The Great Depression

The Great Depression was a dark time when jobs were scarce and taxes were high. It was a time of uncertainty; no one knew when things would finally turn around. Many have speculated that it was a failure in the free market that caused the Great Depression and that thanks to strong Government interference we made it out. This theory however is wrong.

The Great Depression started during Herbert Hoover’s Presidency. One of the biggest misperceptions is this thought that President Hoover had a laissez-faire economic stance. Hoover however did not have a hands-off economic policy. Hoover passed Smoot-Hawley Tariff in 1930 which greatly raised the tax placed on foreign goods. In turn this new tariff caused all Nations to close their borders to American goods. It started a trade war. This is far from laissez-faire economics. The cause of Hoover’s tariff was that most of the employees working in plants were without jobs. Farmers couldn’t sell their products either. This is one example of how it was not the free market but interference by Government that caused the Depression.

The Second President during the Great Depression was Franklin D. Roosevelt. To further prove the point that it is Government interference in economics that caused and maintained the Great Depression, we can take a look at the effects cause by this second administration. President Roosevelt left off right were Hoover started. He passed massive amounts of legislation which he called the New Deal. Rexford G. Tugwell, a member of Roosevelt’s brain-trust said “practically the whole New Deal was extrapolated from programs that Hoover started”. The New Deal was more Government control on the economy.

What came from this involvement? President Roosevelt called for a “banking holiday”. From March 6 to March 15 banks had to close their doors. After the holiday 5000 banks did not reopen until after the Depression and 2000 of those banks never reopened again. Roosevelt also had unit banking laws passed. Bank failures came only in states where this heavy regulation occurred. In Canada where banks were not being regulated there were no bank failures.

Roosevelt had blanket minimal wages. These minimal wages put thousands of people out of work. The black communities were hit the hardest as unemployment continually went up. The Government started paying farmers not to farm but to burn their crops and slaughter their animals. This was done to try to raise prices that were thrown off due to the devastation left from the Smoot-Hawley Tariff and others like it.

Roosevelt placed heavy taxes on businesses. This made it so jobs could not be created in the private sector. Instead the Federal Government handed out jobs that did not create more jobs or boost the economy. All it did was boost the Federal Government’s debt. The Wagner Act was passed to complete the restrictions on private business owners who could free the economy from its down turn.

  In the end we see that it is the failure of the Federal government and not a free market that caused and prolonged the Great Depression. From the examples given we find that it was the New Deal and the policies of President Hoover that were the predecessors to it, that made it impossible for the economy to rebound from the recession. It was not until after the market was again free that things turned around, proving the true cause of the Great Depression.