Causes of the Great Depression Understanding the Economic Collapse of 1929.
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Transcript of Causes of the Great Depression Understanding the Economic Collapse of 1929.
Causes of the Great Depression
The “Short List” 1920’S Prosperity (“False” or otherwise) Republican Policies The Business Cycle Excessive Speculation (The “Crash” goes
here) A Banking Crisis and “Panic”
1920’s Prosperity: Some Say “False” GNP rose 40% Industrial production doubled Construction boom: beginnings of
“suburbia” Electrification
1902: 2% of U.S. power from electricity 1929: 80% 1907: fewer than one in ten homes 1929: 2/3 have it
1920’s Prosperity Consumer
Economy “Chain” stores
16% of national retail business
30,000 to 160,000 chains in the 1920’s
A&P, J.C. Penny, Woolworth’s
Changes Wrought by Automobiles Changed landscape Stimulated other
industries: oil, steel, glass, rubber
Highway construction: Federal Road Act of 1916
Use of Credit 60% of all car
purchases 75% of radios
Republican Economic Policies
High Tariffs: Return to protectionism Fordney-McCumber (1922)
Highest rate to that time President authorized to raise rates still
further Hawley-Smoot Tariff Act (1930)
Highest in U.S. History 1000 economists signed petition against it
Republican Economic Policies: Tax Cuts Sec. of Treasury Andrew
Mellon: Revenue Acts of 1921, 1924, and 1926 all reduced tax rates
73% to 58% in 1922 50% in 1923 46% in 1924 25% in 1925 24% in 1929
“The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business.”
Republican Economic Policies Non-enforcement of anti-trust laws
Business-friendly appointments to FTC, ICC Encouraged mergers and over production
6000 mergers, 1925-1931 Effective monopolies in aluminum, salt, sugar,
tropical fruit Oligopolies in oil, steel, glass, cement, copper,
tobacco, meatpacking – even bread and milk!
“Easy Money” Low Interest Rates
Fed loaned at 3.5% Expanded use of credit Speculation
Charles Mitchell of National City Bank: "I know of nothing fundamentally wrong with the stock market." (Oct. 21, 1929)
Buying “on margin” Goldman Sachs investment trusts: 50% margin
trading at 5% interest $19 billion in stock w/ only $3 billion in assets
“Easy Money” “Big business
in America today is producing what socialists had as their goal; food clothing and shelter food all”.
Stock Market Crash (speculation) Speculation drives market higher and higher
Banks: $6,000,000,000 in loans to stockbrokers Sep. 3 Dow high of 381 Sep. 6 “Babson break” - market became
erratic Roger Babson, economist and “father of economic
forecasting” September 5th, 1929: "Sooner or later a crash is
coming, and it may be terrific". Later that day the stock market declined by about 3%.
Stock Market Crash (speculation) Oct. 23 - J.P. Morgan buys to stop price
decline Oct. 24 - panic selling began - 12.8
million shares (some say “Black Thursday”)
Oct. 29 - "Black Tuesday" - 16.4 million shares $14,000,000,000 in losses
Prices decline to Dow low (from 381) 41.22 on July 8, 1932
The Banking Crisis
Banks caught up in speculative wave Loaned $6 billion to brokers Federal Reserve (the Fed) didn’t act
until too late, then overreacted
The “Ripple Effect”: Unemployment
Year Number %1929 1,550,000 3.21930 4,340,000 8.71931 8,020,000 15.91932 12,060,000 23.61933 12,830,000 24.9
Unemployment
High (or low, depending on POV) was 25% Toledo and Akron, Ohio: 60-80% 100,000 jobs lost every week (avg),
1929-1932 200,000 families evicted in NYC in 1931
International Conditions Dawes Plan/Young Plan
The Dawes Plan: 1924 Lowered German reparations payments to
GBR and France U.S. would loan $$ to Germany GBR AND France could repay war debts to
U.S. The Young Plan: 1929
Reparations lowered again to $26,350,000,000 to be paid over a period of 58½ years
New U.S. loans to finance
International Conditions
Excessive loss of life and destruction of WWI: No full economic recovery ever happened internationally
Dislocation of Trade: Never reached pre-1914 levels
USSR: A closed society and economy
The Hoover Response Used “depression”
instead of “panic” Made optimistic
statements in public Conference w/ business
leaders: don’t lay off Some public works $$
to states “Rugged Individualism” Depression Deepens
The Hoover Response 1931-1932: Hoover Acts more forcefully
6000 banks had failed by 1932 100,000 business failures Depression clearly worldwide event
The Hoover Program $2.25 Billion in public works Federal Farm Board: subsidize agriculture Reconstruction Finance Corporation: $500
million to business; borrowed $1.5 billion more Raised taxes to compensate/balance budget Norris-LaGuardia Act: no injunctions against
labor Vetoed Norris-Muscle Shoals Bill (later TVA)
The Election of 1932 Deceptive platforms Democrats
Active aid to the unemployed 25% cut in federal spending Repeal Prohibition Lower tariff
Republicans Balanced budget Gold Standard Public Confidence
The Realignment of 1932
See the map! The New Deal Coalition: Modern
Liberalism African Americans Urban America, esp. NE Organized Labor Farmers Solid South (until 1968)
The Realignment of 1932
What’s Left for Republicans? Not Much: Democrats win every
presidential election from 1932-1964 except 1952/56
Republican “strongholds” Big Business Small Town America Social/Fiscal Conservatives