On the other hand, historians have argued that the causes of the depression within farming were long term. With the mass industrialisation of America following the Civil War it had been apparent for a long time that farming was going to eventually loose out as manpower and resources were being moved to big business. The way President Coolidge vetoed the McNary-Haugen bill in 1924 suggests that farming was perhaps not that important to him, because he did not want to sour foreign relations by dumping American food on them and he was also worried about the amount of admin involved in co-ordinating the work of thousands of businesses. The fact that the McNary-Haugen bill would not have probably helped the farmers is not of vital importance. It is the fact that Coolidge maintained his laissez-faire policy and did not do enough to help the farmers, further reducing their morale, that one should take from this bill. The fact that Coolidge’s government also introduced high trade tariffs to protect other industries, causing foreigners to retaliate with similar tariffs, left the farmers with nowhere to export their surplus and showed that Coolidge was more bothered about other industries than he was with farming. The way the farming industry had become so efficient since the introduction of the tractor in Illinois in 1889 and the improvements in crop fertilisers and animal husbandry meant that labour costs could be reduced and more could be produced for the same cost. This suggests that the farming industry was doomed to depression for a long time because of the way modernisation led to production outstripping demand (66% of farms operated at a loss during the 1920s).
Economic historians argue that the state of the construction industry is a good indicator as to the general strength of the economy. In the mid 1920s there was a rapid boom in the construction industry, particularly in housing, offices and highways. However, after 1926 demand began to tail off leading to a fall in demand for building materials, skills such as plumbing, and building materials transportation. This in turn led to higher unemployment in construction related businesses and had inevitable knock-on effects on other industries which depended on them. Economic experts have suggested that following such a boom a depression is inevitable, as is the cycle of economics (peaks and troughs), thus suggesting that the cause of the depression was largely short term because America expanded too quickly and the economy was unable to cope. The Harvard Economic Society stated in 1929 that it believed the slump was overdue. The ‘seven years of plenty’ were over and a period of economic depression was about to begin. By the end of that year they had been proved right. Moreover, historians such as Galbraith have said that the infrastructure of the American economy was not strong enough to support such rapid expansion.
Some historians have placed great emphasis on the way much of the boom was fuelled by “Get Rich Quick” schemes. Between the years of 1925 and 1929 many Americans went “Wall Street Crazy”. Shares could be bought “on the margin” and more and more people were buying shares as a short term speculation rather than as a long term investment in a company. The market value of all stocks catapulted from $27 billion in 1925 to a whopping great $87 billion by October 1929. Many share prices rose spectacularly such as the Radio Corporation of America whose shares went from 85 to 420 just in the course of 1928. This speculation relied almost solely on confidence, something which cannot last forever. Therefore speculators were bound to sell their shares when confidence dropped and share prices would fall catastrophically. This is what happened in the Wall Street Crash. Galbraith argued that the American economy relied too much on confidence and a belief that everybody could become rich. Obviously this optimism could not last forever and a depression was inevitable. This viewpoint could suggest that the causes of the depression were mainly short term in that a lot of people lost confidence very quickly following the fall in demand, incidents such as the Florida Land Boom and also the rise in unemployment following overproduction and the downfall of small business. Historians commonly agree that production was outstripping demand by the late 1920s and that this is in part due to the fact that most people had already got goods such as washing machines, radios, hoovers etc. It was also due to the fact that more and more people were not in a position to splash out on non essential items. Irving Fisher, a Yale economist estimated that in 1929, as many as 80% of Americans were living close to subsistence –even when they were in work.
A lot of historians have argued that this rapid investment in the stock market was allowed to happen only because of long term problems in the banking system. Because the banks weren’t regulated very tightly they were able to act in their own interest rather than in the interest of the economy. Banks offered very generous terms on loans and it was this which fuelled the wild speculation which led to the crash in 1929. The majority of banks were also very small and this meant that they were unable to withstand major setbacks. They were therefore quite susceptible to collapse if things were not going well and when this began to happen towards the end of the 1920s investors lost virtually all their savings because the banks couldn’t cope. When banks started to collapse it meant that confidence rapidly disappeared and therefore share prices began to fall, thus leading to depression. Historians have said that the high stock prices were false because of the way banks just gave credit (bank loans had reached $6 billion by the summer of 1929). The historian Paul Johnson stated that “The Everest of the 1929 stock market was a mountain of credit on a molehill of actual money.”
Some historians have placed more emphasis on the fact that wealth in America was unevenly distributed as a cause of the depression. Indeed wealth was largely centred in the North East and Midwest, with states such as Illinois, Michigan and Pennsylvania doing particularly well. In contrast, states in the south and the west had only sparse industrial development. The capita income for the south east was $365 compared to $921 in the north east. During 1924 the Lynds discovered that out of 165 families surveyed 72% had lost time due to unemployment. The situation for women was even worse with the number of females receiving a college education actually falling by 5% during the 1920s. By 1930 700,000 women were employed as domestic servants compared to only 150 female dentists and 100 women accountants. This is hardly the story of a true economic boom. It in fact highlights long term problems in the American economy showing that in many ways the economic situation had not really advanced since before the Civil War when the distribution of wealth was very similar. This long term, underlying problem was expressed very well by the economic historian George Soule who in 1947 said that in the twenties the rich were getting richer but although the poor were also getting richer it was at a much slower rate, thus making the problem of uneven distribution of wealth even worse.
A long term problem is the fact that old industries such as coal and cotton were generally experiencing hard times in the 1920s. The coal industry suffered new competition from more modern energy sources, most notably oil. The cotton industry also suffered because of modernisation with the introduction of synthetic fibres. The changes in young women’s fashion also meant that fewer textiles were needed to make clothes. This caused an increase in unemployment as the textile mills of the north could not compete in a shrinking market with the southern mills, which employed cheap labour and longer hours. The unemployment caused by the closure of mills further reduced confidence and helped lead to the depression.
In conclusion, the long term problems such as the overproduction in farming, the problems with the banking system, the uneven distribution of income and the decline of old industries are more important causes than the short term problems. The stock market would not have been able to rise so steeply had it not been for the way banks gave out credit so easily, causing confidence not to have got so high in the first place. If the income had not been so unevenly distributed then the short term loss of confidence which triggered the depression would perhaps not have happened so easily due to the fact that people’s financial situations would not have been so precarious. The short term factors were not as important because of the fact that they were results of the long term problems in America. One thing that is evident throughout this period is the fact that not many economists and politicians at the time knew enough about modern economies to predict the depression and maybe prevent it.
