2.1- Causes of the crash of 1929

Question 1

Growth of unemployment

Answer 1

-unemployment grew from 1,550,000 in 1929 to 12,830,000 by 1933
-The National Wage bill in 1932 was only 40% of the 1929 figure
HOWEVER unemployment was not spread evenly across the country. By 1933, the Ohio city of Toledo faced 80% unemployment whereas places in Texas had much less due to a temporary oil boom
-Some industries, such as cigarette and light bulb manufacturing weren’t really affected by the Depression

Question 2

Collapse of GDP

Answer 2

-National wealth showed a significant decline during the Depression
-It fell from $103.8 billion to $56.2 billion from 29-32

Question 3

Problems with credit and banking

Answer 3

-Credit was rarely available
-The USA became a land of cash transactions
-The Stock Exchange remained depressed despite occasional rallies
-Over 10,000 banks failed between 29-32

Question 4

Effects on individual industries

Answer 4

-Wages rose
-General price levels fell by 25% during the early 30s
-The 30s was also a period of business innovation with the intro of air conditioning, airline travel and supermarkets

Question 5

Modern Industries

Answer 5

-Aviation saw the first cross-continent flights and an increase in airline passengers from 470,000 in 32 to 1,178,858 by 1938

Question 6

Older Industries

Answer 6

-The number of newly build residential units fell by 82% between 29-32
-Value of constructions contracts fell from $6.6 billion in 1929 to $1.3 billion three years later
-Coal Industry fell by 300,000, 1929-32
-Iron and Steel fell by 59
%

Question 7

The Crash

Answer 7

-September 1929, share prices fell- no real panic, many said it was just a blip
-24th Oct 1929 (Black Thursday)- share prices tumbled, value fell by $26 billion
-This caused panic selling- people were afraid the share prices would keep falling, so sold their holdings- pushed down prices and caused more panic

Question 8

Why did the Crash happen?

Answer 8

-Investors in NY started to realise that share prices were too high and wanted to sell before they fell
-US industry was slowing down-profits falling- shares less valuable
-Overproduction/underspending

Question 9

Why can it be argued that the Wall Street Crash was not the direct cause for the Great Depression

Answer 9

-Wasn’t until the mid 30s that there was a sig decline
-Only 5% of Americans had shares
-The Crash was a product of weakness of the US economy-ensured the Depression struck the USA after 1929

Question 10

Underconsumption

Answer 10

-US businesses and rich businessmen benefited from low taxes
-Gov did not have much money to spend-could not give money to the poor- didn’t believe in this type of redistribution of wealth
-Led to the rich become more richer. Richest 5% had 33% of wealth, the poorest 40% had only 12.5% of the wealth. 71% of the population earned less than $2500
-The rich kept their wealth in the bank- money not being used for spending on products in the US industry
-The poor would have liked to have bought the products but didn’t have the money

Question 11

Overproduction

Answer 11

-By the late 20s, industry was continuing to make goods that no one wanted
-Pushed down prices and cut profits
-People laid off work-businesses didn’t need to make more products. This resulted in unemployment
-Profits and prices fell- shareholders realised shares were not worth so much- sold shares- which triggered the Wall Street Crash
-LINKED TO UNDERCONSUMPTION- demand no longer there

Question 12

International Causes

Answer 12

-Hoover argued the Depression was because of this
-Many European countries put tariffs on US goods- to cut demand for their products
-Europe was in debt after the war
THEREFORE they borrowed a lot from US banks and were less able to pay them back after 1929. US banks were unable to lend more money to Europe. As a result, their economies collapsed and couldn’t buy US goods

Question 13

The Weak Banking System- Too Small

Answer 13

-Weren’t part of a national organisation- instead was locally or statewide
-Lacked funds to meet unusual demands

Question 14

The Weak Banking System- Too much lending

Answer 14

-Used the money deposited by customers and lent it out liberally to enable spectators to make quick profits for themselves on the stock market
-This encouraged high levels of borrowing

Question 15

The Weak Banking System- Under regulated

Answer 15

-Gov failed to regulate banks and make sure they were strong enough to operate in challenging circumstances
-Banks could do as they wished- took chances in order to make money

Question 16

Impact of Depression on Ethnic Minorities

Answer 16

-Affected POC more than white Americans
-Black Americans were four to six times more likely to be unemployed than white Americans and low job paid jobs reserved for them were now being offered to whites
-Native Americans had been in high levels of poverty living in their reservations and the Depression made it harder for them to find work
-Around 400,000 Hispanic Americans were deported to Latin America even if they had lived in the USA all their lives

Question 17

Impact of Depression on Women

Answer 17

-They faced more dismissals before their male colleagues
-Half the 48 states had laws banning the employment of married women. Women who were able to become more financially independent in the 20s, now had to rely again on their husbands or family

Question 18

The Bull Market

Answer 18

-Over-speculation on future share prices
-belief that the Bull Market in the 20s would be never-ending
-Share prices almost doubled between 25-29 from $34 billion to $64 billion
-The ‘Get Rich Quick’ idea
-By 1929, Americans were buying shares ‘at the margin’- would borrow money and buy shares at 10% of the share price. They hoped to pay back the loan through selling the shares at a higher price in the future

Question 19

Herbert Hoover
Attempts to combat the Depression

Answer 19

-He believed in RUGGED INDIVIDUALISM. The idea that people should take care of themselves and not become lazy and dependent on government help.

-THE SMOOT-HAWLEY TARIFF
-THE RECONSTRUCTION FINANCE CORPORATION
-THE EMERGENCY RELIEF AND CONSTRUCTION ACT, JULY 1932

Question 19

THE SMOOT-HAWLEY TARIFF

Answer 19

THE SMOOT-HAWLEY TARIFF
-Increased import taxes to the highest level in US history- in an attempt to prevent foreign competition
-Average tariffs on imported agricultural and industrial goods rose to 40%
-This harmed both US industrialists whose foreign clients could no longer afford to buy US goods
-Stopped people abroad from buying US goods as other govs imposed their own tariffs
-Further damaged world trade
MORATORIUM- cancellation of German/foreign countries’ repatriation payments in 1932
-This encouraged international trade by releasing more money into the economy

HOWEVER this forced other countries to follow suit and raise their brown tariff rates in retaliation. It aided the contraction not expansion of the world economy

Question 20

THE RECONSTRUCTION FINANCE CORPORATION

Answer 20

-Given $2 billion of taxpayers money
-90% went in loans to small/medium sized banks
-Prevented a worsening of the Depression
-Gave Stability to Financial and banking sectors, helped 100 banks, 60 railroads and 80 mortgage companies

HOWEVER it failed to encourage banks to loan more to businesses facing possible bankruptcy
No signs of economic recovery

Question 21

EMERGENCY RELIEF AND CONSTRUCTION ACT, JULY 1932

Answer 21

-Power to give $1.5 billion to state govs for the unemployed however they must prove they were running out of money
-This avoided direct payment from the federal gov to unemployed- Laissez Faire
-By 1932, economic depression was so deep and business/public confidence was so low that a dramatic change was needed if the economic crisis was to end