What Led to the Depression
The main factors which caused the Great Depression in America following the Wall Street Crash of 1929. Discusses issues with the 1920s American economy.
- Created by: Grac3
- Created on: 23-04-14 12:16
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- What Led to the Depression
- Unequal distribution of wealth
- 60% of all American families were living on less than $2000 per year
- The top 5% of Americans earned 1/3 of the income
- The only way that poorer Americans could consume was by credit and consumption
- 80% of Americans had no savings at all
- The purchasing power was held by the top margins of society
- Farming problems
- The average farmer's income was $477 below the national average
- Crops were devastated by natural disasters, for example the boll weevil plague
- Farmers did not cut production after the First World War, leading to overproduction and lowering prices
- Out of 5280 farms, there were 3500 foreclosures
- Farmers did not participate in the boom
- Decline in old industries
- Traditional industries such as coal and textiles couldn't compete with the oil industry
- The New England Textiles industry fell in workforce from 190,000 to 100,000 in 1933
- Trade problems
- Republican protectionism led to the raising of taxes and retaliation, effectively cutting off international trade
- Production rises meant that surplus couldn't be sold abroad
- Surplus agricultural produce couldn't be sold abroad
- Farmers did not cut production after the First World War, leading to overproduction and lowering prices
- Stock market speculation and lack of regluation
- The American banking system was not regulated at all
- The stock market was not regulated, encouraging 'on the margin' speculation (75% of a share's value could be borrowed)
- After 1927, there was an average of 5m transactions per day
- In 1927, the FRB lowered the interest rate by 0.5% making it easier to borrow
- People had blind faith in the market (dips were seen as temporary)
- Brokers had persuasive selling techniques e.g. 'rags to riches' tales
- FTC was half-hearted at best
- Bank failures were common during the 1920s
- Contradictory regulatory measures: Charles Mitchell pumped $25m of his own money into the brokerage industry
- No one wanted regulation of the stock market
- FRB was made up of private bankers who put their own interests before the nation
- Evaluation points
- After the Crash, stock prices were still higher than they had been in 1928
- Share prices did not plummet until 1932
- Historians argue that the Crash was symptom, rather than a cause, of the Depression
- There were already problems with the economy
- International debt
- Great Britain and France did not have strong enough economies to pay back the war debts owed to the US
- The devaluation of British and French currencies made US goods more expensive in Europe
- Unequal distribution of wealth
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