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Many people claim that the Stock Market crash of 1929, was the main cause of the Great Depression. Multiple predicaments led to the economic fall in the United States. World War I created a web of debts and reparations, created under the Treaty of Versailles. Nationally, stocks were being bought with credit. Agriculture began to take the plunge because the demand was decreasing, since the war was over. Slowly, the loss of money began to plague the American economy, along with international trade.
World War I put the international economy at risk. The Treaty of Versailles insisted that Germany pay $33 billion in reparations to France and Great Britain. Germany was unable to fulfill this debt, so instead, borrowed money from American banks. At the same time, the United States was owed $10 billion from Great Britain and France, which was partially paid off through German reparations. The money flow was hard to compromise, as the Gold Standard was still an issue for some European countries, which led to a freeze in global trade.
The national problems that the United States encountered, had to do with overproduction and the unequal distribution of income. Creation of product in newer industries, such as manufacturing, was striving, while textile and coal industries started to see a loss in demand. The ability to buy with credit or installment plans, helped production but ultimately led to the hindsight of the Stock Market crash.
The Stock Market allowed people to invest and ultimately make a lot of money. Many people who invested in stocks during the 1920s, did not have much money to begin with, and put themselves in a vulnerable situation. The optimism of investing was influenced by people such as John J. Raskod, who claimed that “a person who saved $15 each month and invested it, could have $80,000 in 20 years”. Surprisingly, only 2.5% of the American population owned stocks. The market started to see a fall, just after the peak it had in September of 1929 (Bernanke, B.S.,1983).Because of this, many holders sold their stocks. On October 29th, over 16 million shares were traded because of panic selling, due to the fall in stock prices.
Many businesses relied on the increasing stock market, so they could pay employees. When these businesses lost this financial security, people were unemployed at drastic numbers. Consumers, that were once employees, did not have money to spend, therefore hurting businesses (Calomiris, C.W., 1993). During this time, most people who were laid off, were also the ones using their money, paycheck to paycheck, with little to no savings. When they lost their job, they were unable to provide for their families. The government did not have unemployment insurance, nor was there enough public relief to help all of these people. In the 1920s, men were known to be the breadwinners, able to provide for their families. Because women’s labor was cheaper, the provider in the family switched roles, which upset an abundance of men. The steepening depression of the economy, was just similar to the mental well-being of many.
Between 1914 and 1919, agriculture prices were at an all time high. Because of World War I, and the failing European agriculture, many farmers were able to prosper (Wicker, E., 2000). But the 1920s held a different idea for American farmers. The downfall of many farmers, was the lack of modernization, and falling crop prices. Because of this, it was hard for these farmers to produce such a yield that would help make up for falling prices. The McNary-Haugen Bill, introduced the idea that the government should buy surpluses and either keep them until prices rose, or sell them to the world-market. Better transportation and supermarkets allowed for more regular supply management. Even with these improvements, farming families made about a quarter of what non-farming families made. Money loss was taking a toll, even in the most rural parts of America.
In the Great Plains of the United States, an environmental catastrophe was taking over crop yield along with the living conditions of many families. The Dust Bowl occurred during the mid- 1930s, due to stripping of soil, and over vegetation. These problems were directly caused by the enthusiastic surplus that farmers held during the 20s. Strong winds would pick up very dry soil, and would create fog. Drought did not help, nor cease the Dust Bowl. In return, many families were supported through federal aid. The AAA paid farmers to plant crops that would help the soil, instead of depleting crops such as wheat. Families from Oklahoma, Texas and Missouri, were forced off their land and moved to California. These people were very poor, but ultimately found agriculture jobs.
President Hoover was a fan of personal initiative, and a more laissez-faire economy. The RFC, or the Reconstruction Finance Corporation, was created to help businesses after the Stock Market crash. The idea was to provide financial relief to these failing businesses. But in a time where overproduction and lack of sells arose, the RFC didn't provide relief that the country needed. The chain of supply and demand was interrupted because of lack of employment, which ultimately led to a lack of money to spend. In 1930, Congress passed the Smoot-Hawley tariff, which raised import duties to the highest they have ever been in U.S. history. This tariff encouraged other countries to raise their own tariffs, and deepened the international economic failure.
President Franklin D. Roosevelt was elected into office in 1932. As a Democrat, he was determined to help the people of the United States in forms of public relief. He was able to personally connect with citizens by his fireside chats. In 1933, Congress passed the Emergency Banking Relief Act, which allowed FDR access to banking transactions and international trade. By the end of March, almost all the banks were open for business again. The CCC, or the Civilian Conservation Corps, allowed for unemployed men to work in conserving natural resources. The Federal Emergency Relief Act provided $500 million directly to states, and the rest was distributed to Federal Aid. Many more federal relief acts were enacted in President Roosevelt’s first 100 days. President FDR eventually helped the country out of the depression.
The 1920s and 30s, allowed the United States to reflect and unify. Because of the financial epidemic that hurt many, relief was enacted and the economy eventually picked up pace. Because of the environmental crisis, that was the Dust Bowl, the government has been able to progress and help prevent further phenomena. The effort the President Roosevelt exhibited helped push the United States out of a terrible time. Almost 100 years later, the United States has been able to modernize and prosper, as we learn from our past mistakes.
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