Tommy's Notes Repository

6 - 4 Causes of the Great Depression

4 min read

1929-1939

  • Stock Market Crash
  • Didn’t realize the effect it would have
  • No money to replenish what was borrowed

The Roaring 20’s

  • The new concept of “credit”
  • People were buying:
    • Automobiles
    • Appliances
    • Clothes
  • Fun times reigned
    • Dancing
    • Flappers
    • Drinking

Why was this bad?

  • Credit system
    • People did not really have the money they were spending
  • WWI
    • The U.S. was a major credit loaner to other nations in need
    • Many of these nations could not pay us back

EASY MONEY (CREDIT)

  • INTEREST RATES ON LOANS WERE TOO LOW = TOO MUCH BORROWING INTEREST RATES ON SAVINGS WERE TOO LOW = Too much spending ( inflation ) excessive real estate construction = oversupply

Wealth is Distributed Unevenly

  • Corporate profits rose 65% during the 20s.
  • The rich became much richer during this time, while the workers’ conditions only improved slightly

1920s and 30s salaries

  • Bus driver: no power steering or brakes
  • 1300/hr
  • Teacher
  • $1227
  • Waitress
  • 0.20/hr
  • Farmhand
  • 0.07/hr
  • First minimum wage under FDR?
  • $0.25/hr
  • Highest paid production workers in the 1920s - Ford Motor Company
  • 0.48/hr.
  • Farm Prices: Potatoes, Cotton, Pork?
  • 0.01$ / pound potatoes
  • 0.05$ / pound cotton
  • $0.05 / pound pork

Uneven distribution of Wealth

  • Many Poor and Very Few Rich!
  • Workers earned so little tha tthey couldn’t buy the products they produced
  • Wages were as little as 20 – 25 cents per hour!
  • Even the best employer Ford Motor Company paid only 5.00$ / Day for a 6AM - 6PM shift

The Stock Market

  • People bought stocks on _margins _(credit)
    • If a stock is 100 now and the rest later when the stock rose
  • Stocks fall
    • Now the person has less than 100$ and no money to pay back

And then…

  • Investors panicked about their money and tried to sell their stocks
    • This leads to a huge decline in stocks
    • Stocks were worthless now
  • People who bought on “margins” now could not pay
  • Investors were average people that are now broke

What about the people?

  • Farmers were already feeling the effects
    • Prices of crops went down
    • Many farms foreclosed
  • People could not afford luxuries
    • Factories shut dow
    • Businesses went out
  • Banks could not pay out money
  • People could not pay their taxes
    • Schools shut down due to lack of funds
  • Many families became homeless and had to live in shanties

AGRICULTURAL OVERPRODUCTION

  • INCREASED TECHNOLOGY
  • GOOD GROWING CONDITIONS
  • SUPPLY GREATER THAN DEMAND

The Great Dust Bowl

  • Over use & Over grazing
    • No crop rotation
  • No soil conservation
  • No wind breaks
  • Loss of natural grasses and animals
  • Climatic change – the drought of the ‘30s

OVERSPECULATION

  • “ GET RICH QUICK SYNDROME ”
  • MARGIN BUYING
  • LACK OF GOVT REGULATION
  • PANIC SELLING
  • ‘29 MARKET CRASH

Run on Banks

  • The crisis in confidence frightened depositors who feared for their money.
  • Millions tried to withdraw their money because they feared the banks losing it
  • 1929 - 641 banks failed
  • 1930- 1350 banks failed
  • 1931- 1700 banks failed

President Hoover

  • Conservative President: Herbert Hoover
  • Philosophy : Rugged Individualism
  • What He Did: Nothing
  • People looking for help and no solutions were coming

Laissez-Faire Economic Policy

  • Prior to the Great Depression the US. Government ignored the business cycles of the US economy.
  • The Government believed that the American Economy could fix itself

THE BUSINESS CYCLE_ _

  • BOOM/PROSPERITY/PEAK
  • HIGH DEMOAND = DESIRE FOR MORE PROFITS = GREATER INVESTMENT = MORE PRODUCTION = HIGHER EMPLOYMENT = MORE DEMAND = HIGHER PRICES ( INFLATION )

POOR MONETARY POLICY

  • FED RESERVE INCREASED INTEREST RATES WHICH MADE MONEY/BORROWING MORE EXPENSIVE & SAVING MORE ATTRACTIVE
  • INSTEAD OF LOWERING INTEREST RATES TO GIVE THE ECONOMY A “JUMP START”

_POOR FISCAL POLICY _

  • HOOVER ADMIN & CONGRESS CUT SPENDING AND RAISED TAXES TO BALANCE THE BUDGET INSTEAD OF INCREASING SPENDING & CUTTING TAXES TO JUMPSTART THE ECONOMY
  • EX. TEMPORARILY DEFICIT SPENDING

_HIGH TARIFFS _

  • WE TAXED FOREIGN IMPORTS TO PROTECT OUR PRODUCTS UNDER HOOVER THE HAWLEY SMOOT TARIFF IS PASSED - THE HIGHEST PROTECTIVE TARIFF IN US HISTORY!!! FOREIGN NATIONS TAXED IMPORTS FROM THE US IN RETALIATION
  • HIGHER PRICES FED UNDERCONSUMPTION
  • NATIONS STOPPED PAYING WWI DEBTS TO THE U.S.