Proximate causes vs. ultimate causes - mrtripodi.org DEPRESSION: Proximate causes 1. Saturated market for consumer goods 26 million surplus automobiles on factory floors US …

Proximate causes vs. ultimate causes

Proximate cause: event closest to, or immediately responsible for causing, some observed result.

Ultimate cause: original, distant (or “real”) causative factor.

Proximate vs. ultimate:

Choose one of the following, and list as many proximate and ultimate causes as you can:

Why did the Titanic sink?

Why is diabetes on the rise?

What caused the Civil War?

Part 1

Causes of the Great Depression

GREAT DEPRESSION: Proximate causes

1. Saturated market for consumer goods

26 million surplus automobiles on factory floors

US population: 123 million

People owned stock

Banks owned stock

2. Stocks crash Anyone who bought stocks in

mid-1929 and held onto

them saw most of his or her

adult life pass by before

getting back to even.

-Richard M. Salsman

$30 billion (~$440B today) lost in two days

3. Run on banks

Bank shuts down – money goes with it

political inertia

Unequal distribution of wealth

99% vs. 1%

Lack of savings

Rural poverty

Stock market crash

Run on banks

Financial panic

(lack of) governmental

response

GREAT DEPRESSION: Ultimate causes

Over-production

1928 farm crisis

Agriculture Industry

Monetary policy

high tariffs

war debt Postwar European

economy

Hoover rampant

speculation


Consumer goods bought on credit

First wave of widespread borrowing in US history

Leads to a saturated market


Rural poverty in the 1920s

Sudden end to grain exports to Europe halves crop prices

Flip side of urbanization: rural land prices plummet

Increase in prices of consumer goods; decrease/stagnation of all food prices domestically

10% of rural homes electrified



Aggregate wealth grew by billions – but not evenly

Top 1%: 75% increase in disposable income

Bottom 99%: 9% increase in disposable income



80% of Americans had no savings at all

Unskilled workers’ wages cut, limited

Major factor in rural poverty




Tariffs and war debt

European nations owed over $10B ($128B today) to U.S.

U.S. forces allies to pay; allies pressure Germany

Fordney-McCumber Act (1922) raises tariffs on industrial goods; Europe retaliates


Industrial overproduction

Workers’ wages not rising fast enough

Tariff policy guts foreign market


Crash of 1929


Federal monetary policy

Federal Reserve System (1913) created to stabilize economy

Fed’s goal: head off bank panics

Fed does not address failing banks following crash of 1929


Run on banks

No federal intervention

No individual safeguards

Part 2

Should we blame Hoover?

HOOVER = IDIOT?

1. Bad policy decisions

Old-school protective tariff, largely on agriculture

1930: Smoot-Hawley Act

20,000 imports taxed at record levels

Killed international trade for U.S.

2. Laissez-faire approach

No direct aid from government

Followed Andrew Mellon’s theory: “Leave it alone”

3. Evident neglect of downtrodden

Rampant homelessness; unemployment up to 24.9%

Bonus Army fiasco

4. Too little, too late

HOOVER = SCAPEGOAT?

1. Blame the boss

Hoover Pullmans

Hoovervilles

Hoover blankets

Hoover flags

2. Government aid was unprecedented

No direct aid, but economic stimulus

Reconstruction Finance Corporation

3. Not enough effort, or not enough time?

Replaced Mellon; started to listen to VP Charles Curtis

Hoover hogs

Will Rogers’ apple story

Agriculture Marketing Act

From disrespect to assassination attempts

The New Deal

1933: The First Hundred Days

1. Bank Holiday

March 9: Congress passes Emergency Banking Act

End to hoarding

FDR: Close the banks and reopen under federal overview

March 4: Banks close

Guaranteed federal loans are available when needed

The New Deal


2. FDIC

US Government guarantees deposits up to $5,000

Restores faith in banks

Federal Deposit Insurance Corporation

Clear populist message: “Government has your back”

The New Deal


3. Repeal of Prohibition

Why repeal?

Unintended consequences?

The (rest of the) New Deal

4. Farming programs

Agricultural Adjustment Administration

“Enforced scarcity”: Reward farmers for not farming

Farm Security Administration

1936: Found to be unconstitutional

Cooperative farming under government “experts”

Fears of collectivization

California camps for displaced farmers, like Weedpatch Camp in The Grapes of Wrath

The (rest of the) New Deal

4. Farming programs, continued

Resettlement Administration

Relief camps for displaced farmers

Low-interest loans for farmers hoping to move

Soil Conservation Service

Agricultural education

Engineering projects to control erosion

The New Deal

5. Works Progress Administration (WPA)

Largest New Deal agency

75% went to public facilities and infrastructure

1940 WPA poster

The New Deal


Largest New Deal Agency


650,000 miles of road

700 miles of airport runway

78,000 bridges

Public buildings, airports, sewers, dams, parks, libraries, fields

WPA Reconstruction of Monaca pump house, 1940

The New Deal


Largest New Deal Agency


650,000 miles of road

700 miles of airport runway

78,000 bridges

Public buildings, airports, sewers, dams, parks, libraries, fields

Remaining 25% went to arts projects

WPA mural The Armistice Letter Beaver Falls post office, 1940-41

The New Deal

6. Further employment relief

Civilian Conservation Corps

Building and trails in national parks and forests

Indian Division of CCC built reservations

Planted an estimated five billion trees

Rural Electrification Administration

Established co-ops to bring power to rural areas

Tennessee Valley Authority

Dams and flood prevention on unprecedented scale

US Manufacturing Employment

Proximate causes vs. ultimate causes - mrtripodi.org DEPRESSION: Proximate causes 1. Saturated market for consumer goods 26 million surplus automobiles on factory floors US …

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