Causes of the Great Depression

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Causes of the Great Depression

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Background

• _{Just like the Panic of 1785, the Depression ended the business boom after a war because}

reasons of like overexpansion, debt, lack of credit, and so forth.

• _{The American economy entered an ordinary recession during the summer of 1929 (there had}

been around 35 recession since 1785), as consumer spending dropped and unsold goods began to pile up, slowing production.

• _{The stock market bubble finally burst, as most or all investors began dumping shares}

• _{As consumer confidence diminished, so did spending and investment, which led factories and}

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World War I

• _{Europe had won the respect of the world as a reliable money-lender}

• _{Countries in Europe were in-debt to each other, in an effort to pay off}

their debts they printed large sums of paper money, which subjected their countries to periods of inflation

• _{Much of Europe suffered devastating losses of physical property and}

landscape, and financial aid was required to rebuild these properties.

• _{Germany was hit the hardest, as inflation hit 2,000%, in contrast, most}

developed countries set their goal to be around 2-3%.

• _{As their economies were ruined, they stopped or slowed down trading}

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Concentrated Wealth

• _{The richest one percent owned a third of all American wealth,}

which limited economic growth. Right now they own 40%.

• _{The wealthy tended to save their money instead of putting it back}

into the economy if the wealth was given to the middle and lower classes.

• _{The middle class had already stretched their debt capacities by}

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Irresponsible Banks and Stock Investors

• _{The banks were quick to give loans to people who bought stocks.}

• _{Investors bought and sold stocks quickly, which did not aid the company they invested}

because they needed long term investments.

• _{Instead of serving primarily as a device for the accumulation of capital of industrial}

enterprises, the exchange became a betting ring where people gambled on stocks in much the same fashion that gamblers wagered on roulette or horse races

• _{Unscrupulous traders would buy and sell shares intentionally to inflate a given companies}

stock values.

• _{For example, when Facebook first opened it was, a stock was $88/share, no one bought,}

Facebook then changed it to $66/share. Therefore there was a speculation on price, did the Facebook company value decrease? Or is it what people thought it should cost.

• _{Once the banks failed, investors tried to sell out all at once (panic selling)}

• _{Once people lost confidence in banks and the stock market, just like the Copper Panic of}

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Reduction in Purchasing

• _{When the stock market crashed, individuals from all classes stopped}

purchasing items, because they wanted to save their money.

• _{This stops the economy, because no one is buying anything.}

• _{This led to a reduction in the number of items produced, which led}

to a reduction in the workforce.

• _{As people lost their jobs, they could not keep up paying for items}

they had bought with installment plans, and thus their items were repossessed.

• _{Prices on food that the farmers produced deflated so much that the}

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Foreign Policy

• _{As the Depression spread across the Atlantic Ocean, Europeans}

bought fewer American products. Just like the Panic of 1893 when Europeans started to stop investing in American products.

• _{As businesses began failing, the government created the}

Smoot-Hawley Tariff to help American companies.

• _{This charged a high tax for imports from foreign countries.}

• _{The unintended consequence of this tariff was that less trade}

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Ignorance from Government

• _{The government began raising the federal funds rate (interest rate}

banks charge each other to meet reserve requirement) through a recession that began late 1929. This was one of the main factors of the stock market crash.

• _{The government raised interest rates to preserve the dollar’s value.}

That further restricted the availability of money for businesses. More bankruptcies followed.

• _{The government did not increase the supply of money to combat}

deflation.

• _{When investors removed their deposits from banks, the banks failed.}

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Family Disorganization and Deprivation

• _{Marriage rates declined}

• _{Divorce rates declined (no one could afford a lawyer)}

• _{Birth rates drastically declined}

• _{Two or more families crowded together in apartments or}

homes designed as single-family residences.

• _{From 1929 to 1931, the number of children entering}

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Family Disorganization and Deprivation

• _{Men put the food on the table at home (traditional gender roles were still prevalent)} • _{Unemployed men felt like failures as a result of their inability to provide for their}

families.

• _{Such feelings of inadequacy accumulated, often after having used up their life savings,} these men were forced to endure the humiliating experience of applying for relief.

• _{Unemployed men often found themselves hanging themselves around their homes.} • _{Quarrels became more frequent between husbands and wives.}

• _{At times, men withdrew emotionally and even physically from their families and} friends.

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Adapting to the Depression

• _{Women and children adapted to the Depression by finding jobs for themselves.} • _{The percentage of married women in the workforce continued to rise during the}

Depression years.

• _{Married women also contributed to the livelihood of their families by}

intensifying their household labor, like planting vegetable gardens, remaking old clothes, and so on.

• _{Children usually worked part-time, in activities such as delivering newspapers,}

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Adapting to the Depression

• _{Some 250,000 youths were on the road, travelling by freight train or hitchhiking}

in order to find work. Many left because they did not want to burden their families.

• _{Children were deprived of an education because many communities had to close}

their schools down because of a lack of money.

• _{Children suffered from malnutrition}

• _{The death rate for children suffering from undernourishment was on the rise}

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Review Questions

1. Name 3 causes of the Great Depression

2. Name 3 effects of the Great Depression

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Bibliography

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• McElvaine, Robert S. The Great Depression. New York: Times Books, 1993.

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