What Lead to the American Great Depression in 1929 and the Impacts It Had

In this essay I will look into the Great Depression in the United States of America in the 1930’s. More specifically I will assess and discuss how America looked before the depression, how that lead to the Great Depression, and what was done by the two presidents, Herbert Hoover and Franklin D. Roosevelt, to end the Depression. I will answer the research question: “What were the long and short term causes of the Great Depression, and what caused it to last a decade?” by answering four sub-questions that altogether can lead me to an answer. The first, of the four sub-questions, is a descriptive question that sounds: “How did the USA look before Black Tuesday?”.

The second sub-question is: “What happened on Wall Street the day of the crash and the time after?”, it is a descriptive question as well. The third sub-question is analytical and is: “How did the Depression come around and how was it handled by the presidents?”. The fourth and last sub-question is: “Which causes were the greatest and why?”, which will be the discussion. The purpose of this essay is to refute that Black Tuesday and Hoover’s laissez-faire politics solely caused the Great Depression, which many believe today, and of course to determine what other causes were significant.

The Roaring Twenties

The roaring 20s is known as the time where Americans had the time of their lives with extravagant parties and exceptional living conditions. New technologies were developed and products like the radio were made available to the more ordinary people. The car industry was booming and in 1929 cars were so common that half of all America’s families owned one. In general America’s economy was flourishing in the 20s, the dollar became the most important currency in worldwide trade, they produced 85% of the world’s cars, and 40% of the whole world’s manufactured goods.

But the 20s were not all fun and play, for many Americans it meant taking huge loans to keep up with the new living standard that was found in the USA at the time. Almost everyone took out great loans in the banks whether it was farmers to afford the newest technology in farming or a city-man buying a washing machine for the household. And even though many took out loans it was far from everyone who could keep up with the living standard – about 40% of the American population lived in poverty. It was about one 5% of the wealthiest American citizens who owned more than 60% of the national income. It is clear to see that even though America’s economy thrived in general a lot of people were still stuck in poverty and without any of the glory of the so called roaring 20s.

The Wall Street Crash of 1929

The stock market crashed on October 24th, 1929 and just kept declining until the 29th. The stock market crashed for many reasons. For starters, many private people and firms hand taken out huge loans to buy stocks therefore increasing demand in stocks. Another thing that had been done in the 20s was making ‘buying stocks on the margin’ available to the common people. This meant that you could pay just 10 to 20% of the stock’s value and borrow the rest, which caused the prices of the stocks to go up as there were a higher demand. A third reason could be the belief that buying stocks would inevitably make you rich and again this made people buy more stocks hence the demand rose and so did the value of the stocks.

A fourth and very important factor was that at some point people had bought all the luxury items they needed, such as expensive cars, so demand fell on luxury items, causing production to fall, causing many companies to lose value, and thereby the stocks to lose value. The same happened in agriculture, supply was increased due to the effectiveness of the new technology, but demand did not rise at the same speed, causing prices to fall and many farmers’ incomes to drop. At last there was the weakness in the banking system with many smaller banks collapsing and the inflation in the USA. Altogether these things caused instability in the stock market and eventually the crash in late October 1929.

The aftermath of the crash

The crash immediately stopped the common belief amongst the American citizens that they could keep on spending, the confidence in the stock market, and in general in investing and taking out loans because now many Americans were left in huge debt or wiped out of business. This of course caused demand on all materialistic things to take a big dive and at the same time the supply to rise as never seen before – resulting in even more businesses going under, leaving more people without jobs. Because of this evil circle that was created many think that the crash solely caused the Depression but as author John Green said: “a) that isn’t true and b) it leads people to mistake correlation with cause”. Looking at the unemployment rate from 1929 to 1930 it will be noticeable that the unemployment rate rose, but also that it was four years after the crash that the unemployment rate was at its maximum point hence showing that something else must have happened, or not happened, since the great depression reached the level it did.

Herbert Hoover and laissez-faire

Herbert Hoover was the 31st president of the United States serving from March 1929 to March 1933. It is believed by many that Herbert Hoover was advocating for laissez-faire, meaning that he believed we should simply let the private companies control their own businesses free from the governments control by not putting for example regulations or tariffs, but that is not true. While Herbert Hoover might have failed in leading the country out of the beginning depression, and rather ended his presidency while the unemployment rate was at its absolute highest, he never failed to attempt. Herbert Hoover introduced several new acts throughout his presidency and discussed the matter many times to try and guide his people. On February the 3rd 1931 Hoover gave a statement on unemployment relief, saying: “It is solely a question of the best method by which hunger and cold shall be prevented. It is a question as to whether the American people on one hand will maintain the spirit of charity and mutual self-help”, showing Hoover’s belief in establishing a society with self-help and charity to get over the coming depression. “…should be constantly enforced that though the people support the Government, the Government should not support the people.”

Here again Hoover is stressing how the people need to be able to help themselves. Hoover later on backs up his idea by talking about the history of the USA: “The basis of successful relief in national distress is to mobilize and organize the infinite number of agencies of self-help in the community. That has been the American way of relieving distress among our own people and the country is successfully meeting its problem in the American way today.” Saying that there is no reason for the government to do all the work when in all other cases self-help has been a great solution. Hoover calling his way “the American way” really emphasizes that he believed in these ways as he had seen them work before but also that he wanted to do something and that he took pride in America.

On the 31st of May 1932, Hoover made a statement on the national economy again. In this statement, it is clear to see that he no longer believes that self-help is enough and he is stressing the importance of the government doing something, but also the hope and belief he has in the whole situation working out despite the horrible conditions. He says: “They do not realize that slow as our processes may be we are determined and have the resources to place the finances of the United States on an unassailable basis.” Here it shows his belief in America. When he says: “by failure of the Government to act.”, it shows that he is now taking the blame for the situation and admitting that his earlier ways were no good. He signed the Emergency Relief and Construction Act about a month later in July 1932 as his last act as president.

All in all, even though people believe that Hoover did not do anything that stopped the depression it is clear to see that Hoover tried to help but simply did not manage to due to not so smart ideas.

Franklin D. Roosevelt and the New Deal

Franklin Delano Roosevelt was the 32nd president, taking over office at the worst point of the depression: 1933. He held office for 12 years, ending his presidency the 12th of April 1945. Roosevelt is in many people’s eyes the hero who lead America out of the Great Depression with his New Deal, but the New Deal alone did not pull America out of the Depression. It is clear, Franklin D. Roosevelt was a good president with many great ideas on how to help the American economy, a man with visions for the future and great pride and belief in America. In his very first speech as President he addresses the great depression America has found itself in, but from the very beginning he is very enthusiastic and optimistic. In his first Inaugural address, he writes: “So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself (...) I am convinced that you will again give that support to leadership in these critical days.” Trying to convince the people that they can get over it, motivating them to believe in the country and him.

In a radio program Roosevelt talks to the people in so called Fireside Chats – he did a first one a week after being elected and then eight weeks after he made one about the progress during his first two months holding office, he continued to do these fireside chats throughout his whole presidency ending up with 30 in 1944. In the second one he made on the progress during the first two months, he, among other, talks about the ways he intend to bring the country back on track saying: “We are planning to ask the Congress for legislation to enable the Government to undertake public works, thus stimulating directly and indirectly the employment of many others in well-considered projects.” From here, the talk he goes on for minutes explaining what measures he is going to take / have already taken to end the depression.

Roosevelt introduced the New Deal in 1933 which was an improved and very much expanded version of Hoover’s Emergency Relief and Construction Act from the year before. Looking at the numbers on the Unemployment Rate, president Roosevelt’s New Deal was not immediately successful, even though it did help. In 1933 the unemployment rate was at 24.9% and it fell to 21.7% in 1934 but it was not before 1941 that the unemployment rate dropped under 10% - before that it had been going up or down with a couple of percentages every year. But in spite of the numbers not showing a huge difference Franklin Roosevelt and his wife Eleanor Roosevelt made a big difference for the citizens. Many citizens sent letters to them thanking them both for their speeches on the radio and for doing so much for America.

For example; a letter written to Eleanor Roosevelt by a woman named Marie C. Hurley, she writes: “I was so thrilled on listening to your two talks Tuesday night (…) I wish that Gods Blessing may go with you, to strengthen you in the great work you are doing.” Here it clearly shows that both mr. and mrs. Roosevelt connected with the citizens of America and were very beloved. Franklin D. Roosevelt did a lot to help end America’s Great Depression, his New Deal was the best act seen by far to stop the depression, and besides that Roosevelt managed to become an inspiration for the people, someone they could look up to and trust, he got the spirit back into the people which was also a very important part of getting out of the Great Depression.

What had the most significance?

The many causes of the Great Depression all had a great influence on how things turned out. All causes are certainly important to mention and take into account when trying to explain what happened with the great depression. There is of course the first obvious cause: The Wall Street stock market crash in 1929. The crash had great significance for the depression, but it was not responsible for it alone. The crash was more like the first domino to fall to start a motion of things to go wrong in America and its economy. What came after the crash showed the instability in America’s economy even more than the crash. All the bank failures proved that America’s economic glory was a short-sighted solution. Another great cause was the whole spending-mentality of the twenties. During the 20s, demand went so much up for everything, food as well as luxury items such as cars. As demand went up supply followed, resulting in many farmers and firms to invest in newer technology or expansion.

But at some point, demand went down but supply stayed the same as these farms and firms were now equipped to produce way more efficiently causing many farmers and firms to go out of business and be hugely indebted. Many different things caused the unemployment rate to steeply climb, another thing would be president Hoover’s lack of help. It is not that he did not try, but his ideas were simply not working out – as the government failed to help, the people just fell deeper and deeper into a hole of unemployment and terrible living conditions.

It is hard to determine one single cause to be the greatest cause of all causes as things are usually not that simple. To explain what happened it is necessary to take all of them into consideration and to understand that they were all a part of a chain reaction that could not be stopped. But even though it is not possible to name one single cause as the greatest cause, it is however possible to determine whether or not the specific cause could cause the depression on its own. The fact that Hoover was not the greatest president with the brightest ideas would not necessarily have caused the depression if it was not for all the other factors. Hoover was not the first president of the USA to not have the brightest ideas, he was simply the president in a time in the USA where having a bad president was a really bad thing. The crash could neither solely have caused the depression, because even though the crash was the spark that lighted the fire and got the chain reaction going, if America’s economy and banking system had been built in a more stable way, a stock market crash could not have caused a country to go into economic depression.

And the same goes for the attitude towards spending that was built during the 20s. Because even though the 20s’ attitude caused many people to take loans, spend more than they were supposed to, invest in expansion and so on without the unstable economy of America it would not have been such a huge problem. The American economy being the only cause of the depression is not realistic either and that is simple to prove by just looking at the 20s. The way the American economy worked was perfect as long as nothing went wrong, some might argue that it was inevitable that something went wrong, but there is no proof of this argument what so ever, and had America been able to avoid any crash or likewise their economy was great – being the world’s main supplier of material goods, the dollar being the most important currency on the trade market etc.

At the end of the day no cause is more significant than another. It could be argued that the stock market crash at Wall Street was the most significant cause as it was the first thing, of many, to go wrong in the American economy, eventually causing a depression – but the crash alone could not have caused the depression.

Conclusion

To conclude the research question: “What were the long- and short-term causes of the Great Depression, and what caused it to last a decade?”. The long-term causes of the Great Depression were the instability of the American economic and banking system as well as the toxic attitude that was built in the Americans’ minds during the 20s. The short-term causes were that the stock market on Wall Street crashed as well as the panic of the people when it crashed and many lost a great deal of money and ended up hugely indebted.

What caused the Great Depression to last for a decade was the government styles lead by first Herbert Hoover who interfered too little in the beginning, but as his very last act came up with an idea that was good just not elaborate enough and the second president Franklin D. Roosevelt managed to make progress with his New Deal – an expanded and improved version of Hoover’s last act: the Emergency Relief and Construction Act. Ultimately the causes of the Great Depression are highly complex and there are quite a few, but the main causes were the crash, the 20s attitude, the economic/banking system and the governments.