2.1- Causes of the crash of 1929 Flashcards
Growth of unemployment
-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
Collapse of GDP
-National wealth showed a significant decline during the Depression
-It fell from $103.8 billion to $56.2 billion from 29-32
Problems with credit and banking
-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
Effects on individual industries
-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
Modern Industries
-Aviation saw the first cross-continent flights and an increase in airline passengers from 470,000 in 32 to 1,178,858 by 1938
Older Industries
-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
%
The Crash
-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
Why did the Crash happen?
-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
Why can it be argued that the Wall Street Crash was not the direct cause for the Great Depression
-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
Underconsumption
-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
Overproduction
-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
International Causes
-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
The Weak Banking System- Too Small
-Weren’t part of a national organisation- instead was locally or statewide
-Lacked funds to meet unusual demands
The Weak Banking System- Too much lending
-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
The Weak Banking System- Under regulated
-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