Download Causes of Great Depression

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1919-1926
Construction income doubled
Modern plumbing, heating, stoves
Balloon mortgages: pay interest rate, defer
repayment of cost of house
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1920-1929
Auto production tripled
Price of model T dropped by half to $294
Auto industry boosted & created other
industries
– Gas stations, repair shops
– Roadside diners, motels
– Fast food: White Castle
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70% of homes wired by 1929
Modern appliances
Radio: 1920—first music station
Buying radios on installment
½ of all homes have radio by 1930
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• By 1929
• Taxes for incomes over 1 million dropped 67%
• Largest 200 corporations held 20% of national
wealth & 50% of corporate wealth
• 1/3 of families earn less that $2,000 (minimum
income for decent standard of living)
• 1/5th less than $1,000
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• Post WWI, food prices decline
• Increase in debts cause farmers into
bankruptcy or to sell out
• Farm consolidation>increased capital
expenditures for innovations
• 6 million moved from farms to cities
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• 1921-1927: stocks double in value
• March 1928-Sept. 1929 GE stock rose from
$128-400 per share
• Speculators bought on the margin: pay up
front only 10% of purchase price, borrowed to
pay the rest of cost
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• Campaign Slogan: A chicken for every pot and
a car in every garage.
• Defeated Dem. Al Smith (Catholic)
• Hoover known as
humanitarian for work in food
relief for war torn Europe
• March 1929: Inauguration
• 6 months later…
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• Wed., Oct. 23 speculation bubble burst
• Prices began to plummet
• Tues., Oct. 29 panic caused prices of stocks to
drop 10-20%
• By Nov. stock value was half of Sept. value
• Great Depression would last next 12 years
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What caused the Great
Depression?
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• Spending by the wealthy was not enough to
keep economy going
• Decline in consumer spending = production
1929-33
– Shoes 3.4%
– Manufactured food 17.8%
– Cement 63.1%
– Automobiles 65%
– Locomotives 86.4%
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• Post WWI European debt & reparations
• American Gov’t refused to forgive or reduce
European debts
• Excessive loans to European nations halted
• Excessively high protective tariff
– Fordney-McCumber Tariff, 1922
– Hawley-Smoot Tariff, 1930
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• 25% reduction
GDP
• Economy to dependent on construction &
automobile industry
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• Inability of borrowers (esp. farmers) to repay
loans
• Larger Banks speculated in stock market
• Banks began to foreclose on loans
• 1930-33 9,000 banks closed their doors
• Panic caused runs on all banks
• Bank deposits were not insured
• Most Americans lost their life savings
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• High tariffs
• Gold Standard>controlled money in circulation
• Federal Reserve Board raised interest rates in
1931
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Are we headed into another Great
Depression? What are the similarities and
differences between today and the Great
Depression?
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Similarities
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Both preceded by economic boom.
Both involve an unequal distribution of wealth.
Banks were engaging in high risk lending/investment.
Both preceded increased risky behavior in consumer
finance.
• Both preceded by real estate bubbles and bull
markets.
• Both global financial crises.
• Mortgage Foreclosures
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Differences
Drop Industrial Production
Peak Unemployment
Decline of GDP
Drop in Stock
# Bank Failures
Loss of Bank Savings
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1929
51.7%
35%
26.7%
89.2%
9000
81%
2008
14.9%
10.2%
3.7%
53.8%
443
0%
Most important Difference
1929
• No Government
Safety Net
2008
Government Safety
Net
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FDIC
Unemployment Insurance
Social Security
Food Stamps
Medicare & Medicaid
Complete The Photo and Music
Analysis Forms
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Breadline at McCauley Water Street Mission under Brooklyn
Bridge,
New York 1930
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How is the Wall Street Crash of
1929 connected to the social
conditions depicted in the
photograph?
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