How Far Were the Economic Policies of the Republican Government Mainly Responsible for the Collapse of 1929-33?

Topics: Great Depression, Wall Street Crash of 1929, Herbert Hoover Pages: 7 (2370 words) Published: March 22, 2011
From 1921 and throughout the 1920's, the Republican party were in power. This period of time was known as the 'roaring twenties' due to the huge economic growth that America was facing, it was by not interfering that the Republican Party achieved this level of success. They believed in a laissez-faire style of government and rugged individualism which meant that they didn't interfere and thought everyone could succeed in life without their intervention. Many believe that this lack of interference was the main cause of the great depression, also known as the Wall Street Crash.

As a party that favoured this style of government they favoured low taxes on the rich and minimal regulation. This was ideal for the rich businessmen; they were left to make their fortunes without any interference. The increase in successful businesses at this time led to an increase of people investing in the stock market. The majority of investors were already rich and powerful people. With the introduction of buying on margin ( Buying with credit ) however allowed many more ordinary people to take part. This created an economic boom and is one of the main reasons for the decade being known as the roaring twenties. Thousands of people were trying to get rich quick and many were succeeding leading to a huge increase in wealth, this increase in wealth combined with the 'Fordney-McCumber Tariff' ( Passed by former Republican President, Warren Harding in 1922 ) which placed a high tax on imported goods, led to more goods being bought within America and increasing economic nationalism. This was very helpful for American businesses but made trading to and from other countries harder and is arguably another cause or contributor of the great depression, too much of America's growth was coming from the stock market. Unfortunately the boom in the purchase of consumer goods such as radios and cars amongst other things was not sustainable. Such luxury goods were bought once and repeat purchases did not occur for many years.

The Wall Street Crash was and still is the biggest economic crash that America has faced, in 1929 the national income was $87 billion, by 1933, it had fallen to $40 billion[1]. It was due to the increase in inexperienced buyers that the crash was so devastating. The stock market can only exist at such a high level if everyone has confidence that prices will continue to rise.

The real reason for the crash was that people lost confidence in the market when an unusually high amount of stocks were being sold on by well known large brokers, at that point people began to panic and soon everyone was desperately trying to sell their shares. Prices plummeted and investors lost up to 86% of their money[2]. After realization of how much money they had lost, stock brokers started to limit spending and banks began to call in loans, which could not be repaid as most of the money passed in the stock market was on credit, over $8.5 billion had been loaned[3] but in 1932 there was only approximately $5.75 billion in circulation[4]. Many banks also went bankrupt leading to a wide scale withdrawal of money, which only worsened things as then more banks became bankrupt.

It could be argued that the Republican Party were mainly responsible for the economic collapse because they did not regulate the economy. The banks should also share the blame because of their policy to lend money freely to investors and stock brokers. Under the republican belief of rugged individualism it was entirely possible for the bankers to have regulated this investment themselves. While the majority of people had no idea of the impending economic crisis, some had already anticipated the crash and in fact warned Bankers, people such as Roger Babson who in September of 1929 said “Sooner or later, a crash is coming and it may be terrific”[5] Wall Street itself denounced him, they may not have believed him or they simply feared for their profits. Intervention from the government...
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