Causes of the Great Depression

1
Causes of the Great Depression
2
Mellon Tax Bills

• The Revenue Acts of 1924, 1926, and 1928 were
  known collectively as the Mellon Tax Bill.
• They were introduced by Andrew Mellon, who served
  as Secretary of the Treasury from 1921 through
  1931.
• The tax bills, driven by supply-side economics,
  were intended to put more money into the hands of
  the consumers by lowering the federal income tax.
  
• They later learned that the tax bill contributed
  to the rampant spending trend of consumers, which
  in turn led to over production of goods.

The history of taxation shows that taxes which
are inherently excessive are not paid. The high
rates inevitably put pressure upon the taxpayer
to withdraw his capital from productive business
and invest it in tax-exempt securities or to find
other lawful methods of avoiding the realization
of taxable income. The result is that the sources
of taxation are drying up wealth is failing to
carry its share of the tax burden and capital is
being diverted into channels which yield neither
revenue to the Government nor profit to the
people.
3
Coolidge and Economic Prosperity

• WWI stimulated development and investment in new
  technology that contributed to the business boom
  in the inter-war period.
• For the first time, consumers across the nation
  were reading many of the same books and news
  stories and purchasing the same goods.
• Communication innovations in radio, advertising,
  and film also contributed to the homogenization
  of ideas that led to the advent of national
  popular culture.
• In his Sixth Annual Message to Congress,
  President Coolidge discusses the great economic
  prosperity of the nation.
• He attributes this prosperity to the good
  relationships between wage earners and employers,
  the tax cuts, and conservation of our natural
  resources.

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Important Dates

• August 24, 1921 The Dow begins its post-war boom
  at 63.90 points.
• August 22, 1922 The Dow tops 100 for the first
  time, closing the day at 100.75.
• Between 1922 and 1929, the Dow rises 400 percent.
  
• September 3, 1929 The Dow hits its pre-crash
  high, closing at 381.17.
• October 24, 1929 (Black Thursday) The crash
  begins. A record-breaking 13 million shares are
  traded, indicating panic. That afternoon, 5 banks
  pony up about 20 million each to buy stock and
  restore confidence in the market. It seems to
  work. There's a late rally, and the Dow closes at
  299.47.
• October 25, 1929 The rally continues, and the
  Dow closes at 301.22
• October 28, 1929 (Black Monday) The rally ends.
  Panic selling resumes. The Dow drops almost 40
  points (nearly 13 percent) to close 260.64.
• October 29, 1929 (Black Tuesday) The Dow drops
  another 30 points (nearly 12 percent) to close at
  230.07 on trading of 16 million shares.
• July 8, 1932 The Dow closes at 41.22, an 89
  percent drop from its pre-crash high.
• November 23, 1954 25 years after the crash, the
  Dow reaches its pre-crash high again, closing at
  382.74.

5
Black Thursday

• The rapid increase in American industrialization
  was fueling growth in the economy, and technology
  improvements had the leading economists believing
  that the up rise would continue.
• Billions of dollars were invested in the stock
  market as people began speculating on the rising
  stock prices and buying on margin.
• The enormous amount of unsecured consumer debt
  created by this speculation left the stock market
  essentially off-balance. Many investors, caught
  up in the race to make a killing, invested their
  life savings, mortgaged their homes, and cashed
  in safer investments such as treasury bonds and
  bank accounts.
• Finally, in October 1929, the buying craze began
  to dwindle, and was followed by an even wilder
  selling craze.
• On Thursday, October 24, 1929, the bottom began
  to fall out. Prices dropped precipitously as more
  and more investors tried to sell their holdings.

This photograph was taken outside the NYSE on
Black Thursday
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• Multimedia Citations
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