Download Causes of the Great Depression

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”
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1920’s Prosperity: Some Say
“False”
 GNP rose 40%
 Industrial production doubled
 Construction boom: beginnings of
“suburbia”
 Electrification
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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
1920’s Prosperity
 Automobile sales
 1900: 4,100
 1929: 4,800,000
Ford Model T
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
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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”.
The Business Cycle
 The United States
Business Cycle,
1950-1990

How Bad Was It?
The Business Cycle
 Unregulate
d capitalism
is prone to
“boom and
bust”
The Business Cycle
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 Banking Crisis
The Money Supply
The “Ripple Effect”: Unemployment
Year
1929
1930
1931
1932
1933
Number
1,550,000
4,340,000
8,020,000
12,060,000
12,830,000
%
3.2
8.7
15.9
23.6
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 $$ to Germany
 GBR AND France could repay war debts to U.S.
 The Young Plan: 1929
 Reparations lowered again to $26,350,000,000 to
be paid over a period of 58½ years
 New U.S. loans to finance
Dawes Plan/Young Plan
International Conditions
 Excessive loss of life and destruction of
WWI: No full economic recovery ever
happened internationally
 Dislocation of Trade: Never reached pre1914 levels
 USSR: A closed society and economy
The Hoover Response
 Used “depression” instead
of “panic”
 Made optimistic
statements in public
 Conference w/ business
leaders: don’t lay off
 Some public works $$ to
states
 “Rugged Individualism”
 Depression Deepens
The Hoover Response
“Hoovervilles”
The Hoover Response
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 Hoover Response
1932
1933
12,060,000
12,830,000
23.6
24.9
The Election of 1932
 Deceptive platforms
 Democrats
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Active aid to the unemployed
25% cut in federal spending
Repeal Prohibition
Lower tariff
 Republicans
 Balanced budget
 Gold Standard
 Public Confidence
The Election of 1932
1918: Hoover Feeds Belgium
1932: Migrant Mom Worries
The Realignment of 1932
 Red States v. Blue States
1928
1932
The Realignment of 1932
 See the map!
 The New Deal Coalition: Modern Liberalism
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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
The New Deal
 Campaign Slogan in 1932
 No ideology at first: Experimentation
 Becomes synonymous with “liberalism”