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. 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 ise. 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. 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. billion had been loaned but in 1932 there was only approximately $5. 75 billion in circulation. 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” Wall Street itself denounced him, they may not have believed him or they simply feared for their profits.
Intervention from the government could still have been effective as then Wall Street wouldn’t be able to merely dismiss his claims and when a group of bankers tried to rectify the crash by buying up estimates of $90 million worth of stock there would likely have been more support Hoover had won the 1928 Election with ease over democrat Al Smith as the previous two Republican Party presidents had created a very prosperous America, less than eight months after he had taken office however the Wall Street Crash occurred. Initially Hoover underestimated the crash and issued this statement “While the crash only took place six months ago, I am onvinced we have now passed through the worst — and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us”. What Hoover failed to realise was that this crash was unlike any other economic downfall. He struggled to combat it with his economic policy. In a book published in 1979 historian, David Keith Adams, wrote “He (Hoover) was a good man, but clung to the traditional American beliefs of individualism and as ever, a laissez faire government.
He continued to believe in private charity. However, the facts were that in Illinois, for example, the Red Cross could, by 1931 provide only 75 cents a week for hungry families. The situation had developed far beyond the ability of a private charity to cope”. Hoovers first action was to secure American jobs as the Crash destroyed many businesses and as a result made thousands of workers redundant. Hoover issued orders to drive immigrants out of the country in 1929, something that has mostly been forgotten about now.
Figures show that Unemployment was still an issue as in 1930 unemployment had still risen from 8. 7% to 15. 8% and so despite Hoover’s attempts, it seems as though it was mostly in vain. Hoover then tried something that until then no president had done; he tried to create public work schemes. This surely shows us the extent to which Hoover was prepared to go to in order to help end the downward economic spiral. For the first time, a president was taking an active roll in America, it may not have been much, but it was a start.
Some people took the strain off Hoover, such as Henry Ford in 1931 with statements such as “The Average man won’t really do a days work unless he is caught and can’t get out of it. There is plenty of work to do – If people would do it”. Hoover was clearly trying, but trying doesn’t quite cut it. Hoover wanted to help the American economy to recover by encouraging American businesses to work together; he did this by passing the Smoot-Hawley Tariff in 1930, an improved version of the Fordney-McCumber tariff.
This meant that American Businesses had to buy from American Suppliers so as to continue making a profit; it also meant that other countries could no longer sell as much produce to America, one of the worlds largest consumers. Other countries were of course suffering in the same depression which was worsened for them by the effects of the First World War. As a result of this other countries began to pass tariffs of their own, this reduced international trade on a global level and severely worsened the depression, something that Hoover hadn’t intended for. America had suddenly become a very nationalist country.
He redeemed himself slightly by asking to halt reparations of the First World War between Germany and France for a year, he also wanted to halt allied war debts to America, and this became the Hoover Moratorium. By doing this, Hoover helped the European countries for a brief period of time, although it could never have ended the global depression. We see Hoover’s downside once more when he puts forward a plan to banks to set aside a reasonable amount of money to lend to smaller banks in order to help keep them stable, he named this the NCC (National Credit Corporation).
Rather than forcing the banks to do this, which most likely would have helped create stability, even if only slightly, Hoover suggested that they voluntarily do this. His Laissez-faire style attitude had again stopped him from really doing something useful. The bankers, while they did create a pool of money, rarely gave any without taking the smaller banks largest assets as collateral. Unemployment was found all over the globe, it had reached record levels of 23. 6% in 1932. This mass unemployment was in part created by the tariffs imposed by Hoover.
Countries that had taken out loans from American bankers following the First World War now began to struggle obtaining enough currency to pay back what they owe once again as the Hoover Moratorium had now ended with no permanent alternate plan to take its place. By this point Hoover had been branded as incompetent by the general public of America, thousands of victims of the Wall Street Crash were left homeless, they began to call their new places of refuge ( Which were anything but a refuge, often made up of wood and cardboard from rubbish dumps ) ‘Hoovervilles'.
Hoover combated this with another quite bold action, again showing that he was trying. He convinced congress to pass the Federal Home Loan Bank Act. Its aim was to create new housing and to reduce foreclosures by lending money in order to finance mortgages. It worked reasonably well as there were fewer foreclosures after. This act came too late in his presidency however, it could not right the wrongs which he had already made or was associated with. The Republican Party had changed greatly under Hoover.
Before he was made president, tax was severely cut for the rich and poor by one Andrew Mellon, the Secretary of the Treasury. This tax cut decreased federal income but still gave the government an amount of $87. 8 billion in 1929. By 1932 because of the collapse in industry and jobs this figure had fallen to $42. 5 billion. Under Hoover’s rule, congress passed the 1932 Revenue Act to increase the tax to better reflect the current economy. It was the largest tax increase that America had faced, increasing taxation on all citizens, top income tax figures had now raised from 25% to 63%.
This allowed for the federal government to have a more active approach as they now had a lot more money at their disposal. An active approach is exactly what they went for with the Emergency Relief and Construction Act and the Reconstruction Finance Corporation, some of the boldest actions that Hoover had taken. While at the time he was criticized by opponents like Roosevelt who complained about the amount of spending Hoover had been doing “I accuse the present Administration of being the greatest spending Administration in peace time in all our history”.
Roosevelt was very hypocritical of this; as he went on to spend a considerable amount more. Hoover’s Reconstruction Finance Corporation was adopted along with many of his views forming part of the famous New Deal which eventually saw America through the Great Depression with the help of another World War. From the information presented here I think it is clear to see that the Republicans did make quite a few matters worse and so I do believe they were ‘mainly’ responsible, more so than other factors mentioned.
I recognise that they inherited a troubled economy but history shows us that they failed to take the right course of action to avoid the collapse or minimize its impact. I think that the collapse was as a result of poor decision making by both politicians and bankers and there was no single major catalyst. For example, bankers demanded their loans be repaid when there were no funds to repay, there were no funds to repay due to the increased tariffs on imported goods and this was only passed by Hoover to stimulate purchases within America.