Causes of the Great Depression

Really helpful post from scoop2go
1. False Prosperity
* overdependence on mass production, consumer spending, advertising, welfare capitalism, high tariff, “invisible hand”
* automobile was the leading industry
* chemicals, appliances, radio, aviation, chain stores
* overproduction in textiles, farming, autos
* real wages increased only 11%
* 60% population less than $2000 poverty minimum
* top 5% earned 33% income – spending by the rich essential
* Andrew Mellon cut taxes

2. Speculation
* Fed loaned at 3.5%, gold inflow 1927, Great Bull Market 1928
* broker loans on call rose from $3.5b in 1927 to $8.5b in 1929
* Goldman Sachs investment trusts, 50% margin trading at 5% interest
* only 1.5m of 120m population were investors
* pooling tactic of “anglers” – John J. Raskob
* Charles Mitchell of National City Bank: “I know of nothing fundamentally wrong with the stock market.” (Oct. 21, 1929)
* Joe Kennedy: “Only a fool holds out for the top dollar” (sold after RKO merger in October 192

These two Main Causes led to further crises:

3. Stock Market Crash
* Sep. 3 Dow high of 381
* Sep. 6 Babson break – market became erratic
* Sep. 20 – collapse of Hatry in Britain
* Oct. 23 – J.P. Morgan buys to stop price decline
* Oct. 24 – panic selling began – 12.8m shares
* Oct. 29 – “Black Tuesday” – 16.4m shares
* prices decline to Dow low 41.22 on July 8, 1932

4. Banking Crisis
* deposits withdrawn, deflation
* 9000 banks fail in 1930, 1932 waves
* Austria’s bank failed May 1931

5. Unemployment
* ripple effect as leading factories close
* rose to 25-35% of total labor force, 80% in Toledo
* farm income declined 60%; 1/3 lost land

6. Trade Collapse
* foreign countries retaliate with high tariffs
* Weimar Republic unable to pay reparations or U.S. banks loans
* U.S. had been creditor with $638m annual surplus

7. Political Policy
* “The Ordeal of Herbert Hoover”
* laissez faire, balanced budget, trickle down, voluntarism
* no use of monetary or fiscal policies
* Agricultural Marketing Act, Hawley-Smoot tariff, RFC of Jesse Jones
* Three Little Pigs- Disney later said in an interview that the cartoon was popular in the Depression due to its simple moral message that “wisdom and courage is enough to defeat big, bad wolves of every description, and send them slinking away” (Watts 1995, p. 100).

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This entry was posted in A Level History, American History, History, Hoover, Roosevelt, Wall Street Crash and tagged , , , , . Bookmark the permalink.

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