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Causes of the Great Depression Understanding the Economic Collapse of 1929.

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Presentation on theme: "Causes of the Great Depression Understanding the Economic Collapse of 1929."— Presentation transcript:

1 Causes of the Great Depression Understanding the Economic Collapse of 1929

2 Causes of the Great Depression The Short List 1920S Prosperity (False or otherwise) Republican Policies The Business Cycle Excessive Speculation (The Crash goes here) A Banking Crisis and Panic

3 1920s 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

4 1920s Prosperity Consumer Economy Chain stores 16% of national retail business 30,000 to 160,000 chains in the 1920s A&P, J.C. Penny, Woolworths

5 1920s Prosperity Automobile sales 1900: 4,100 1929: 4,800,000 Ford Model T

6 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

7 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

8 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.

9 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!

10 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

11 Easy Money Big business in America today is producing what socialists had as their goal; food clothing and shelter food all.

12 The Business Cycle The United States Business Cycle, 1950-1990

13 How Bad Was It?

14 The Business Cycle Unregulate d capitalism is prone to boom and bust

15 The Business Cycle

16 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%.

17 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

18 The Banking Crisis Banks caught up in speculative wave Loaned $6 billion to brokers Federal Reserve (the Fed) didnt act until too late, then overreacted

19 The Banking Crisis

20 The Money Supply

21 The Ripple Effect: Unemployment Year Number% 19291,550,0003.2 19304,340,0008.7 19318,020,00015.9 193212,060,00023.6 193312,830,000 24.9

22 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

23 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

24 Dawes Plan/Young Plan

25 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

26 The Hoover Response Used depression instead of panic Made optimistic statements in public Conference w/ business leaders: dont lay off Some public works $$ to states Rugged Individualism Depression Deepens

27 The Hoover Response Hoovervilles

28 The Hoover Response

29 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)

30 The Hoover Response 1932 12,060,00023.6 1933 12,830,000 24.9

31 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

32 1918: Hoover Feeds Belgium 1932: Migrant Mom Worries

33 The Realignment of 1932 Red States v. Blue States 1928 1932

34 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)

35 The Realignment of 1932 Whats 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

36 The New Deal Campaign Slogan in 1932 No ideology at first: Experimentation Becomes synonymous with liberalism

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