It is certainly clear that poor health of American agriculture, which had been suffering through the 1920s and did not share in the boom, had much more responsibility for the economic depression compared to the Stock market crash. In 1929, American farmers’ annual income stood at an average of $273 a year, well below the national average of $750 and their hard times as well as lack of purchasing power was an important factor. The 1920s had been a period of overproduction which had driven down the price of agricultural produce; this problem was further exacerbated by the huge amounts of imports from countries such as Argentina. As, incomes fell, farmers fell behind with mortgage repayments and loans used to invest in new equipment. This was critical as much of this business had been done with ‘rural banks with limited capital’. Which were ‘highly vulnerable to sudden large-scale withdrawals or runs’. Due to hardship on the agricultural economy which had a direct impact on the rural banks, ‘almost 5000 collapsed between 1923 and 1930’. As stated in source 3, ‘Farmers, badly off to begin with, entered a new era of adversity’.
Though the adversity of farmers was an important in bringing about the banking crisis, it was only a trigger, there were much more fundamental flaws exposed by the depression. As stated in source 2, ‘at the 1920s there were 30,000 independent banks in existence in the United States’ which made the banking system fragile to the extreme. Unlike Great Britain, there had not been the consolidation of small banks into a few giants which could withstand an economic storm. Combined with the lack of federal regulation; were no federal deposits insurance system existed, the allowance of banks to make ‘purely speculative loans’ and hold ‘limited capital’ for security against shocks was an important element of the depression, and the severity of it.
Though the most important reason for the economic depression is linked to the Stock market, agriculture and the banking system; the role of the federal government. It was the failure of the Republican Administrations, who embraced a free-market laisse faire economic model, to effectively control an overheating economy which caused the catastrophic downturn seen in the 1930s. As shown by its failure to regulate the banks efficiently. Also The Federal Reserve Bank kept money tight when it should have encouraged spending to stimulate economic growth. It made it difficult to borrow by maintaining high interest rates. This forced banks to call in loans and sell assets to maintain liquidity, resulting in the price of property and shares to experience renewed falls. As stated in source 1, ‘the United states’ narrow-minded economic policies’ of protectionism, looking to secure American industries in the domestic market, ‘limited foreign markets that could be tapped’. The best example would be the Hawley smooth tariff act which effectively chocked off international trade. This is supported by source 3, which states, by the summer of 1932 imports and exports had dropped to only a third of 1929 levels. In essence the macroeconomic policies of Hoover, the president, and the republican administration were utter failures in stimulating the components of aggregate demand needed to combat the depression. Through its monetary policy of high interest rates, when low interest rates were need to encourage borrowing and spending; or its fiscal policy of rising taxes to pay for public spending, taking away money from consumers which needed to American goods for there to be growth.
In conclusion the Wall Street Crash certainly contributed to the economic depression, but as D. McCoy said, ‘it was more a trigger-one that was a symptom of deeper and more complicated causes’. He was referring to crippling state of American agriculture which left millions of Americans in poverty, the fundamental flaws of the banking system which collapsed when economic pressure was applied. However, the most important reason for the depression was the failure of the Republican government. To control an overheating economy, this now was trying to correct itself, with cataclysmic consequences for the economic welfare of the average American.