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Long Term Causes of the Great Depression (Problems in the Economy (Labour…
Long Term Causes of the Great Depression
Prosperity in the 20s
Government Policies
system allowing economy to run itself with minimal government intervention
economic darwinism
Industrial expansion= more jobs, more employment, more consumption
Laissez-Faire
High Tarrifs
Fordney- McCumber Act (1922) to cover difference between domestic and foreign productions
American industry made huge profits from the high-tariff policy
Tax Reductions
Reduced federal taxes significantly in 1924, 26, and 28
Government's aim was to reduce national debt
Federal tax cuts did little for people who were too poor to pay taxes at all (40% of America lived in poverty).
Problems in the Economy
Uneven Distribution of Wealth
Employment was generally unstable
Different sections of society were better off than others, e.g. men over women.
1929: Brooklyn institute discovered that income distribution was becoming increasingly unequal, 60% of American families had annual incomes of less than $2000
Rural Poverty
Problems for Farmers
During war years - prices rose over 25%, but after war prices fell
Prohibition cut grain demand - esp. used in alcohol
Growth of synthetic fibres - lessened the market for natural ones (cotton)
Technical advances meant more crops could be produced > farming population dropped
Greater use of tractors > fewer horses necessary, less demand for animal food
Farmers become more efficient through mechanisation, new techniques (e.g. improved fertilisers) they simply produced too much
During war, gov urged them to produce more, now did little to compensate for their losses
66% farms operated at loss including wage labourers, tenant farmers and sharecroppers (especially bad for African Americans in South)
Government placed huge tariffs on food imports, and other countries retaliated: placed similar tariffs on US foodstuffs- farmers couldn't export surplusses
Too much food= prices too low (lower than those of 1914)
Instability of Employment
Employment = often unstable due to increasing demand for goods. In the first 9 months of 1924, of families surveyed, 72% of the workers had been unemployed at some stage
There was little welfare/ unemployment benefit- most relief supplied by charitable organisations
Women on the whole, did not enjoy improved career opportunities
More jobs as clerical workers/salespeople, tended to remain in comparatively low-paid, menial jobs. Even in working in the same job as men, normally received less money
African Americans and Native Americans did not share in the prosperity
NA's lived on infertile reservations
85% AA's lived in South, but some migrated to the North for better opportunities (they were still discriminated in housing/ employment)
Stock Market Speculation
From the period of 1927-29, Americans went 'Wall Street' crazy
American Dream- Ordinary people making immense profits
Problems with the Banking System
Out of date by 1920s even though central banking system was only created in 1913
Reserve Banks represented interests of bankers, could not be completely relied on to act in best interests of nations if there was a conflict of interests
Cycle of International Debt
America's priority was for Europeans to repay loans they had taken out to finance WW1- although many could not afford to repay these loans
Prohibitive tariffs made matters worse- European countries could not export their manufactured goods to the USA in great quantities; found it impossible to earn the money to repay the loans
Problems Caused by Germany
Germany (by TofV terms) forced to pay reparations of $33,000 million to victorious Euro nations
Under Dawes + Young Plans, US lent it the money to do so. With this money, European victors repaid US what they could of the loans - US thus effectively paid itself back with its own money
Wall street brokers earned large commissions for putting investors in touch with businesses requiring investment > massive over-investment took place
Labour Unions
Supreme Court had blocked attempts by unions to ban child labour and impose a min. wage for women as being unconstitutional
Many employers operated ‘yellow Ldog’ clauses - employees were not allowed to join a union
Growth in new industries slowed, full-time employment fell, economy entered downward spiral
Fall in income led to fall in demand, in turn led to a fall in production that added to unemployment and underemployment (short-time working)
Economy experiencing problems concealed by superficial optimism/stock market speculation frenzy
Nature of the bull market
‘Bullish’ market: stock market where there is lots of confidence and lots of buying and selling
Amount of trading on market grew, particularly after Hoover’s presidential election victory. Optimism about American prosperity, fuelled by statements of confidence from gov. - seemed unshakeable
Summer 1929, loans to stock-market investors climbed towards $6 billion compared to $3.75 billion at end of 1927. Prices of popular stocks rose dramatically
desire to ‘get rich quick’
Reduction of Interest Rates
Confidence in the Strength of the economy
Historian Hugh Brogan, 1985: “At every stage the story displays the devastating consequences of of a bland unawareness of economic and political essentials
American economy seemed to be doing well when compared to others, especially Europe
Much of 1920s prosperity based on continuing demand for consumer durables (goods that last a long time e.g. motor cars, electrical appliances). Tend not to be replaced during hard times
Industries that supplied these products in the US found demand slipping
Collapse of Credit