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Great Depression: (1929-1939) Shocking after a decade of unprecedented prosperity Impacted all areas of America life Damaged confidence in the future Rock bottom: 1932 Median incomes plunged to ½ what they had been in 1929 ¼ out of work
False Advertising Prosperity of the 1920s were superficial Causes of the Great Depression were complex and largely ignored throughout the decade
Causes of the Depression Uneven distribution of income Uneven distribution of corporate wealth Overproduction and under- consumption Easy Credit Large Scale international wealth distribution problems Speculation on the stock market Shortsighted government policies
I. Uneven Distribution ofincome The wealthiest 5% took in nearly 1/3 of the nation’s income Nearly ½ of the nation’s families earned less than $1,500 a year Henry Ford made roughly $14 million/year in the 1920s
Depressed Consumer Purchasing Power Mellon’s Tax Cuts Business increased profits while holding down wages. 50% increase in production during the 1920s No increase in wages1.Cut the top income tax rate from 77 to 24 percent Workers couldn’t afford2. Cut taxes on low incomes from 4 to goods/ relied on credit or 1/2 percent stopped spending3. Reduce the Federal Estate tax4. Efficiency in government Less money circulating
2. Uneven distribution ofcorporate wealth In1929, 200 Corporations controlled ½ of the corporate wealth. Some industries thriving (automobile), while others like agriculture declining steadily (Average income for a farmer: $273) The businesses that were thriving were somehow connected to either radio or automobile industries.
3. Overproduction andunderconsumption For an economy to function properly: t(d)=t(s) In 1920s- there was an oversupply of goods. (Mech. of industry/farming partly responsible)
4. Easy Credit Installment plans Borrowing on margin to buy stocks Private banks loaned out millions → rising debt throughout the 1920s
5. Large scale internationalwealth distribution problems America prospered in the 1920s, while Euro. Nation struggled to rebuild after the war. U.S. lent $7bil. To Euro. during war. Another $3bil by 1920. Dawes Plan of 1924 lent money to Germany [made them dependent of foreign markets]
Protective Tariffs Fordney-McCumber Hawley-Smoot 1930 1922 raised U.S. tariffs on raised American tariffs over 20,000 imported in order to protect goods to record levels factories and farms. Led to a decrease in Countries injured by imports/exports by more WWI- w/ Tariffs they than ½ would not be able to Led to a rise in make payments to unemployment America on war loans Farmers blame Tariff for Depression
6. Speculation on the stockmarket By 1929 about 4 mil. Americans/ 3% of the population owned stocks Stockbrokers willing to lend up to 75% of stocks purchasing price Americans wanted to take advantage of the “bull market” (rising stock prices) Stock prices peaked in early Sept. 1929 10/24/1929 (Thursday) huge plunge 10/29/1929- “Black Tuesday” 16 mil. shares dumped
7. Shortsighted governmentpolicies Mellon’s Tax cuts Protective Tariffs Fed Reserve Board fearing inflation, tightened credit [opposite action was needed to fight the slow down in purchasing)
The Role of Hoover in theGreat Depression* Passing Hawley-Smoot (1930) despite objections from 1000 Economists Maintaining Federal Relief was not necessary despite farm prices dropping to record lows and 4,340,000 Americans out of work, 32,000 businesses bankrupt and 5,000 banks failing Attempts made: creating road, public building and airport construction programs; increasing credit facilities, Reconstruction Finance Corporation (RFC)- with $2 bil. To banks, r.r., factories and farmers*source: http://www.u-s-history.com/pages/h1569.html
Depression’s effects Widespread bank failures Bankrupt businesses High unemployment Decrease in worldwide trade Increasing numbers of homeless persons Widespread hunger and illness