Causes of The Great Depression Consumer Goods After

Causes of The Great Depression

Consumer Goods • After war what happens to factories? • With decrease in taxes after increase WWI people had more disposable income & business look to profit: (why were taxes down? ) • New goods came on the market • (Ford’s idea of assembly line is mass producing all consumer goods) Washing machines, refrigerators, toasters, vacuums, air conditioners • Companies created new products for the home & started mass production of everything.

• advertisements: small goods: razors, tissues, frozen foods, home hair color, band aids, deodorant. (Advertisers convinced you that you needed them to survive) • With more homes wired w/ electricity new consumer goods invented: Large goods: Refrigerators, vacuums, washing machines, radio, dishwasher, air conditioners, toaster (durable goods) • What's wrong with economy based on durable goods? (its why economy booming) • (what other time saw this kind of boom? ) • Internet – dot com era

Easy Consumer Credit • One reason for economic boom 1920’s was use of individual borrowing or credit. • Prior to 1920’s debt/credit was shameful • Now attitudes change because people believe they can pay it back • how is gap between rich & poor contributing to this? )(what should been done? ) • Raise wages! • “Buy now & pay later” became the advertising pitch & Americans racked up credit, buying all the new gadgets for their homes (convinced they couldn’t live w/ out these goods)(advertising works) • by 1929 $6 billion worth of goods were bought on credit but 80% Americans have no savings at all. • Today=$931 b - 34% have no savings

Mass Advertising • New gadgets/inventions needed to be sold to the American people • Advertisers convinced public their need for these goods (ex. Deodorant – “your friends are too afraid to tell you”) • Ex. Easy credit plans, • envy of peers, l • inking product w/ famous people (testimonials) • Advertisers had communication access w/ people through radio

Stock Market Soars • Stock market experiences long period of rising prices (bull market) • 1920’s prolonged bull market convinced people to invest in stocks • Investors began buying stocks on margin (credit)= w/ $1000 investor could buy $10, 000 worth of stock & the other $9, 000 loaned by bank • bank earned commission on sale & interest on loan –profit motive! • no rules on how much banks have to hold in reserve so loaned most of it out & Held stock as collateral

• All is good as long as stocks cont. to rise: if $10, 000 stock rose to $11, 000 investor could sell stock repay the loan & make $1, 000 in profit. • Stocks rose 50 times higher then worth of share because of the demand for the stock not the worth of company (Bubble) (housing bubble of 2008)

How stocks work • Stock is piece of company & price is value of % of company –limited liability of corporation. • ex. $1 m co. w/ 1 m shares =$1. 00 each – if co. worth goes up to $2 m then each share worth $2 (profit $1 per share) • If company was making profits or had good future sales =stock price rise (& everything is ok) • Stock prices fell when companies earnings dropped (because warehouses started to fill up because lack of new customers for durable goods) • Speculation= buyers bet the market would cont. to climb & they would make money quick (buying stocks above worth of company to get quick return/profit)

Company • • • 1929 bubble price Edison’s Electric-GE $440 American Power $1, 753 Brooklyn Gas $2, 481 Consolidated Gas $1831 Trans. America $673 • American Superpower $711 Actual Worth $164 $641 $99 $801 $201 almost 3 X 2. 5 X 24 X 2 X 3 X $15 47 X • *why was their a Increase of prices of stock above the actual worth of the company? • Demand for good or demand for stock? ? ? • Worth of company or worth of stock?

What comes • Bull market lasted only as long as up must come investors continue to put new down money into market • Plus economy based on durable goods so once you have refrigerator don’t need one for decade • By 1929 , market running out of new customers. How did Imperialist deal with this? • New customers could have been Europeans (their economy destroyed) but reciprocal tariff shut us out why? (Haley-Smott Tariff raised again) • What Wilson 14 pt could have fixed this? • No trade barriers (no tariffs) • New customers could have been farmers but electric grid didn’t reach rural areas

• By Sept. 1929 professional investors see no new customers & start to sell off their holdings. • Joseph Kennedy made $ off prohibition, then pulled $ out stock market when his shoe shiners playing same stock market he had his millions in!!! • Prices slipped / other investors followed / prices fell further -dominos

Stock Market Crash • Oct. 21, 1929 stock market plunged. • Oct. 24 th stock market plummeted further • Oct. 29 th Black Tuesday prices took steepest dive yet (33% drop) • Stock market lost $10 -15 billion in value. • $30 billion was lost. • ($30 billion) That equaled total wages earned in 1929

Banks Begin to Close • By 1929 banks had loaned $6 billion to stock speculators • Banks had put customer’s investments in stock market (hoping for higher returns) then if they loaned $ to customers (no regulations against this) • So when stocks collapsed banks lost $ on investments & lost $ from speculators who defaulted on loans. (stockbrokers dumped worthless stocks on banks)

• Banks hid this fact & cooked the books for weeks until leaked out. • News of banking crisis sent customers running to get their $ = bank runs (banks only carry % of $ you give them)(so no $) (no reserve requirement yet!)(today 3 -10%) • Banks begin to close w/ customers losing all their savings (today we have FDIC up to $250, 000) • Show “Bust” America the Story of Us: 1: 00 -6: 15 (tues didn’t finish)

Herbert Hoover is President 1928 -32 FDR becomes President in March

• Stock market crash was a trigger to other deep seeded issues that caused Great Depression:

Roots of the • 1. Uneven Distribution of Income = Great Factories produced more then Depression consumers could consume. Needed (Causes) new customers? How did Ford fix this? • Pay workers more! • How did we fix this during imperialism? • Gobble up new territory=customers • So how did they fix this in the 1920 s? • So came up w/ installment plan but w/ monthly payments increasing buyers ($6 b)(80% no savings) Today=$931 b - 34% have no savings – what has Govt done to increase this under Trump?

• 2. stopped buying new goods why? • because durable • Decrease in sales caused businesses to cut production clue: warehouses fill up • & as a result start to lay off employees (remember 80% of America has no savings)(no Unemployment or SS)

• 3. Chain reaction: cut in radio sales caused decline in copper wire sales (copper miners lost jobs) wood cabinets (lumberjacks lost jobs) & glass radio tubes (glassmakers lost their jobs) domino effect

• 4. 26, 000 businesses collapsed • reasons= • 1. lack sales • 2. $ in banks lost in stock market.

5. Loss of Export • Many jobs might have been saved if Americans manufacturers sold more Sales goods overseas (Recovering Europe desperate for these goods) why didn’t they? ? • Conservative Republicans had raised the tariff in the 1920’s to protect American businesses AGAIN–Hawly-Smoot Tariff (highest ever) tariffs cause what? • WHATS WRONG WITH THIS & 16 TH AMEND? • (didn’t grasp reciprocal tariffs yet) Foreign countries responded by raising their own tariffs (EACH SHUT OF OTHER MARKETS) • This meant fewer American goods sold overseas (demand down)(SUPPLY UP) • Ability to produce goods outran its capacity to consume (supply over demand) (gap between rich & poor caught up with us)

6. Federal Reserve Failure Jerone Powell • Failure to prevent widespread collapse of the nation’s banking system • FED Actions =control $ supply • After Stock Market : Should have lowered interest rates to encourage new businesses but raised % to stop excessive borrowing (speculation) • Lead to a severe contraction in the nation’s supply of money in circulation. • Less $ in circulation means prices up during recession

Depression worsens • $40 B. lost in Stock Market (total cost of WWI for U. S. ) • never got loans from GB & France WWI becaue guilt clause made German economy plummet. • By 1930 4 m. jobless & 2 yrs later # tripled 12 m ( 1 in 4 out of work 25%) • People w/ out jobs went hungry (bread lines blocks long to get free food) YMCA & Salvation Army

• Families couldn’t pay rent or mortgage so homeless #s soar (evictions w/ belongings put on street) (quarter million homeless) • Cardboard homes in cities= Hoovervilles • Sick joke: Hotels clerks asked customers “for sleeping or jumping” • Unemployed began to wander country in search of work (Hobos)(jumping trains) • Hoover flags, “bad time hoovering over us”