Causes of the Great Depression
1. False Prosperity
overdependence on mass production, consumer spending, advertising, welfare capitalism, high tariff, "invisible hand"
automobile was the leading industry
chemicals, appliances, radio, aviation, chain stores
overproduction in textiles, farming, autos
real wages increased only 11%
60% population less than $2000 poverty minimum
top 5% earned 33% income - spending by the rich essential
Andrew Mellon cut taxes
2. Speculation
Fed loaned at 3.5%, gold inflow 1927, Great Bull Market 1928
broker loans on call rose from $3.5b in 1927 to $8.5b in 1929
Goldman Sachs investment trusts, 50% margin trading at 5% interest
only 1.5m of 120m population were investors
pooling tactic of "anglers" - John J. Raskob
Charles Mitchell of National City Bank: "I know of nothing fundamentally wrong with the stock market." (Oct. 21, 1929)
Joe Kennedy: "Only a fool holds out for the top dollar" (sold after RKO merger in October 1928)
3. Stock Market Crash
Sep. 3 Dow high of 381
Sep. 6 Babson break - market became erratic
Sep. 20 - collapse of Hatry in Britain
Oct. 23 - J.P. Morgan buys to stop price decline
Oct. 24 - panic selling began - 12.8m shares
Oct. 29 - "Black Tuesday" - 16.4m shares
prices decline to Dow low 41.22 on July 8, 1932
4. Banking Crisis
deposits withdrawn, deflation
9000 banks fail in 1930, 1932 waves
Austria's bank failed May 1931
5. Unemployment
ripple effect as leading factories close
rose to 25-35% of total labor force, 80% in Toledo
farm income declined 60%; 1/3 lost land
6. Trade Collapse
foreign countries retaliate with high tariffs
Weimar Republic unable to pay reparations or U.S. banks loans
U.S. had been creditor with $638m annual surplus
7. Republican Policy
"The Ordeal of Herbert Hoover"
laissez faire, balanced budget, trickle down, voluntarism
no use of monetary or fiscal policies
Agricultural Marketing Act, Hawley-Smoot tariff, RFC of Jesse Jones
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