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The Great Depression






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The Great Depression was precipitated by the Wall Street crash of October 29,
1929. Panic selling wiped out millions off US stock values. This forced the closure
of US banks and had severe repercussions on the European economy as well. It
required government to bring about a recovery in the economy.
Republican Ascendancy and World Politics
Two terms of Democratic rule were followed by a long period of Republican
dominance. During this period of 12 years, 3 Presidents were elected: Warren G.
Hardinge, Calvin Coolidge and Herbert Hoover. The Republicans until 1931
controlled both houses of Congress. Consequently, a policy of isolationism and
laissez faire dominated the political arena during this period. The election of
1920 brought the Republican candidate Warren Hardinge to the Presidential
post. The Republicans also gained a majority in the house of the Congress. With
the War over the Americans wanted to go back to their normal lives.
The Washington Conference
One of the major achievements of the Hardinge foreign policy was the attempt to
reduce armaments. The Washington conference opened on November 12, 1921
under the chairmanship of Hughes, the Secretary of State. The conference was
summoned to address the questions of the Pacific and of the Far East, along with
issue of disarmament.
Nine countries attended this conference: the U.S., Britain, France, Italy, Holland,
Portugal, Belgium, China and Japan. At the inaugural address, Hughes declared
that the only way to disarm was to disarm and the right time for it was to begin at
once and not in the distant future. He went on to present a program of reducing
the naval strength of the major powers. All excess naval tonnage was to be
scrapped and no new ships were to be constructed for the next ten years.
After a lot of deliberation and bargaining, 5 powers i.e. the U.S., Britain, France,
Italy and Japan agreed to limit their naval strength in capital ships to the ratios
5:5:3:1.7:1.7. In other words, the Treaty left the U.S. and Great Britain with 15
ships, each of 525,000 tons, while Japan was left with 9 ships of 175,000 tons
each, and France and Italy could build ships upto 175,000 tons each. Further, the
total tonnage of aircraft carriers was also limited. This naval agreement made it
virtually impossible for any one of the 3 major naval powers to fight a war in the
Pacific alone.

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In this historic conference, 2 more significant treaties were signed. One of them
was signed by the four powers the U.S., Great Britain, France and Japan. This was
called the Four-Power Treaty. By this Treaty, the four powers agreed to respect
their mutual rights in their insular possessions in the Pacific. The 4 signatories
agreed to consult each other in case these possessions were threatened.
The Four-Power Treaty put an end to the Anglo-Japanese alliance.
Though the achievements of the Washington conference were widely applauded,
the conference had several limitations. Chief among them was that no agreement
was reached about smaller ships. Thus, the door was wide open for unrestricted
construction of small ships.
Republicanism at Home
While Isolationism was the main feature of the 1920s, it had grave consequences
on the economy of the country. Afraid of foreign competition the nation adhered
to a policy of protectionism. With support from farmers and businessmen, the
Congress dominated by Republicans, passed the Emergency Tariff Act in May
1921. Later in 1922, the Congress passed the Fordney-McCumber Act which
pushed the tariff rates up. Eight years later, Congress once again passed the
Smoot-Hawley Tariff in 1930. Amidst protests from economists, President
Hoover signed it. The Smoot-Hawley Tariff Act raised the tariffs to the highest in
American economic history.
In response to the U.S. tariffs, European countries also raised their tariffs. The
Tariff Acts in U.S. reflected the growing nationalism of the 1920s. Another symbol
of this post-war nationalism was the countrywide demand to restrict
immigration. After the war, a large number of foreigners came to America. To
check the influx of immigrants, the Congress introduced the quota system in the
Emergency Quota (1921).
Later in 1924, the Congress under President Coolidge passed the Immigration
Act to tighten immigration laws. The 1924 Immigration Act fixed national quotas
at 2% of the number of a nationality which had lived in the U.S. in 1890.
The Great Depression (1929 1939) is one of the most tragic events to have
occurred in American history.
The crash of 1929 was not the first Depression in the U.S. In fact the period from
the 1870s to the 1920 saw two major Depressions and several minor ones. The
1920s also began with a Depression in 1921. From 1923 onwards, business
boomed. So much so that this period was called the Golden Twenties. Most
people in the 20s could afford to buy automobiles, radios, build houses and even
visit Europe. In the 20s, the U.S. appeared to be extremely prosperous. Real
wages were one of the highest productivity per person increased by 30% and
there was plenty of capital around for investment.

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The Depression years set in with the stock market crash along with a slump in
farm prices. Ten of thousands of people lost their jobs. Production came to a
grinding halt, causing great agony and distress all over the country.
Panic of 1929
Several Americans in the stock market worked as speculators. They bought when
prices were low and sold when the prices shot up. The speculative demand for
stocks was mainly responsible for the stock market boom of the 1920s. Prices of
popular stocks rose to fantastic heights. Thousands of Americans entered the
stock market hoping to make a fortune. All of them dreamed of instant money.
Wall Street in the 20s had become a huge money-pumping machine. In other
words, America was in a speculating frenzy. Due to mass speculation, prices
touched dizzy heights and soon did not bear any relation to the actual
performance of the companies.
The Bankers too went along with the speculation madness. They granted loans to
brokers to finance the stock speculations. Though the Federal Reserve Bank
Board had powers to limit unbridled speculation, it did not take action until
March 1929. Finally, when it did try to check the speculation, it was too late.
Between June 1927 and September 1929, the price of stocks had shot up from
115 to 225 points. Then onwards the prices declined. Initially the fall was
gradual; later they began to fall at a greater speed so much so that Roger Babson,
an economist predicted: "Sooner or later a crash is coming, and it may be terrific
factories will be shut down...Men will be thrown out of work...the vicious circle
will get in full swing and the result will be a serious business Depression."
Several explanations and reasons are offered for the Great Depression of 1929.
But the main causes that led to the Depression in America were:
Over Production
The International Chamber of Commerce places the blame on overproduction.
The over expansion in industry, especially in the automobile industry, and
agriculture caused a fall in prices. Surplus goods piled up, having an adverse
effect on the economy.
Credit Policies
Another factor that led to Depression was the misuse of credit. The National
Association of Manufacturers confirms this. The imbalance in the economy was
mainly because of easy credit policies. Money was readily available and cheap. In
1927, the federal Reserve Board eased restrictions on credit. This resulted in the
increase of installment buying and uncontrolled speculation.
An unequal distribution of Purchasing Power
Governor Roosevelt's remarks explain this phenomenon: "Our basic trouble was
not an insufficiency of capital. It was an insufficient distribution of buying power.
While wages rose in many of our industries, they did not rise proportionately to
the reward to capital." For instance, 12 top executives in the tobacco industry
received a salary equal to the gross income of 30,000 tobacco farmers. A more

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