Aim: To what extent was the Great Depression inevitable?

Causesof the Great Depression (1929) Overproduction – By industries and farms during the 1920’s Underconsumption – Consumers did not have the income to purchase the expanded output of industry Farm prices had dropped steadily since 1923 The decline of organized labor kept wages low Automation caused unemployment Uneven distribution of wealth -- 1/3 of the personal income of the nation was controlled by 5% of the population Overborrowing – Banks loaned money foolishly, causing bank failures; consumers bought on “credit”and on the installment plan.

Causes (con’t) Decline of Foreign Trade – Europe was weakened by WWI and high U.S. tariffs caused resentment. Over speculation – Americans believed the stock market was the key to instant wealth. This demand for stock drove prices beyond the value of the stock. Investors could buy stock “on margin” paying a fraction of the price and borrowing the rest from their broker, who in turn borrowed from a bank. Stock Market Crash (October 29, 1929) – Cited as the beginning of the Depression. Businesses that depended on investor dollars closed; banks that had loaned to stock brokers lost their deposits and were forced to close. Most importantly, the American people lost faith in business.

Hoover Tries to Promote Economic Recovery Hoover believed in “rugged individualism” – A person could solve any problem by themselves combining their talents and hard work. Therefore, he believed giving money to individuals would destroy their pride and make them lazy. Instead, he tried to encourage the recovery of the economy.

Attempts at Economy Recovery Hawley-Smoot Tariff (1930) – Highest tariff up to this point in history. Its purpose was to protect American business but it destroyed our foreign trade. Farm Board (1930) – Loaned money to farm cooperatives to keep surplus crops off the market and keep prices from dropping. Reconstruction Finance Corp (1932) – Gave $500 million in loans to banks, railroads, and insurance companies to prevent their going out of business. Federal Land Banks – Lent money to banks to prevent them from foreclosing farm mortgages. Glass-Stegall Act (1932) – Allowed government bonds to be used as collateral for federal reserve notes.