WALL STREET CRASH AND GREAT DEPRESSION

How did the Republican administrations respond to an overheating economy in the 1920s?

Coolidge himseld invested in stock market — typifies laissez-faire recklessness of the 1920s

Economic growth — govt believed things were fine and that the market was taking care of itself without need for intervention

What connections did Coolidge's administration have with the Wall Street inner circle + what was the impact?

Links with J.P. Morgan and Thomas Lamonte who was referred to as the most powerful man on Wall Street

Links meant that govt regulation of Wall Street was kept to a minimum

What was Hoover's attitude towards Wall Street?

Sceptical of econ propserity BUT didnt have political courage to reign in wild speculative fervour

In Oct 1929 Hoover asked Lamont if govt intervention was needed to regulate increasingly volatile market — reassured that market would correct itself

How can the causes of the Great Depression (TGD) best be summarised?

Crash + political response + underconsumption and overproduction + international context + weak banking system + prevailing economic orthodoxy \= Great Depression

how did overproduction cause the Great Depression

New production methods e.g. assembly lines — increased consumer goods produced

More being produced than consumed — market becoming saturated

Too many goods were reaching the market and those who could afford them had already bought them

How did protectionism lead to TGD?

High tariffs meant USA not able to sell surplus goods abroad, especially in Europe

Europe also struggling to pay back war-time loans to USA

High tariffs on imported goods allowed American industry to flourish but meant that Euro companies could not sell their products to earn American dollars/ buy American goods

How were people investing by the mid-1920s?

Increase in speculation — people no longer investing bcs they thought companies were strong but simply investing in the hope that the price of shares would rise

What impact did over-speculation have on shares?

the price of shares rose out of proportion to their real value

Why did expert investors sell shares en masse in 1929? What was the impact?

concerns of weaknesses in the market and high share prices — small investors panicked and rushed to sell their own shares

Led to a complete collapse of prices and thousands of investors lost millions of dollars

How did the share price of General Motors increase in this period?

General Motors share price was 140 cents in 1928 and 182 cents by September 1929

How did the share price of US Steel increase in this period?

US Steel share prices 138 cents in 1928 and 279 cents by Sept 1929

What does 'on the margin' mean? What does it show?

People borrowing large amounts of money to invest — no rules on how much people could borrow
Shows how much faith people had in the market

How much of the US econ was invested in stocks by the late 1920s?

Late 1920s, nearly 40 cents of every dollar owned was for stocks

What was Wall Street like?

Market was a law unto itself due to no regulation

Insider dealing was rife

Wall Street market was rigged by professional speculators — lack of accountability

How much wealth had been lost in the immediate aftermath of the crash?

Estimated that $25b worth of personal wealth had disappeared within 5 days

What was poverty like in the 1920s?

Almost 50% of American families lived on an income of less than $2000 a year — barely able to afford life necessities

Tariffs + overproduction — affected farmers
Low wages for industrial workers + crushing of unions meant little way of bargaining for better prices

Immigrants lowest pay + black people discriminated against in South

What was Hoover's attitude towards the Depression + relief?

Opposed relief to individuals but instead provided federal relief to corporation and banks (trickle down)
Can be seen in establishment of RFC which loaned money to banks and companies

How many banks ailed by 1931 + why?

Over 2000

No federal insurance to back up people's deposits
Public distrust of banks/ had lost their faith

When was the Wall Street Crash?

29th October 1929

How did the Wall Street Crash culminate in TGD in the CITIES?

Overproduction of goods that could not be sold abroad due to tariffs — factories cut production + wages

Eventually laid off worker \= DEPRESSION

What effect did mass unemployment have on the Depression?

More people unemployed means less money to spend on goods leading to a fall in demand

Companies cut back on production, wages, lay off workers etc. (cycle)

Fall in demand further exacerbated by the crash as banks called in loans

How did the Wall Street Crash culminate in TGD in RURAL AREAS?

Agricultural overproduction — price of crops fell

Less money coming in so farmer grew more food (cycle) — market more oversaturated and prices even lower

Farmers no longer able to pay off debts + mortgages — banks take over the farms to pay off debts

\= DEPRESSION

How did the Wall Street Crash itself culminate in TGD?

Wall Street crash — share prices rapidly plummeting

Banks which had invested their customers' money in shares lost fortunes

Banks called in any outstanding loans to customers

People lost confidence in the banks and took their money out causing banks to go bust

How many businesses failed between 1929-31?

between 1929 and 1931 109,371 businesses failed

How did industrial production decline by 1932?

Factory closures meant by 1932, industrial production in the USA was half that of 1929

How did the unemployment increase as a result of the Crash + Depression?

Eve of the crash unemployment \= 1.5m — by March 1930 it was 3.25 and by 1933 or was 13m (almost 25% of the workforce)

How did the GNP fall as a result of the Crash + Depression?

GNP fell from $103b in 1929 to $55b in 1933

What was Hoover's attitude towards relief following the Depression?

Argued that relief was a local responsibility — 'voluntaryism'

Wanted corporations to volunteer to introduce better standards for employees

When + What was the Hawley Smoot Tariffs Act? What effect did it have?

1930, passed by Congress
Raised import duties on the Fordney-McCumber Tariff by an average of 30%

Choked off international trade + compounded econ hardship

How successful was Hoover's policy of voluntaryism?

Managed to persuade some companies to freeze wages but had limited success

US Steel introduced a 10% wage cut in 1931

Why can it be argued that the Depression was unprecedented?

Depressions had occurred before but they were seen as a normal part of the business and trade cycle

What economic action had Hoover taken in the agricultural sector prior to the Wall Street Crash?

Agricultural Marketing Act 1929 established a nine-man Federal Farm Board with funds of $500m to create farming cooperatives as a way of establishing grain prices

These attempts destroyed by world collapse in grain prices and Board failed by 1932

When + what was the Reconstruction finance Corporations Act?

1932 — RFC was a federal agency that had power to lend up to $2bn to rescue failing banks and insurance companies

90% of loans went to small and medium-sized banks

RFC continued by FDR

When + what was the Emergency Relief and Construction Act?

Passed under Hoover's presidency in 1932 — direct federal aid for unemployed

Corporation that was set up by the Act had the authority to lend up to $1.5m to states to fund public works for the unemployed

When + what was the Federal Home Loans Act?

Passed by Congress in 1932 — federal home loans banks created to provide up to 50% assistance for those who could not pay off their mortgages

Why did Hoover take SOME direct federal action against TGD by 1932?

Only introduced relief measures after failure of voluntaryism and the result of consistent Congressional pressure from Senators such as Robert Wagner or La Folette

What global econ event occurred in Sept 1931?

Collapse of Austrian Bank, Kreditanstalt — Hoover able to claim that cause of the Depression lay outside of the US and was international

What was income inequality like by 1929?

By 1929, 5% of the population received a third of the income
71% had incomes of less than $2,500 a year