Study guide: THE GREAT DEPRESSION PART 1

📋 Course Outline

1. Stock market crash: Black Thursday and Tuesday
2. Buying on margin and stock market collapse
3. Long-term causes: overproduction and protectionism
4. Laissez-faire banking failures and rising debt
5. Immediate effects: unemployment, wage cuts and starvation
6. Homelessness, evictions and Hoovervilles
7. Charity and relief schemes during the Depression

📖 1. Stock market crash: Black Thursday and Tuesday

🔑 Key Concepts & Definitions

• Black Thursday: Black Thursday is the first major day of the 1929 stock market crash when selling accelerated and prices collapsed.
• Black Tuesday: Black Tuesday is the 29 October 1929 day when the stock market collapse became complete and the economy’s collapse was finished.
• Stock market crash: A stock market crash is a sudden collapse in share prices that destroys investors’ wealth and triggers wider financial panic.
• Speculation: Speculation is buying and selling shares hoping their value will rise so they can be sold for profit.

📝 Essential Points

• On 24 October 1929 (Black Thursday), 12.8 million shares were sold as prices plummeted.
• On 29 October 1929 (Black Tuesday), 16 million shares were sold at a fraction of their price.
• Experienced investors sold because they believed the economy was slowing and shares were over-valued.
• After prices began falling, more people panicked and rushed to sell their shares.
• The crash wiped out fortunes invested in shares and also money held in banks.
• The crash is described as the end of the “Roaring Twenties” in 1929.

💡 Memory Hook

Black Thursday = first stampede (12.8m shares); Black Tuesday = total wipeout (16m shares).

📖 2. Buying on margin and stock market collapse

🔑 Key Concepts & Definitions

• Buying on margin: Buying on margin is purchasing stock without paying the full price, using a loan for the rest.
• Margin buyer: A margin buyer is someone who pays a small portion upfront and borrows the remainder to buy shares.
• Bank run: A bank run is when many depositors withdraw their savings at once because they fear the bank will fail.
• Stock market collapse: A stock market collapse is the breakdown of share trading and prices after panic selling spreads.

📝 Essential Points

• A margin buyer pays a small percentage of the stock price and borrows the rest to cover the purchase.
• Margin buyers expect prices to rise so they can repay the loan from the profit.
• When stock prices dropped, margin borrowers could not repay because prices had not risen.
• Failure to repay loans caused many margin buyers to go broke.
• The stock market crash created bank runs as people withdrew savings all at once.
• Many banks lacked enough cash and were forced to close, leaving customers with no money.

💡 Memory Hook

Margin = leverage; leverage breaks when prices fall → loans can’t be repaid → bank runs follow.

📖 3. Long-term causes: overproduction and protectionism

🔑 Key Concepts & Definitions

• Overproduction: Overproduction is producing more goods than can be sold, leading to falling prices and weaker demand.
• Under consumption: Under consumption is insufficient demand for goods, so produced items cannot be absorbed by the market.
• Protectionism: Protectionism is using tariffs or rules to make foreign goods harder to buy and domestic goods easier to sell.
• Tariff war: A tariff war is a cycle of retaliatory tariffs that reduces trade between countries.
• Fordney-McCumber Tariff Act 1922: The Fordney-McCumber Tariff Act 1922 is a U.S. tariff law that contributed to European tariffs on American goods.

📝 Essential Points

• Farming output rose as techniques improved, but grain demand fell in America due to Prohibition and changing tastes.
• European demand for American food fell because Europeans grew their own crops and faced a tariff war.
• Overproduction pushed prices down, leaving thousands of farmers in crippling debt.
• In 1924, 600,000 farmers lost their farms after being unable to pay mortgages.
• Sharecroppers in the South (mostly Black Americans) were often evicted when white-owned farms failed financially.
• The Fordney-McCumber Tariff Act 1922 led Europeans to impose tariffs, making American goods too expensive in Europe.

💡 Memory Hook

Overproduction + tariffs = falling prices + blocked exports (less demand at home and abroad).

📖 4. Laissez-faire banking failures and rising debt

🔑 Key Concepts & Definitions

• Laissez-faire: Laissez-faire is a policy of minimal government interference in the economy, including weak safeguards for banks and markets.
• Hire purchase: Hire purchase is a buying method where consumers pay over time, creating debts to shops or credit companies.
• Mortgages: Mortgages are legal agreements where a lender gives money at interest in exchange for taking title to the borrower’s property.
• Debt increasing: Debt increasing is the growth of household and consumer debt that can trigger business failures when people stop paying.

📝 Essential Points

• Laissez-faire meant there were not enough safeguards in the economy, especially for banks and the stock market.
• Banks were not regulated, and many small banks were unstable.
• When the Wall Street Crash happened, small banks lacked resources to handle the rush for money.
• Many banks had already closed before the crash, leaving thousands of customers with no money.
• Many Americans bought goods on hire purchase, owing money to shops and credit companies.
• House prices rose in the early 1920s but fell after 1926, leaving some owners with houses worth less than what they paid.

💡 Memory Hook

Laissez-faire + unregulated banks + lots of small banks → panic withdrawals become fatal.

📖 5. Immediate effects: unemployment, wage cuts and starvation

🔑 Key Concepts & Definitions

• Unemployment: Unemployment is the lack of paid work, which rose sharply during the Great Depression.
• Wage cuts: Wage cuts are reductions in pay that occur when employers respond to job competition and economic pressure.
• Starvation: Starvation is severe lack of food, which increased as workers could not afford basic necessities.
• Malnutrition: Malnutrition is poor nutrition caused by insufficient food intake, leading to illness and death.

📝 Essential Points

• Unemployment rose from 1.6 million in 1929 to 14 million in 1933, from 3% to 25% of the workforce.
• In 1930, 6,000 men in New York sold apples on the streets to survive.
• Employers reduced wages and increased hours as competition for jobs increased.
• Some government employees, such as teachers, were not paid when city councils went bankrupt.
• In 1931, about 100 people died directly of starvation in New York hospitals.
• One third of children in New York were malnourished.

💡 Memory Hook

Job loss → lower wages → can’t buy food → starvation and malnutrition.

📖 6. Homelessness, evictions and Hoovervilles

🔑 Key Concepts & Definitions

• Homelessness: Homelessness is the loss of stable housing, which soared when people could not pay mortgages or rent.
• Eviction: Eviction is the removal of tenants or homeowners who fall behind on mortgage or rent payments.
• Hoovervilles: Hoovervilles are shanty towns of very poor housing built during the Great Depression, named after Herbert Hoover.
• Hobos: Hobos are workers who traveled around the country looking for work during the Depression.

📝 Essential Points

• By 1932, over 250,000 people could not pay their mortgages.
• Those behind on mortgages or rent were evicted and often ended up sleeping outdoors.
• Many lived on streets or in Hoovervilles made from cardboard boxes or corrugated iron shelters.
• In 1932, an estimated 2 million men became hobos traveling for work.
• Some hobos deliberately got arrested because jail offered warmth, a bed, and food.
• Hoovervilles are described as settlements on the edges of cities with no facilities.

💡 Memory Hook

Mortgage failure → eviction → streets/Hoovervilles; work search → hobos.

📖 7. Charity and relief schemes during the Depression

🔑 Key Concepts & Definitions

• Relief schemes: Relief schemes are temporary local programs providing homes, food, and clothing to people in need.
• Soup kitchen: A soup kitchen is a place offering free or very low-price food to hungry people, often run by voluntary or religious groups.
• Unemployment benefits: Unemployment benefits are government payments for jobless workers, which the U.S. did not have during this period.
• Federal public works: Federal public works are large government-funded projects used to provide jobs when local finances collapse.

📝 Essential Points

• The U.S. did not have unemployment benefits, so towns and cities relied on local taxes for relief.
• Local schemes included temporary homes, food, and clothing for the poor.
• Long queues for bread handouts were common during the Depression.
• Relief schemes were cut back because rising unemployment reduced local tax income.
• Many state governments went bankrupt, forcing Hoover to lend federal money in 1932.
• Charities and wealthy individuals organized soup kitchens and cheap meal centres, including in Chicago where Al Capone gave money.

💡 Memory Hook

No unemployment benefits → local taxes first; when states fail → federal money + soup kitchens.

📅 Key Dates

1. 24 OctoberBlack Thursday stock market crash day with 12.8 million shares sold
2. 29 October 1929Black Tuesday stock market collapse day with 16 million shares sold
3. 1929Year the stock market crash ended the “Roaring Twenties”
4. 1933Unemployment reached 14 million
5. 1924600,000 farmers lost their farms
6. 1922Fordney-McCumber Tariff Act 1922

📊 Synthesis Tables

Black Thursday vs Black Tuesday

⚠️ Common Pitfalls & Confusions

1. Confusing Black Thursday and Black Tuesday: Black Thursday is 24 October with 12.8 million shares sold, while Black Tuesday is 29 October with 16 million shares sold.
2. Thinking margin buying is paying the full price: margin buyers pay only a small percentage and borrow the rest.
3. Assuming unemployment benefits existed: the source says the U.S. did not have unemployment benefits during the Depression.
4. Mixing Hoovervilles with soup kitchens: Hoovervilles are shanty towns of poor housing, while soup kitchens provide food.

✅ Exam Checklist

1. Explain what happened on Black Thursday and Black Tuesday, including the share-sale figures and dates.
2. Define buying on margin and describe how falling stock prices led margin buyers to default and go broke.
3. Describe how the stock market crash triggered bank runs and why many banks closed.
4. List the long-term causes tied to overproduction and under consumption in agriculture and consumer goods.
5. Explain how protectionism and tariff retaliation reduced trade, including the role of the Fordney-McCumber Tariff Act 1922.
6. State how laissez-faire banking failures and unregulated small banks worsened the crisis.
7. Connect rising debt (hire purchase and falling house prices after 1926) to business and household financial trouble.
8. Give the unemployment, wage, and starvation facts, including the 1929→1933 unemployment change and the starvation/malnutrition statistics.
9. Describe homelessness and evictions, including the 1932 mortgage figure, Hoovervilles, and the estimated number of hobos.
10. Summarize how relief worked without unemployment benefits, why local schemes were cut back, and what federal support and soup kitchens did.