The Great Depression (1929-1941)

• The Great Depression occurred between 1929 and 1941.
• The Great Depression was the longest and deepest economic downturn in modern industrial economy history.
• The Great Depression involved the entire world, but the magnitude of the depression differed between countries.

Recession vs. Depression

• A recession is a slowdown in economic activity over the course of a normal business cycle.
• A depression is a sustained/continued long-term downturn in economic activity
• A depression is a more severe downturn than a recession.

Capitalist System

• In a capitalist system, prices are determined by supply and demand.
• In a capitalist system, business is financed mostly by credit based on trust.
• If one party fails to pay, the whole system collapses.
• The world economy is connected by a delicate system of credit.
• If one country defaults, the entire chain breaks down.

USA Post-War Economy

• U.S. industry was booming with new inventions after the war.
• U.S. agriculture was doing well, especially with cash crops
• Important U.S. cash crops included cotton, grain, tobacco, and sugarcane.
• Wheat was the most important cash crop in war and peace.

European Agriculture

• European agriculture was interrupted during WWI, causing low wheat production.
• This interruption of European agriculture led to high demand and prices for grain importation.
• Improved US technology improved productivity in the U.S. during this time.
• High Demand and High Profits allowed farmers to expand, Mortgage their farms, and finance improvements on their productivity in order to produce a wheat surplus for export.

Post-War Europe

• Post-war, Europeans restructured their agricultural capacities and resumed wheat production.
• Demand for foreign wheat dropped.
• Total consumption remained low.
• People could not afford luxuries.

America and Canada

• America and Canada experienced drops in prices and drops in profits
• Farmers could not pay their debts.
• Banks requisitioned the property.
• This resulted in a downturn in the agricultural sector.

Industrial Sector post WWI

• During the post-war era, exports to Europe dropped.
• Workers were laid off.
• Workers lost their purchasing power.
• Prices dropped.
• This resulted in a downturn in the industrial sector.

The Great Depression

• The Great Depression was also called the Great Slump.
• The Great Depression happened in the 1930s.

Stock Market Crash

• The Stock Market Crash in the United States was the worst symptom of the Depression.
• A symptom is a departure from normal function reflecting the presence of an unusual state.
• The initial crash occurred on Thursday, October 24, 1929.
• A catastrophic downturn occurred on Monday, October 28 and Tuesday, October 29.
• 23,000 suicides occurred in the first year of the Great Depression.
• 20,000 people were laid off everyday
• 20,000 companies filed for bankruptcy.
• The crash created a widespread panic that triggered a record long-term economic depression in the United States and the world.

Stocks

• A stock is a unit of ownership in a company.
• Stocks are bought via stock brokers.
• Trading takes place at the Stock exchange on Wall Street in New York.

Financial Speculation

• Financial speculation is buying and selling stocks, bonds, and real estate for profit.
• Financial Speculation is not for interest/dividends, but for benefit from fluctuation in prices.

Buying Stocks

• There were 2 main methods for buying stocks
• Cash
• Buying on margin, buying stocks with money borrowed from banks.

1929 Stock Market

• Speculation was high, and the Market was unregulated.
• Profits existed on paper only
• When banks called in their debts, the bubble burst

Consequences of the 1929 Crash

• $40 billion were wiped off the stock market in nine days.
• 9,000 banks failed.
• People lost entire life savings.
• Devastating effects were felt everywhere:
• Industrial and Agricultural countries were impacted
• Countries that export raw materials were impacted
• Cities worldwide were hard hit, especially those dependent on heavy industry.
• Farming and rural areas suffered - crop prices fell 40%-60%.

General Depression

• The American public blamed Brokers, Bankers, and Businessmen for turning the crash into a General Depression.
• The three B's: Brokers, Bankers and Businessmen

Escalation of the Crisis

• Credit to Europe stopped.
• American banks called in their debts.
• Europeans were unable to pay.
• Americans increased duties on imports by 40%.
• Exports to Europe fell drastically, creating an international trade downturn.

USA Impact

• The USA was the world’s largest consumer, importing 40% of the world’s production.
• The crash in the USA was impossible to contain.
• Europeans owed the USA large amounts in loans.
• Europe could not pay nor import.
• This caused a negative balance of payment in USA.

Worldwide Effects

• The Great Depression had far-reaching effects worldwide.
• Unemployment rose to staggering heights.
• Reconstruction was frozen.
• Depression was followed in most countries by political crises.
• Germany was the most damaged.
• All grievances surfaced, but Democracy was still fragile with the Weimer Republic.
• The Weimer Republic did not have the needed support, nor the required stamina.

Herbert Hoover

• Herbert Hoover was the Republican President during the start of the Great Depression.
• Republicans were against Federal interference in the economy.
• Hoover took measures to remedy the situation, they were too little, too late.
• Between 1930 and 1932, unemployment rose from 4 to 12 million, houses lost, and people were homeless.
• Hoover’s reaction was typical of Capitalist System: it is not the Government’s job to fix the Poor, but Churches and other groups should help.

Franklin Delano Roosevelt

• Franklin Delano Roosevelt (FDR) was the Democratic President elected in 1932.
• Roosevelt introduced a Reform program known as the New Deal
• The New Deal was a series of measures taken between 1933-1936
• The New Deal extended relief, reform, and recovery to the people and the economy.

New Deal Financial Reforms

• Banks were temporarily closed and Re-opened under new restrictions and tight supervision.
• The U.S. was taken off the Gold Standard.
• The Dollar was devalued.

Gold Standard

• The Gold standard meant currency units could be freely converted into fixed amounts of gold and vice versa.
• Gold Standard is the basic unit of currency is equal in value/exchangeable for a specified amount of gold

New Deal Unemployment Measures

• Federal loans were granted to each state, giving them funds to create new jobs.
• These new jobs included building roads, bridges, dams, reforestation, and drying swamps.

New Deal Agriculture Measures

• Subsidies to farmers limited production and destroyed excess production.
• New deal agriculture measures were a very unpopular measure.
• The Government was looking for long term solutions, not popularity.
• The Banking Act of 1933 regulated trading, and limited over speculation
• The Banking Act of 1933 established a new organization, Securities & Exchange Commission.
• The Securities & Exchange Commission was established to Control issue of stocks and Supervise stock exchange.

Additional New Deal Measures

• Small Bank Deposits were guaranteed by government.
• Regulated prices of utilities, regulating water, electricity and gas prices.
• An agency for quality control and safety of food and medicines was created, called the Food & Drug Agency.

Workers and the New Deal

• The Social Security Program was established.
• The Fair Labor Standard Act was established.
• The Right to Strike was made legal
• A Forty hour week was set by law.
• Minimum wages were established.
• Tax reforms were enacted and monopolies were ended as part of the Economy reforms due to the New Deal
• A code of fair competition was enacted by ending unreasonable pricing

New Deal Demonstrations

• The New Deal demonstrated Government concern for its citizens.
• The New Deal instillied Confidence in the capitalist system.
• The New Deal demonstrated Change/reforms can be introduced Without Government control of the economic system