APUSH 7.9 - Great Depression

Roaring ‘20s (Before Great Depression)

• Rural / agricultural economy -> urban / industrial economy

• Production of consumer goods

  • Led by several large companies (Ford, Macy’s)

• Black Tuesday

  • October 29th, 1929: stock market crashed

Causes of the Great Depression

1. No Assistance for Farmers

2. Irresponsible Stock Trading

3. Bad Banking

4. International Tariffs

How did the lack of assistance for farmers cause the Great Depression?

• Increased production to meet WWI food needs

  • After war ended, farmers had more food than buyers

• Overproduction led to debt

  • Farmers unable to pay back loans

• Mass manufacturing of consumer products

  • Cars, refrigerators, radios

    • Consumers ran out of money to buy

    • Manufacturers producing more than they can sell

How did irresponsible stock trading cause the Great Depression?

• People bought stocks to “get rich quick”

• Popular practice to buy stocks on credit

  • Buying on margin

  • Bought shares in company for 5-10% of actual cost

    • Assumed market would grow enough to provide money to repay loans

Effects of Great Depression

1. Exposed Failure of Laissez-Faire Economic Policy

2. Global Economic Failure

3. U.S. Became a Limited Welfare State

How did the Great Depression show the failure of Laissez-Faire economics?

• 1920: Conservative reaction against Progressive Era’s liberalism

• Warren G. Harding’s “return to normalcy”

  • Returned to laissez-faire economic policies

    • Let the market do its thing and everybody gets rich

    • Continued through Calvin Coolidge

• Herbert Hoover

  • Believed solution was intervention of private charities, not federal government

    • Adam Smith’s theory: given enough time, market will always correct itself

How did the Great Depression cause Global Economic Failure?

• European economies relied on American investment and loans to rebuild post-WWI

  • Led to economic collapse when funding suddenly stopped

• Smoot-Hawley tariff made things worse

How did the Great Depression become a Limited Welfare State?

• Franklin Delano Roosevelt won 1932 presidential election

  • Big believer in government intervention

• New Deal policies

  • Transformed U.S. into limited welfare state

    • Created social / economic safety nets through major government intervention