Chapter 14 Section 1

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Chapter 14 Section 1

• The Nations Sick Economy

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I. Economic Troubles on the Horizon

• Industries in Trouble
• Textiles faced competition from foreign producers
  in Japan, India, China, Latin America
• Mining lumber expanded during WWI, but demand
  went down afterwards
• Even industries that had boomed started to slow
  down (such as automobiles, construction,
  consumer goods)

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• B. Farmers Need A Lift
• 1. During WWI, demand for wheat and corn had
  soared, farmers planted more crops, took out
  loans for more land new equipment.
• 2. After the war, prices/demand fell 50 or
  more.
• 3. To compensate for prices, farmers grew more
  to sell more, didnt work.
• 4. Farmers who had taken out loans couldnt pay
  them back, then would lose farms, banks started
  to fail.

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• 5. Congress tried to help by passing a bill
  calling for price supports (govt would support
  price at market value)
• -govt buy surplus crops
• - govt then sell crops on world market for
  lower prices
• -govt would place tax on domestic food sales
  to make up the money, passing on the cost to
  consumers.
• 6. President Coolidge vetoed it in 1927 1928

U.S. Consumers (US)
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• C. Consumers Have Less Money to Spend
• 1. By the late 1920s, consumers were buying less
  because of rising prices and overbuying on credit
  in previous years.
• 2. Factories and farms are producing more.
• D. Living on Credit
• 1. People appeared prosperous, but many were
  living beyond their means through credit (an
  arrangement in which consumers agreed to buy now
  and pay later for purchases that included
  interest charges)
• 2. Some had problems paying back debt, cut back
  on spending to save money.

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• E. Uneven Distribution of Income
• 1. During the 1920s, nearly half of the nations
  families earned less than 2000/yr., (the minimum
  needed for a decent standard of living)
• 2. Even families making 2x the minimum could not
  many of the products that manufacturers produced
• 3. The rich did very well, income for top 1
  rose by 75, rose by 9 for the rest of Americans
• 4. Most Americans could not consume the flood of
  goods that factories produced.
• Rich get richer, while the poor get poorer.

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• F. A New President (Election of 1928)
• 1. Herbert Hoover vs. Alfred E. Smith
• 2. Sec. of Commerce and Mining Engineer from
  Iowa, never ran for office vs. career politician
  from NY, both from poor families
• 3. Hoover won because of his involvement during
  the prosperous 1920s (and Smith was Catholic,
  against Prohibition, had a heavy Brooklyn
  accent)

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II. Stock Market Comes Tumbling Down

• Dreams of Riches in the Stock Market
• During the 1920s, stock prices rose steadily
  (Bull Market), people wanted a share
• Investors engaged in speculation (bought on a
  chance that they may make a quick or a large
  profit, ignoring the risks)
• Unrestricted buying and selling fueled an upward
  spiral, wealth was up on paper, but not to the
  real worth of the companies

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• 4. Many investors also started buying on margin
  (paying a small percentage and borrowing the
  rest)
• 5. Worked as long as prices rose, because one
  could sell their stock at a higher price and pay
  off debt
• 6. If stock declined, no way to pay off debt.

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• B. Black Tuesday
• 1. Early Sept. 1929, prices peaked and then
  began to decline
• 2. Oct. 24, stocks plunged downward, many
  panicked and sold their shares
• 3. Oct. 29, 1929, day known as Black Tuesday,
  the bottom fell out of the market, people raced
  to sell their stock at any price
• 4. As people sold, the prices went lower
• 5. Investors who had bought stock on credit
  acquired huge debts as the prices went down.
• 6. A record 16 million shares were sold on that
  day.
• 7. By mid-November, investors had lost 30
  billion

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• C. Causes of the Great Depression
• 1. The stock market crash was the beginning of
  the Great Depression (the period from 1929 to
  1941, in which the economy was in severe decline
  and millions of people were out of work)
• 2. Some causes
• -Republican economic policies (trickle down
  decline in international commerce)
• -crisis in the farm sector
• -weak unregulated banking
• -unequal distribution of wealth

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III. Financial Collapse

• After the crash, many Americans panicked and
  withdrew their money from banks, forcing some
  banks to close.
• Many banks had lost money in the market, just as
  individuals had, and by 1933, around 6000 banks
  had failed.
• Wiped out about 9 million individual savings
  accounts.

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• D. Hit businesses equally hard. From 1929 and
  1932, the gross national product was cut nearly
  in half (109 billion to 59 billion) about
  90,000 businesses went bankrupt
• E. Millions of workers in turn lost their jobs.
  One out of every four workers was without a job.
  Those who did have a job had reduced hours and
  low wages.

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• F. Worldwide Shock Waves
• -Many European countries had suffered throughout
  the 1920s trying to recover from WWI (damage
  reparations)
• -European goods hard to sell in U.S. U.S.
  goods hard to sell in Europe
• -Congress passed the Hawley-Smoot Tariff (1930),
  which established the highest protective tariff
  in U.S. history
• made industries that relied in trading
  overseas worse
• within a few years, world trade had fallen
  more than 40

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• G. Causes of the Great Depression
• 1. Tariffs and war debt policies
• 2. Crisis in the farm sector
• 3. Easy Credit and lack of regulation
• 4. Unequal distribution of wealth