CAUSES OF ECONOMIC CRISIS Banking system Over production Republican policies Wall street crash Under consumption

INTRODUCTION DEFINE YOUR TERMS: DEPRESSION – what was it? LINE OF ARGUMENT: What factors caused the economic depresssion? HISTORIOGRAPHY/DIFFERENT INTERPRETATION: E.g. Many historians believe the Wall Street Crash was merely a trigger not a cause of Depression.

Essentially what this question is asking is - how did these factors weaken the economy/prepare it for a depression by 1929? Which was the worst?

BANKING SYSTEM Banking is essential to build a strong economy Too many banks – 30,000 small state banks instead of a national bank (lots of banks were established because of the high demand for credit) Many banks also bought shares and used their investors money to do so. Easy credit - system of lending is weak– economy is built on credit. In 1929 $7bn worth of goods is sold on credit. Everyone in debt – few questions asked for loans One bank collapsing leads to a run at other banks, they had no contingency plan. People want their savings back but banks cannot provide. Banks want the loans back but people cannot repay them. Unregulated by government – banks could operate in any way, to their own benefit Federal Reserve Bank controlled the amount of ‘gold’ in circulation – they kept interest rates low to keep the market buoyant International loans to Allied countries – Dawes Plan with Germany

Over Production Relies on mass consumption Mass production methods for consumer goods and car manufacturing e.g. Ford T – moving line assembly allows higher production – 1920 – 1 car every 60 seconds (1,250,000 per year!) General Motors and Chrysler also joined in. Supply outstrips demand therefore trade slows – jobs lost (60,000 at Ford lose jobs in 1927) This impacts on share prices – people begin to lose confidence Farming overproduction led to lower prices

Under consumption Uneven wealth distribution – North East and Far West were the wealthiest. 60% of families earned less than $2000 ‘Old industry’ - coal, railways were threatened by new industries such as cars and electrical industries. Rural areas do not have electricity to run these goods. E.g. Clarence Birdseye patented refrigeration in 1925 but only 20,000 fridges in US by Electrical consumption could be exaggerated Customers decline – once you have bought a fridge, hoover – you don’t need another. Trade declines so business look to expand markets overseas

Wall Street Crash – ‘a symptom not the disease’ Over-confidence in stock market. Shares bought on the margin – 10% deposit, rest of share paid by a bank loan Black Thursday – panic selling of shares due to loss of confidence in share prices as they dropped e.g. General electric 315 points to 283 points. 60% of shares sold in October Crashes had happened prior to this and depression did not result therefore other factors must be to blame

Republican Policies – Lead the country and have the power to regulate but lack of action/misjudged policies Laissez-Faire - Inaction of Republicans such as Coolidge and Hoover – lack of regulation High Tariffs and Isolationist economic policies affected trade overseas– Fordney-McCumber Act 1922 – no foreign goods into USA Businesses allowed to expand – mergers resulted in corporations having a monopoly over industry which lead to price-fixing Businessman were given too much power by the government. Failure of get rich quick schemes. Focus more on short-term benefits, little long term planning

CONCLUSION Which of these was most responsible for creating economic conditions for a Depression to take hold? Why are the others less important?