Stock Market Crash and the
Causes of the Great Depresssion
1. Stock market speculation
2. Contracted money supply
a. Low interest rates inflated money
supply by 60%
b. Jan. 1928 to Aug. 1929 discount rate
rose from 3.5 to 6.
c. Money supply shrank 30% from Aug.
1929 to March 1933.
3. Hawley Smoot Tariff
1. Did “hands off” government policies
cause the crash?
2. Was the crash and speculation a
symptom of monetary policy?
3. Was Hoover really laissez-faire?
4. Did Roosevelt’s policies help or prolong
the economic downturn?
Elected in 1928
Labeled by some as laissez-faire.
Expanded the government and raised taxes.
Pursued similar policies as Roosevelt
Signed the disastrous Hawley-Smoot Tariff
1. Speculation—drove up stock values.
a. margin loans—put down small amount to buy
stocks, borrow rest. Drove up stock prices, big
b. $9 billion in loans
c. stock values and prices not even close. At least
twice their value.
e. companies gave brokers money for margin loans
because they could make more money.
f. Didn’t reinvest profits.
2. Stock market crash—October 29, 1929
a. Steep decline instead of 1 or 2 day crash
b. Peaked in September, stock prices dropped
c. October 24 lost 21 points in an hour
d. October 28 lost 38 points, or 13%
e. October 29, Black Tuesday. 16 million
shared sold, no one there to buy.
f. By mid-November, $30 billion lost
g. Stocks not even 20% of prior value
by March 1933.
1. June 1930
a. raised tariffs to an all time high
b. 1,000 economists petitioned him not
-raise prices to consumers
-damage exports, hurt farmers
Agr tariffs raised 20%-34%. Lost 1/3 of market
9,000 rural banks closed.
Clocks 45%-55%. $4.50 per clock
Corn and butter doubled
800 items in automobile production.
**If foreigners can’t sell here, they can’t buy here.
Stocks fell in 1930.
April 1930: 294
1. Hawley Smoot
2. Pressured business not to lay off or cut wages.
3. Billions in business subsidies to farmers and
4. Doubled the income tax in 1932
5. Other taxes
a. Bank checks
b. Gas and auto
d. Corporate and estate
e. Earned income tax credit abolishe
6. Government share of GNP rose from
16.4 to 21.5%.
7. Federal Reserve raised discount rate
1 Democrats exploited the crash
a. Hoovervilles—homeless settlements
b. Hoover blanket—newspaper
c. Hoover flag—pocket turned inside out
d. Hoover hog—rabbit
2. Irony was the Hoover was known as a
1. Series of programs to deal with the Great
Depression. Not a single initiative.
2. Franklin Delano Roosevelt
a. elected in 1932
-willingness to try anything
-ability to say what people wanted to hear
-“fireside chats” in 1933
c. only child in wealthy family, educated at
Harvard and Columbia law school, polio in 1921.
d. Political career: New York State Senate in 1910,
Assistant Secretary of the Navy 1913-1920, ran
for VP in 1920, and Governor of New York 1928-
3. Strategy of New Deal
a. deal with financial crisis and provide short
b. promote industrial recovery thru federal relief
and cooperative agreements between
management and labor.
c. raise commodity prices by paying farmers to
reduce crops and herds.
d. federal government to assume a larger role;
FDR received broad powers to enact New Deal.
4. Keynesian Economics
a. John Maynard Keynes
b. Supply money on the demand side by giving
people jobs, which puts money in their pockets,
which they will spend.
c. criticisms: taking money from those who
5. World War I mobilization a model.
6. Strengthening the monetary system
a. first thing FDR did.
b. closed several banks and declared a
7. Emergency Banking Relief Act—allowed good
banks to reopen with licenses from the Treasury
Department, provided managers to ones in trouble.
8. Glass-Stengall Banking Act
a. created the FDIC—insured deposits up to
b. separated commercial and investment banking
to prevent speculative abuses.
9. Federal Securities Act
a. Securities and Exchange Commission
-regulate stock and bond market
10. Took U.S. off of the Gold Standard
First Hundred Days
FDR’s self-imposed deadline to get legislation passed
1. Federal Emergency Relief Act
a. sent money to help the states
b. ½ was direct relief; other half $1 for every $3 spent
by the state
2. Civilian Conservation Corp (CCC)
a. give work to unemployed and unmarried men 18 to
b. worked in woods, forests, parks, etc.
c. $30 a month, $25 went to families
d. high school diploma
3. Agricultural Adjustment Administration
a. compensated farmers for a voluntary cutback in
b. plow-under—destruction of a bumper crop
c. subsidies for surpluses
4. Tennessee Valley Authority (TVA)
a. overall planning for Tennessee River Valley—
41,000 square miles.
b. multipurpose: dams, electricity, power plants,
c. by 1936, six dams built or underway
d. focus became cheap power
e. controversial; step towards socialism
6. National Industrial Recovery Act
a. National Recovery Administration
-codes for business recovery
b. Public Works Administration
-$3.3 billion for roads, public buildings, schools,
7. Brain Trust
a. Roosevelt’s Ivy League Advisors
Second New Deal
1. Roosevelt’s Critics
a. American Business League
-loss of personal liberties, property rights,
growing welfare state.
b. Father Charles Coughlin
-“radio priest” national talk show with 40
-attacked FDR from the left; he wasn’t doing
-attacked Wall Street, bankers, etc. Anti-
c. Francis Townsend
-Old Age Revolving Pension Plan
-$200 per month to those over 60,
had to be spent in 30 days.
-Townsend Plan; basis for Social
d. Huey P. Long “Kingfish”
-Elected to U.S. Senate in 1930.
-New Deal didn’t go far enough.
-Had Presidential ambitions
-Share Our Wealth
• Liquidate personal fortunes
• Every family gets $5,000 allowance,
workers get $2500 annual income
• Pension for aged, reduced working hours,
free college education
• “Every Man a King”
-assassinated in 1935. Received strong
third party support, bad for FDR.
2. Influence of critics: FDR took New Deal in a more
3. Hasn’t ended the depression yet.
4. Second Hundred Days
a. Works Progress Administration
-similar to Public Works administration
-employed 8 million people in 7 years
b. Social Security Act in 1935. Payroll tax
c. National Labor Relations Act (Wagner Act)
-rights for labor: collective bargaining, right to
join a union, protection against unfair labor
New Deal and the West
1. Dams, cheap power, hydroelectricity, and irrigation
2. Hoover Dam
a. Colorado River--$114 million
b. enabled water to be sent to Los Angeles
c. created Lake Meade, world’s largest artificial
d. Imperial Valley created by irrigation, one of the
most productive agricultural areas in the world.
e. opened one million acres to cultivation
3. Central Valley Project
a. central California
b. water from Sacramento River in the north to
arid San Joaquin Valley in the south.
c. made large scale farmers wealthy
4. Grand Coulee Dam
a. near Spokane, Washington on the
b. cheap power to stimulate local economy.
c. largest project
5. Environmental Costs
a. disrupted natural flow of rivers
b. disrupted salmon migration in Washington
c. reduced Columbia river to a series of lakes
6. FDR liked dams because they were popular
and gave him a lot of support in the West.
a. nominated Alf Landon
b. avoided the Hate-Roosevelt crowd. Hoping
others such as Long would take votes from him.
c. Landon actually supported many New Deal
2. FDR won big
a. new coalition for Democrats: farmers, ethnic
groups, middle class people whose property was
saved by the New Deal, labor, and blacks.
1. Steady improvement in 1935 and 1936
2. In August 1937, economy declined worse than
3. Reasons for:
a. FDR cut spending; deficits and inflation
b. less disposable income because of Social
Security Taxes—$2 billion.
c. private spending couldn’t replace
d. business too timid to take risks; no incentive.
4. Divisions in FDR’s cabinet
a. Henry Morgenthau, Jr. Less
spending and a balanced budget.
b. Harold Ickes and Harry Hopkins
-more government spending
-recession caused by a balanced
-more anti-trust investigations
c. FDR sided with Ickes and Hopkins
5. FDR’s image hurt by the slump
Wealthy Tax Act—“Soak the Rich.”
1. 75% tax on all incomes above $5million
2. Estate and corporate tax.
3. Limits of
a. Failed to raise revenues.
b. Richest 1% raised their wealth after
c. Tax burden fell on lower income
Social Effects of the Depression
1. petty theft, street corner begging, prostitution rose.
2. Divorces didn’t rise, too expensive. Husbands just
3. Birth rate dropped
a. 1 out of 5 didn’t get enough to eat
b. 900,000 left home
1. New Deal didn’t restore prosperity, did ease suffering
2. Role of federal government radically increased.
3. South and West transformed because of government
4. Democrats became the majority party until 1994 in
5. Depression solved by boom that accompanied WWII.
1. What are interest rates?
2. How do high rates influence
3. How do low rates influence
4. What happens when rates go
from low to high?