Causes Of The Great Depression

The Great Depression of the United States was the worst economic collapse in history of the modern world. The 1920s were a time of prosperity and optimism. The feeling of victory the United States had after World War was largely present in society. Although there was a fleeting post-war recession in 1920 and 1921, figures such as average unemployment and the GNP show the extent of the prosperity. Unemployment never rose above 3.7 percent between 1922 and 1929, and the GNP rose $31 billion. Furthermore, wages increased 14% between 1914 and 1929, and inflation never rose above one percent. The factors that created this time of prosperity included high tariffs, tax reductions, good foreign policy and markets, easy credit, and technological advances.

The Republican presidents of the 1920s believed in a laissez faire approach, where the government avoids getting involved in economic planning. This allowed the free market, the system that allows the economy to run itself, operate. President Hoover was a firm believer in self-reliance. He believed that people were responsible for their own well-being and that that they all had their best interests at heart. He translated this into the government by using the laissez faire approach. He also believed in ‘American individualism’ which was the idea that all Americans could become rich and successful on their own. His reasoning was that he was self-made, so everyone else could be too. His ‘Do-Nothing’ approach was the reason he did not intervene as the country fell into a deep depression. Even though the government was not present in the US economy, they were very involved in international affairs by passing high tariffs through Congress. The Smoot-Hawley tariff was passed by Congress in 1930 and was one of the largest tariff increases in history. It was meant to protect the US industry but ended up having the opposite effect. It was initially supposed to raise the tariffs on some agricultural products, however it ended up ruining US trade with Europe. It made it difficult for other countries to export their goods to the US, so they imported less goods. Since there was less

The signs that the economy was suffering were widespread. Although there was a boom in urban production, there was rural poverty in farming communities. One reason was because of overproduction. Since there was an abundance of food, that meant that prices were low. They received no help from the government and eventually agriculture itself had to change. Another element of the prosperity period was easy credit. The accessibility of credit allowed many people to afford things they would not have been able to originally. This inevitably led to borrowers taking on sums that they could not repay. The concept of easy credit itself benefitted companies that used it to finance their products and businesses. Banks handed out loans religiously, so soon most of the population was in debt. In actuality, the US banking system had problems within itself. Reserve banks were regulated by the Federal Reserve Board - the FED. Since banks were self-regulated they did not act in the best interest of the nation, so they only benefitted bankers. The reserve banks ended up limiting the amount of money circulating throughout the Great Depression, so banks had very high interest rates since there wasn’t a lot of money available to borrow. State banks were exempt from joining the FED, and since the were smaller than national banks, they were unable to cope with their financial problems. Eventually