Overview
This lecture explores the complex causes and consequences of the Great Depression, highlighting the interconnected roles of banking, government policies, and global economic factors.
Economic Conditions Before the Depression
- The 1920s saw a boom in consumer goods consumption, often financed by credit and installment plans.
- Agricultural overproduction and falling prices led many farmers into debt and foreclosure.
- Key industries like car manufacturing and construction slowed by the mid-1920s.
- Stock market speculation increased, with more money loaned for investments than commercial ventures by 1929.
Causes of the Great Depression
- The 1929 stock market crash was not the sole or direct cause of the Depression.
- Only 3% of Americans owned stock; the crash mainly hurt the wealthy but did not trigger mass unemployment.
- Weakness in the American banking system, with many small banks unable to withstand panics, led to widespread failures.
- Bank runs caused credit to freeze, resulting in deflation, layoffs, and business bankruptcies.
Government and Federal Response
- The Federal Reserve failed to prevent bank collapses or inject sufficient money into the economy.
- Hoover's administration did not pursue major government spending as Keynesian economics suggested (published later in 1936).
- The worldwide effects of World War I debts and reparations, combined with reduced American loans, deepened the crisis internationally.
- High tariffs like Hawley-Smoot worsened the depression by stifling world trade.
Hoover's Actions and Limitations
- Hoover promoted public works, wage maintenance, and agricultural support, but efforts were too limited in scope.
- The federal government’s spending was a small fraction of the economy, limiting its impact.
- The Revenue Act of 1932 raised taxes, which hindered recovery.
- The Reconstruction Finance Corporation was created to bail out banks and companies, but it was insufficient given the widespread economic collapse.
- Relief efforts through private charity and local government were overwhelmed by unemployment and poverty.
Impact on Americans
- By 1932, over 10 million Americans were unemployed; rates were higher in cities and among minorities.
- Many relied on breadlines, lived in "Hoovervilles," or migrated in search of work.
- Public hardship and humiliation were widespread, as described in contemporary accounts.
Ongoing Debates
- Historians and economists continue to debate the causes of the Depression and the effectiveness of government responses like the New Deal.
- Discussions about the role of government in regulating the economy and providing relief remain relevant today.
Key Terms & Definitions
- Deflation — A general decline in prices, causing reduced business profits and layoffs.
- Margin Buying — Purchasing stocks with borrowed money.
- Hawley-Smoot Tariff — 1930 law raising U.S. tariffs to historically high levels.
- Reconstruction Finance Corporation (RFC) — A government agency created to provide emergency loans to banks and businesses.
- Hooverville — Shantytowns built by the homeless during the Great Depression.
Action Items / Next Steps
- Review the economic policies of the Hoover administration and the timeline of bank failures.
- Read about the effects of the Great Depression on various social groups.
- Prepare for next class: study the New Deal and its impact.