Essay: The Great Depression: What was its cause?

The Great Depression was arguably the lowest point of the history of the United States. Between 1929 and 1940, unemployment skyrocketed to near 1 in 4 individuals being unemployed, and the GDP of America was nearly halved to that of a third-world nation. The Depression marked the conclusion of American prosperity, wealth, and economic stability from the Roaring Twenties, during which the Stock Market had underwent rapid expansion to a tremendously high peak, albeit being in an unstable position. Prior to the Depression, America experienced prominent overproduction, especially in agriculture, coupled with decreasing consumption. Moreover, investment into the Stock Market had existed on a large scale, and the practice of buying on credit became commonplace. Many arguments of the Depression’s causes point directly to the American economy and problems that existed in its structure, yet this is not the full picture. The overall cause of the Great Depression can only be attributed to the American government, by its intervention and regulation, or lack thereof, of the national economy. The American government had not interfered in the extremely volatile banking structure, nor into the disparities in wealth distribution. Moreover, America’s attempt to intervene with the passing of new tariffs on imports ultimately worsened the Great Depression instead of improving conditions. As such, the American government solely caused the Great Depression to occur.
The American government undoubtedly caused the Great Depression because of its lack of interference into the American banking system and structure. Document L states that, “The banking structure was inherently weak. The weakness was … in the large number of independent (banks). When one bank failed, the assets of others were frozen while depositors elsewhere had a … warning to go and ask for their money.” This indicates that a chain reaction would be produced when one bank failed, in that one bank failure would cause numerous other bank failures. Ultimately, 11,000 of the nation’s 25,000 banks failed by 1933. As stated by Document L, “Such a banking system … had a … repressive effect on the spending of its depositors and the investment of its clients,” since the money deposited or invested into a bank could not be recovered after the bank failed. This produced financial instability in numerous individuals. Such a risk always existed with the banking system, yet the American government never interfered with the threats that bank failures posed to the American population. Leaving the problem unchecked until the Stock Market Crash of 1929 let the nation tumble into the Depression. As a result, the government’s lack of intervention into the banking system led to the Great Depression.
Additionally, the American government’s lack of intervention into the progression of wealth distribution disparities allowed the Great Depression to develop. Document K shows that in 1929, 60% of the population was at or under the poverty line ($2,000 at the time), and the wealthiest 5% of the population received about 33% of the national income. Such disparities in income encouraged the lower and middle classes to begin to purchase more and attempt to become richer, including buying more product on credit and investing into the stock market. For example, Document M writes that, “We, it seems, have abolished the business cycle; when people have bought all they can afford they go on buying, a little down and the rest in easy payments. … The bill will be all the larger when it finally has to be faced.” Moreover, Document G explains that, “By buying on margin…, the investor had to pay only a fraction of the quoted price of any particular security. … The margin buyer was particularly vulnerable to even a small decline in stock quotations.” The wealth disparities created a widespread use of buying stocks on margin, where individuals purchase stocks on credit by borrowing money from a stockbroker, who in turn borrows money from a bank. The practice of buying on margin indebted individuals rapidly. The Stock Market Crash of 1929 resulted in stock prices plummeting significantly, causing individuals to lose all of their financial investment, and still be indebted due to buying on margin. The root cause of such purchasing was the unequal wealth distribution, which the American government left unconstrained despite its blatancy and effects. Thus, the American government’s lack of intervention here allowed the development of the Great Depression.
Furthermore, the American government’s actions of intervening into the economy by adding tariffs on international imports had progressed and worsened the Great Depression. As shown in Document O, a political cartoon of the American Tariff Policy, the tariffs passed by Congress produced a blockade of products being imported from non-American businesses, and these tariffs may have isolated the American economy from international free trade. Such restrictions were passed with the intent to enforce American protectionism. However, these tariffs produced a backward effect on the American economy, as it distanced other nations from freely trading with America. According to Document P, “In 1930, neomercantilism (the attempt to export more than was imported, regardless of the long-run effect) was carried as far as it could … in the teeth of protests from thirty-four countries … The new law throttled world trade and brought a wave of retaliation from other countries.” The tariffs imposed by America caused other nations to respond against America with enforcement of their own tariffs on American imports. This decreased the amount of American exports being imported internationally, which in turn produced a lowered economic output of America. The better alternative would have been for America to increase their imports instead of exports, which would allow nations indebted to America from WWI to pay back their debts and deliver more money into America. However, America’s tariffs before and during the Great Depression worsened the national economy, so the government was responsible for the Great Depression to have occurred.
The American government ignored or worsened many problems that dragged the economy into the extreme trough of the business cycle that lasted for a whole decade and became the Great Depression. The banking system and the unequal wealth distribution were two major things that America did not consider revising prior to the Great Depression, and the unintended consequences of American tariffs on international imports worsened America’s economic status. Although multiple economic factors may have led to the Great Depression, the American government had let these problems exist unhindered prior to the Depression’s onset. These unrestricted problems devastated the American economy following the Stock Market Crash of 1929. America’s government played a passive role to the problems that cropped up, and were too late to revise them by the time the Depression began. Only when the government played a more active role in the economy, with the programs from the New Deal, did America progressively improve and pull itself out of the Depression.