1. Causes of the Great Depression “We in America are nearer to the final triumph over poverty than ever before in the history of any land.” Herbert Hoover, 1928

2. The Roaring Twenties Quality of life on the rise  Growth of American households with: Indoor flush toilets  20% to 50% Central heating  1% to 42% Electric lighting  36% to 68% Radios  less than 1% to 40% Automobiles  26% to 60%  Consumer Credit Telescoping the future into the present

3. Transformative technological innovations Growth in prosperity and quality of life in the twenties was fueled by two primary technological innovations 1. Electricity  Powered many new appliances purchased by households  Transformation of the manufacturing process:  Eliminating mechanical transmission (drive rods, belts, steam power) greatly lowered manufacturing costs, increased flexibility of factory layout, and improved working conditions  Allowed manufacturers to increase efficiency of production, resulting in lower consumer prices

4. Growth in prosperity and quality of life in the twenties was fueled by two primary technological innovations 2. The Automobile  Sold for $825 in 1908, $360 in 1916  Increased mobility  Development of suburbs fueled a real estate and building boom  New spin-off industries: tires, filling stations, repair shops, motels, auto glass, gasoline, etc.

5. Over-Arching Global Events Treaty of Versailles  Germany suffered heavy burdens of territory loss and reparations  Germany suffered from hyperinflation caused by excessive increases in money supply Dawes Plan  International intervention to end German inflation  Established new German currency  Scaled back reparations payments  American loans to Germany to support new currency  Required German central bank to back any money supply increase w/ gold

6. Over-Arching Global Events cont. France  Also experienced inflationary issues, but not as severe as Germany  Solved by restoring convertibility of the Franc to gold Great Britain  British economy struggled due to decline in major industries such as shipbuilding.  Bank of England kept interest rates high to protect the pound  These factors maintained high rates of British unemployment

7. Over-Arching Global Events cont. American foreign lending topped out at $1.25 billion in 1928 Of these funds, more than 90% were used by European allies to purchase U.S. goods This led to the U.S. holding a disproportionate amount of foreign debt, which foreign nations could not repay w/o ruining their currencies. U.S. tariff policy further exacerbated the imbalance of trade b/t America and its trade partners  The U.S. was trying to be the world’s banker, food producer, and manufacturer, but to buy as little as possible from the world in return.

8. Domestic Causes Maldistribution of Wealth  Rewards of the “Coolidge Prosperity” were not shared evenly among Americans In 1929 the top 0.1% of Americans had a combined income equal to the bottom 42% The top 0.1% controlled 34% of the savings in the U.S. while 80% of Americans had no savings at all Disposable per capita income rose 9% from 1920 to 1929. Yet per capita disposable income for the wealthiest 1% of American grew by 75% during the decade. Average output per manufacturing worker rose 32% Average wages for manufacturing jobs increased by 8% Corporate profits rose by 62% The Coolidge Administration  Pro Business, beneficial to the wealthy  Andrew Mellon – Sec. of Treasury  Revenue Act of 1926 – reduced federal income/inheritance taxes dramatically (taxes on a million $ income reduced from 600k to 200k)  Adkins v. Children’s Hospital

9. Domestic Causes cont. Consequences of the Maldistribution of Wealth  Unstable economy  Total demand must equal total supply in a healthy economy  As the decade evolved supply of goods outpaced demand  The middle and lower classes did not have enough disposable income to support long-term economic growth  The U.S. came to rely upon two factors to keep the economy on an even keel: credit sales and luxury spending and investment from the rich By 1929 60% of cars and 80% of radios were purchased on installment credit. From 1925 to 1929 outstanding installment credit more than doubled This trend created artificial demand for goods Luxury spending and investment by the rich is reliant upon confidence in the economy. Search for greater returns leads to widespread market speculation

10. Domestic Causes Cont. Stock Market Speculation  Record volumes of shares being traded on the NY Stock Exchange in the late twenties  Potential profits became irresistible for investors  Company health/earnings were secondary to increase in stock prices.  Buying on Margin Investors put up only a fraction of the price of a share and borrowed the rest using the purchased stock as collateral Margin buying helped to artificially boost stock prices and the stock market in general. As prices began to fall buyers had to put up more $$ or brokers would sell the stock This led to the sell of large volumes of stock and added significantly to the downward trend of the market in late 1929

11. Domestic Causes Cont. Margin buying example  RCA stock at $85 per share in early 1928  Purchased on margin buy John Doe putting up $10 of his own money and borrowing the remaining $75 from his broker  1 share of RCA a sold for $420 in late 1928.  If J.D. sells at $420 his original investment of $10 would be turned into $341.25 ($420 - $75 and 5% interest owed to his broker)  A return of over 3400%  By mid 1929 outstanding brokers’ loans totaled more than $7 billion  Some interest rates on broker loans were as high as 20%

12. Domestic Causes Cont. Bank Failures  A series of banking crises that began in October of 1930 are considered the turning point by many economists  Banks held reserves = to only a fraction of their liabilities  Deposits were not insured  When customers became nervous about their bank’s stability they rushed to withdraw their deposits  Many banks attempts to sell off loans and assets to meet depositors demands for funds were inadequate and banks began to fail  More than 1300 banks failed in 1930  4000 failed in 1933  More than 9000 banks failed throughout the Great Depression