APUSH Unit 10 - Key Concepts

Causes of the Great Depression

1. 1929 Stock Market Crash: Loss of confidence in the stock market, reduction in output of goods, and a decline in investment in capital goods

1. Overproduction, under consumption: Companies overproduced consumer goods → consumers did not have money or credit to purchase

1. Decline in Farm Prosperity: Depression of the prices of agricultural products during the 1920s demonstrated economic weakness

1. International Trade: The Hawley-Smoot Tariff Act of 1930 greatly declined rates of trade → 40% of trade would decline within 3-years

Speculation

The act of buying stocks in hopes of rapid price increasing

Margin Buying

A riskier investment in the stock market where investors bought stocks by paying a small percentage of the stock’s price and borrowing the rest from a broker

• Amplified potential loss → The investor would lose both investment and broker money

• Only worked as long as the economy grew and stock markey climbed

Wealth Distribution

Uneven → Greatly contributed to the Stock Market Crash of 1929 and the Great Depression

• High income inequality led to overproduction → overproduction but not enough demand

What was the relationship between the stock market and the banks?

Banks would take deposits and invest in the stock market → proved to be detrimental during the Great Depression

• Margin buying backfired as well because investors or clients could no longer pay the loan given to them back

What was the result of the stock market crash?

1. The economy crashed → less money in circulation

2. deflation → factories no longer produce as much (no consumers)

3. Unemployment → less money being spent

The Upcoming Depression

The 1920s convinced many Americans to invest in stocks

• Prompted margin buying backfired → Banks handed out risky loans

• Eventually, the stock market ran out of new investors → less investment and less consumption

• Prior to depression, people attempted to run the banks (withdraw all their money from their account)

• Many bank clients lost their money due to margin buying and risky bank loans

Hoover’s Response

Hoover and congress responded by:

1. Keeping the Gold Standard → Discouraged investment and prevented growth

2. Smoot-Hawley Act: A high protective tariff that significantly raised taxes on imported goods → Hindered global trade

3. Drew on American tradition of the “self-made man”

Reconstruction Finance Corporation (RFC)

A government corporation meant to provide financial aids to banks, railroads, and other large businesses + government institutions

• Critics argued that the corporation had only benefited large corporations rather than citizens → Lent out money cautiously

Bonus Army

A group of unemployed WW1 veterans that demanded immediate payments to pensions awards in Washington

• the government forcefully evicted the protesters using tear gas and bayonets → Deepened discontent with Hoover

The New Deal

FDR’s plan to tackle the Great Depression that involved greater economic involvement

• involved a series of programs, public work projects, financial reforms, and regulations

• 3 Goals: Relief (help the poor + unemployed), Recovery (stimulate industries), Reform (changing the rules of the financial system and labor practices)

Hundred Days

A session where congress enacted 15 major bills that focused on banking failures, agricultural overproduction, the business slump, and unemployment

• had a Brain Trust—an informal group of advisors to develop and formulate the new polices and programs of FDR