The great depression - THE NATION’S SICK ECONOMY • MAIN IDEA: AS THE PROSPERITY OF THE 1920S ENDED, PDF

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THE NATION’S SICK ECONOMY
• MAIN IDEA: AS THE PROSPERITY OF THE 1920S
ENDED, SEVERE ECONOMIC PROBLEMS GRIPPED
THE NATION.
• WHY IT MATTERS NOW: THE GREAT DEPRESSION
HAS HAD LASTING EFFECTS ON HOW AMERICANS
VIEW THEMSELVES AND THEIR GOVERNMENT.
• TERMES ...

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THE GREAT DEPRESSION 1929 THE NATION’S SICK ECONOMY • MAIN IDEA: AS THE PROSPERITY OF THE 1920S ENDED, SEVERE ECONOMIC PROBLEMS GRIPPED THE NATION. • WHY IT MATTERS NOW: THE GREAT DEPRESSION HAS HAD LASTING EFFECTS ON HOW AMERICANS VIEW THEMSELVES AND THEIR GOVERNMENT. • TERMES AND NAMES: PRICE SUPPORT, CREDIT, ALFRED E. SMITH, DOW JONES INDUSTRIAL AVARAGE, SPECULATION, BUYING ON MARGIN, BLACK TUESDAY, GREAT DEPRESSION, HAWLEYSMOOT TARIFF ACT.

AS THE 1920S ADVANCED, SERIOUS PROBLEMS THREATENED ECONOMIC PROSPERITY. THOUGH SOME AMERICANS BECAME WEALTHY, MANY MORE COULD NOT EARN A DECENT LIVING. IMPORTANT INDUSTRIES STRUGGLED, (INCLUDING: AGRICOLTURE, RAILROADS, TEXTILES, STEEL, MINING, LUMBER, AUTOMOBILES,HOUSING, CONSUMER GOODS) AND FARMERS GREW MORE CROPS AND RAISED MORE LIVESTOCK THAN THEY COULD SELL AT A PROFIT. BOTH CONSUMERS AND FARMERS WERE STEADILY GOING DEEPER INTO DEBT. AS THE DECADE DREW TO A CLOSE, THESE SLIPPAGES IN THE ECONOMY SIGNALED THE END OF AN ERA.

DUSTRIES IN TROUBLE The apparent prosperity of the late 1920s overshadowed the decline, which marked the beginning of the Great Depression. Key industries such as railways, textiles and steel had only just begun to develop. lost business to other means of transport such as trucks, buses etc. Jobs such as mining and lumbering, which had been developed during the war, lost importance. Another sector that was affected was coal, due to new forms of energy such as hydroelectric power, fuel oil and natural gas. The automobile, construction and consumer goods industries also weakened, which was also due to the number of new houses being built. In fact, when housing construction decreased, jobs in many related industries also decreased.

FARMERS NEED A LIFT It is possible that among the many activities, the one that suffered the most losses was agriculture. During the First World War, prices rose and international demand for crops such as wheat and corn increased. However, demand declined after the war and crop prices fell by 40% or more. Farmers increased their production, hoping to sell more crops, but this only lowered prices further. As a result of this, farmers found it difficult to repay their loans and debts and many lost their farms. Since the

farmers could not repay their debts, many rural banks also went bankrupt. Congress tried to pass a law called McNary-Haugen to help the farmers. This provided for federal price support for major commodities such as wheat, corn, cotton and tobacco, and the government would buy up the surplus crops and sell them on the world market.

CONSUMERS HAVE LESS MONEY TO SPEND Towards the end of the 1920s, Americans were buying less, mainly because of rising prices, the unbalanced distribution of income, and the excess of credit purchases of previous years. Production had expanded much faster than wages and so the gap between rich and poor increased.

LIVING ON CREDIT Although many Americans seemed to live their lives to their heart's content, this was not actually the case, as they often bought goods on credit. This is known as an instalment plan (usually paid monthly) including interest. By obtaining credit so easily, companies encourage Americans to accumulate large amounts of consumer debt. But many will only have difficulty repaying their debts as a result. UNEVEN DISTRIBUTION OF INCOME In the 1920s the rich got richer and the poor got poorer.

More than 70% of household incomes across the country have fallen to $2,500 a year, which is the minimum necessary for a decent standard of living. Even families with twice the income cannot afford many of the household products produced by manufacturers. Economists estimate that ordinary men and women buy only one new dress a year. The unequal distribution of income meant that most Americans could not fully participate in the economic development of the 1920s. THE ELECTION OF 1928. Despite this economic degradation, elections were held in 1928 between the Republican candidate Herbert Hoover and the Democrat Alfred E. Smith. Hoover was a mining engineer from Iowa who had never held public office; Smith was a career politician who had served four terms as governor of New York. as governor of New York. He was likeable and liked being in the spotlight, unlike Hoover, who was more reserved. This latter had one major advantage: he could point to years of prosperity under Republican administrations since 1920. It was an overwhelming victory for Hoover. DREAMS OF RICHES IN THE STOCK MARKET In 1929, the stock market had become the most visible symbol of the prosperous American economy. Then, as now, the Dow Jones Industrial Average was the most widely used barometer of the health of the stock

market. The Dow is a measure based on the prices of the shares of 30 major representative companies trading on the New York Stock Exchange. For most of the 1920s, share prices rose steadily. Eager to take advantage of this 'bull market' - a period of rising stock prices - Americans rushed to buy stocks and bonds. The dow reached a high in 1929 of 381 points (300 points higher than 1924).. In 1929, about 4 million Americans, or 3% of the nation's population, owned stocks. Many of these investors were already rich, but others were average Americans who were hoping to become rich. However, the problems continued. People bought stocks and bonds on the basis of the possibility of a quick profit, ignoring risks profit, ignoring the risks. With easy money at the disposal of investors, unbridled buying and selling fuelled the market's upward spiral. The government did little to discourage such purchase or to regulate the market. In reality, these rising prices did not reflect the value of the companies. If the value of the shares fell, the people who had bought on margin had no way of paying off their loans margin had no way of paying off their loans. The Stock Market Crashes In early September 1929, share prices peaked and then collapsed. Confidence in the market began to fall and some investors quickly sold their shares and pulled out. On 24

October the market collapsed. Panicked investors dumped their shares. THE BLACK TUESDAY On 29 October - now known as Black Tuesday - the bottom fell out of the market and the nation's confidence. Shareholders tried to sell before prices plummeted even further. People who had bought shares on credit were stuck with huge debts while the prices plummeted, while others lost most of their savings. The stock market was coming to an end. One eyewitness to these events, Frederick Lewis Allen, described the resulting situation. (A PERSONAL VOICE FREDERICK LEWIS ALLEN)...