Lesson 30 of Focus: Understanding Economics in History

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Lesson 30
WHATDUNNIT? THE GREAT DEPRESSION
MYSTERY
HISTORY TEKS:
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(16) Economics. The student understands significant economic developments
between World War I and World War II. The student is expected to:
(A) analyze causes of economic growth and prosperity in the 1920s, including
Warren Harding's Return to Normalcy, reduced taxes, and increased production
efficiencies;
(B) identify the causes of the Great Depression, including the impact of tariffs on
world trade, stock market speculation, bank failures, and the monetary policy of the
Federal Reserve System;
(C) analyze the effects of the Great Depression on the U.S. economy and society
such as widespread unemployment and deportation and repatriation of people of
European and Mexican heritage and others;
(D) compare the New Deal policies and its opponents' approaches to resolving the
economic effects of the Great Depression; and
(E) describe how various New Deal agencies and programs, including the Federal
Deposit Insurance Corporation, the Securities and Exchange Commission, and the
Social Security Administration, continue to affect the lives of U.S. citizens.
WHATDUNNIT?
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In the 1920s, jobs were plentiful, the
economy was growing, and the
standard of living was rising.
Between 1920 and 1929
homeownership doubled.
Most home-owning families enjoyed
amenities such as electric lights and
flush toilets.
60% of all households had cars, up
from 26% due to Ford’s assembly line.
The airline age began as Charles
Lindbergh made his historic transAtlantic flight in 1927.
More teenagers were attending high
school.
Radio became a household staple.
NBC started broadcasting in 1926
and CBS in 1928.
WHATDUNNIT?
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By 1933…
One fourth of the labor
forces was unemployed.
Families were losing their
homes and many were
going hungry.
Adolescents who should
be in school were riding
around the country in
freight cars, looking for
jobs.
Whatdunnit?
What happened?
• The United states possessed the same
productive resources in the 1930s as it had
in the 1920s.
• Great factories and productive machinery
were still present.
• Workers had the same skills and were
willing to work just as hard.
• How could life have become so miserable
for so many in such a short period of time?
1920S
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Prosperity of the 1920s
was based largely on
purchases of homes and
cars which could now be
bought in installments.
Business created jobs by
building new plants and
government built roads
and infrastructure for
housing.
The stock market
“roared” in the Roaring
20s.
Toward the end of the
decade, sales declined
and the market crashed.
1929-1933
Normally, people start buying again as
automobiles wear out and incomes
improve.
 Politicians kept promising that “prosperity
was just around the corner.”
 Business activity continued to decline and
unemployment stood at 28% in March,
1933.
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END OF THE 1920S: DEMONSTRATION OF
DOWNWARD SPIRAL (ACTIVITY ON PAGE 361)
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Machinery workers stand.
Car sales people stand.
Auto workers stand.
Steel workers stand.
Construction workers
stand.
Furniture sellers stand.
Furniture workers stand.
Clothing sellers stand.
Restaurant workers
stand.
Grocery workers stand.
A multiplier effect comes into play
when workers who lose jobs spend
less and cause others to lose jobs.
Visual 30.1: What is a Business Cycle?
LOOKING AT THE RECENT BUSINESS CYCLE:
EXPANSION BEGINS AGAIN (FINISH
ACTIVITY)
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Machinery workers sit.
Car sales people sit.
Auto workers sit.
Steel workers sit.
Construction workers sit.
Furniture sellers sit.
Furniture workers sit.
Clothing sellers sit.
Restaurant and grocery
workers sit.
Grocery workers sit.
VISUAL 30.2 NUMBER OF U.S. BANKS CLOSING
TEMPORARILY OR PERMANENTLY, 1920-1933
Year
Number of Bank Closings
1920
168
1921
505
1922
367
1923
646
1924
775
1925
618
1926
976
1927
669
1928
499
1929
659
1930
1352
1931
2294
1932
1456
1933
4004
A rise in bank failures led
to a significant reduction
in the amount of money
available to buy good and
services.
The Federal Reserve,
founded in 1913, hesitated
to loan to banks
considered “unsound.”
They allowed them to fail.
Remember that pre-FDIC,
when the bank failed,
depositors lost funds.
Current perspective: 140
banks failed in 2009, 157
in 2010 and 11 so far this
year.
VISUAL 30.3 MONEY IN CIRCULATION
Money in Circulation*
The FED raised
interest rates,
contracting the money
supply.
1929
$26.2
1930
$25.1
1931
$23.5
With less money
circulating, fewer
goods and services
were bought and more
people became
unemployed.
Year
1932
$20.2
1933
$19.2
When interest rates
increased, the bonds
held by the banks lost
value.
*Currency plus bank deposits, in billions of dollars.
ACTIVITY 30.3 WHAT WOULD YOU HAVE DONE?
1.
The world financial
system that emerged
after World War I was
based upon the gold
standard.
The United States and
Great Britain
guaranteed that they
would exchange their
currencies for gold at a
fixed rate ($20.67) for
an ounce of gold.
ADDITIONAL INFO ON THE GOLD STANDARD:
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(This information in on page 324 of the Focus: Understanding Economics in United
States History book, Lesson #27 – Free Silver or a Cross of Gold:)
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The money supply of a nation on the gold standard is limited by
the amount of gold available.
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Advantage of gold standard:
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A gold standard tends to prevent inflation.
Disadvantages of gold standard:
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Money supply may not be able to grow as the economy grows because of
limitations on the amount of gold available.
Banks must be prepared to pay out gold in exchange for checks written
against the accounts of their customers.
HISTORY TEKS:
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(15) Economics. The student understands domestic and foreign issues related to
U.S. economic growth from the 1870s to 1920. The student is expected to:
(A) describe how the economic impact of the Transcontinental Railroad and the
Homestead Act contributed to the close of the frontier in the late 19th century;
(B) describe the changing relationship between the federal government and private
business, including the costs and benefits of laissez-faire, anti-trust acts, the
Interstate Commerce Act, and the Pure Food and Drug Act;
(C) explain how foreign policies affected economic issues such as the Chinese
Exclusion Act of 1882, the Open Door Policy, Dollar Diplomacy, and immigration
quotas;
(D) describe the economic effects of international military conflicts, including the
Spanish-American War and World War I, on the United States; and
(E) describe the emergence of monetary policy in the United States, including the
Federal Reserve Act of 1913 and the shifting trend from a gold standard to fiat
money.
ACTIVITY 30.3 WHAT WOULD YOU HAVE DONE?
1. The world financial system that emerged after World War I
was based upon the gold standard. The United States
and Great Britain guaranteed that they would exchange
their currencies for gold at a fixed rate ($20.67) for an
ounce of gold.
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Other major countries agreed to exchange their currencies for
gold, dollars or pounds.
In 1927, several countries, most notably Germany and Austria,
experienced serious bank runs. To stabilize their currencies, they
exchanged their dollars and pounds for gold. The United States
experienced a serious loss of gold.
To encourage foreign investors to buy American investments, the
Federal Reserve Banks raised interest rates.
If you were an American business owner planning to build a new
factory or buy new equipment, what would you have done after
interest rates were increased?
ACTIVITY 30.3 WHAT WOULD YOU HAVE DONE?
2. The Federal Reserve lowered interest rates after a time, but
in 1930 and 1931, when the American economy had already
taken a downturn, more bank runs occurred in many countries,
and again gold flowed out of the United States.
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To keep gold in the United States, the Federal Reserve Banks again
raised interest rates.
What was the result?
One of the New Deal reforms was taking the U.S. off the gold standard.
ACTIVITY 30.3 WHAT WOULD YOU HAVE DONE?
3. Now imagine that you are an American citizen with a bank
account.
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You read the newspapers. You see that banks are collapsing in other
countries and that the rate of bank failures in the United States has
risen.
What might you do?
Activity 28.1 in Lesson 28 (p. 333)
is a play which allows students to
understand how runs on banks
happen.
Lesson 28 is Money Panics and
the Establishment of the Federal
Reserve System
ACTIVITY 30.3 WHAT WOULD YOU HAVE DONE?
4. In 1932 Congress creates the Reconstruction Finance
Corporation (RFC), which lends money to businesses that
are in trouble, including banks.
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The law requires that the names of banks receiving loans from
the RFC must be published.
You read in the newspaper that the bank in which your money is
deposited is receiving help from the RFC.
What are you likely to do?
The FDIC was created to insure deposits as one of the New Deal reforms.
WHATDUNNIT: THE GREAT DEPRESSION
MYSTERY
What or who was to blame?
 The Federal Reserve for not really being the lender of
last resort to the banks?
 The fact that the world was on a Gold Standard?
 A banking system with no “FDIC equivalent”?
 A President who raised taxes in the middle of the
problems to “balance the budget”?
 A Congress who passed the Smoot-Hawley Tariff Act in
1930 and nearly killed trade?
MAKING THE HISTORICAL CONNECTIONS:
Each part of the country also has a unique
history related to the 1920s and 1930s.
 Teaching state history or local history helps
students make the historical connections to the
Great Depression.
 Here is an example from the Texas Panhandle.
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RELATING THE 20’S & 30’S TO THE TEXAS
PANHANDLE:
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In the 1920’s, automobiles became commonly owned
by families, and there was a clamor for better roads.
One of those roads has a heritage special to the
Panhandle of Texas – Route 66.
The goal was to “link the main streets of America.”
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Construction began in 1926 on the 2,344 mile route.
At that time, only 800 miles was paved.
THE BORGER OIL BOOM
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January 11, 1926 - The Dixon Creek Oil Company hits a gusher
in Hutchison County, kicking off an oil boom.
Panhandle oil fields produced:
 1925 – 1 million barrels of oil
 1926 – 26 million barrels of oil
1926 – within 90 days, the Borger area grew by 35,000 people
CONSEQUENCES OF THE OIL BOOM
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Law and order were almost non-existent in Borger
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In 1927 and again in 1929, Gov. Moody sent the Texas
Rangers to “clean up” Borger.
The town of Panhandle was the nearest rail head, and
before a spur line was build to Borger in late 1926,
Panhandle shipped more freight that any town on the
Santa Fe except Chicago.
Other oil towns—Pampa, Lefors, McLean, White Deer,
Canadian, Miami—grew.
The railroads grew—by 1930 10% of Amarillo depended
on the Santa Fe railroad for their livelihood.
Population of the Texas Panhandle:
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1920 – 115,000
1930 – 240,000
AS THE GREAT DEPRESSION BEGAN…
Oil & gas and the railroads were not the only
drivers of the Panhandle economy.
 Traditionally cattle country, by the end of WWI,
wheat and cotton became important cash
crops.
 On October 24, 1929, the stock market
crashed, but rains had been plentiful, crops
were good, and the oil & gas industry acted as
a buffer for the Texas Panhandle economy.
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THE DELAYED REACTION…
By the fall of 1930, prices of farm and ranch
products dropped alarmingly.
 Rains were still good and bumper harvests
through 1931 produced a glut of wheat, but
prices continued to fall.
 Then in the summer of 1931, the rains
stopped.
 There were no wheat crops in 1932, 1933,
1934.
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THE DUST BOWL
THE DUST BOWL
Dalhart reported black dusters in
1934.
March 3, 1935, was the first black
duster in Amarillo.
April 14, 1935, was the
“granddaddy of them all.”
Poor agricultural practices and
years of sustained drought caused
the Dust Bowl, which lasted about
a decade.
THE DUST BOWL
The birds were the first sign.
The wind had picked up from the north…riding the wind were hundreds, and
then thousands, of birds headed south as if it were fall, not spring.
On the horizon to the northeast, a thick strip of darkness appeared as if a storm
were approaching. But there were no flashes of lightning or thunder. Silently,
the darkness loomed higher and closer. Great, billowing clouds of dirt
suddenly bore down on the city.
Soon, the city was plunged into darkness as the dust storm swept through at
more than 50 miles an hour.
. . . Historic Amarillo by Mike Cox
ROUTE 66: “THE MOTHER ROAD”
These iconic pictures reflect the struggles of the families who left the
Dust Bowl behind, heading west to find new hope in California.
Between 1935 and 1940, the number of farms in the Panhandle declined
by nearly 25%.
ROUTE 66: “THE MOTHER ROAD”
“And then the dispossessed were drawn
west . . . car-loads, caravans, homeless
and hungry; twenty thousand and fifty
thousand and a hundred thousand and
two hundred thousand. . . .The kids are
hungry. We got no place to live. Like
ants scurrying for work, for food, and
most of all for land.
John Steinbeck, The Grapes of Wrath
In his 1939
novel, The
Grapes of
Wrath, and the
movie made in
1940, John
Steinbeck
immortalized
Route 66.
TEACHING ABOUT THE GREAT DEPRESSION
Lesson 30 is essentially about the causes of
the Great Depression.
 Lesson 31, on page 363, entitled “Did the New
Deal Help or Harm the Recovery?” gets into the
specifics of governmental efforts to recover
from the Great Depression.
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TEACHING ABOUT THE GREAT DEPRESSION
The St. Louis
Federal
Reserve Bank
has a 6 lesson
teaching
curriculum on
the Great
Depression
which can
easily be
downloaded
from their
website at
stlouisfed.org .

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