2.1- Causes of the crash of 1929 Flashcards

1
Q

Growth of unemployment

A

-unemployment grew from 1,550,000 in 1929 to 12,830,000 by 1933
-The National Wage bill in 1932 was only 40% of the 1929 figure
HOWEVER unemployment was not spread evenly across the country. By 1933, the Ohio city of Toledo faced 80% unemployment whereas places in Texas had much less due to a temporary oil boom
-Some industries, such as cigarette and light bulb manufacturing weren’t really affected by the Depression

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2
Q

Collapse of GDP

A

-National wealth showed a significant decline during the Depression
-It fell from $103.8 billion to $56.2 billion from 29-32

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3
Q

Problems with credit and banking

A

-Credit was rarely available
-The USA became a land of cash transactions
-The Stock Exchange remained depressed despite occasional rallies
-Over 10,000 banks failed between 29-32

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4
Q

Effects on individual industries

A

-Wages rose
-General price levels fell by 25% during the early 30s
-The 30s was also a period of business innovation with the intro of air conditioning, airline travel and supermarkets

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5
Q

Modern Industries

A

-Aviation saw the first cross-continent flights and an increase in airline passengers from 470,000 in 32 to 1,178,858 by 1938

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6
Q

Older Industries

A

-The number of newly build residential units fell by 82% between 29-32
-Value of constructions contracts fell from $6.6 billion in 1929 to $1.3 billion three years later
-Coal Industry fell by 300,000, 1929-32
-Iron and Steel fell by 59
%

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7
Q

The Crash

A

-September 1929, share prices fell- no real panic, many said it was just a blip
-24th Oct 1929 (Black Thursday)- share prices tumbled, value fell by $26 billion
-This caused panic selling- people were afraid the share prices would keep falling, so sold their holdings- pushed down prices and caused more panic

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8
Q

Why did the Crash happen?

A

-Investors in NY started to realise that share prices were too high and wanted to sell before they fell
-US industry was slowing down-profits falling- shares less valuable
-Overproduction/underspending

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9
Q

Why can it be argued that the Wall Street Crash was not the direct cause for the Great Depression

A

-Wasn’t until the mid 30s that there was a sig decline
-Only 5% of Americans had shares
-The Crash was a product of weakness of the US economy-ensured the Depression struck the USA after 1929

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10
Q

Underconsumption

A

-US businesses and rich businessmen benefited from low taxes
-Gov did not have much money to spend-could not give money to the poor- didn’t believe in this type of redistribution of wealth
-Led to the rich become more richer. Richest 5% had 33% of wealth, the poorest 40% had only 12.5% of the wealth. 71% of the population earned less than $2500
-The rich kept their wealth in the bank- money not being used for spending on products in the US industry
-The poor would have liked to have bought the products but didn’t have the money

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11
Q

Overproduction

A

-By the late 20s, industry was continuing to make goods that no one wanted
-Pushed down prices and cut profits
-People laid off work-businesses didn’t need to make more products. This resulted in unemployment
-Profits and prices fell- shareholders realised shares were not worth so much- sold shares- which triggered the Wall Street Crash
-LINKED TO UNDERCONSUMPTION- demand no longer there

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12
Q

International Causes

A

-Hoover argued the Depression was because of this
-Many European countries put tariffs on US goods- to cut demand for their products
-Europe was in debt after the war
THEREFORE they borrowed a lot from US banks and were less able to pay them back after 1929. US banks were unable to lend more money to Europe. As a result, their economies collapsed and couldn’t buy US goods

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13
Q

The Weak Banking System- Too Small

A

-Weren’t part of a national organisation- instead was locally or statewide
-Lacked funds to meet unusual demands

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14
Q

The Weak Banking System- Too much lending

A

-Used the money deposited by customers and lent it out liberally to enable spectators to make quick profits for themselves on the stock market
-This encouraged high levels of borrowing

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15
Q

The Weak Banking System- Under regulated

A

-Gov failed to regulate banks and make sure they were strong enough to operate in challenging circumstances
-Banks could do as they wished- took chances in order to make money

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16
Q

Impact of Depression on Ethnic Minorities

A

-Affected POC more than white Americans
-Black Americans were four to six times more likely to be unemployed than white Americans and low job paid jobs reserved for them were now being offered to whites
-Native Americans had been in high levels of poverty living in their reservations and the Depression made it harder for them to find work
-Around 400,000 Hispanic Americans were deported to Latin America even if they had lived in the USA all their lives

17
Q

Impact of Depression on Women

A

-They faced more dismissals before their male colleagues
-Half the 48 states had laws banning the employment of married women. Women who were able to become more financially independent in the 20s, now had to rely again on their husbands or family

18
Q

The Bull Market

A

-Over-speculation on future share prices
-belief that the Bull Market in the 20s would be never-ending
-Share prices almost doubled between 25-29 from $34 billion to $64 billion
-The ‘Get Rich Quick’ idea
-By 1929, Americans were buying shares ‘at the margin’- would borrow money and buy shares at 10% of the share price. They hoped to pay back the loan through selling the shares at a higher price in the future

19
Q

Herbert Hoover
Attempts to combat the Depression

A

-He believed in RUGGED INDIVIDUALISM. The idea that people should take care of themselves and not become lazy and dependent on government help.

-THE SMOOT-HAWLEY TARIFF
-THE RECONSTRUCTION FINANCE CORPORATION
-THE EMERGENCY RELIEF AND CONSTRUCTION ACT, JULY 1932

19
Q

THE SMOOT-HAWLEY TARIFF

A

THE SMOOT-HAWLEY TARIFF
-Increased import taxes to the highest level in US history- in an attempt to prevent foreign competition
-Average tariffs on imported agricultural and industrial goods rose to 40%
-This harmed both US industrialists whose foreign clients could no longer afford to buy US goods
-Stopped people abroad from buying US goods as other govs imposed their own tariffs
-Further damaged world trade
MORATORIUM- cancellation of German/foreign countries’ repatriation payments in 1932
-This encouraged international trade by releasing more money into the economy

HOWEVER this forced other countries to follow suit and raise their brown tariff rates in retaliation. It aided the contraction not expansion of the world economy

20
Q

THE RECONSTRUCTION FINANCE CORPORATION

A

-Given $2 billion of taxpayers money
-90% went in loans to small/medium sized banks
-Prevented a worsening of the Depression
-Gave Stability to Financial and banking sectors, helped 100 banks, 60 railroads and 80 mortgage companies

HOWEVER it failed to encourage banks to loan more to businesses facing possible bankruptcy
No signs of economic recovery

21
Q

EMERGENCY RELIEF AND CONSTRUCTION ACT, JULY 1932

A

-Power to give $1.5 billion to state govs for the unemployed however they must prove they were running out of money
-This avoided direct payment from the federal gov to unemployed- Laissez Faire
-By 1932, economic depression was so deep and business/public confidence was so low that a dramatic change was needed if the economic crisis was to end