HIST 17C Lecture Notes - Lecture 2: Limited Government, National Industrial Recovery Act, Government Spending
Stock Market Crash
Warning issued about how much Americans were borrowing and buying on credit
➔Net private debt rose by 4x
➔Private borrowing and stock market trading exploded
➔Expansion occurred when industrial stocks skyrocketed
◆Everyone was trying to buy stock
Black Thursday Oct 24 1929
➔Market lost 11% of its value
Black Tuesday Oct 29 1929
➔Stock market prices drop by $14 billion
What caused the Stock Market Crash
Unregulated speculation
➔No gov’t agency monitored market to prevent abuses
◆Companies sold stock at higher prices than they were worth
➔No gov’t agency checked to see if the country’s largest investors and corporations were
in sound financial health
◆Lack of gov’t regulation allowed runaway speculation
Instability of banks
➔Banks were allowed to speculate with their depositors’ money
➔1933 “bank run”
◆People running to banks to get their money out before the banks closed
◆People were unable to collect their savings because the banks foreclosed
Crash in 1929 and economic meltdown of 2008
➔Lax regulation
➔Cheap credit
◆Ability to borrow money easily
➔Problems in housing and automobile industries
➔Inflation
➔Runaway speculation on stock market
➔Growing gap between salaries of executives and workers
◆Wealth polarization
1931-1932
Another plunge in the stock market
➔accompanied by the Depression
Thousands of brokers and investors went under
➔As cash disappeared, demand dropped
Corporations cut wages
Decline in national income
What caused the Great Depression
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International economic instability
➔WWII left Britain, France, Belgium in a lot of debt to payoff war loans to US
➔Germany owed reparations for war damage to Britain, France, Belgium
➔US investors loaned and invested in Germany → Germany payed Britain, France,
Belgium → Britain, France, Belgium pay off debts to US
◆Found investment opportunities in US to be more attractive than abroad
● Stopped investing overseas
● Failure of investment caused financial turmoil in Europe
Structural weakness in American economy
➔Mining, textiles, agriculture
➔Farmers overproduced
◆Accommodated for demand for food by soldiers during WWII
◆Continued to produce at WWII levels
● No more demand → prices fell
➔Aggravated by the Dust Bowl
◆Created huge dust storms that made farming impossible
◆People migrated to California
Unequal distribution of income
➔Prosperity of the 1920s depended on mass purchasing power
➔Corporations might have grown mass purchasing power by cutting prices and raising
wages
The crash itself
➔Psychological impact
◆Cleaned out investors
◆Exposed people to the fact that there were problems in the American economy
Lack of economic intelligence
➔Reliance on monetary policy
◆Federal Reserve System Reacted to the crash by raising interest rates
● Caused a shrinkage of money in circulation
◆Didn’t view economic collapse as tragedy
● Saw it as a necessary correction
Herbert Hoover
Developed an arrogance
➔Difficult for him to understand the problems of Americans
➔Since he had worked his way from rags to riches, the rest of America should be able to
do it
➔Infatuated with his own success
As a Quaker, he felt obligated to help people who suffered from unpreventable accidents
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Document Summary
Warning issued about how much americans were borrowing and buying on credit. Private borrowing and stock market trading exploded. Stock market prices drop by billion. No gov"t agency monitored market to prevent abuses. Companies sold stock at higher prices than they were worth. No gov"t agency checked to see if the country"s largest investors and corporations were in sound financial health. Lack of gov"t regulation allowed runaway speculation. Banks were allowed to speculate with their depositors" money. People running to banks to get their money out before the banks closed. People were unable to collect their savings because the banks foreclosed. Crash in 1929 and economic meltdown of 2008. Growing gap between salaries of executives and workers. Wwii left britain, france, belgium in a lot of debt to payoff war loans to us. Germany owed reparations for war damage to britain, france, belgium. Us investors loaned and invested in germany germany payed britain, france,
