The Wall Street crash was responsible for the depression of the early 1930s Essay Example for Free

The Wall Street crash was responsible for the depression of the early 1930s Essay How far do you agree with the view that the Wall Street crash was responsible for the depression of the early 1930s? The Wall Street Crash was certainly a major factor in the depression of the early 1930s, as said in source 3, setting off a devastating economic collapse. However, it was not the sole reason for the depression but only a segment. The economy was rotten well before the Crash in areas such as agriculture, industry and the banking system which had far more significant consequences. The Wall Street crash was certainly responsible, to a certain degree, for the economic downturn which brought USA to its knees through the 1930s. The frenzy of unregulated speculation which had fuelled the huge stock market bubble, with stock prices far outrunning economic growth, had burst. When panic selling began investor anxious to minimize losses sold as fast as possible. This quickened the fall in share prices. As stock values plummeted with industrial stock falling by 50 per cent between September and November 1929, business confidence evaporated. The lenders, often including large banks, which had been fuelling the boom, called in their money and the market collapsed. When people werent able to repay loans to fragile banks, which lacked sufficient reserves, bankruptcies and bank failures multiplied. However, as the accredited Historian David Reynolds states; In itself the stock market crash of October 1929 was not decisive, in any case only about 1% of the population owned securities in 1929. The importance of the stock market crash was that it showed an economic future which was uncertain. As a result millions of Americans cut back on spending and new debts which caused a massive contraction in the economy as a whole, as Aggregate demand dwindled. 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.