Causes of The Great Depression – History Research Outline (200 Level Course)
1) The world- wide economic disorder following world war I
a) WWI had caused vast destruction of property, loss of millions of lives, disruption of trade
b) Thus U.S. Depression was part of a world-wide depression
2) High Tariff policies of Twenties Republican Presidents
a) Protected US industries from foreign competition, but hurt the economies of nations trying to recover from WWI
b) These countries struck by passing high tariffs of there own, thus cutting down on demand for U.S. goods overseas.
3) Lack Of Prosperity among certain groups in the economy
a) Not all Americans were sharing in the prosperity of 1922-29
i) African Americans, Mexican Americans, Native Americans not sharing in the prosperity
b) Many Factory workers not doing well economically
i) Some lost jobs to new machinery
ii) Conservative government hostile to labor unions, unions generally ineffective during 1920s
iii) Some industries (e.g. coal, textiles, leather) never recovered from post-war depression of early 1920s
i) Demand for farm products was falling while farm production was rising, result, falling farm prices, less income for farmers
ii) At same time, farmers were going into debt
(1) High costs of new farm equipment
(2) Mortgage payments for their farms
iii) By the time of the Crash of 1929, U.S. agriculture already in a depression
4) Unequal distribution of income
a) Wealth was concentrated hand of a relatively few wealthy people; tax cuts favored the wealthy
b) Farmers & workers in bad shape economically; worked longer hours for not much higher income
c) If farmers had received fair prices and if workers had had decent wages, they would have been able to buy businesses’ surplus products. This could have kept businesses from failing and from having to lay off workers
5) Overproduction by industry during 1920s
a) Businesses produced more goods than they could sell at a profit; they had surplus inventories
b) Thus when Depression began, businesses already had more goods on hand than they could sell. As noted above, they then had to lay off millions of workers.
6) Excessive borrowing of money during 1920s due to easy credit
a) People borrowed huge amounts of money to buy goods and services, installment buying was prevalent; buy now pay later
b) Business borrowed too much.
7) The Stock Market Crash of 1929
a) Overspeculation in stocks caused stock prices to rise higher and higher during 1927-1929
b) Then in late October 1929 investors panicked and began to sell stock in huge quantities, thus causing stock prices to fall sharply. The value of stocks fell so fast that banks, businesses and private investors lost fortunes; by mid-November 1929, stockholders had lost $30 billion.
c) Causes of the Stock Market Crash
i) Overspeculation drove stock prices to ridiculously high levels; stock were overvalued
ii) Fraudulent stocks: many stocks were sold by companies that existed in name only.
iii) Due to lassiez faire, the stock market was largely unregulated by the government
iv) Buying stocks on the margin:
(1) many people had only paid part of the price of the stocks they were bu8ing, promising to pay the rest later
(2) When the market crashed and the value of their stock fell, stockholders still had to pay back the balance of what they owed o the stocks they had purchased.
d) Stockholders panicked, and millions tried to sell their stocks at once, this drove prices down even further
e) Results of the Stock Market Crash of 1929
i) Businesses lost fortunes, many went bankrupt; businesses laid off millions of workers
f) Banks lost fortunes and many failed; many banks could not repay the money businesses and savers had deposited in the bank
g) Millions of workers lost their jobs savings, home, etc., and were reduced to a life of poverty and unemployment
i) by 1930, 6-7 million unemployed
ii) by end of 1933, 12.5 million unemployed