THE GREAT DEPRESSION AND NEW

DEAL (1929 – 1941)

Great Depression Begins

The Economy of the Late 1920’s 1928 Election showed faith in the Republican

Party. Herbert Hoover defeated Al Smith (D). Welfare Capitalism – Employers undermined

labor unions by giving more benefits to workers. Wages up more than 40% and unemployment was under 4%. Consumption was up and American confidence was up.

1925 Stock Market = $25 Billion by Oct. 1929 = $87 Billion! “Everyone could be rich if they invested $15/ week for 20 years = $400 per month income until they died! “

FARMERS STRUGGLE

No industry suffered as much as agriculture

During World War I European demand for American crops soared

After the war demand plummeted

Farmers increased production sending prices further downward

Photo by Dorothea Lange

CONSUMER SPENDING DOWN

By the late 1920s, American consumers were buying less

Rising prices, stagnant wages and overbuying on credit were to blame

Most people did not have the money to buy the flood of goods factories produced

GAP BETWEEN RICH & POOR

The gap between rich and poor widened

The wealthiest 1% saw their income rise 75%

The rest of the population saw an increase of only 9%

More than 70% of American families earned less than $2500 per year

Photo by Dorothea Lange

HOOVER WINS 1928 ELECTION

Republican Herbert Hoover ran against Democrat Alfred E. Smith in the 1928 election

Hoover emphasized years of prosperity under Republican administrations

Hoover won an overwhelming victory

Young Hoover supporter in 1928

1. The Rich got Richer and the Poor became less Poor! 0.1% of Americans

had incomes over $100,000 & they had over 34% of all savings accounts.

71% of families earned $2500/ yr. or less.

Workers were 40% more productive, but paid only 8% better!

1% made $10,000 +/ yr.

2. Easy Credit Hides the Gap Between the Rich and Poor – temporarily!

Buying on Time and Installment Plans allowed people to spend money they didn’t have and people lived beyond their means (radios, cars, appliances, etc.)!

Personal Debt Skyrocketed during the 1920’s!

3. Speculation on Stocks in the Bull Market of the 1920’s!

Easy Credit led to Buying on Margin – 10% - 50% per share of stock up front and borrow the rest at high interest!

Very risky, but as long as prices rose it was win/ win for everyone!

Brokers could call in margins anytime.

Led to inflation of stock prices!

4. Overproduction Led to Layoffs! Overproduction

caused many durable goods to stockpile in warehouses!

The auto industry began to slump after 1925 and related industries suffered too.

Massive layoffs of workers resulted!

Banks were hurt too!

5. Farmers Suffered Earlier and More Often During the 1920’s!

Farm prices fell from lofty heights after WW I (1914 – 1918)!

One-fourth of America’s workers were farmers!

Farmers often had to overextend on credit to survive.

6000 Rural Banks before the 1929 Crash!

Farmers too overproduced!

Exit Slip – Causes of the Depression

1. T or F: Stock prices rose steadily during the 1920’s.

2. T or F: Most American families earned more than $2500 a year during the 1920’s.

3. T or F: Credit was harder to get for most Americans during the 1920’s.

4. T or F: Farmers prospered during the 1920’s as they had during WW I as farm prices continued to rise throughout the decade.