For many Americans, the cause of the Great Depression can be linked directly to the stock market crash that took place on October 1929. However, this was only one many events that cumulated to create a decade long economic depression that gripped America. This single day known as Black Friday in America had global repercussions; countries all around the world encountered economic difficulties of their own. Yet it was the economic policies of Presidents Harding and Coolidge that started the decline. It would take Presidents Hoover and Roosevelt and the economy stimulated by the resolution of the Second World War before the America would start to improve.
During Warren Harding's presidency, the United States financed the recovery of many post World War I countries with credit issued by the United States. Harding worked together with other countries in the post war era yet it was with an eye towards increasing the exportation of American goods. He restricted immigration and opposed labor unions. However, Harding's administration was tainted with scandal and after his death his reputation worsened.
Upon Harding's death, his Vice President Calvin Coolidge became president in 1923. The new President's attitude toward government involvement in business changed. Due to his predecessor's many scandals, he adopted a minimalist oversight in his policies. He vetoed programs for government assistance while cutting taxes. He was a man of few words and developed a policy of minimal interference in business or state politics. This made Coolidge popular with his constituents, yet his laissez-faire attitude set the nation in a fragile state.1
The 1920s were a time of entertainment and indulgence for many Americans. The advent of installment loans for homes, automobiles and other luxuries created a society where if you wanted it, you financed it. The poor still remained poor and lived a transient lifestyle, moving where employment was available. Yet the middleclass wanted a higher standard of living and they were willing to use credit to obtain their wants. Installment plans were not only for the luxuries; Americans began to invest into the market. With minimal money down, financing and loans would take care of the rest. Investors would borrow from one creditor and to finance additional profits. The ability to buy and sale stocks rapidly created highly inflated stock values. This cycle of debt increased as the 1920s led into the new decade.
Yet after the World War I, the Federal Reserve was trying to maintain the value of the American dollar. For decades, gold had been the standard measure; but as more overseas money due to exporting of goods occurred, the economy became unbalanced. In the attempt to rebalance the value of money, the Federal Reserve limited money available to its member banks and the American economy. As a second intervention, interest rates were increased to try and maintain the strength of the dollar.2
The decreased funds available to member banks instigated fears among Americans that the banks were unstable. As interest rates increased, Americans were unable to pay back their loans. As loan payments climbed, the amount of money Americans were investing in banks declined. The cycle continued and bank failure become commonplace. 3
When the Stock Market crash occurred on October 29, 1929, consumer confidence was shaky. Stock prices had been fluctuating for weeks. Within hours, stock values drastically fell and the affect was felt worldwide. This single date was considered the catalyst for the Great Depression, but in no way could it be considered the lone cause.
(Picture from the Franklin D. Roosevelt Library, courtesy of the National Archives and Records Administration.)
Works Cited
1. www.whitehouse.gov/about/presidents.html; accessed 19 June, 2010; Internet
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