Causes of the Great Causes of the Great DepressionDepression

It is more than just the stock market crashIt is more than just the stock market crash

1. Stock Market crash❖ steady decline in value of stocks in Oct of 1929,

crashed at the end of the month and continued to decline until 1932

❖ Black Monday, Oct 28th - loss of 13%

❖ Black Tuesday, Oct 29th - loss of 12%

❖ crash is a cause, but also a reflection of larger problems in the economy

Stock Market Crash

Stock Market Crash

❖ Examples of decrease in the value of some stocks

Sept. 3, 1929 Nov 3, 1929

$182 $86 American Can$396 $168 General Electric$139 $49 Montgomery Ward

Stock Market Crash

❖ Stock Market/Economics 101 reminder

❖ More people buy stocks - prices go

❖ More people sell stocks - prices go

❖ When EVERYONE PANICS and decides to sell at the same time, stocks go way, way down

UP

DOWN

II. Unrealistic Expectations

❖ “American Dream” of consumer society

❖ post-World War I optimism

❖ the economy can only go up, stocks can only rise (uneducated investors)

Text

III. Speculation❖ people bought things with “credit”

❖ Ford’s installment buying

❖ stocks: buying on “margin” - investors borrowed $ to bet

❖ stock you buy = $50 (borrow) - stock goes up to $100, you sell that

stock to another - pay back bank and keep $50 suckerstock you buy = $50 (borrow) - stock goes down to $30, you have to

sell that stock and you still owe the bank $20 making you the sucker

IV. Unequal distribution of wealth

❖ Although there was a growth of the middle class, there was still a gap between rich and poor

V. Bank Failures❖ “bank runs”

❖ as people lost confidence, they went to the bank to remove their money, but it was not there - because $$$ banks had be loaned out

❖ as banks needed money, they collected debts from other places like houses and farms

VI. Overproduction

❖ Both factories and farms were more efficient, more productive in the 1920’s as technology increased

❖ demand increased during and after the war as the people wanted more stuff; however, by the late 1920’s - supply exceeded demand

Overproduction on farms and Dust Bowl

❖ More food than people needed-seriously???

❖ Example: wheat farmers in Oklahoma (Russian Revolution) Farmers borrowed to start new farms, felt they had to continue to increase crop production to pay debts

• People start on new life (head to California, etc.)

Overproduction in factories❖ More finished products than people were willing to

buy

❖ Example: Model T Fords Ford continued to make cars, but demand decreased

VII. Tariffs❖ isolationist attitude - rejection of Treaty of

Versailles, nativism, Red Scare, immigration restrictions

❖ tariff = tax on imports, led to decrease of imports and exports

❖ 1923 Fordney-McCumber

❖ 1930 Smoot-Hawley, considered a major cause of making America’s problems