Jazz, movies with sound, the Model T. Ah, the Roaring '20s! When I think of them,
I imagine a ten-year-long party like the ones in "Great Gatsby". People enjoying themselves, trying
to forget the horrors of the first world war. And, to a certain extent, it was a giant party.
But like any party, someone is going to need to pay for it.
And if the Roaring '20s was one long party racking up huge bills, well,
then the 1930s were going to be the decade of picking up the check for that party.
Today's lesson is about the Great Depression, a period defined by hard times and economic
struggle. After today's lesson, you should be able to answer the following questions. What were the
three main causes of the Great Depression? How did the Great Depression impact world economies?
How did some governments respond to the Great Depression? And you may have some ideas about
how to answer our big-picture question, how can an economic crisis in one place have a global impact?
In the 1920s, the American economy was like a building with a beautiful exterior that covered up
a flawed structure. Sure, there were new consumer goods like washing machines, radios, and cars.
And yeah, you had new cultural outlets like the movies and jazz clubs. All this innovation and
glitz indicated that things were great. But there is also a staggering amount of income inequality.
The richest five percent of Americans took in one-third of all the income in the nation.
That meant that most families couldn't afford these great new products.
With fewer customers to buy these new products, stores ordered less. Ordering less meant factories
needed fewer workers, which meant layoffs. Layoffs meant more families couldn't afford
these fancy new products, creating a negative cycle that threatened the American economy.
For farmers, the problem was agricultural overproduction.
Technological advances had increased production for American farmers. Sounds good,
but with more output, the price of crops would go down. So more was being produced for less profit.
On top of that, farmers in Europe, Australia, and South America were all now selling their
crops on the global market, increasing supply and lowering prices even further.
As the price of crops fell, farmers could no longer afford to pay back loans they
had taken out to keep them in business. Banks repossessed farms, forcing farmers to move.
By the mid-1920s, economic growth in America was being driven by the stock market. The stock
market allows individuals to buy portions, or stock, of a company, hoping that the stock price
will increase, thereby making money for the individual investor. Between 1925 and 1929,
millions of people with just a little bit of extra money began buying stock on margin. On margin
means that the purchaser of the stock pays a small percentage of the stock price as a down payment
and borrows money from a stock broker for the rest. So, if a share of a stock costs ten dollars,
the buyer puts a dollar down and borrows the other nine. It's great! If stock prices increase.
You sell that stock you bought at ten for twenty dollars, pay back the nine you borrowed,
and turn a tidy ten dollar profit. But what happens if stock prices fall?
By September of 1929, stock prices had reached an all-time high. Looking to make a profit,
people began selling their shares. But as they sold off, stock prices started falling.
Then falling some more. And some more.
This mass sell-off only picked up speed as more and more people tried to minimize their losses.
On October 29, 1929, also known as Black Tuesday, the sell-off reached a tipping point when over
sixteen million shares were sold and the stock market crashed. So, all those shares you bought on
margin were suddenly worth way less than when you bought them. That meant you owed that money back
to your stock broker. People pulled all their money out of banks to pay back those brokers.
Before we move on to Black Tuesday's impact, let's review.
What were the three main causes of the Great Depression?
If income inequality, agricultural overproduction, and a stock market crash caused the Great
Depression, what kept it going for so long? Within months of the stock market crash, one quarter of
the American workforce lost their jobs while wages, prices, and production all decreased.
Between farm foreclosures and people pulling out savings to pay back stock brokers,
thousands of banks simply ran out of money and closed down. Over nine million Americans
lost every penny in their savings account. As the amount of money in the economy shriveled,
so did the demand for goods, and by 1932, factory production had been cut in half.
The depression in America sent shock waves through the rest of the world. American bankers began to
call for repayment on foreign loans and American investors began to pull their money out of foreign
markets. Germany and Austria were particularly hard hit. They relied on American investors to
help their businesses grow. During the 1920s, they relied on loans from American banks to help pay
the reparations they had been saddled with after World War I. But remember, by the end of 1929,
American banks were collapsing. That spilled over to Europe and by 1931, the largest
Austrian bank had failed. In Asia, exports fell by fifty percent between 1929 and 1931.
With American and European consumers struggling to put food on the table,
Latin American sugar and beef industries were decimated.
Okay, let's stop and see how we're doing so far.
How did the Great Depression impact world economies?
But when you get knocked down, you have to figure out a way to get back up. For Western nations,
the question was how to fix the economy while protecting their democratic institutions.
In England, a coalition government, the National Government, charted a middle-of-the-road path,
avoiding political extremes. They enacted a program to protect British industries
and encourage production. Scandinavian countries moved toward blending their
capitalist economies with socialist-inspired public programs, helping to preserve democracy.
Denmark, Norway, and Sweden turned to a tradition of cooperation to combat the depression.
These nations increased taxes to pay for public assistance programs.
In the United States, Franklin Roosevelt was elected president on his New Deal
platform. This economic recovery program focused on financial reform,
public works, and welfare to get the nation back on track.
Roosevelt implemented bank reforms to stabilize the economy and help restore America's faith
in the system. It also showed citizens that the government would work to help those hit hardest
by the depression. Public works programs like the Civilian Conservation Corps were designed
to put millions of Americans back to work. The New Deal also allocated money to keep farmers on their
land and help businesses invest in workers and products. While the recovery was slow
and sometimes painful, by the latter half of the 1930s there was light at the end of the tunnel.
Okay, take a second to answer this question in your graphic organizer in the PDF.
How did some governments respond to the Great Depression?
All right, let's take a moment to recap. While the 1920s were a decade of economic growth, there
were some structural problems. Income inequality led to cycles of decreased production and layoffs.
Agricultural overproduction made farming less profitable, leading to millions of farmers
losing their land. Years of buying stock on margin ultimately led to a market crash. And while the
Great Depression started in the United States, its shock waves impacted economies across the globe.
As American banks and investors decreased their investments other countries' economies screeched
to a halt. However, many Western nations looked to implement government programs
to ease the impact of the Great Depression on their citizens and to preserve democracy.
Many of the programs and principles enacted during the Great Depression
still exist and support vulnerable citizens because history is everywhere.