Shortly after the First World War and before the dawn of the Second World War, many had thought that they could easily recover from the losses brought by the wars to their living. In the case of the United States, as they only entered the war in the latter stages, they would not succumb to the losses experienced by the Europeans due to their location and due to their self-efficiency. However, it is visible that even they would not be able to escape the clutches of the economic depression that has hit throughout the 1930s to the mid-1940s as industries fell and the stock markets had reported stock crashes that disabled economies to recover immediately. The ongoing depression had lasted even in the brink of the Second World War despite the efforts of many nations to impose economic recovery packages that would have enabled them to sustain their expenses and restart their economies. In the case of the United States, it can be attributed that the causes that led to the Great Depression had been difficult to resolve given the key policy mistakes under the Hoover and Roosevelt Presidencies, and the international influence the United States has in the world economy.
The Great Depression of 1929-1940 had been considered the darkest moments for international economy, especially for the Western nations given the economic changes prior to the economic decline. Experts have identified several circumstances that enabled the development of the Great Depression in the US. Prior to 1929, the US had reported a high economic growth for their construction and automobile industries, improving the economic situation in the US despite the end of the First World War. However, by the late 1920s, both industries had suddenly declined, reporting a decrease for expenditure from 1926 to 1929. Sales were also down for cars manufacturers, dropping up to 1/3 throughout 1929. With the weakened production of car companies and construction, and with the thrifty attitude adopted by the Americans in keeping their items longer once they have purchased their cars and other materials, it had ultimately cut down the market’s demand and influenced the “feeder” industries that support major industries. Aside from the drop of major industries in the United States, there was also a considerable inconsistency in terms of wealth distribution. In the late 1920s, almost 50% of all Americans were under the poverty line, disabling them to purchase goods and sustain the economic boom. While there were still industries capable of producing profit for the economy such as in the agriculture and industrial industries, it was not enough to generate enough funds to develop markets. Experts have stated that the government could have prevented the poverty cause of the depression in the US if the manufacturers would have paid their workers more, they could have fed the economy with a stronger purchasing power from the public.
The Depression is also seen to be caused by the status of the US’ credit structure at the period. Considering that there was a profit imbalance throughout the country, many Americans had purchased most of their items on credit. Since they could not provide money to pay for the items they see on television or hear on radio, they had resorted to paying things on installment and credit plans. Normally in the period, Americans would have in their homes a radio, vacuum sweeper and even furniture but some of these items are mostly bought under credit. Farmers and low class workers were deeply in debt as most of their properties are under mortgage. Banks were unable to aid the people as they were also slowly feeling the gravity of loaning money to the farmers and with competition from other small banks, people ended up succumbing to their loans. In the case of larger banks, they would invest in the stock market, which considerably also crashed due to the economic decline and some would even present out bad loans. As a result, many had been forced to pay debts which were unpayable in the current situation. Following this trend, the international community also affected the situation in the United States and disabled them from stopping the growth of the Great Depression in the country. Although the US had considerably experienced a high production and economic prosperity as the main supplier for the European countries during the First World War, the demand had drastically decreased after the war. The Europeans had finally been able to recover from the war losses they have accumulated and tariff trades and economic policies were revised, which was very costly for the US goods to stay in European markets. Finally, the cause of the Great Depression in the US can be attributed to the debts accumulated in the international market. In the First World War, aside from goods, the Americans became the source for income for the European nations, borrowing billions to pay for the war effort. The Allied forces, namely Britain and France, had originally discussed with the US that they will pay their debt or loan by asking for reparations or war damages from the Axis/Central Powers, mostly Germany and its allies. However, both Germany and its ally Austria had succumb to economic debt due to the war, disabling them from paying their own debt from the war effort. It was agreed by the Allied powers that if the losers of the war could not pay the winners, the US bankers would hold the bag. In addition to the incapacity of both losing nations to pay the winners, the US had also loaned Germany $1.2 billion between years 1924 to 1930 to recover from the war. However, the impact of its lending to the Europeans had caused America to gain a “warped” economy, subsequently bursting into the Great Depression once 1929 was over .
With the Great Depression now redefining the entire international and domestic economic structure of the Western nations and in the United States, it is visible that it had taken a while for most of these nations to recover from the Great Depression. In the case of the United States, it would have been the first to recover from the economic depression given its economic capability. However, studies have showed that the resulting economic disabilities of the Depression had significantly been the cause of several economic policy-making flaws that disabled the US from recovering its economic capacity and strength. The first visible reason as to why the Depression had stayed so long in the United States is the fact the Federal Reserved had failed into consideration the drop in the money supply that would have aided it to aid banks from succumbing to debt. With the lack of available money for most banks around the country, as well as the lack of supply from the Fed Reserve, there were many instances of economic fears for many to invest or produce for the market. There was also the problem that the US banks in the period did not have the capacity to branch out from other banks from other states, preventing them to share their supplies.
The issue of tax hikes and trade restrictions that influences the money flow. In terms of the tax hikes, the 1920s were considerably been possible due to the income tax cuts that was proposed by Treasury Secretary Andrew Mellon to reduce rates from 73 to 25%. However, the cuts had been a burden come 1929 when President Hoover signed the Revenue Act of 1932, increasing the tax of an American up to 63%. Roosevelt had also added his own tax hike on his election in 1932, imposing the individual rate of over 79%. States and local governments had also increased their taxes during the 1930s, affecting many Americans and businesses from improving their businesses. In the case of trade restriction, the Hoover presidency and up to the Roosevelt presidencies had ushered an increase in import tariffs, affecting international trade. Hoover had signed the Smoot-Hawley trade that increased import tariffs of over 59% to 25,000 products. The US had met enough opposition with the proposal as it added trade barriers for almost 60 nations . Aside from the tax and tariff rate increases, the Depression also continued in the US due to the increased prices under the National Industrial Recovery Act of 1933. In the 1933 Act, it would create cartels in 500 industries to remove or limit competition. Outputs were cut and businesses had been ordered to increase their prices, while those who cut their prices were sent to jail. Aside from the NIRA, the government had also introduced the Agricultural Adjustment Act of 1933, which restricted food production and keep the prices high. All excess products were destroyed or sent abroad, leading many Americans hungry as the government also destroyed extra regions that could produce food. Finally, the harsh policies on business, under the New Deal policies of Roosevelt, had also disabled the US from ending the Depression as it caused investment stagnation and harassed many businesses. Roosevelt alone had created 3,723 executive orders to ensure the end of “economic royalists”. Subsequently, it had disabled the country from standing up from the Depression .
Looking back at history, it could be concluded that the Great Depression showcased that even stronger nations such as the United States could also be under an economic decline that it would also find difficulty to overthrow. From an economic boom that could be attributed to the end of the First World War as the US became the world’s supplier, the US had instantly succumbed to its flawed economic policies and handling that had forced it to also experience Depression and find problems in resolving it. It did not help with the programs enforced by the presidencies in the period as it also served as a hindrance for recovery. With the identification of the causes and reasons for why the Depression existed and persisted for as long as it could, it is crucial now to dissect the scenarios to prevent a similar Depression in happening in this period.
Works Cited
Edwards, Chris. The Government and the Great Depression. Bulletin. Washington, D.C: CATO Institute, 2005. Print.
Greer, Thomas and Gavin Lewis. A Bried History of the Western World. Belmont: Thomson Wadsworth, 2005. Print.
McNeese, Tim. The Great Depression, 1929-1940. New York: Chelsea House, 2010. Print.
