S3 Great Depression of 1929

Great Depression of 1929
1920s Booming Economy

Wages up 40% after WWI
Stock Market was soaring
◼ Many people investing – get rich quick schemes
◼ 1920s fashion – get into the market
◼ Between May 1928 and September of 1929 the average price of stocks
increased over 40 percent
◼ trading grew from 2 or 3 million shares a day to 5 million… as high as 10
or 12 million
◼ brokerage firms encourage stock mania by offering easy credit to those
buying stocks
America has emerged as a world economic,

industrial, and military power
Primary Causes of the Great
Depression
1. Not Enough Buyers
40% of all families lived in poverty—before the crash
The richest 1% owned 59% of the nation’s wealth.
The poorest 87% owned only 10% of the nation’s
wealth.
200 businesses control 50% of the economy?
Too much industry overproduction - surplus goods not
being purchased
Therefore, demand for many products was low.
The market for luxury goods was destroyed by the
crash.
2. Too Much Debt
80% of all families had no savings
Increase in personal debt – (Credit debt and installment plan
debt)
People began buying many goods on credit, often more than
they could afford
Many Banks made loans to stock market speculators that
could never be paid off -- and simply ran out of money.
What happened when people couldn’t pay back loans?
3. Over-speculation in Stocks
A “Get Rich Quick” attitude caused many to
speculate.
People risked everything by buying “on the
margin.”
◼ Buying Stocks on Margin – borrowed money from Stock Broker to
purchase Stocks. If a stock is $100 you can pay $10 now and the
rest later when the stock rose
When the market collapsed, these investors

lost everything—banks collapsed because
loans weren't repaid
4. Overproduction & Layoffs
Industries were producing much more than

could be sold.
They were forced to lay off workers and
lower prices.
The cycle gets worse…
5. Farming Crisis
Farm prices drastically fall after WWI
◼ Farmers paid by gov. to make food for allies, creates a huge
surplus
◼ Farmers suffered through droughts and low prices.
After gov. pulls WWI agricultural contracts and with low prices,
farmers were unable to repay their loans or purchase goods.
More banks collapsed, 6,000 banks close out, 9,000 banks failed
nation wide
Pres. Hoover vetoes all bills to help farmers
◼ Laissez-Faire
◼ Did nothing
◼ Did not help farmer

6. Government Mistakes
The government set low interest rates

before the crash and raised them afterward.
Banks are uninsured and Bank deposits
were not guaranteed
No gov. agencies monitor banks or the
Stock Market – Laissez Faire/Republican
Presidents
◼ Stock market speculation was unregulated.
STOCK MARKET CRASH
OF 1929
Black Thursday
October 21 and October 23 alarming
declines in stock prices
◼ both had recoveries
◼ J.P. Morgan and other big bankers
bought up a great deal of stock to
restore public confidence
Black Thursday
Oct. 24th, 1929
- Stocks fall drastically
- Brokers panic
- GE falls from $400 a share to $283 a
share
- Brokers make margin calls – no one
can pay
Black Tuesday
October 29th, 1929
Stocks plunge again
Value of market falls
People sell what’s left
to get some $
By the end of Oct. –
over $30 billion has
been lost
Thousands lose
everything
Immediate Effects of the Crash
Many lost life savings in the market crash
Banks and Brokers call in loans – American
people have no $
Hundreds of banks close
◼ No $ to pay back loans = empty savings accounts
◼ Banks not prepared for people to withdrawal $ at the
same time
◼ No bank insurance
◼ 9000 banks failed nation wide
◼ 9 million savings accounts vanish

Immediate Effects of the Crash
Unemployment: 25%
Homelessness
Hunger
Psychological
depression
More Cooperation
Solutions
At first, President Hoover
favored the traditional
government approach—do
little and wait for things to
get better.
Private charities were
responsible for helping the
poor
Hoover’s Attitude
“I do not believe that the power and duty of the
general government ought to be extended to the
relief of individual suffering…though people
support the government, the government should
not support the people.”
--Herbert Hoover, 1930
What Hoover Did
• started some huge projects (like the Hoover dam)
• Tariffs were raised, but this backfired
• Hoover supported programs to help banks extend
loans to struggling businesses
Election of 1932
By 1932, the American
people wanted new
leadership.
Democrat Franklin
Delano Roosevelt
(FDR) easily defeated
Hoover.
Roosevelt promised the
American people a New
Deal.
FDR’s Inaugural address
“The only thing we have

to fear is fear itself”
“ We Must Act and Act Quickly”

FDR and The New Deal
Day 1 of his office, The New Deal was FDR’s
plan to help the nation get through the great
depression by enacting many government
programs designed to provide:
Relief
Recovery
Reform
Examples of New Deal programs include…

Federal Emergency Relief Association
Extended loan to and
give subsidies to
farmers
FERA helped fund local
relief efforts.
However, FDR wanted
to avoid government
“handouts”
So…
National Industrial Recovery Act 1933
NIRA act passed to regulate the production of

industry and bring about balance between
consumption and production.
to create jobs for unemployed youth in the

form of public work.
Public Works Programs
Government jobs helped people get
by…
But who would pay their salaries?

FDR endorsed deficit spending
The government has a deficit when it
spends more than it collect in taxes. This
money is borrowed to be paid back in the
future.
When is it appropriate for the government
to deficit spend?
Other Programs:
FDIC
The Federal Deposit
Insurance Corporation
guaranteed bank
deposits—this helped
restore confidence in
banks.
Wagner Act
Guaranteed the right of workers to join
labor unions.
Social Security Act
Collects Social Security taxes from all
workers.
Pays government pensions to retired people
and disabled people
Results of the New Deal
Although too much bureaucracy in
implementing the program still helped
people get by, eased suffering
Provided hope
It did NOT end the depression (WWII did)
Tradition of a more active and more
expensive government
Keynes and FDR
FDR and Keynes were contemporaries
Wrote a book in General Theory of
Unemployment, Interest and Money published
in 1936
General Theory were strong affinity with New
Deal Policies
New Deal Polices were formulated in 1931
Keynes book was published in 1936
But difficult to say New Deal Polices was the
outcome of Keynesian Ideology.
Keynesian Vision of Economy
Wrote a book in General Theory of
Unemployed, Interest and Money
published in 1936
Revolutionary book
Emergence of Keynesian Economics
Y= C + I + G Exposed
S= I Exposed and not Exante
Thanks All

S3 Great Depression of 1929

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S3 Great Depression of 1929

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Great Depression of 1929

1920s Booming Economy

America has emerged as a world economic,

When the market collapsed, these investors

Industries were producing much more than

◼ Did not help farmer

The government set low interest rates

◼ 9000 banks failed nation wide

◼ 9 million savings accounts vanish

“The only thing we have

“ We Must Act and Act Quickly”

Examples of New Deal programs include…

NIRA act passed to regulate the production of

to create jobs for unemployed youth in the

But who would pay their salaries?

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