Multiple factors caused the Great Depression of the 1930s.
In no particular order:
1) Federal Reserve, at Hoover's request, deliberately crashed the US stock market in order to curb speculation, by reducing money flow and raising interest rates.
2) Congress, in a protectionist mode, imposed draconian international tariffs, as high as 50% on imported goods, strangling globalization.
3) Congress, in a further protectionist mode, imposed strict limits on immigration, cutting off influx of new immigrants.
4) Allies imposed draconian reparations on Germany for starting and losing WWI. (BTW, Hjalmar Schacht, the German version of Fed chief, deliberately crashed the German stock market in 1927), leading to the collapse of the German economy, the second (or third) strongest in the world.
5) Terrible Mississippi River flood of 1927 devastated the economy of the South.
6) Terrible drought devastated the economy of the Midwest.
7) Speculation in farm land during WWI led to a collapse in land prices that was never overcome in some places, devastating small banks all over the rural US.
8) World banks went off the Gold Exchange Standard during WWI, agreed to go back in mid to late 1920s, but attempted to go back to pre-war parity which was a grave mistake. If you study the history of the Great Depression, only nations on the Gold Exchange Standard suffered, not countries on silver standard (China, India), and every country eventually jettisoned the Gold Exchange Standard and got out of depression immediately.
9) Prohibition, total ban of alcohol sale and consumption.
10) Congress raised taxes.
11) Once the depression started, Congress and Hoover decided to maintain wages and by ordering employers to keep wages high and prices high, rather than let the free market work.
Bottom line: when faced with a recession, don't simultaneously raise taxes, raise interest rates, raise wages, reduce money flow, raise tariffs, reduce the free flow of capital, impose unrealistic and unreasonable foreign exchange rates, reduce the free flow of labor. And never, never, never, never deliberately crash the Stock Market to curb speculation.
Duh. |
