What is a Depression? Business cycles: Lessons of the 1930s. Weaknesses in the Boom. Causes Overproduction Laissez Faire policies that left the economy unregulated Fraud Over speculation on the stock market Decline in foreign trade While we have spoken about the 20's as a time of great prosperity, it was a tad deceptive.
VID: The Great Depression in 10 Minutes. Cause 6: Weakness of the US banking system. Extreme Inequality. It is clear that when banks become too big, it harms the economy.
Economist Steve Keen says that “a sustainable level of bank profits appears to be about 1% of GDP”, and higher bank profits lead to a Ponzi economy and a depression. But most mainstream economists dismiss the idea that wealth inequality among individuals causes economic crises. Of course, some ideologues will argue that even discussing inequality is waging class warfare, and smacks of an attack on capitalism.
However, the father of modern economics – Adam Smith – disagreed. And as Warren Buffet, one of America’s most successful capitalists and defenders of capitalism, points out: There’s class warfare, all right, but it’s my class, the rich class, that’s making war …. And as I have previously noted, radical concentration of wealth actually destroys capitalism, turning it instead into socialism for the rich. Is There a Causal Connection Between Extreme Inequality and Economic Crises? Cause #2a: Agricultural over-production.
Cause #1a: Credit and consumerism. Cause 1b: Speculation & "Buying-on-the-Margin" The Banking Crisis. The bill had four major provisions.
First, the bill ratified the actions of the President in closing the banks. It also gave the President the authority to regulate the whole banking sector. Second, the bill gave the controller of the currency the power to appoint a receiver to take over any bank that was too weak to reopen. Third, the bill allowed banks to issue preferred shares and RFC to purchase. Finally, the bill authorized the issuance of Federal Reserve Bank notes to provide additional liquidity to the banking system.
Yet, all of these measures would not be enough, unless the public believed the banks, that would reopen soon, were sound. The Great Depression. Apple Salesman: Symbol of Hard Times We in America today are nearer to the final triumph over poverty than ever before in the history of any land.
The poorhouse is vanishing from among us. Herbert Hoover, 1928 ... The Causes of the Great Depression. Causes of he Great Depression. HH v FDR: competing philosophies. Hoover - good or bad? Villainized in the Depression, he shaped global humanitarianism and America's role in the world Today marks the anniversary of the birth of Herbert Hoover, our nation's 31st president.
Where other presidential birthdays are cause for public holidays (see: Washington, Lincoln) or public reflection (see: Reagan's centennial), this one is likely to pass without notice. That's not entirely surprising: Hoover is the president America loves to hate. His name is a staple on the regular lists of "history's worst presidents. " And there's little wonder why: The Great Depression that reduced the country to rubble is laid, fairly or not, at Hoover's feet. These days, because of America's brush with a second such Depression, Hoover has enjoyed something of a revival, if only as a cautionary tale, the epitome of what not to do in an economic crisis.
If posterity has been unsparing (and bipartisan) in its critique of Hoover, it's still mild compared to the open hostility he faced in his own time. VID+ FDR and the Depression. Causes of the Great Depression. USA annual real GDP from 1910–60, with the years of the Great Depression (1929–1939) highlighted The causes of the Great Depression in the early 20th Century are a matter of active debate among economists, and are part of the larger debate about economic crises, although the popular belief is that the Great Depression was caused by the 1929 crash of the stock market.
The specific economic events that took place during the Great Depression have been studied thoroughly: a deflation in asset and commodity prices, dramatic drops in demand and credit, and disruption of trade, ultimately resulting in widespread unemployment and hence poverty. However, historians lack consensus in determining the causal relationship between various events and the government economic policy in causing or ameliorating the Depression. Current theories may be broadly classified into two main points of view and several heterodox points of view. General theoretical explanations[edit] Mainstream theories[edit] Where Historians Disagree.
Reed (1): A Modern Fairy Tale. THE GREAT DEPRESSION devastated every part of America, even its smallest towns.Library of Congress According to this simplistic perspective, an important pillar of capitalism, the stock market, crashed and dragged America into depression.
President Herbert Hoover, an advocate of "hands-off," or laissez-faire, economic policy, refused to use the power of government and conditions worsened as a result. Reed (2): Four (not one) downturns. Reed (4): Conclusions. How was it that FDR was elected four times if his policies were deepening and prolonging an economic catastrophe?
Ignorance and a willingness to give the president the benefit of the doubt explain a lot. Roosevelt beat Hoover in 1932 with promises of less government. He instead gave Americans more government, but he did so with fanfare and fireside chats that mesmerized a desperate people. By the time they began to realize that his policies were harmful, World War II came, the people rallied around their commander-in-chief, and there was little desire to change the proverbial horse in the middle of the stream by electing someone new. Along with the holocaust of World War II came a revival of trade with America's allies. Reed (3.4): The Wagner Act. The stage was set for the 1937-38 collapse with the passage of the National Labor Relations Act in 1935 — better known as the "Wagner Act" and organized labor's "Magna Carta.
" To quote Sennholz again: This law revolutionized American labor relations. It took labor disputes out of the courts of law and brought them under a newly created Federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor union sympathizers on the Board further perverted this law, which already afforded legal immunities and privileges to labor unions. The U.S. thereby abandoned a great achievement of Western civilization, equality under the law.The Wagner Act, or National Labor Relations Act, was passed in reaction to the Supreme Court's voidance of NRA and its labor codes.
Armed with these sweeping new powers, labor unions went on a militant organizing frenzy. Reed (3.4a): FDR as "anti-business"? From the White House on the heels of the Wagner Act came a thunderous barrage of insults against business.
Businessmen, Roosevelt fumed, were obstacles on the road to recovery. He blasted them as "economic royalists" and said that businessmen as a class were "stupid. Reed (3.3): The New Deal. TO MANY AMERICANS, the National Recovery Administration’s bureaucracy and mind-numbing regulations became known as the “National Run Around.” Franklin Delano Roosevelt won the 1932 presidential election in a landslide, collecting 472 electoral votes to just 59 for the incumbent Herbert Hoover. The platform of the Democratic Party, whose ticket Roosevelt headed, declared, "We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power. " It called for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency "to be preserved at all hazards," the removal of government from areas that belonged more appropriately to private enterprise and an end to the "extravagance" of Hoover's farm programs.
This is what candidate Roosevelt promised, but it bears no resemblance to what President Roosevelt actually delivered. Reed (3.3a): A new direction'or more of the same? Roosevelt did indeed make a difference, though probably not the sort of difference for which the country had hoped. He started off on the wrong foot when, in his inaugural address, he blamed the Depression on "unscrupulous money changers. " He said nothing about the role of the Fed's mismanagement and little about the follies of Congress that had contributed to the problem.
As a result of his efforts, the economy would linger in depression for the rest of the decade. Adapting a phrase from 19th century writer Henry David Thoreau, Roosevelt famously declared in his address that, "We have nothing to fear but fear itself. " But as Dr. In his first 100 days, he swung hard at the profit order. Reed (3.3e): Better ('35-36) but worse ('37) Reed (3.3d): The tinkering of the Alphabet Agencies. THE SUPREME COURT came under attack by President Roosevelt because it declared important parts of the “New Deal” unconstitutional. FDR’s “court-packing” scheme contributed to the resumption of economic depression in 1937.Library of Congress Roosevelt next signed into law steep income tax increases on the higher brackets and introduced a 5 percent withholding tax on corporate dividends. He secured another tax increase in 1934. In fact, tax hikes became a favorite policy of Roosevelt for the next 10 years, culminating in a top income tax rate of 90 percent.
Sen. Alphabet commissars spent the public's money like it was so much bilge. Reed (3.3c): Labor & Wages. AT THE NADIR of the Great Depression, half of American industrial production was idle as the economy reeled under the weight of endless and destructive policies from both Republicans and Democrats in Washington.Library of Congress Perhaps the most radical aspect of the New Deal was the National Industrial Recovery Act, passed in June 1933, which created a massive new bureaucracy called the National Recovery Administration.
Under the NRA, most manufacturing industries were suddenly forced into government-mandated cartels. Codes that regulated prices and terms of sale briefly transformed much of the American economy into a fascist-style arrangement, while the NRA was financed by new taxes on the very industries it controlled. Some economists have estimated that the NRA boosted the cost of doing business by an average of 40 percent - not something a depressed economy needed for recovery. The economic impact of the NRA was immediate and powerful. In "The Roosevelt Myth", historian John T. Reed (3.3b): Banking & Finance. THIS 1989 PHOTO is of a bridge built from 1936-41 as part of a Works Progress Administration (WPA) project in Coleman County, Texas.
Many Americans saw such projects as helpful, without considering their high cost and the corruption that plagued the program.Library of Congress Crisis gripped the banking system when the new president assumed office on March 4, 1933. Roosevelt's action to close the banks and declare a nationwide "banking holiday" on March 6 (which did not completely end until nine days later) is still hailed as a decisive and necessary action by Roosevelt apologists.
Friedman and Schwartz, however, make it plain that this supposed cure was "worse than the disease. " Reed (3.2): Failure of Hoover; folly of Smoot-Hawley. PRESIDENT HERBERT HOOVER is mistakenly presented in standard history texts as a laissez-faire president, but he signed into law so many costly and foolish bills that one of Franklin Roosevelt’s top aides later said that “practically the whole New Deal was extrapolated from programs that Hoover started.”Library of Congress. (3.2b): More Hoover interventionism. PRESIDENT FRANKLIN ROOSEVELT decried as selfish “economic royalists” those businessmen who opposed the burdensome taxes and regulations of his “New Deal.”Franklin D. Roosevelt Library and Museum. Reed (3.2a): Impact - agriculture, banks. Foreign companies and their workers were flattened by Smoot-Hawley's steep tariff rates and foreign governments soon retaliated with trade barriers of their own.
Reed (3.1): Phase I: The Business Cycle. Reed (3.1c): Examples of casualties. Black Thursday shook Michigan harder than almost any other state. Stocks of auto and mining companies were hammered. Auto production in 1929 reached an all-time high of slightly more than 5 million vehicles, then quickly slumped by 2 million in 1930. By 1932, near the deepest point of the Depression, they had fallen by another 2 million to just 1,331,860 — down an astonishing 75 percent from the 1929 peak. Thousands of investors everywhere, including many well-known people, were hit hard in the 1929 crash.
Among them was Winston Churchill. Clarence Birdseye, an early developer of packaged frozen foods, had sold his business for $30 million and put all his money into stocks. Reed (3.1b): The Crash. By 1928, the Federal Reserve was raising interest rates and choking off the money supply. For example, its discount rate (the rate the Fed charges member banks for loans) was increased four times, from 3.5 percent to 6 percent, between January 1928 and August 1929. Reed (3.1a): Failure of central planning.
Alan Brinkley interview. Alan Brinkley Professor of History, Columbia University. VID: Milton Friedman & Great Dep Myth. A Monetary History of the United States. A Monetary History of the United States, 1867–1960 is a book written in 1963 by Nobel Prize–winning economist Milton Friedman and Anna J. Schwartz. Galbraith: The Great Crash, 1929. Assessing economic causes of the Great Depression. Causes and Cures Causes. Interpretations. GNP (per capita) 1890-1940.