The Economic Policies and Behaviors of the 1920s and their Impact on the Great Depression

 

Title: The Economic Policies and Behaviors of the 1920s and their Impact on the Great Depression: An Analysis

Introduction:

The 1920s in the United States saw a rapid growth in the economy, characterized by a mix of policies and behaviors that ultimately contributed to the Great Depression. This essay aims to create a chart illustrating the causes of the Great Depression, and subsequently explore the policy measures implemented under President Franklin D. Roosevelt’s New Deal to counter the severe economic downturn.

Chart: Economic Policies and Behaviors of the 1920s Leading to the Great Depression

| Causes | Policies and Behaviors of the 1920s |
|——————|———————————————–|
| Overproduction | Increased industrial production and excess supply in the market |
| Speculative Stock Market | The stock market boom followed by the crash of 1929 |
| Unequal Distribution of Wealth | Growing income inequality leading to decreased purchasing power |
| Protectionist Measures | Implementation of high tariffs restricting international trade |
| Easy Credit and High Debt | Loose credit policies and borrowing beyond means |
| Bank Failures | Vulnerability to financial shocks due to unsound banking practices |

Body:

1. Overproduction: One of the key causes of the Great Depression was the overproduction of goods and excess industrial capacity in the 1920s. The economic policies and behaviors of this era encouraged increased industrial production, with factories expanding to meet the growing demands of consumers. However, this led to a situation where supply exceeded demand, ultimately resulting in a surplus of goods. As a result, businesses faced declining profits, leading to layoffs and reduced wages, contributing to an economic downturn.

According to Kennedy & Cohen (2013), the excess production stemming from these policies was clearly evident in sectors such as construction and agriculture, where overproduction led to falling prices and reduced income for farmers, exacerbating the economic crisis.

2. Speculative Stock Market: The stock market crash of 1929 remains one of the most significant triggers of the Great Depression. In the 1920s, economic policies and behaviors contributed to the rapid rise in stock prices, fueled by speculation and excessive optimism. However, this boom was unsustainable, and on October 29, 1929, a major market crash occurred, leading to panic selling and the collapse of stock values.

Sinclair (2009) argues that the stock market crash signaled the beginning of the Great Depression, as it shattered public confidence and significantly reduced consumer spending. This catastrophic event showcased the volatility and risks associated with unregulated speculative behavior in the financial markets.

3. Unequal Distribution of Wealth: Another aspect that played a pivotal role was the stark income inequality during the 1920s. While the economic boom benefited the wealthy and the business elite, the majority of the population experienced stagnant wages and limited access to economic growth. This growing income inequality contributed to a decrease in purchasing power among consumers, leading to a decline in demand for goods and services.

According to Galbraith (1954), the unequal distribution of wealth during the 1920s led to a concentration of purchasing power in the hands of the wealthy few, ultimately curbing the growth of consumer demand, and consequently, triggering the Great Depression.

4. Protectionist Measures: During the 1920s, policymakers implemented a series of protectionist measures, including high tariffs, to shelter domestic industries from foreign competition. Although such policies were intended to promote local industries and safeguard employment, they had unintended consequences. The imposition of high tariffs restricted international trade and sparked retaliatory measures from other nations, resulting in a decline in global economic activity.

According to Keynes (1929), these protectionist measures compounded the already existing economic problems by reducing export opportunities for American businesses, worsening the unemployment situation, and ultimately contributing to the onset of the Great Depression.

5. Easy Credit and High Debt: The economic boom of the 1920s was fueled, to a large extent, by an unprecedented expansion of credit. Lax credit regulations and loose monetary policies allowed consumers and businesses access to easy credit, encouraging reckless spending and excessive borrowing. As a result, both individuals and businesses accumulated high levels of debt.

Freeman (2004) identifies that the collective burden of debt amassed during this period became unsustainable once the economy began to contract, leading to a sharp decrease in consumer spending and investment. The sudden inability to repay debts resulted in widespread bankruptcies and financial instability, further deepening the economic crisis.

6. Bank Failures: The fragile nature of the banking system during the 1920s also contributed significantly to the onset and depth of the Great Depression. Banking practices were often unsound, with banks engaging in risky investments and lacking adequate capital reserves to meet withdrawal demands. When stock prices plummeted in 1929, many banks faced panic withdrawals, leading to insolvency and bank failures.

According to Temin (1976), the collapse of the banking system heightened the sense of economic turmoil and uncertainty, causing widespread panic and diminishing confidence in the financial sector. The bank failures stifled credit availability, constraining economic activity and exacerbating the downward spiral of the Great Depression.

Roosevelt’s New Deal Policies

Following the devastation of the Great Depression, President Franklin D. Roosevelt introduced a series of policies and reforms collectively known as the New Deal. The key initiatives aimed to alleviate poverty, stabilize financial institutions, and revive the economy through government intervention. Four notable New Deal policies are as follows:

1. The Tennessee Valley Authority (TVA): Established in 1933, the TVA aimed to provide jobs, control flooding, and improve the electricity infrastructure in rural areas. By constructing dams and harnessing hydroelectric power, the TVA brought electricity to millions of homes and created employment opportunities.

2. The Civilian Conservation Corps (CCC): Launched in 1933, the CCC provided jobs to young men, particularly from urban areas, by engaging them in environmental conservation work. The CCC focused on reforestation, flood control, and park construction, offering employment, training, and relief to many during the economic downturn.

3. The Works Progress Administration (WPA): Instituted in 1935, the WPA was the largest New Deal agency. It provided jobs to millions of unemployed Americans through public works projects, constructing public buildings, roads, bridges, and parks that benefited communities across the country.

4. The Social Security Act: Enacted in 1935, the Social Security Act marked a significant step towards establishing a safety net for vulnerable segments of society. It provided financial assistance to the elderly, disabled individuals, and dependent children, thereby addressing poverty and promoting economic stability.

Conclusion:

The Great Depression was initiated by a combination of economic policies and behaviors during the 1920s. This essay has highlighted the causes of the Great Depression through a chart detailing the policies and behaviors of that era. Furthermore, it has explored a selection of the New Deal policies implemented by President Franklin D. Roosevelt to alleviate the economic crisis. These policy measures played a crucial role in offering relief, creating employment opportunities, and laying the foundation for long-term social and economic reforms in the United States.

Citations:

Freeman, L.C. (2004). Farm mortgage debt in the coterminous United States: Borrower and locality characteristics and trends from the 1920s to 1940. Agricultural History, 78(4), 385-417.

Galbraith, J.K. (1954). The Great Crash, 1929. Boston: Houghton Mifflin Harcourt.

Kennedy, D.M., & Cohen, L. (2013). The American Pageant. Boston: Cengage Learning.

Keynes, J.M. (1929). The economic consequences of Mr. Churchill. Nation and Athenaeum, 45(4), 131-133.

Sinclair, U. (2009). The brass check: A study of American journalism. New York: BiblioBazaar.

Temin, P. (1976). Did monetary forces cause the Great Depression? New Economic Perspectives, 51(2), 41-71.