🔴| Great Depression Essay Flashcards
Factors
5
- Republican Policies
- Overproduction & Underconsumption
- International Economic Problems
- Weaknesses in US Banking System
- Wall Street Crash
Introduction
Background Only - FIQ Exp, LOA and other factors needed
- During the 1920s America experienced growth in industrial production, which saw more jobs being created, increase in profits and wages that were 2-3 times higher than in Europe.
- What followed was an economic boom for the USA, and this new emphasis on having fun and spending money led to this period being called the ‘Roaring Twenties’, in which Americans indulged in activities like going to the cinema or doing new dances like the Charleston.
Republican Policies:
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- Firstly, throughout the 1920s Republicans reduced taxes, giving people more disposable income to buy consumer goods. Taxes were reduced for businesses and those who earned the highest salaries. The Government reduced federal tax significantly in 1924, 1926 and in 1928.
- Secondly, attempts to save the government money led to cutbacks in the government agencies that regulated businesses. This allowed for businesses to carry on potentially problematic practices without interference, like child labour in the textile mills of the south where a 56-hour week was common and wages rarely rose to more than 18 cents per hour.
Republican Policies:
Analysis
- Republican policies were therefore a cause of the great depression because the failure of the Republicans to see the consequences of these policies have led to many blaming them for the economic crisis that lay ahead.
- For example, the ‘price-fixing’ protected American businesses from cheap foreign imports, but failed to deal with the consequences of foreign countries retaliating by blocking American imports to their countries, meaning when the depression began no money was being brought into the country through trade.
Republican Policies:
Analysis+
- However, it can be said that Republican policies were less of a cause of the great depression because during WW1 the Government had been accused of interfering too much in people’s lives. They responded by introducing policies initiating the laissez-faire attitude once again, which the country welcomed.
- The deregulation of the banks and businesses seemed to give people back their freedom and for most of the 1920s, this seemed to work. Therefore, the Government was simply responding to the wants of the people.
Republican Policies:
Evaluation
- Overall, Republican policies were the most important cause of the great depression. Whilst they couldn’t have predicted the turmoil, they had no backup plans for very adventurous policies which encouraged big business to be risky. This could have paid off immensely, which it did for several years.
- But overall, I agree with historian Hugh Brogan who said that the policies were ‘irresponsible’ as they resulted in great extremes of wealth and poverty with too large a share of profits going into foo few pockets. Therefore, as soon as big businesses began to lose money after the Wall Street Crash the country crumbled because the Republican Government had not built it on solid foundations in the post-war period.
Overproduction & Underconsumption:
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- OS: As the production of consumer goods became easier and cheaper, America saw a ‘consumer boom’ due to all of the new products on offer.
- Firstly, more and more American households had electricity in their homes and wanted the latest technology to make use of this. In 1929, $852 million worth of radios were sold and an estimated 40$ of American households owned one.
- Secondly, consumption of cars also increased – in 1919 there were 7 million cars on American roads, and by 1929 this had increased to 23 million.
Overproduction & Underconsumption:
Analysis
It can be said that this was a cause of the great depression because although demand for these new products did exist and allow companies to thrive in the first place, products being produced in mass were often a one-time or rare purchase for American households, meaning company’s mass stock was going to waste and causing them to lose money.
Overproduction & Underconsumption:
Analysis+
- However, overproduction & underconsumption was less of a cause of the great depression because although goods were not being consumed as expected they were still on the rise, meaning companies were still making high profits.
- For example, in 1912, 2.4 million items of electrical goods were sold but by 1929 about 160 million electrical goods were being sold every year to American consumers.
Overproduction & Underconsumption:
Evaluation
- Overall, overproduction of goods & underconsumption was a very important reason for the great depression because companies assumed that this consumer boom would be continuous and widespread which allowed them to justify producing goods in mass, but prosperity in the 1920s was very uneven for American households which put those in a financial position to splurge on goods in the minority.
- For example, six million families, 42%, had an income of less than $1000 a year.
Overproduction & Underconsumption:
Evaluation+
However, Republican Government policies were a more important cause because their laissez-faire attitude and lack of interference into American businesses allowed such companies to overproduce goods which didn’t have a lasting demand, which shows that without these Republican policies overproduction of goods wouldn’t occur so underconsumption wouldn’t be as big of a problem to the economy.
International Economic Problems:
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- Firstly, as Europe struggled to recover financially in the aftermath of World War One, the USA stepped in to help. As well as the $10 billion lent to allies during the war, the USA continued to lend Germany money to enable it to meet its reparation payments to countries like France and the United Kingdom.
- Secondly, the German reparation payments funded by the USA were used by France and the UK to pay their war debts to the USA, so German loans through the 1924 Dawes and 1929 Young plans meant that the USA were effectively paying Germany to pay them back.
International Economic Problems:
Analysis
- International economic problems were therefore a cause of the great depression because international debt continued to increase, meaning countries struggled to pay back the money owed to the USA.
- Germany had problems making their payments due to hyperinflation in their country, and across Europe countries found it difficult to gain access to huge consumer markets and make money to pay their debts due to high tariffs on foreign goods entering the USA – this ultimately left America with less money.
International Economic Problems:
Analysis+
However, international economic problems were less of a cause of the great depression because although setting high tariffs on foreign goods caused its problems, this did also help the USA a lot because consumers would buy cheaper American made goods thus stimulating the USA’s economy.
International Economic Problems:
Evaluation
- Overall, international economic problems were quite an important cause of the great depression because America had to rely on prosperity in other countries so that their debts and loans would be repaid, but due to financial uncertainty’s and USA’s own fault of high tariffs on foreign goods this was never achieved which put the USA into economic crisis.
- For example, the ‘Fordney-McCumber Tariff Act 1922 set tariffs at a record level of 40%. This meant that foreign imports were now too expensive for Americans to buy, therefore countries where these were produced could no longer make sufficient profits which could be use to repay the USA their debts from WW1.
International Economic Problems:
Evaluation+
However, Republican Government policies were a more important cause because their protectionism policy was a major reason as to why foreign countries struggled to prosper and settle their debts with the USA, so if this policy was never put into place it could be argued that international economic problems wouldn’t be so dire and therefore influence the economic crisis.
Weaknesses in US Banking System:
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- Firstly, in hundreds of small communities local people put their money into state-based banks for safekeeping. Their money was used by the bank to make investments for more profits, and as the economic boom grew investments were made by banks into the stock market.
- Secondly, credit was the easiest way for banks to make money, so bankers encouraged this. By 1929, $7 billion of goods were sold on credit, including 75% of all cars.
Weaknesses in US Banking System:
Analysis
- Weaknesses of the US banking system were therefore a cause of the great depression because banks did not anticipate that financial issues could occur which would cause severe damage due to the way banks functioned at this time.
- When people began withdrawing their savings due to financial uncertainty banks could not cope with this demand as they had invested this money into stock markets, lost it as shares fell and ran out of money.
Weaknesses in US Banking System:
Analysis+
- However, weaknesses of the US banking system were less of an important cause of the great depression because although the lack of anticipation for a financial crisis led to disaster the US banking system was still successful for many years.
- Prior to the great depression huge profits came from stock markets, and the credit system worked well as long as people remained in employment and could make their repayments. Therefore, it could be argued that the banking system would still function if it had not been for other events, like the Wall Street Crash, which ultimately caused the great depression.
Weaknesses in US Banking System:
Evaluation
- Overall, weaknesses of the US banking system were quite an important cause of the great depression because the system was not built to consider or cope with any negative changes in the economy. When people went to withdraw their money in a panic, the weak elements of this system only accelerated the already pending chaos which left banks in a state of ruin which would not allow the economy to function properly.
- For example, by the end of 1932, 20% of the banks that had been operating in 1929 had declared bankruptcy.
Weaknesses in US Banking System:
Evaluation+
However, Republican Government policies were a more important cause because these policies influenced the economy negatively by themselves, whereas the weaknesses of the US banking system proving a problem coincided with the Wall Street Crash which suggests that perhaps the banking system wasn’t a big enough issue to be a problem in itself.
Wall Street Crash:
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- Firstly, by 1929 ordinary people, banks and big businesses were buying shares ‘on the margin’, which meant they paid only a fraction of the full price at the time of purchase to sell on the shares at a profit before the rest of the payment was due. This was problematic because investors forced up share prices with money they did not really have.
- Secondly, shareholders panicked as share prices began to fall. On the 24th October 1929 investors quickly sold their shares at any price, and sometimes for virtually nothing. By the 29th chaos had ensued and the stock exchange had closed as prices continued to fall.
Wall Street Crash:
Analysis
- The Wall Street Crash wasn’t a direct cause of the great depression, but it can be said that the crash caused the depression to happen when it did. It revealed how fragile and false the economic boom really was.
- For example, an impact of the crash was factories having to cut back on production or collapse altogether – it is estimated that between 1929 and 1931 110,000 companies failed.
Wall Street Crash:
Analysis+
- However, the Wall Street Crash was even less of a cause for the great depression because only a small percentage of Americans owned shares, so little of the population would be directly impacted.
- 97% of Americans didn’t own shares, and although they may have been indirectly impacted via their jobs this wasn’t significant enough to be of concern.
Wall Street Crash:
Evaluation
- Overall, the Wall Street Crash was the least important cause of the great depression because it was more of a culmination of all of the USA’s economic weak points instead of a factor which influenced whether the economic crisis would have happened or not. However, the crash should still be acknowledged as a detrimental event to the American economy which certainly wouldn’t have aided the crisis.
- As said in The New York Times, “because of the undignified chaos, officials closed the visitors’ gallery” which shows how the Wall Street Crash altered America in ways the country hadn’t seen before, like closing the visitors’ gallery for the first time in history.
Wall Street Crash:
Evaluation+
Republican Government policies is still a more important cause because their policies were the beginning of inefficient ruling and practice in America which, although intended to help the economy, damaged it in the long run. The Wall Street Crash was simply a result of such policies, instead of being its own independent reason for the great depression.
