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Causes of The Great Depression. STOCK MARKET CRASH May 1928-September 1929, prices doubled in value beginning in Sept 1929, gradual slide Black Thursday.

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Presentation on theme: "Causes of The Great Depression. STOCK MARKET CRASH May 1928-September 1929, prices doubled in value beginning in Sept 1929, gradual slide Black Thursday."— Presentation transcript:

1 Causes of The Great Depression

2 STOCK MARKET CRASH May 1928-September 1929, prices doubled in value beginning in Sept 1929, gradual slide Black Thursday (Oct. 24) – largest sell-off in NYSE history Black Tuesday (Oct. 29) – $40 billion in stock value lost by Dec. The Great Depression Response of bankers, Hoover and business leaders Stock Market Prices, 1921– 1932 Black Tuesday Wall Street, Oct. 29, 1929

3 UNDERLYING CAUSES OF THE DEPRESSION Overproduction - Massive business inventories (up 300% from 1928 to 1929) Lack of diversification in American economy – prosperity of 1920s largely a result of construction & auto industries Uneven distribution of income and wealth - Poor distribution of purchasing power among consumers – Farm income down 66% in 20s – By 1929 the top 10% of the nation's population received 40% of the nation's disposable income

4 UNDERLYING CAUSES OF THE DEPRESSION Weakness of Banking Industry – bank failures in late 1920s (farmers) – many had small reserves – low margins encouraged speculative investment by banks, corporations, and individual investors total money supply – closing of over 9,000 American banks between 1930 and 1933 – Federal Reserve system Consumer Debt – middle class installment loans; buying on margin Overspeculation in Stock Market – by wealthy and upper middle class Consumer Debt, 1920–1931

5 UNDERLYING CAUSES OF THE DEPRESSION Decline in demand for American goods in international trade – European industry and agriculture gradually recovered from World War I – Germany so beset by financial crises/ inflation that could not afford to purchase US goods – High American protective tariffs international debt structure

6 Hoover and the Great Depression On October 29, 1929, the Stock Market crashed, bringing the post-war decade of unrivaled prosperity, largely fed by the emergence of the consumer economy, to an abrupt end. While the causes of the Depression were primarily rooted in the structure of the American economy, Hoover, following conservative economic thinking, believed that economic matters were best left to the markets to sort out and, as a result, favored a minimal governmental response, largely centered on “trickle down theory,” to the growing crisis.

7 Refusal to Provide Direct Relief Didn’t want to spend federal money without further income. Encouraged private charities and state and local governments to help the poor. By 1932, such agencies were overwhelmed and did not have enough money to help many Americans. By 1930, Americans were more frustrated and started to blame Hoover for economic problems.

8 FDR Restored Confidence In his inaugural address, he said “The only thing we have to fear is fear itself….” He promised vigorous leadership and bold action, called for discipline and cooperation, expressed his faith in democracy, and asked for divine protection and guidance.

9 Purposes of the New Deal Relief: to provide jobs for the unemployed and to protect farmers from foreclosure Recovery: to get the economy back into high gear, “priming the pump” Reform: To regulate banks, to abolish child labor, and to conserve farm lands Overall objective: to save capitalism

10 Criticisms of Conservative Opponents Conservative opponents said the New Deal went too far: – It was socialism (killed individualism) – It added to the national debt ($35 billion) – It wasted money on relief and encouraged idleness – It violated the constitution & states rights – It increased the power of the Presidency (FDR was reaching toward dictatorship, Congress a rubber stamp, independence of judiciary threatened, separation of powers shattered)

11 Maintenance of a Democratic System The New Deal maintained a democratic system of government and society in a world threatened by totalitarianism. – Increased size and scope of government to meet needs of the depression – Provided the leadership that enabled Congress to put through the necessary relief, recovery, and reform measures. – Sponsored moderate legislation to neutralize the popularity of radical opponents

12 Causes of the Depression In Canada Over Production and Expansion - Canada's companies expanded their industries so they could meet war demand. As European industry recovered, Canadian industry and agriculture were overproducing causing prices to fall. Dependence on Commodity Exports - Canada's economy was overly dependent on commodity exports. As U.S. and European demand fell it created a significant drop in sales causing an economical depression. Dependence on the United States - The US was one of Canada’s largest buyers of timber and minerals. Also, US corporations were buying shares of Canadian industries, linking the stock markets of the two.

13 High Tariffs – in a effort to prop up Canadian products the national government raised tariffs. The protectionist strategy backfired when other countries imposed retaliatory tariffs in Canadian goods.. Like Smoot- Hawley tariffs made the problem worse. Too Much Credit - Canadians bought too much on lease and credit including stocks. Therefore when the stock market crashed (partly due to the margin buying), Canadians were in debt and faced a trying time as they attempted to sell their personal belongings or were having their half paid-off possessions repossessed. The Dust Bowl - The Prairies were hit extremely hard by several years of drought. Dust storms swept across the prairies, making it impossible for farmers to grow wheat. Thus, since the farmers had frequently bought their seed and machinery by using credit, when they couldn't pay off their debts, the farmers were often bankrupted and rural banks failed.

14 W.L. McKenzie King Prime Minister (Liberal Party) of Canada from 1921 to First term struggle to work with the Progressive Party and his own Liberal Party, especially on the issue of tariffs (which prairie progressives wanted lowered). McKenzie King’s government presided over a period of unrest among farmers in the Prairies as farm prices declined. He also faced growing dissent from WWI veterans who expected their sacrifices to be compensated during difficult economic times.

15 R.B. Bennett Prime Minister (Conservative Party) of Canada from 1930 to 1935, during the worst of the Great Depression years. Bennett tried to combat the depression by increasing trade within the British Empire and imposing tariffs for imports from outside the Empire. Known as the Imperial Preference Policy Conservative pro-business policies provided little relief for the unemployed

16 The Great Depression in Latin America Import Substitution Industrialization

17 ISI Defined Import Substitution Industrialization (called ISI) is a trade and economic policy based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. ISI requires state-induced industrialization through government spending, it is largely influenced by Keynesian economic philosophy, as well as the infant industry arguments adopted by some highly industrialized countries, such as the United States, until the 1940s.

18 ISI in Latin America Import substitution policies were adopted by most nations in Latin America from the 1930s until the late 1980s. Adoption of ISI is attributed to the impact of the Great Depression, when: – Latin American countries, which exported primary products (henequen, fruit, beef) and imported almost all of the industrialized goods they consumed (radios, appliances), were prevented from importing due to a sharp decline in their foreign sales. – This served as an incentive for the domestic production of the goods they needed.

19 ISI in Latin America The first steps in ISI were based on pragmatic choices of how to face the economic limitations caused by recession. Populist governments in Argentina (Peron) and Brazil (Vargas) modeled Fascist Italy (and, to some extent, the Soviet Union) as inspirations of state-induced industrialization. Positivism which sought a "strong government" to "modernize" society – played a major influence on Latin American military thinking in the 20th century. Perón and Vargas saw industrialization (especially steel production) was synonymous of "progress" and was naturally placed as a priority in ISI policy.

20 Vargas & ISI in Brazil Getúlio Vargas served as president and dictator of Brazil from 1930 to 1945 and from 1951 until his suicide in Vargas also won the nickname "O Pai dos Pobres" (Portuguese for "The Father of the Poor") because of his worker's policy.

21 Vargas-Brazil Like FDR in the U.S., Vargas focused on economic stimulus. A state interventionist policy utilizing tax breaks,, and import quotas allowed Vargas to expand the domestic industrial base. Vargas linked his pro-industrial policies to nationalism, advocating heavy tariffs to – "perfect our manufacturers to the point where it will become unpatriotic to feed or clothe ourselves with imported goods." Vargas advocated a program of social welfare and reform similar to the New Deal.

22 Vargas-ISI in Brazil The Brazilian constitution established a Chamber of Deputies that placed government authority over the private economy Established a system of state-guided capitalism aimed at industrialization and reducing foreign dependency. Brazilian corporatism, was actually a strategy to increase industrial output utilizing a strong nationalist appeal and co- opting workers' demands under the banner of nationalism. While increasing worker’s rights, Vargas greatly imposed labor regulations on labor. The new constitution, drafted by Vargas allies, expanded social programs and set a minimum wage but also placed stringent limits on union organizing and "unauthorized" strikes.

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