Causes of the Depression Flashcards
WSC is…
symptomatic of the problems of the 1920s
the trigger rather than the cause of the Great Depression
What did the WSC directly lead to
the Banking Crisis
Who did the Banking Crisis cause harm to that it can be seen as the cause of the Great Depression
ordinary investors
What did NYC buying stocks give ordinary people
confidence to invest on the stock market
What was happening to stocks in 1929 even prior to October
value of some stocks was declining, or growth rate slowing
e.g construction contracting
What % of people did not own shares?
97.5%
What statistic can be given for how the WSC did not affect the vast majority of people?
only 2.5% of people owned shares
X2 monetarist historians
Friedman and Schwartz
How many independent small scale banks in 1929
25,000
Examples of their being a lack of regulation pre 1933
no federal deposit insurance system
limited capital to protect all the individual banks
‘Ripple effect’ caused what after the banking and wall street crashes
people to lose confidence
= caused a run on the banks
How did the banks try to raise capital after the run on the banks?
liquidating assets
What did banks liquidating assets result in?
asset prices declining e.g property prices down
When did Bank of United States Crash? What did it lose?
11th December 1930
lost $286million
How many banks failed annually throughout the 1920s?
500
What organisation was responsible for determining interest rates?
Federal Reserve
Who suggested that the Federal Reserve was too timid to curb speculation through high interest rates?
Friedman and Schwartz
What did Friedman and Schwartz suggest the Federal Reserve was too timid to do to curb speculation?
Curb speculation via high interest rates
What did Friedman and Schwartz see the failure of the Federal Reserve as in relation to the Depression?
was too late to prevent the downturn 1930-31 via lowering interest rates (which would have stimulated demand)
How saw the forces of Depression as lying outside of the United States?
Hoover
Hoover’s quote on Europe’s role in the Depression
“the major forces of the Depression now lie outside of the United States”
When did the German economy collapse in early 1920?
1923
What did the Dawes plan do, when was it enforced?
1924
gave loans to Germany to pay reparations
Why was the Dawes plan enforced in 1924?
attempt to stimulate German economy to create demand for American goods
= would address the US’s problem of saturated markets
When did Kreditanstalt collapse
1930
What Austrian / German bank collapsed in 1930, leading to a run on the banks?
Kreditanstalt
What was Hoover’s perspective of reparations?
tried to scrap them
What did Hoover securing the §yr moratorium mean for Britain?
stopped receiving reparations
so couldn’t afford to keep repaying loans back to US
When did Britain come off the gold standard
September 1931
What did Britain coming off the gold standard mean in terms of trade?
Britain closed its doors to try maintain the pound’s value
What were American banks reliant upon in relation to Europe?
loans coming back to them from Britain from WWI
How many banks went bust in 1931?
2,294
What type of explanation does Galbraith propose for the Great Depression?
Keynesian
What factors are included in a Keynesian explanation of the Depression?
Underlying problems;
- uneven distribution of wealth
- over-speculation
- 1920s facade prosperity
- declining of traditional industries
What turned the WSC into the Depression?
the banking crisis
What theory suggests that the problem that caused the Depression lies at the top with the banks in crisis?
Monetarist
What should be remembered about the factors culminating in the Depression… (could be used as conc.)
It is easy to blame one party in hindsight
Yet it was a unique combination of factors which came together at one particular time to create such a Great Depression
All factors were synergistic and interconnected
Dawes plan provided Germany with what amount in loans? When?
$200million
1924
What did the Young Plan in 1929 do to reparations for Germany?
decreased reparations from $33billion to $8billion
Why was demand from abroad so important?
only because there was huge domestic underconsumption
which was due to the unequal distribution
How many states;
- banks declared bank holiday
- closed completely
- limited withdrawals
What did this cause?
- 32 states = bank holiday
- 6 states banks close completely
- 10 states limit withdrawals
Liquidity crisis
By 1933 what % of banks had closed?
40%
What was the peak year for bank closures?
How many banks closed?
1931
2,300
What did the Federal Reserve do to the rediscount rate in october 1931?
What effect did this have?
Why was this a problem?
Raise it from 1.5% to 3%
Made credit less freely available
people couldn’t access sufficient purchasing power
only a problem since so many failed to have their own sufficient purchasing power
(DUE TO UNEQUAL DISTRIBUTION OF WEALTH)
What did banks do in response to the WSC? What did Mellon and the Federal reserve do?
What impact did this have on the public?
- X6 banks invested in bluechip stocks (but not on the scale required)
- Fed + Mellon dithered
Eroded confidence further
What is an argument for the causes of the great depression lying in 1920s Republican mistakes?
- had the economy of the 1920s been sound, then the impacts of the WSC would have been minor
