Another reason for concern was the initial fact that the banking structure was very fragile in the USA; the Governments policies of ‘Laissez-faire’ helped the banking system weaken. In actual fact Galbraith describes this as, “the weakness that was particularly significant in helping to ensure that the Crash was precipitated the Depression”. Many banks were small, ‘independent ventures’, and made profits from loaning money mainly on ‘easy credit’, which was often don’t by lending customer’s savings to customer’s, where both parties on the giving and receiving end could make a profit. However, when one bank fell victim to the economic slump, its assets were frozen along with depositors being denied access to their savings. As a single bank failed, a so called ‘domino effect’ would follow, in which one by one, other banks were devastatingly affected. Investors actually lost their money, aswell as Businesses and industries who lost huge investment assets, and as a result of the Great Depression could not avoid the adverse effects of bankruptcy.
Some sources are adamant that specific industries in the USA were suffering the effects from the depression in the 1920’s; these industries were strictly farming and cultivation. Throughout this decade food prices began to steadily drop, they dropped to the extent that 66% of farmers were working and farming at a loss.
However, before this, during the war years the prices of food rocketed up by 25%, infact, more land had to be used for agriculture purposes. However as the war died out and ended, production began to outstrip demand and consumption. This is certainly important as more than half of America’s population worked in farming and cultivation. Many sources put the blame of overproduction on the technological advances in farming.
This decade was certainly an era in which alot of change occurred, and therefore adjustments in different industries were completely necessary, which would obviously create problems. This relatively new ‘poverty’ is agued by some, as reflecting effects the changing times, and not as a sign of depression.
One example of how cultivation suffered was when the new prohibition laws were passed, this meant the grain trade suffered; this had to be accepted as a new era in which the farmers would have to eventually become accustomed to.
This depression in agriculture in its own right was not a major sign of a ‘general’ depression, but Doug/Susan Willoughby stated, “1927…regarded as the year in which storm clouds began to appear over the American economy.”, which argues that there were many other issues that could have caused the Great depression.
Joining the Farmers were the African-Americans, who suffered poverty before the Great Depression in 1929. George Schuyler, an African-American intellectual, commented during the Depression years that, “the reason the Depression didn’t have the impact on the Negro that it had on the whites was that Negroes had been in the Depression all the time”.
As unemployment was low in the USA before the Great Depression, people were earning money to survive comfortably, and infact record numbers of people had a disposable income. Many people seemed to borrow extra money on ‘easy credit’ but this seemed fine as most citizens had employment with a reasonable income.
J.K. Galbraith acknowledged three different types of purchasers of shares, all of these having one aim in common, wanting to ‘Get rich quick’ by any means necessary. However, historians agree solemnly that the trigger of the ‘bull market’ was the decision by the Federal Reserve Board to lower rediscount rates in August 1927, from 4% to 3.5%. This measure backfired as it was expected to increase American trade abroad, but it actually increased borrowing within the USA, which occurred because the financial community were over-confident in the strength of the economy.
‘Buying on the margin’ also became popular, with people paying only a fraction of the price to a broker, who in turn borrowed largely from banks to pay for the required shares. The customer would then expect to pay the money due, out of their ‘expected’ profits. Many didn’t think of consequences if they ended up with shares that had declined in value.
Wall Street Stockbroking firms began to open more and more offices up, in reality more than doubling this amount from 500 offices in 199, to a huge 1,192 in 1928. Also, these businesses were not localised in New York, but were a feature in all big cities. This is what made the actual Crash of the Stock Market affect people on such a wide scale.
It is said that the Construction industry fuelled the ‘roaring twenties’ and the ‘boom’. People began to move into the big cities because of the opportunities, as this increased more accommodation was required, so this cycle caused skyscrapers and high-rise buildings to arise in every big city. People relied on this mass amount of building to work and survive.
After 1925 the construction industry had been worth $5 billion, and by 1929 this had new decreased to $3 billion, one sources even declared that, “…the state of the construction industry is generally a good indicator of the overall health of the overall health of the economy” , this statement is significant as it mirrors the effects that occur after the construction industry declines.
Also, what fuelled the ‘boom’ was the automotive industry, which had particularly caused successes in Steel, rubber and glass; this caused terrible effects in addition to the deteriorating construction industry, this was obviously going to have bad knock on effects in the near future.
In 1927 overproduction became a major problem as the ‘boom’ gradually slowed down, ‘mass production’ can blamed for this as businesses copied Henry Fords methods of production. To counter overproduction, businesses began giving worker’s less hours, which in turn, caused workers, and majority of the country to have less money to spend, which soon lead to huge unemployment.. As the downward spiral continued, it became apparent that this had developed into a vicious circle. As a consequence of this vicious circle, the countless citizens involved in the stock market began the ‘panic selling of shares that brought America’s golden age of prosperity to a close’.
In conclusion, it is certainly not accurate to claim that the Great Depression was ‘well under way’ before 1929, despite the fact that the Agriculture, aswell as other areas of industry already suffering slumps in trade. A majority have agreed that Depression could not have been avoided as the Government stood by Laissez-faire politics, which provides no controls or protection for the economic structure that would allow the country and economy to thrive. In agreement to this John Hersch made a description about Governmental control, stating, “You had no Governmental control of margins…Anything went, and anything did go”.
http://en.wikipedia.org/wiki/Great_Depression#The_Stock_Market_crash
The USA 1917-45 – Doug/Susan Willoughby
The USA 1917-45 – Doug/Susan Willoughby
The USA – 1917-45- Doug/Susan Willoughby
The USA – 1917-45- Doug/Susan Willoughby
The USA – 1917-45- Doug/Susan Willoughby
Prosperity, Depression and the New Deal – Peter Clements
Prosperity, Depression and the New Deal – Peter Clements