The great depression

Intro

 The great depression goes through out the 1930s.  We thereby go from being an happy go lucky nation to being broke. 

The depression is worldwide. 

It informs a generation.  It turns us back into a serious nation.

The 1960s generation was ready to drop out and help people.  They thought they could teach everyone to be good.  The 1930s generation went through depression and so wanted jobs above all else.  They also didn’t believe that all folks could be good because of their experience of Hitler.

 

Theory

to understands it (it is economic) we must understand the very basic concept of supply and demand.

Supply: What people are willing and able to sell.

Demand: What people are willing and able to buy.

supply

This is what determines price for everything!! 

 

What is the relationship of Supply to price?  What happens when what folks have a big supply to sell?

Ex. Water used to be free.  Now people buy it.  Air is now free.  Soon you’ll have to buy it. 

 

Demand

If I were to go into a sports store and start writing my name on basketballs, they would kick me out.  If jordan did it they’d bringout more.

 

It is really common sense.  Think about it.  If there is a lot of supply.  Something is easy to get and alot of people are selling it will the price be high or low?  If no one wants to buy something is the price high or low?

If If something is hard to get and folks want it what will the price be like?

            4

Price                                                                 Supply1

            3

 

            2

 

            1                                                          Demand1

 

                        1   2    3   4   5   6   7   8   9   10            

                                    quantity supplied

 

Causes of the depression

1) Man is obsolete (agriculture and industry are too efficient)

 

This is the biggest problem of the twentieth century.  It is yet to be solved. 

 Industry is too eficient

There were many breakthroughs.  More and more output happened with less and less labor.

The owners were intent on paying their workers the lowest possible salary.  11 million autos produced that no one could afford.  People didn’t lower the cost of their products enough.

 

Henry ford was amongst the only people to see this problem.  In 1914 he started trying to avoid depression.  70% car cost reduction and a 5$ work day.  This doubled their wages.

 

People couldn’t afford them so they layed off more people that meant less could buy so they....

Agriculture is too efficient

Agriculture was in depression in 1920.

They grow food so well it kills them. 

 

So much soil was under cultivation and then the tractor happens.  It quadruples output.  Commercial fertilizers take off.  Improved genetic strands are used!  It gets too good.

 

The demand for food is price inelastic. 

It is not a luxury item.  If eggs are free you won’t buy too many more.

 

Farmers starved.  They grew more and more.  Agriculture employed a big percentage of our people.

They didn’t buy and industries fell.

 

Farming is a way of life.  when bankrupt people still stayed on their farms. WWI saved them for a while.  They fed Europe.  But when that ended...

 

2 - Stock market crashes.

 

What is a stock? Ownership of a company.

Stocks are issued when a company needs money.  They may need to get more money and so they share a percentage of ownership in their company.

 

People sell stock to get money.  You should get your profit off dividends: your part of the profit.

 

The Craziness of stocks

a) Price Earning gets out of whack

            price goes up because the demand is high and visa versa

How should the price of a stock be determined?

 

How is the price of a stock determined?  Pen analogy.

 

Replacing the work ethic was a get rich quick ethic.  Like the disgusting lottery.

But we were getting rich quick. 

 

After WWI we were in a great position compared to devastated Europe.  And technology advancements were creating new products. 

 

WW I destroyed Europe and left us the sole industrialized nation in the world.

Tech changes made more and more profit.  Profit raised stock.

Stock prices went up.  But as more and more entered stock went up beyond the value of the company.

Demand increased so the price went up and since the price went up so did demand , which increased ...

 

b) people play with the banks money

And people gambled on margin.  10% down bought you the stock.

 By 1929 America was in heavy debt over gambling on the stock market.

 

BRING THE BOOK SOON summarize 664-668, 650-654

a new deal fights the depression to the end

 

The Depression hits when 4 things happen

1)  The crash

Some noticed the stocks were overvalued and bailed then more and then a panic selling ensued.

 

Price goes down because demand is low and visa versa.  Its a herd instinct, psychological, folks don’t know anything and assume others do.

 

2) Banks close.

Then banks asked folks for the money they borrowed to buy the stocks. 

They didn’t have it so banks started selling and crashing. 

Between 1929 and 1933 10,000 banks went belly up.  40% of the countries banks.

There was no FDIC you couldn’t get your money back. 

 

So not just the gamblers, but everyone who had money in banks lost. Farm prices dropped 50%  and 25% were unemployed.    Between 1929 and 1932 400,000 farms were lost due to not paying the mortgage.

 

When all is lost then people  cling to what they have left.  Demand dies.

In 1929 the stock market crashes , in 1930 the depression starts.

 

5 LINES - what would your family do if the banks closed?

 

3) Businesses close

 

4) The Dust Bowl

If all weren’t bad enough in the early 1930s we had the greatest national environmental disaster ever.  The topsoil of farms was overproduced and draught and windstorms hit.  Tremendous dust storms made much of the Southern mid west unfarmable.  So thousands of “okies” picked up and headed out to California.

 introduce OKIES AND HOBOS

 

5) The bonus army

All over the country homeless camps started setting up  People called them Hoover bills.

 

People were poor and veterans of WWI had been promised that they would get a bonus in 1924 of $500.  A kind of life insurance, thanks, from our country.  There was a bill to gie it to the Veterans early.  In 1932 about 15,000 veterans came out to support the bill.  They camped in front of the Capitol building.  It failed and many soldiers refused to go. 

 

Hoover called out Douglas MacArthur to disband them.  THey attacked the bonus army with tear gas and burned out their encampments.  This was a confrontation of two militaries in America.  It was a sign that there might be a communist style revolution.  Hoover had dug his political grave by sending the army out.

INTRODUCE HERBERT HOOVER AND FDR

               

 

show the PETER JENNINGS OUR CENTURY ON THE DEPRESSION

 

The Solution

1) FDR is elected.  He is our most famous president.  He is our best president.  He is president from 1933 - 1945 (he dies in office).  He takes us through the depression and WWII.

Herbert Hoover is the president when the crash happens (unfortunate for him).

 

2) The New Deal

Classical Capitalism

Capitalism: money rules 

Invisible hand= money will meet all needs.

 

Adam Smith defined Laissez Faire capitalism.  Also called capitalism.  Laissez Faire means “Leave to do”.  It is our system.

 

Adam Smith’s Classical Capitalism says that capitalism is perfect.  It will always correct itself..  There will be continual growth and what people buy will create jobs.  Jobs will allow people to buy.

So classsical economics said that it would all solve itself.  Prices would go down and people would shop again.  But prices didn’t go down. People stopped making stuff.

Millions of factories not open and millions of hungry people.  The system was broken.

There was no uneployment or social security or welfare.  So out of work meant out of food.

 

1)  Greed is great .  People don’t go into business for societal good.  Economists have concluded that greed often works to the best of society.  This is the invisible hand.  If they produce what the society wants they will succeed.  If not they will fail.  The buyer buys what he wants and the seller sells what they want.  We get the most out of our dollar when we do our own shopping.  If we buy cheap and they sell for the most they can get all will work out.

 

 

2) Decisions made in markets .  Market is where buyers and sellers meet.

 

Supply the behavior of sellers & demand is the behavior of the buyers.

 

3)  Private property means all resources are privately (not publicly) owned and can be sold or bought. 

 

This was radical in Adam Smiths day.

4) No government interference. Regulation through traditional values.

This also means that all can be sold to whomever we want.  We can spend our money as we want.  What of prostitutes, child labor, seling drugs, guns Or alchohol to children.

 

The Business cycle

There have been three big economists in history.  Adam Smith, Karl Marx and John Maynard Keynes.

 

The economy seemed to have stopped.   (Draw a upward half circle hitting bottom)

When the line is flat, what is the governments income like?  Low. 

Conventional wisdom was that in such cases you shouldn’t spend any money. The government should do anything to influence the economy one way or another.  To not break even would be to unduly influence the economy.

 

John Maynard Keynes told them to do something totally crazy.  When the government is broke it must spend spend spend. This means running a Deficit : when the government spends more than it takes in.

When people get money they will buy. And when they buy factories will open  And when they open they will employ people.  And when they employ people they will spend and the economy will go up.

 

Now draw a the loop up and down curving up again.  What will happen to the governments income when we go up?  It will rise and the expenditures will fall.  The government will run a surplus : when the government takes in more than it spends. 

 

At the bottom half the boogie man was unemployment.  At the top half the boogie man is inflation.  Inflation is when the same item costs more.  This is because the supply is maxed out.  You have the nation running at full employment.  All that can be made is being made.  But the demand goes up and up. 

This will cause the prices to rise.  The government wants to stop this. So the government will spend less and raise interest rates.  This makes money more expensive and it slows growth.

So to stop unemployment we must spend.

To stop inflation we must reduce the money supply.  A main way  this is controlled is through taxes.  The federal reserve controls this through Interest rates.

 

HANDOUT  -  FDR Address to the conference on the Mobilization for human needs The

 

the new deal itself

1) has a bank holiday

2) creates employmnet programs

3) social security

4) Unemployment

5) Medicaid

6) Agricultural Adjustment Act

 

Read the NYA handout as a class.  And take 3 sentences of notes for each page of print.

 

two unintended consequences of the GD

one - Black people vote for Democrats

two - escapist films

 

SEE A FILM ON THE DEPRESSION A real one (1933?) and the Chaplin one.

 

TWO LONG LASTING RESULTS show the three stooges and the marx brothers.

Show the studio system film

Show the YEAR 1933 MOVIE or a depression movie

Show the movies of the thirties.  FDR NEW DEAL