Evaluate For The Collapse In Us Economy From Essay Example

Many products, like cars, were one-sale items which meant that once bought there was no reason for another purchase. More and more people were reluctant to buy non-essential goods, and as a result this caused corruption of many industries.

For example, the tailing demand for the Model-T resulted in less demand for other products, like rubber, steel or glass. By 1927 7% of the workers were employed by motor industry, so the falling demanded largely contributed to rising unemployment. There was also less demand for products like cotton and coal, which started to be replaced by modern materials and machinery. The biggest overproduction was visible in the agriculture sector.

Howard Zinn supports the idea that overproduction was directly linked to the fall of the market. However he also states that it was actually unequal distribution of wealth which caused the collapse of the market. New successful businesses were largely set up in the north, whereas the traditional farms were in operation in the south of the country.Overproduction caused huge losses for the agriculture; however they were mostly affecting the south. During WWI farmers were encouraged to produce food which was to be supplied soldier. However once Treaty of Versailles was signed, there were large quantities of surplus food which could not be sold at profitable price.

In addition the introduction of Prohibition meant that there was less need for grain, hence farmers had more products left over. The introduction of tractors led to improved farming methods and even more food being produced. During the 20s 30% of the population lived in rural America and their income was based on farming, hence was there was less

demand for their products more and more people were becoming unemployed, which consequently resulted in people having less money to spend and invest in the market. Had the new firms and organizations were more evenly spread out, it would have been possible that less people would have been working on farm and less surplus food wood have been produced, which would not have caused as much economic problems. Although overproduction of food as well as other goods contributed to the collapse of the economy in 1929, it was not the most important factor, as it was largely depended on the influence of the government and credits which initially made the "boom" possible.

Zinn who favours the Marxist interpretation of the causes, was also an active socialist, hence his view of the period might not take into consideration other factors.It was the lack of regulation and support from the republican government at the time which was highly responsible for the crash in October. The government failed to protect agricultural interests which resulted in overproduction. The government was responsible for initial production of extra food during the war, however once it finished it did not compensate farmers' losses. The government ineffectively tried to introduce regulation which would help agriculture.

In 1921 Emergency Tariff Act and 1922 Fordney-McCumber Act placed high tariffs on food imports, which in theory was meant to help farmers sells their surplus. However, foreign countries retaliated and put high tariffs on American exports, the farmers were not able to sell their food abroad. Government favoured bigger businesses and encouraged farms to co-operate to produce, however although this might have helped larger farms it had

little benefit for traditional agricultural workers. In addition, the government was just not responsible for the overproduction but also the other failing aspects of the economy.

The government did not want to be involved in the ordinary lives of American citizens and people care for their own needs, instead for providing necessary security.Often governmental advisors' vision of the economy was outdated and unable the approaching crisis. The country was in a state of continual optimism, and even those who suggested that a crash was inevitable, were not listen to by the government which promoted confidence in the marker. Government did not take enough steps to ensure effective protection for American citizens. .Economic historians, like JK Galbraith, support this view and argue that the republicans were mishandling the economy.

The government allowed banks too much freedom and had no real way of controlling the transactions that took place. As a result the authorities had a limited idea of what was happening in the economy. The government also took some fatal steps, like introducing the Daws plan in 1924and Young plan 1929 which reduced the amount of reparations that Germany had to pay back. As result less money was being pumped back to America. Lack of effective government actions is the most significant reason for the collapse of the economy, because it failed to solve many problems and caused new ones, which also had damaging effects on the economy.The set up of the backing system and the new availability of loans fueled the increase of the value of the stock market, but at the same time also contributed to its collapse.

Although the government was partially responsible

for regulating the system, a Federal Reserve board was set up which was to ensure efficient control of the transactions. The setup of the banking finances was flawed. The federal banks were joined together and prepared to support each other in a crisis; however the smaller state banks, used by the majority of the population, did not co-operate. As a result, after the collapse of the market the smaller banks were unable to help out average people. Moreover, banks gave the average population the chance to buy products on credit, which dramatically encouraged the hire-purchase schemes. The available credit was also used to buy shares on the market, and as result speculation was encouraged.

Average citizens started buying on the margin and using credit to pay for their speculated shares. Also small companies participated in speculation; large firms such as Bethlehem Steel invested over $200 million in shares. People wanted to make a quick profit, and the widely available credits made this possibility available.This resulted in a fragile prosperity to build up and an overestimated value of the economy. As proposed by Tindall and Shi banks offering credit as well as misguided optimism in the country was responsible for the crash of the market. The "get rich quick" schemes helped to quickly raise the clientele of the stock market, however once banks started to realize they need to recover the lent money, previous stock owners were desperate to sell their shares in order to pay back the loans.

This created a vicious circle as more and more people started to sell causing there to be less potential customers. The banks did not rule themselves effectively;

if the Federal Reserve board had taken more action it could have been able to prevent the collapse, or at least reduce its scale. The banks were also responsible for available credit which was linked with companies overestimating customers and overproducing. Although the banks themselves are to be blamed for the failure of the economy, the republican government was more responsible.

Its regulations favoured big businesses and to an extent permitted their growth without any control, hence it was a more important reason for failure of the economy than overproduction. The government chose not to involve itself with private matters and enforce more control over the banking system or help agriculture.Hoover, who won the presidential election in 1928, contributed partially to the events of October 1929. Throughout his presidency, he encouraged voluntarism as a way to improve private lives. Hoover recognized the issues of unemployment and poverty as state matter and did not think it was the Federal government's responsibility to improve them.

In addition, Hoover was very positive about the economy, which spread false optimism among the nation. Despite various warnings he continued to pursue encouragement of investment in the stock market. He was not successful in solving America's serious problems, like overproduction or unemployment. It is often inaccurately stated that Hoover did nothing to stop the depression, in reality the president made attempts to help, however his policies were just insufficient. As suggested by Clements, Hoover worked without rest to combat the Great Depression, he was still blamed for the tragedy.

The public felt that despite his intervening in the economy he did not achieve enough government help for the people. His reconstructive

finance in 1932 aimed to create public work schemes by using state money, but his legislation was a permissive one. As a result it was more of a suggestion rather than an obligation to help the public, hence having a limited effect. Had the government taken a more direct role the conditions could have been improved quicker.Parrish is also another historian that supports the idea that Hoover made the matters worse.

In 1930 he introduced another tariff, however that did not have much impact on the economy either. The Smoot- Hawley Tariff Act raised the prices of imported European good to America, which was also intended to help sell American food abroad. However, this proved insufficient as the Depression was spreading through Europe, and many countries could not afford the new goods, and increased tariffs on American goods, which worsened international trade. However, Hoover can not be completely blamed for the collapse of the economy. There were many aspects of the situation, which were beyond his control, as pointed out by Clements, such as the debt of European countries after WWI, and the reluctance of foreign markets to purchase American goods.

Although his policies were not as helpful, as they were intended to be, Hoover tried to adapt his thinking and help the economy. At the same time, he should be blamed for the lack of regulations over the banking system, which was spiraling out of control, and creating more effective solutions to America's problems. Hoover failed to effectively address the question of overproduction. Therefore, Hoover's actions had two different sides to them, they were intending to help but at the same time were an

important reason for the collapse of the economy in 1929.Overall, historical evidence presents us with various reasons for the crash in October. Although some historians agree that overproduction was an important reason for the collapse of the economy, it was the lack of effective governmental control which was more crucial.

Even though, overproduction was a serious problem, it was dependent on other factors, hence making it less important. As argued by Tindal and Shi, as well as JK Galbraith government misguided the population about the state of the economy and allowed banks too much freedom, which led to to other problems. Had the government introduced more regulations for the banking system, the rapid raise of use of the hire-purchase scheme would not have been possible, and overproduction would not have been encouraged so extensively. In addition, if less credit, allowed by government, was offered by the banks, less people would have bought on the margin and the value of the economy would have been more accurate. This demonstrates that although numerous aspects contributed to collapse of the economy, the involvement of government, or perhaps the lack of it, was at the centre of it all, making it the most important reason.