The causes of the great depression

1. The causes of the great depression

2. Wait… what’s the great depression?

7. The great depression • Date: 1929-1939 • Definition: a period of economic depression in the United States and the rest of the world • Economic depression occurs when an economy produces fewer goods and services and employs fewer people • Significance • Huge cost to human well-being • Transformed the role of the US federal government in people’s daily lives

8. Five long-term Causes of the great depression • Monetary policy • Overproduction • Inequality • Speculation • Trade Day 3 Day 1 Day 2 Day 4

9. Day 1: overproduction and inequality

10. overproduction • In your notes: Is it possible for an economy to produce too much stuff? What might be the positive and negative consequences of producing too much?

11. Market simulation • Some of you are producers – your job is to sell golf pencils (provided by me) for as much profit as possible • Some of you are consumers – your job is to buy golf pencils from the producers for as little money as possible • Some of you are observers – be ready to answer questions on the worksheet

12. round 1 • One producer with one golf pencil to sell • Five consumers, with budgets of 20 cents each

13. round 2 • Two producers with five golf pencils each • Five consumers with budgets of 20 cents each

14. round 3 • Ten producers with ten pencils each • Three consumers, with budgets of 5-25 cents each

15. round 4 • Two producers with five golf pencils each • Ten consumers • Eight consumers get two cents each • Two consumers get 50 cents each

16. round 5 • Five producers with five golf pencils each • Ten consumers • Eight consumers get two cents each • Two consumers get 50 cents each • But consumers are going to get some bad news before buying begins…

17. So what does this have to do with the depression?

18. Basic economic principles • Prices are set by the combination of supply and demand • When demand > supply, prices go up • When supply > demand, prices go down • The balance of power depends on the distribution of wealth • When wealth is equally distributed, individual crises (like tuition or medical bills) don’t hurt the economy much • When wealth is heavily concentrated, a crisis for the rich means a crisis for the whole economy

19. Overproduction In the great depression • Agricultural overproduction • Farmers increased production significantly during WWI – and took on huge debts to do this • After WWI ended, demand fell sharply and farm prices crashed • Individual farmers kept production high, since profits were low • Similar problem in industry – factory methods made production increase, but eventually Americans ran out of money for new goods

20. Inequality in the 1920s • In the 1920s, the rich became far richer while the poor became only slightly less poor • Made worse by tax cuts for the rich under Herbert Hoover • Result: limited demand for consumer goods

21. Exit ticket • How did overproduction make the American economy unstable in the 1920s? • How did inequality make the American economy unstable in the 1920s?