Great Depression – Part I

Causes of the Great Depression – Poor Presidents andGovernment Policies

Warren G. Harding (1921-1923), Calvin Coolidge (1923-1929), Herbert Hoover (1929-1933)

Not paternal For self-help Favored laissez-faire Appointed people sympathetic to big businesses Anti-trust laws were ignored Didn’t support labor Raised tariffs Trickle-down policy – helped banks rather than the people

Causes of the Great Depression – WWI Debt

Key problem was the $10 billion that the U.S. government had loaned to the Allies during and after the war

The U.S. wanted to be paid back Britain & France protested that the demand for

repayment was unfair: The French and British had taken most of the deaths in

WWI The debtors complained that their dollars had fueled the

wartime boom in America, so they should be happy

Causes of the Great Depression – High Tariffs

European countries were bankrupt after WWI and needed to sell their products to the U.S. to recover

America raised tariffs, which didn’t give foreign nations a chance to make a profit so they could repay debts they owed to the U.S.

It turned into a cycle, where the U.S. would raise their tariffs and Europe would do the same

Created a decline in exports Plunged both America and other nations deeper into

the depression

Causes of the Great Depression –

Globalization

As the price of natural resources fell, the poorest parts of the world earned less and less, giving them less to spend on goods

India and Japan were beginning to industrialize, and their low labor costs drove countries out of many traditional markets

Causes of the Great Depression –Reparations

Because the Americans were demanding repayment, the French and British demanded that the Germans make reparations payments equaling $32 billion

The French, hoping to increase lagging reparation payments, sent troops into Germany’s industrialized Ruhr Valley in 1923

As a result, Germany printed lots of money, causing hyperinflation

Causes of the Great Depression –Reparations

Dawes Plan of 1924 Temporarily helped Germany pay loans until the stock

market crashed It created a cycle:

U.S. banks loaned money to Germany Germany paid reparations to France and Britain France and Britain paid war debts to the U.S.

The plan would play a part in the development of the Great Depression, because when America had financial problems, it caused financial problems with the entire world due to this cycle

Causes of the Great Depression – WWI Debt

Results of the Dawes Plan It helped restore some faith in the

Weimar Republic (until 1929) The U.S. never was fully repaid its money The U.S. caused European countries to

be resentful of them The whole episode contributed to the

U.S. wanting to remain neutral during the 1930s

Causes of the Great Depression – Overproduction

Too many products, too little demand - Industries were producing goods much faster than people could buy them

The automobile and related industries began to slump as early as 1925 because of overproduction

Causes of the Great Depression – Weak Farm Economy

Prosperity During Wartime Much of the food was shipped to the Allied soldiers

from the U.S. and other nations Europe couldn’t support themselves with food during

the war because: Men were fighting in the war The war was being fought where they’d grow crops

Government guaranteed prices Now that the war was over, foreign production

reentered world commerce

Causes of the Great Depression – Weak Farm Economy

Machines Threaten Farmers The gasoline-engine tractor helped cultivate many crops

than they could with a horse-drawn plow. Farmers owned 10 times as much equipment in 1930 as they did in 1920

The wartime boom had encouraged farmers to bring vast new tracts under cultivation, especially in the “wheat belt” of the upper Midwest

Improved efficiency and expanded agricultural acreage helped to pile up more surpluses

In the 1920s, 1 in 4 farms was sold for debt or taxes

Causes of the Great Depression – Speculation

“Get rich quick” attitude- The rising stock prices encouraged speculation, the practice of making high-risk investments in hopes of getting a high return

Before WWI, only the wealthy played the stock market. Now, more and more ordinary people were risking their money on the stock market

Causes of the Great Depression – Buying on Credit and Margin

Buying on credit - People began to buy items whether they could afford them or not, resulting in an increase in personal debt

Buying on margin- Allowed investors to purchase a stock for part of its price and borrow the rest until they could pay it off. Investors hoped that the stock price went up so that they could both pay off the loan and still make money

Causes of the Great Depression – The Last Straw

The British raised interest rates so that people who spent money on American investments would save their money rather than invest in American businesses/stocks

Businesses/stocks might start to decline and not make as much of a profit as before because the British are no longer investing in them, so people started selling as quickly as possible in order to not lose all their profits

Causes of the Great Depression – Stock Market Crash (1929)

Black Thursday - Investors began to sell, causing stock prices to fall. Investors who had bought a share at $400 were now selling at $283

Black Tuesday - On October 29th, a record 16.4 million shares were sold, compared to the usual average of 4-8 million that were bought and sold each day earlier in the year

Great Crash - The collapse of the stock market. By Nov. 13th, the Dow Jones had gone from 381 to 199. Loses totaled $30 billion

Causes of the Great Depression – Stock Market Crash (1929)

Some banks began to fail because they had invested people’s savings in the stock market

As a result, people went on a bank run to withdraw their savings because they thought their bank would go bankrupt

Between 1929-1932 11,000 of the U.S.’s 25,000 banks had failed 90,000 businesses went bankrupt The GDP went from $104 billion to $59 billion Unemployment went from 3% to 25%

Reality of the Stock Market Crash

The U.S. weathered the Crash Fewer than 5% of people in the United States owned

stock so most were not affected By April 1930 share prices had actually regained a fifth

of the losses of the previous autumn The really disastrous fall came in 1931–1932 and

lasted until the mid-1930s Arguably the Crash was more a symptom than a

cause of the Depression

Causes of the Great Depression – Canada

33% of Canada’s GDP came from exports, so this was hurt when countries began using more tariffs

As a result, the price of wheat fell. Four western provinces were completely dependent on the export of wheat

Because of their close links with the United States and their need to export, it caused economic upheaval

Effects of the Great Depression – Canada

Canada improved in national industry in order to replace the importation of industrialized products (industrialization)

1 in 5 depended on gov’t relief 30% were unemployed Net farm income went from $417 million to $109

million

Effects of the Great Depression – Canada

The government turned to intervention and management in the economy (New Policy in Canada)

Massive movement to cities, urbanization Mechanization of agriculture made it more

profitable to find other work

Causes of the Great Depression – Latin America

Speculation in the U.S. in the 1920s led to less investment in Latin America

Depended on trading cheap exports

Their main trading partner was the U.S., so when the stock market fell it had a bad affect on them

Effects of the Great Depression – Latin America

Almost every Latin American country had a revolution in the early 1930s. Most doubted the current system and blamed the government for the economic chaos

Thus, there was a heightened ideological conflict – many solutions were socialism, communism, fascism, native solutions

Dictators arose in most Latin American countries. They tried to intervene to help the economy

Import substitution – tried to produce the item in your own country