Causes of the Great Depression
US History/Napp Name: ______
“As the 1920s advanced, serious problems threatened economic prosperity. Though some Americans became wealthy, many more could not earn a decent living. Important industries struggled, and farmers grew more crops and raised more livestock than they could sell at a profit. Both consumers and farmers were steadily going deeper into debt. As the decade drew to a close, these slippages in the economy signaled the end of an era.
The superficial prosperity of the late 1920s shrouded weaknesses that would signal the onset of the Great Depression. Key basic industries, such as railroads, textiles, and steel had barely made a profit. Railroads lost business to new forms of transportation (trucks, buses, and private automobiles, for instance). Mining and lumbering, which had expanded during wartime, were no longer in high demand. Coal mining was especially hard-hit, in part due to stiff competition from new forms of energy, including hydroelectric power, fuel oil, and natural gas. By the early 1930s, these sources supplied more than half the energy that had once come from coal. Even the boom industries of the 1920s – automobiles, construction, and consumer goods – weakened. One important economic indicator that declined during this time was housing starts – the number of new dwellings being built. When housing starts fall, so do jobs in many related industries, such as furniture manufacturing and lumbering. Perhaps agriculture suffered the most. During World
War I, prices rose and international demand for crops such as wheat and corn soared. Farmers had planted more and taken out loans for land and equipment. However, demand fell after the war, and crop prices declined by 40 percent or more.
Although many Americans appeared to be prosperous during the 1920s, in fact they were living beyond their means. They often bought goods on credit – an arrangement in which consumers agreed to buy now and pay later for purchases. This was often in the form of an installment plan (usually in monthly payments) that included interest charges. By making credit easily available, businesses encouraged Americans to pile up a large consumer debt. Many people then had trouble paying off their growing debts. Faced with debt, consumers cut back on spending. During the 1920s, the rich got richer, and the poor got poorer. Between 1920 and 1929, the income of the wealthiest 1 percent of the population rose by 75 percent, compared with a 9 percent increase for Americans as a whole.” ~ The Americans
1. What was a basic cause of the Great Depression of the 1930s?(1) Too many antitrust laws were passed.
(2) Tariffs on foreign manufactured goods were reduced.
(3) The distribution of income was unequal.
(4) Immigration was not limited. / 2. During the 1920s, much of the debt accumulated by consumers was due to
(1) installment buying of manufactured goods
(2) overproduction of farm products
(3) long strikes by labor unions
(4) rising income taxes
The Causes of the Great Depression
Overproduction:· The 1920s witnessed a rapid economic expansion, as manufacturers made and sold new products like cars, radios, and refrigerators.
· Many consumers lacked the money to buy these goods.
· Manufacturers were soon producing more goods than they could sell.
Uneven Distribution of Income:
· Even in the 1920s, not all groups shared in the national prosperity.
· Many African Americans, Hispanics, Native Americans, and industrial workers already faced hard times.
· Farmers suffered when crop prices dropped sharply, and many went bankrupt.
Speculation:
· In the 1920s, as stocks soared in value, many people bought stocks hoping to “get rich quick.”
· This drove stock prices even higher.
· Many people were buying stocks on margin – paying only a small percentage of a stock’s value and promising to pay the rest later, when they sold the stock.
· However, if the stock’s price fell, then buyers often did not have the money to cover their losses.
Shaky Banking:
· The government failed to effectively regulate either the banking system or the stock market.
· The vast over-extension of credit made the entire economy extremely vulnerable.
Restricted International Trade:
· High U.S. tariffs protected American markets but made it hard to for producers to sell abroad, since other countries retaliated by setting up high tariffs of their own.
The Stock Market Crash:
· On October 29, 1929, the stock market crashed; stock prices reached all-time lows.
· Corporations could no longer raise funds.
· People who lost money in the stock market could not repay their loans, leading to bank failures; thousands of people lost their life savings.
· The demand for goods decreased.
· Factories closed; workers lost jobs.
1- Why did overproduction occur in the 1920s? ______
2- What groups did not share in the national prosperity in the 1920s? ______
3- Why did many farmers suffer? ______
4- Why did stock prices soar in the 1920s? ______
5- Define speculation. ______
6- What is buying on margin? ______
7- What happened if a stock’s price fell, particularly if the investor had bought the stock on margin? ______
8- Can banks go bankrupt? Explain your answer. ______
9- What did the government fail to regulate in the 1920s? ______
10- Define laissez-faire. How was government failure to regulate an example of it? ______
11- Define tariff. ______
12- How did U.S. tariffs surprisingly hurt American business owners? ______
13- What happened on October 29, 1929? ______
14- What were corporations unable to do when the stock market crashed in 1929? ______
15- What could people who lost money in the stock market not do? ______
16- What happened to demand after the stock market crashed? ______
17- As consumers demanded fewer goods, what were business owners forced to do? ______
18- Why did rising unemployment rates make the depression worse? ______
19- What can unemployed workers not do? ______
20- Herbert Hoover was President at the start of the Depression. He believed in laissez-faire and “rugged individualism” – how did these beliefs affect his actions? ______
1. A significant cause of the Great Depression of the 1930’s was that(1) some banking policies were unsound and had led to the overexpansion of credit
(2) a decrease in protective tariffs had opened American business to competition from abroad
(3) a wave of violent strikes had paralyzed the major industries
(4) consumer goods were relatively inexpensive
4. Speaker A: “The business of America is business, and we would be wise to remember that.”
Speaker B: “Government ownership of business is superior to private enterprise.”
Speaker C: “Strict government regulation of business practices is a means to insure the public good.”
Speaker D: “Only through personal effort can wealth and success be achieved.”
Which speaker best expresses the main idea of rugged individualism?
(1) Speaker A
(2) Speaker B
(3) Speaker C
(4) Speaker D
5. An important factor contributing to the start of the Great Depression in the United States was the
(1) increase in military spending
(2) failure to maintain the gold standard
(3) reduction of tariff rates
(4) uneven distribution of wealth / 2. Which situation was a basic cause of the Great Depression?
(1) continued increases in wages for workers
(2) excessive profits for farmers
(3) overregulation of the stock market
(4) overproduction of consumer goods
3. During the Great Depression, expressions such as Hoovervilles and Hoover blankets showed that President Hoover
(1) was seen as a role model
(2) used the military to aid the unemployed
(3) was blamed for the suffering of the poor
(4) supported relief and public housing for the needy
6. Which economic factor was a major cause of the Great Depression?
(1) purchase of stocks on credit
(2) increases in taxes on business
(3) reduction of tariffs on imports
(4) failure to produce enough consumer goods
7. President Herbert Hoover’s response to the Great Depression was often criticized because it
(1) wasted money on new social programs
(2) caused widespread rioting and looting in major cities
(3) raised taxes on businesses and the wealthy
(4) failed to provide direct relief for the neediest persons
Reading: The Dust Bowl
“The Dust Bowl of the 1930s lasted about a decade. Its primary area of impact was on the southern Plains. The northern Plains were not so badly affected, but nonetheless, the drought, windblown dust and agricultural decline were no strangers to the north. In fact the agricultural devastation helped to lengthen the Depression whose effects were felt worldwide. The movement of people on the Plains was also profound.
As John Steinbeck wrote in his 1939 novel The Grapes of Wrath: ‘And then the dispossessed were drawn west- from Kansas, Oklahoma, Texas, New Mexico; from Nevada and Arkansas, families, tribes, dusted out, tractored out. Car-loads, caravans, homeless and hungry; twenty thousand and fifty thousand and a hundred thousand and two hundred thousand. They streamed over the mountains, hungry and restless – restless as ants, scurrying to find work to do – to lift, to push, to pull, to pick, to cut – anything, any burden to bear, for food. The kids are hungry. We got no place to live. Like ants scurrying for work, for food, and most of all for land.’
Poor agricultural practices and years of sustained drought caused the Dust Bowl. Plains grasslands had been deeply plowed and planted to wheat. During the years when there was adequate rainfall, the land produced bountiful crops. But as the droughts of the early 1930s deepened, the farmers kept plowing and planting and nothing would grow. The ground cover that held the soil in place was gone. The Plains winds whipped across the fields raising billowing clouds of dust to the skies. The skies could darken for days, and even the most well sealed homes could have a thick layer of dust on furniture. In some places the dust would drift like snow, covering farmsteads.” ~ illinois.edu
Questions:
1- The Dust Bowl experiences of the Oklahoma farmers during the Great Depression demonstrated the
(1) effect of geography on people’s lives
(2) success of government farm subsidies
(3) limitation of civil liberties during times of crisis
(4) result of the Indian Removal Act
2- In the 1930s, one factor that accounted for the westward migration of farmers from the Great Plains was
(1) high farm prices
(2) new technologies
(3) the Dust Bowl
(4) the baby boom
3- Identify one cause of the Dust Bowl: ______
4- Identify one effect of the Dust Bowl: ______
5- Describe the Dust Bowl: ______
6- What did the Dust Bowl lengthen? ______
Analyze the following images:
“‘Hooverville’ became a common term for shacktowns and homeless encampments during the Great Depression. There were dozens in the state of Washington, hundreds throughout the country, each testifying to the housing crisis that accompanied the employment crisis of the early 1930s. ‘Hooverville’ was a deliberately politicized label, emphasizing that President Herbert Hoover and the Republican Party were to be held responsible for the economic crisis and its miseries.” ~ washington.edu
Identify three facts about Hoovervilles: ______