Boom and Bust Causes Effects and Responses to

Boom and Bust Causes, Effects and Responses to the Great Depression

OVERVIEW In this lesson you will examine: • The social and economic context before the Great Depression • The causes of the Great Depression • The effects of the Great Depression • Early attempts at addressing the crisis

The Boom • America was the leading industrial power left untouched after the Great War • After switching from wartime production to industrial production, the US economy soared while Europe struggled • A new era of prosperity was fuelled by readily available credit

The Roaring Twenties Increased credit allowed: • Companies to increase production; American consumer products flooded domestic and world markets • More working class Americans to buy more consumer products • The middle class more time to engage in cultural activities like jazz

The First Signs Beneath the appearance of prosperity were fundamental problems: • Worker wages did not increase with the increase in production – loss of buying power • American agriculture was hit by overproduction and environmental problems – loss of productive market • American protectionism resulted in increased tariffs on foreign exports – loss of foreign markets

The First Signs

“Buying on Margin” If the share price goes up, the goes down, the worker can sell worker still owes the stock for the broker profit and the broker gets its loan back Dangerous financial practices contributed to the Great Depression; in. Company particular, X offers to people were. Broker encouraged to buy stocks “on NO LOAN RETURNED PAYBACK lend money based STOCK margin” on the stock’s PRICE Worker has $10 and wishes to buy 10 shares of Company X margin or projected growth PER SHARE: $11 SHARE DIVIDEND NO DIVIDEND PAYOUT Worker’s total holdings: $110 $220 $50

The Crash • Confidence in the market became shaky by September 1929 because of speculation – e. g. RCA stock in Mar 1928 was around $100/share and by Sept 3, 1929, it was $500/share • On Monday, Oct 28, 1929, stockholders began to sell their shares • On “Black Tuesday”, Oct 29, 1929, share values dropped drastically by as much as 37% causing a chain reaction throughout the economy

Loss of share values spread throughout the economy Workers became unemployed and unable to buy products or borrow money Corporations could not continue production without income or credit Workers could not pay back their loans to brokers Stockbrokers could not return their loans to the banks Banks were unable to loan out money because no one could return their loans

The Effects of the Crash • Between 1929 to 1932, American unemployment was around 25 -30% • The working and middle classes saw their assets and investments wiped out overnight • Those who owned real estate or had non-liquid assets were not as affected • Soup and bread lines grew around churches and charities for free hand-outs • The homeless built “Hoovervilles” on public property or by railroad tracks

They used to tell me I was building a dream And so I followed the mob When there was earth to plow or guns to bear I was always there, right on the job They used to tell me I was building a dream With peace and glory ahead Why should I be standing in line Just waiting for bread? Once I built a railroad, made it run Made it race against time Once I built a railroad, now it's done Brother can you spare a dime? Once I built a tower to the sun Brick and rivet and lime Once I built a tower, now it's done Brother can you spare a dime? Once in khaki suits, gee we looked swell Full of that yankee doodle dum Half a million boots went sloggin' through hell And I was the kid with a drum Say, Don't you remember they called me Al? It was Al all the time Say, don't you remember, I'm your pal Brother, Can You Spare a Dime?

Early responses • The Smoot-Hawley Tariff increased the duties on foreign imports • President Hoover took minor steps to address the crisis: attempts to increase credit, tax reductions and public works – seemed ineffective • People at first did not protest, but as the crisis grew, so did discontent

SUMMARY QUESTIONS • What stimulated the American economy towards its “boom”? • What effects did increased prosperity have on American culture? • What signs were present that the American economy was not stable? • What factors caused the failure of the financial system and the subsequent stock market crash? • What were the effects on American society and how did the government respond?