1920s republican decade and causes of the great depression
TRANSCRIPT
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1920s Republican Decade
and Causes of
The Great Depression
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The Great Depression is one of the
most misunderstood events in
American history…
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Some point to the Crash of the Stock Market
as the cause of the Depression…
Not true.
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Some blame Herbert Hoover,
claiming his “hands-off” economic
policies dragged America into the
Depression…Not accurate.
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The 1920 ElectionThe 1920 Election
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Soft-Hearted Harding
Warren G. Harding• 29th President• Newspaper owner and editor
from Ohio• U.S. Senator• 1920 Rep Nat’l Convention
Deadlock for a presidential nomination
– Decided on well-liked Harding– Lacked strong convictions– Appealing after 8 yrs of
headstrong Wilson
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Isolationism• U.S. wanted to avoid involvement in
foreign affairs.• Harding opposed membership to the
League of Nations• DISARMAMENT -
voluntarily give up weapons• The Washington Conference - 1921
– U.S., Britain, and Japan limit the size of their navies
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Theory of isolationism did not apply
Pro-businessAndrew Mellon – Sec. of the Treasury Herbert Hoover – Sec. of Commerce
Promoted world-wide tradeHigh Tariffs plus insistence on repayment of European loans
Fordney-McCumber Tariff – 1922
Economy
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The Ohio Gang: President Warren Harding (front row, third from right), Vice-President Calvin Coolidge (front row, second
from right), and members of the cabinet.
The Ohio Gang: President Warren Harding (front row, third from right), Vice-President Calvin Coolidge (front row, second
from right), and members of the cabinet.
The 1920 ElectionThe 1920 Election
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Harding used a lack of judgment when making most appointment
Gave important posts to friends
Charles Forbes – Sec. of Veteran Affairs
Later convicted of stealing money for veteran funds
The Ohio Gang
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Teapot Dome Scandal• Albert Fall, U.S.
Secretary of the Interior
• Oil magnate Ed Doheny
• The scandal, in which Fall illegally leased land to oil companies, severely tarnished President Warren G. Harding's administration
Just after they are acquitted in November 1926 of criminal conspiracy in the Teapot Dome scandal.
Fall, however, was subsequently sentenced to one year in prison
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Silent Cal• A gift public speaker,
but in private a man of few words and ideas
• Former Governor of Mass.
• Shortly after he becomes president his 16-yr-old son dies
• Severely depressed, he neglects his work and becomes increasingly detached
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“A man who builds a factory builds a temple”
• Laissez-faire government under Cal– Lowered income and inheritance
tax– Did not regulate stock market as
urged by Hoover– No federal aid to those affected by
natural disasters
– Kellogg-Briand Pact – 15 nation outlawed war•Eventually 60 nations
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1924 Election
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There are several explanations, but the most obvious causes are four:
1. Overproduction2. Banking & Money Policies 3. Stock Market Actions 4. Political decisions
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1. Over-production:
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The “roaring twenties” was an era when our country prospered
tremendously.
Average output per worker increased 32% in
manufacturing and corporate profits rose
62%.
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But in reality there existed:* Underconsumption of these goods here and abroad, because people didn’t have enough cash to buy all they wanted in the early 1920s…* There still existed an uneven distribution of wealth and income.
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Americas’ farms were overproducing, as well.During World War I, with European farms in ruin, the American farm was a prosperous business.
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Increased food production
during World War I was an
economic “boom” for
many farmers, who borrowed
money to enlarge and modernize their farms.
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So, to summarize it, HIGH DEMAND
for consumer goods and
agricultural products led to
OVERPRODUCTION.
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2. Banking & Money Policies
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The uneven distribution of wealth
didn’t stop the poor and
middle class from wanting
to possess luxury items, such as cars and radios…
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Although wages were not keeping up with the prices of
those goods…”buying on credit”
offer a solutions!
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By the end of the 1920s, 60% of the cars and 80% of the radios
were bought on installment credit.
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The Federal Reserve Board
was created by Congress
in response to the Banking Crisis of
1907.
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The Federal Reserve was suppose to serve
as a protective “watchdog”
of the nation’s economy.
It had the power to set the interest rate for
loans issued by banks.
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So,to summarize, banking policies which offered “buying on credit” first with lower interest rates, then raising those rates, caused a dangerous situation in the economy.
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Buying on Credit increased
personal debt.
Higher interest rates caused
LESS DEMAND for goods.
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3. STOCK MARKET ACTIONS
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The Stock Market was an indicator of national
prosperity.
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Small investors were more apt to invest in
the Stock Market in large numbers
because the “margin requirement”
was only 10%.
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George Olsen and his Music "I'm In The Market For You”
I'll have to see my brokerFind out what he can do.
'Cause I'm in the market for you.With margin I'm all through.
'Cause I want you outright it's true.We'll count the hugs and kisses,
When dividends are due,'Cause I'm in the market for you.
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As business was booming in the 1920s and stock
prices kept rising
with businesses’ growing profits, buying stocks
on margin functioned like buying a car on
credit.
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The extensive speculation
that took place in the late 1920s
kept stock prices high, but the balloon
was due to burst…
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So what went wrong?
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The Crash:
“Black Tuesday”
Oct. 29, 1929, the Stock Market
crashed.
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Over 16 million
shares sold in massive
selling frenzy.
Losses exceeded $26 billion.
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The Stock Market Crash of 1929
was only a symptom- not the cause of the
Great Depression.
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Buying on Margin was a
risky market practice.
Bank loans for stock purchases
was an unsound practice.
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More Poor Banking Policies…
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The Federal Reserve was also established to
prevent bank closings.
It was suppose to serve as the “last
resort” loaner to banks on the verge of
collapsing.
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In early 1930, there were 60 bank failures
per month.
Eventually, 5,000 banks closed their doors between 1930 and
1933.
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Simply put, when a bank fails, a large amount of money disappears from the economy.
There was no insurance for depositors at this time, so many lost their savings.
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As banks closed their doors and more people lost their savings, fear gripped depositors across
the nation.
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Business also lost its money and could not finance its activities…
More businesses went bankrupt and closed their doors, leaving more people unemployed…
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…Causing unemployment to reach even higher levels.
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4. Political Decisions:
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1928 ElectionThe Good Times Will Get Better With
Hoover”
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The Depression could have been less severe had policy
makers not made certain mistakes…
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Leaders in government and business relied on poor advice
from economic & political experts...
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“The sole function of the government is to bring about a condition of affairs favorable to the beneficial development of private enterprise.”
Herbert Hoover (1930)
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But did Hoover really believe in a “hands-off”
free market philosophy?
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Hoover did take action to intervene in the
economy, but it was
too little too late-
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Within a month of the crash, Hoover
met with key business leaders to urge them to keep wages high (volunteerism),
even though prices and profits
were falling.
Reconstruction Finance Corporation
(RFC)
Authorized deportation for 50,000 Mexicans (and Mexican-Americans) to ease unemployment and cut the relief rolls in California
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-Rising unemployment led to homeowners defaulting on mortgages and renters being evicted from apartments.-The homeless settled in shanty towns called Hoovervilles-1932, Federal Home Loan Bank Act, was passed to spur new home construction, and reduce foreclosures. -Foreclosures dropped briefly in late 1932.
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The greatest mistake of the Hoover administration was
passage of the Smoot-Hawley Tariff, passed in
1930.
(It came on top of the Fordney-McCumber Tariff of 1922, which had already put American agriculture into a
tailspin.)
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Officials believed that raising trade barriers would force
Americans to buy more goods at home, which would keep Americans
employed.
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Smoot Hawley Tariff of 1930 and Trade Reform Act of 1934
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1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940
Billio
ns o
f Nom
inal
Dol
lars
Exports
Imports
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It virtually closed our borders to foreign
goods and ignited a vicious international
trade war.
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Europe had debts from World War I and
Germany had reparations to pay.
Foreign nations were forced to curtail their
purchase of Americans goods.
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For example,American
farmers lost 1/3
of their market.
Farm prices plummeted
and thousands of farmers
went bankrupt.
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To compound the effects of the economic slump,farmers would
experience one of the worst, longest droughts in history
during the 1930s…
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...creating a “Dust Bowl” of unproductive, eroded
farmland.
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Three years later, international trade
plummeted to 33% of its 1929 level.
The loss of such trade was devastating and had ripple effects, similar to
the bank failures.
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In summary, The Smoot-Hawley Tariff created trade wars and worsened world economic conditions.
Huge increase in taxes hurt companies and individuals.
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Let’s Review the MAJOR CAUSES
for the Great Depression:
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1. Overproduction (responding to high demand for goods)
2. Banking & Money Policies (low interest rates, buying on credit, raise in interest rates, low reserve rates for banks.)
3. Stock Market Practices (buying on margin, bank loans for stock purchases)
4. Political decisions (Smoot-Hawley Tariff, Increase Income Tax)
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1932 Election
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