Sock market returned to normal the following day n The next Monday, the market began to fall again. Tuesday 10 -20 -29, investors panicked and sold more than 16 million shares of stock n This Black Tuesday affected even the most solid companies n What is Black Tuesday? n
n During the month of October, the stock market lost $16 Billion (50% of the value of the market’s value in September
Reading Focus Question #3 n What events led to the stock market’s crash in October 1929?
The Effects of the Crash n Many, including President Hoover, believed that the stock market crash would not effect the general public, and that the market would soon recover
The Impact on Individuals Some people’s entire life savings disappeared on Black Tuesday n Margin buyers were hit especially hard. As stock values dropped, brokers demanded to be paid back n
Effects on the Banks As the stock market crashed, people rushed to the bank to withdraw their money n Some banks had taken deposited money and invested it into the market themselves, or loaned it to brokers n Loan failures drove many banks out of business n
Effects on Business Because of financial difficulties, banks were unable/unwilling to loan money that businesses needed to expand n Wages of Americans began to drop n People began to lose their jobs n People responded by stopping their spending habits n
Effects Overseas n n Europe was still unstable from WW I American banks were now calling in their loans to European nations U. S. also stopped importing goods, therefore negatively affecting European manufacturing companies, they also began laying off employees Countries began implementing high tarriffs to encourage their citizens to buy local products
Section 2: Americans Face Hard Times n Main Idea: The Great Depression and the natural disaster known as the Dust Bowl produced economic suffering on a scale the nation had never seen before
Bell Ringer At the height of the Great Depression, as many as a quarter million homeless teenagers wandered the nation, riding railroads from town to town. With little food, without work, and with no families to support or protect them, they had to struggle simply to survive. The lucky ones found or formed communities with other homeless people, who were mainly adults. The unlucky ones fell prey to abuse and violence. Homeless teenagers formed just part of the human face of the economic catastrophe that followed the crash.
Review Questions Why do you think so many teenagers rode the rails during the Great Depression? n Recall what you read about children in the workforce in previous chapters. How did the attitudes toward childhood and education at the time of the depression differ from present day attitudes? n
The Development of the Great Depression n Bank Failures ¨ The collapse of the stock market strained banks, many went out of business ¨ Those who had their money in bank accounts lost it ¨ Today, banks are insured by the federal government up to a certain amount, insuring that money you deposit will be there when you want to withdraw
n Farm Failures ¨ Widespread joblessness impacted American’s ability to buy food ¨ Farmers were producing more than they could sell. ¨ What happened to prices? ¨ This meant what for farmer’s incomes?
n Unemployment ¨ Steep rise in unemployment to 25% ¨ African American rate of unemployment was 50% ¨ Gross National product dropped 40%
The Human Impact of the Great Depression n Hoovervilles and Hoboes ¨ With millions of people out of jobs, thousands of people applied for any available jobs ¨ Some people begged door-to-door for survival ¨ Relied on bread lines, soup kitchens, or went hungry ¨ Only 1 out of 4 people received unemployment ¨ There were no government programs to help
Many Americans lost their homes n Neighborhoods of shacks sprang up on parks and on the outskirts of towns to house the homeless n What were Hoovervilles? n Some people sold apples for 5 cents for income, in 1930, 6, 000 people were selling apples in New York City n Some hoboes hopped trains to travel from town to town n Trains hired “bulls” to chase hoboes off trains n
Hoboes Finding food was a constant challenge n Were often met with violence n Most were men n Left behind families they could not support n
The Emotional Toll Many viewed their unemployment as a personal failure n Accepting handouts was difficult for proud Americans n Some people were angry that the nation had failed hardworking Americans n
Reading Focus Question #2 n What was the human impact of the great depression?
Devastation in the Dust Bowl In 1931 the Great Plains entered a long severe drought. n What is a drought? n Drought Occurs naturally every few decades n Careless farming practices of stripping the land left loose soil on top n When wind storms occurred, it stripped the land of the soil n
Dust reached as far as the Atlantic Ocean n Dust killed crops, buried farm equipment, and leaked inside homes n Hardest hit areas included: Oklahoma, Kansas, Colorado, and New Mexico. These areas became known as the Dust Bowl n
Fleeing the Plains Dust storms greatly impacted farmers survival n Many packed up and moved west on Rt. 66 to California to work on farms and orchards n
n n n These migrants were called “Okies” This was a discriminatory term. What did this nickname mean? Why was it inaccurate? Author John Steinbeck, and singer Woodie Gurthrie wrote and sung about the Dust Bowl and its effects http: //player. discoveryeducation. com/index. cfm? guid. Asset. Id=19 C 350 AF-D 8 F 1 -40 E 0 -BA 71 F 4 B 96 D 98788 F&bln. From. Search=1&productcod e=US
Section 3: Hoover Becomes President n Main Idea: Herbert Hoover came to office with a clear philosophy of government, but the events of the Great Depression overwhelmed his responses
Bell Ringer In May, 1932, a group of World War I veterans set up camp near the nation’s capital. They had come to Washington to put pressure on the federal government to pay a veteran’s bonus. It was not due to be paid for many years, but the men needed the money, and they believed their request was fair. Congress did not agree to their demands, and in July, police and U. S. Army soldiers began to clear the area of the veterans. Violence erupted, leaving hundreds injured and some dead. The events helped complete the public view of Herbert Hoover as heartless and helpless in the face of the nation’s suffering.
Review Questions Why do you think Congress refused to agree to veterans’ demand for payment of their bonuses? n How do you think the army soldiers felt about the veterans from the area? n
Herbert Hoover’s Philosophy Came into office with firm ideas about how he would run the government, but quickly had to shift his plans n Favored a federal government that was involved in business as little as possible n Believed in “Rugged Individualism” n What is Rugged Individualism? n
The Associative State Believed in the Associative State: businesses would create associations that would improve the economy and government specialists would work with associations n Called meetings of business leaders and experts to discuss ways to achieve key national goals n Hoover’s ideas were tested during the building of the Hoover Dam n
n n The Hoover Dam was designed to produce electricity and provide drinking water from the Colorado River to 7 states Federal Government provided the money to build the dam 6 different companies designed and built the dam For Hoover, the success of the Hoover Dam was a perfect example of partnerships between private businesses and government.
Reading Focus Question #1 n What was Herbert Hoover’s basic philosophy about the proper role of government?
Hoover’s Response to the Great Depression Believed that government should not provide direct aid, rather should find ways for people to help themselves n Voluntary Cooperation n ¨ Wanted to help farmers by establishing a program of loans to create and strengthen cooperatives ¨ What is a cooperative? ¨ Large groups of farmers could buy supplies at at a lower cost ¨ Would also help raise and maintain crop prices
Direct Action Despite his personal beliefs in “Hands-Off” government, Hoover urged Congress to pass The Reconstruction Finance Corporation n What is the Reconstruction Finance Corporation? n Also promoted the creation of the Federal Home Loan Bank n ¨ FHLB encouraged home building and reduced foreclosures
The Smoot-Hawley Tariff Act Raised the tariff of imported goods for American Consumers (buyers) n How would this help manufacturers and businesses? n European nations responded by raising tariffs on American goods, therefore there was little international trade n
The Nation Responds to Hoover His frequent claims that the economy would quickly recover undermined his credibility n Americans who were losing jobs did not believe him n Hoover was also unwilling to give any direct aid to the people, therefore, he was seen as coldhearted n When Hoover implemented legislation to aid banks, Americans could not understand his willingness to give banks billions of dollars, but nothing to individuals n
Bonus March What was The Bonus March? n Veterans converged to ask for their war bonus b/c of financial difficulties n Hoover had concerns about paying it because he wanted to maintain a balanced federal budget n Hoover also increased taxes in 1932 on people already struggling n Hoover calls in the army to respond to WW I veterans n
The Voters React Since the 1920’s republicans had controlled Congress n In the 1930’s Democrats won the majority in the House of Representatives, and won more seats in the Senate n What was this a sign of for President Hoover? (Who was also a republican) n Hoover didn’t even campaign for the next election until October n
n Hoover was sure he’d lose the election. The question was, who would the Democrats choose to run, and what would he do about the Depression?
Reading Focus Question #3 n How did the nation respond to Hoover’s efforts?
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