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
