The Great Depression Notes

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  Unit 11- The Great Depression

11.1 The Causes of the Great Depression

  • Trade, Money, Loan, and Internal problems
  • Protective tariffs (taxes on imported goods) were put in place in order to protect domestic industry, but they were not high enough to obstruct the movement of goods
  • WW1 changed this because all belligerents (countries participating in war) overproduce, overdevelop their industrial sectors to provide enough goods for war
  • After the war, to protect the new industries, all countries instilled high tariffs (to keep the industries from going out of business)
  • 1922 the US began increasing tariffs
  • 1930- Hawley Smoot Tariff raised the country's tariffs to an all time high – taxes on imported goods was 32%-40%
  • It became hard to restore trade because the trade links were broken (uneven distribution of currencies)
  • A lot of European wealth had gone to US because convertible currency (currency accepted by any country) was in short supply
  • To stimulate trade, US, Britain, and France loaned and invested in poor countries, like Germany
  • World trade shrank
  • Allies still owe the US $10 billion from loans from the war
  • Allies point out that they lost more than the US and requested that the US saw the unpaid $10 billion as a contribution to the Allies
  • US says no, pay back all of the money plus interest
  • Germany had to pay $33 billion to the Allies (primarily to Britain and France)
  • This causes the depreciation (inflation) of the German Mark
  • Marc became worthless-- Spring 1921, $11 = 65 German Marks. By November 1923, $1 = 4.2 trillion Marks.
  • Everything with German money is worthless and the German middle class is devastated
  • German government was the Weimer Republic
  • The people were already angry with their government over the Versailles Peace Treaty
  • the collapse of the currency pushes people either far left or far right
  • the Republic looks like it will collapse in fall of 1923
  • Communist uprising in November 1923 fails
  • Nazi party attempts a coup in fall of 1923 but fails
  • Britain and France see that it is impossible for the Germans to pay back their debts so, in 1924 the Dawes Plan is created by Germany
  • Reconstruct German economy and set up a schedule to repay the Allies
  • Used loans from the US to pay back Allies (problem)
  • US banks cease giving loans to Germany, making it so Germany cannot pay back the Allies and now the allies cannot pay back the US
  • Wages and industry in the 1920s. (wages only grew 2% while productivity grew by 55%)
  • Corporate profits increased 60% from 1923-1929 while wages and salaries only increased by 11%
  • Agricultural prices fell because of the minimized demand
  • 1930, farm population of US was 20% of the total population
  •  1929, 42% of US families made less than $1500 a year
  • 21% made less than $1000 a year
  • 1/10 of 1% of US families made more than the 42% of families at the bottom combined
  • Mal distribution of wealth
  • Factories produced more than what was bought, so in 1929 production was cut back, raising unemployment rate (By 1932, 22% of the WORLD'S labor force was unemployed)
  • 1932- Industrial production fell 36% (average falling percent was 7% per year)
  • Stock market crash
  • 1928, 2.5% people owned stock
  • No government regulation of stock exchange
  • People bought stock on margin (up to 90% of stock value)
  • 1929, a lot of investors realize a lot of the stocks are overvalued
  • people sold their stocks
  • October 24, 1929 “Black Thursday” 13 million shares of stock sold and stock prices collapsed
  • By the end of October, the stock market lost $30 billion in assets
  • People who had loaned money for stock buying began calling the the debts, but they could not be paid
  • Lost money = not as many goods bought
  • not as many goods bought = fired workers
  • fired workers = even less goods bought
  • Continues on
  • 1929-1932 US Steel stock fell from $262 to $22
  • General motors fell from $73 to $8
  • 5,000 banks fell in the US  (Usual average of failing banks was about 500 a year)
  • No government protection of deposits, so the money in the bank is lost when the bank fails
  • Banks try to call in all loans (including international loans) because they need liquidity
  • People lost all kinds of money, putting individuals in debt as well as companies and other banks
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President Hoover's Response:

  • Many did not expect or understand the severity of the Great Depression, including the president
  • Hoover said that the economy is fine and that it will work itself out
  • Hoover did try to keep the wages up through volunteers
  • Had Congress authorize $500 million in public works programs
  • In early 1932, Congress passed the Reconstruction Finance Corporation (RFC)
  • Created government loaning banks
  • Hoover refuses to approve any increased government spending that would put the US in debt and the economy continued to decline
  • 1931, 2000+ banks closed with $1.7 billion
  • Farm prices collapsed
  • Wheat ...

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