The Great Depression Flashcards
Did the Great Depression start because of the stock market crash?
Not really.
What was a reason for it?
Credit and installment buying turned out to be unsustainable, as well as agricultural sector due to expansion in WW1 & mechanization of operations (very expensive and caused them to go into Debt, overproduct and give low prices, closing the farms). By 1925, growth of car manufacturing, etc, began to slow. Massive unemployment and massive hardship.
What percentage of Americans owned stock?
3% by 1930, big banks and corporations buying stock but with borrowed money.
Why was the American banking system seen as weak?
Small, individual family-owned institutions. Had to rely on own resources, so the panic causing people to rush to the bank, led to the bank going under if bank was under reserve. Depositers were lining up to get their money, but due to them giving it away as loans, etc, meant they didnt have it.
Why was deflation bad in the great depression?
Lower prices = Cutting costs (employees) = no ability to get debts to pay workers or company = companies going bankrupt.
Who is Andrew Jackson? What was his view on banking?
7th US president, had distrust in central banking
What could the Government have done early on?
Use the federal reserve to infuse money into the economy and rescue the banks.
When was Keynes’ book on economics get published?
1936, when the Depression was well under way
What did Herbert Hoover do?
Claimed it was WW1 due to the web of debts and reparations, causing many countries to fall off Economically (e.g. Germany), raised tariffs to highest level ever to protect American Industry, but Europe also introduced high tariffs causing fewer buyers for American goods, fewer jobs, etc. However, had political ineptitude.
Hoover proposed a moratorium on intergovernmental debt payments but wasn’t enough due to central bankers in Europe & America not wanting to let go of the gold standard. Despite the UK dropping it in 1931, USA did not follow.
Fed raised discount rate, 2294 American banks failed by 1931.
Hoover believed that…
they needed to use the power of government to cushion the situation, persuaded industrialists to maintain wage rates and support agricultural production. Nearly doubled federal public work expenditures. Just wasn’t enough.
Relied primarily on private businesses to stimulate the economy (not sufficient). In 1929 Federal expenditures accounted for 3% of GDP (compared to 20% today).
This led to Hoover…
Hoover hiked taxes, supporting bonds and keeping Fed Gov out of competition, Revenue Act of 1932 didn’t do much to stop depression.
In Jan 1932 created the Reconstruction Finance Corporation which borrowe dmoney to provide emergency loans to bank, building and loan societies, railroads, agricultural corporations, etc. But by 1932, this wasnt enough. 20% of the labour force was out of force by this time,
