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

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

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 Unregulat

ed 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 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

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 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

“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 12,060,000 23.61933 12,830,000

24.9

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 Election of 1932

1918: Hoover Feeds Belgium

1932: Migrant Mom Worries

The Realignment of 1932

Red States v. Blue States

19281932

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

The New Deal

Campaign Slogan in 1932 No ideology at first: Experimentation Becomes synonymous with

“liberalism”