INTRODUCTION

2. 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.

3. 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?

4. 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

5. 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

6. 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 1928. 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

7. 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

8. 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

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