Of to buy on margin, where-by they would only

Of all the events to have befallen American society, perhaps that which had the most lasting impact on their national ethos would be the Great Depression of the nineteen thirties. The depression remains one of the most drastic economic slumps in modern times. Purported to have been at its root was the over-production of goods, where-by industries were producing at a rate above consumer demand, ultimately to their detriment. Unsurprisingly for an event of such complexity, a wide range of perspectives have been put forward in an effort to explain what happened. It is through examination of the breadth of relevant factors and viewpoints that we aim to determine the significance played by over-production in causing the Great Depression.Following Americas victory in the First World War the country was on something of a high. Confidence abounded as the economy grew entering into the next decade and the government was keen to capitalise on such optimism. Successive Republican administrations under Harding, Coolidge and then Hoover adopted Laissez-Faire economic policies, supporting businesses and allowing expansion according to the natural dictate of the free market (Willoughby and Willoughby, 2000). This allowed a flourishing of consumerism as Americans purchased new technologies such as washing machines and radios often for the first time (Robbins and Weidenbaum, 2009). Advertisements became more ubiquitous further encouraging citizens to spend their new-found disposable income (Brogan, 2001). Connected to this was the rise of credit purchasing which often facilitated such acquisitions; and as the public looked for new ways to spend their wealth a new investor culture emerged. The government itself had encouraged investment in liberty bonds to help fund the war effort, thus lending share ownership a degree of respectability and making it more acceptable (Clements, 2008). The stock market was viewed as an easy way to make your fortune, and brokerage firms sought to capitalise on Americas prosperity by encouraging customers to buy on margin, where-by they would only pay around twenty percent of a stocks value leaving the rest to be covered by brokers loans (Galbraith, 2007). Ease of investment meant the market grew exponentially and the government were reluctant to introduce regulations given it was in profit. However, the rise of speculation led to an artificially inflated market – as so much of the stocks values were built on borrowed money –  which was not economically sustainable (Brogan, 2001). Such unstable increases could not last in perpetuity and so it was that in October nineteen twenty nine the stock market on Wall Street crashed. Millions were bankrupted over the course of a few days with an estimated twenty five billion dollars worth of personal wealth being wiped out (Bernanke, 2000). Inexperienced first time investors did not how to respond to the crisis; brokers  began recalling their loans which speculators could not pay back leading to more and more people ending up in financial ruin which aggravated the developing panic (Brogan, 2001). The crash is often considered as starting the Great Depression which lasted for the rest of the nineteen thirties and saw ninety thousand businesses declare bankruptcy, unemployment rise from three percent to twenty five in just four years with the Gross National Product falling by nearly fifty billion dollars (Galbraith, 2007). Whilst not being the sole cause, it could be considered as signalling its onset. Perhaps the most significant consequence of the crash was in how it precipitated a near total collapse in American confidence in their own financial system (Brogan, 2001).Wall Streets difficulties had the tangential effect of exposing the underlying weaknesses within the American banking system. Despite being central to the nations savings, Americas banking sector nonetheless was somewhat fragmented, comprised largely of relatively small local banks without much in the way of a centralised infrastructure or support network to enmesh it together (Kindleberger, 1973). As such, this disparate structure made the banks within the system somewhat preternaturally vulnerable to mass withdrawals and periods of sustained financial difficulty. Such sharp drops in the stock market, which reached their apogee on Black Tuesday (Brogan, 2001), decimated confidence and led to a series of bank runs whereby people withdrew their money on mass as they no longer trusted it safe (Galbraith, 2007). Many simply could not cope with the scale of the pressure, leading to mass failures across the country and by nineteen thirty three eleven thousand banks around the country had collapsed (Kindleberger, 1973). For many their savings were simply wiped out, further exacerbating the growing homelessness problem and rising number of ‘Hoover-villes’ which would become one of the enduring symbols of the time (Brogan, 2001). Rather than solely being a matter of manufacturing issues therefore, it may be suggested that the failures in the banking system were significant in transforming the financial crash into the enduring depression of the thirties (Galbraith, 2007). Certain economists too have advanced arguments emphasising the role of Americas banking practices. None more so than Milton Friedman, often considered amongst the most prominent figures associated with supply side theory (Bernanke, 2000). In their seminal work ‘A Monetary History Of The United States'(Friedman and Schwartz, 1963) Friedman and his collaborator argue that the depression was primarily caused by a drastic contraction in the national money supply (Friedman and Schwartz, 1965). Particularly, they are critical of the actions of the Federal Reserve for increasing interest rates in an economic climate the reserve presumably viewed as being too high risk to allow increased borrowing (Friedman and Schwartz, 1963). Friedman believed that this resulted in an overall reduction of the amount of money in the country, and that interest rates should instead have been lowered in order to boost the supply of money and help aid the ailing economy (Friedman and Schwartz, 1963). For Friedman therefore the monetary reduction was highly determinant in both causing and worsening the Great Depression.Contrastingly, coming from more of a Keynesian perspective (Keynes, 1936), Peter Temin instead offers a spending interpretation of this event (Temin, 1976). Whilst acknowledging the factors addressed by Friedman, Temin alternatively emphasises the reduction in not only investment, but also consumer and federal spending levels which he feels caused the reduction in the money supply rather than, as Friedman promulgates, resulting from the actions of the Federal Reserve (Temin, 1976). Temin posits that the government should have stimulated demand through increased spending which would have not only increased citizens spending power which Temin believes would have been crucial to the recovery, but also had the parallel effect of achieving a desirable redistribution of wealth (Temin, 1976). Some have argued against Temins’ view on the grounds that the government did increase its spending to record levels in the early thirties and yet the depression lasted for the rest of the decade (Bernanke, 2000). For Temin the spending implemented simply did not go far enough and moreover, Temin is particularly critical of the government of the time for its insistence on maintaining the gold standard which not only damaged the American currency but evidence across Europe at the time suggested it was in decline making its preservation questionable (Temin, 1991).    Much to Temin and others’ chagrin, successive Republican administrations kept the gold standard as part of maintaining a more general orthodoxy (Brogan, 2001). Along with placing unabiding faith in the free market to regulate itself in line with the classical theory of Adam Smith (Smith, 2008), their policies more generally tended towards isolationism and protectionism (Kindleberger, 1973). They sought to both promote American industries and protect their manufacturers from outside competition. Chiefly this was done through measures such as the Hawley-Smoot tariff introduced in nineteen thirty which raised the price of imports, this unfortunately led to demand for American exports decreasing and global trade falling by around forty percent as other nations introduced their own tariffs (Bernanke, 2000). Isolationism had the subsidiary effect of leaving America cut off from external assistance when the depression began possibly suggesting that successive Republican presidents failed to appreciate the interconnected nature of the global economy (Brogan, 2001). Although, Republican governance did oversee certain positive changes in American society for a time. Innovations emerged such as Henry Fords assembly line and mass production techniques, propelling the Model T to become one of the most commercially successful auto-mobiles in history and at their peak were producing one every twenty four seconds (Galbraith, 2007). Mass production enabled American productivity to increase exponentially meaning there was an abundance of goods fuelling the economic boom and consumerism of the twenties (Brogan, 2001). Ultimately though when the economy entered into decline the abundance of goods started to become burdensome. Manufacturers were now suffering from over-production making more goods than demand could possibly meet, and thus as peoples incomes reduced businesses could not sell enough to remain profitable (Kindleberger, 1973). And so it is that the dual dilemmas of over-production and under-consumption became inextricably linked during the depression. Lacking confidence in their finances consumers were buying less, and as demand decreased companies began to reduce their workforce (Robbins and Weidenbaum, 2009). The number of workers in industrial centres had been increasing throughout the decade, partially as a result of the great migration where southern blacks had moved north to such places in search of employment opportunities (Brogan, 2001). During the depression however many industries simply could not support such a vast workforce and so unemployment rose worsening the situation further still (Bernanke, 2000). Administrations had encouraged increased production for some time, but had also simultaneously allowed an imbalance to emerge between the laws of supply and demand which could not go ignored over a protracted period of time (Galbraith, 2007). Initially the man with the unenviable task of steering the nation through such turmoil was the Republican President Herbert Hoover (Brogan, 2001). In his personal correspondence Hoover insisted that he did as much as reasonably could be expected to alleviate the situation and instead pointed to other causes of the depression besides his administration (Hoover, 1952). Primary among these he believed were war reparations after the end of World War One. As a result of both the Dawes Plan in nineteen twenty four and the later Young Plan in nineteen twenty nine, America had loaned out over five hundred million dollars, primarily to Germany, and according to the former president such vast levels of debt between nations had put the global economy in a precarious position (Hoover, 1952). Whilst in office Hoover did little initially to directly counteract the downturn or regulate Wall Street, instead advocating ‘rugged individualism’ which has garnered him much criticism since to the effect that he was too passive in his response to the depression (Galbraith, 2007). He may however be considered to have been following Republican practices which had been successful previously and in fact later as the situation worsened he did attempt to increase federal spending and introduce such measures as the Financial Reconstruction Corporation to promote investment (Hoover, 1952). For many however this was too little, too late, and and in spite of his protestations for his critics Hoovers lack of action is pivotal in turning the initial financial slump into the more protracted depression of the thirties (Bernanke, 2000). One of Hoovers greatest critics happened to be the man who succeeded him in the oval office – Franklin Delano Roosevelt (Galbraith, 2007). Roosevelt was critical of Hoover in the round,  arguing that the government had not spent enough to support Americas industries (Fiehn et al, 2003). Upon inauguration, Roosevelt initiated his programme which is commonly referred to as The New Deal which contained three main initiatives of: reforming the banking system, increasing government control over production and introducing a social safety net which he felt would help lift America out of the depression(Fiehn et al, 2003). As part of his now famous first one hundred days the Glass Steagal Banking Act was ratified which allowed banks to spread the risk of their investments more easily, as well as passing the National Industrial Recovery Act with the intention of both limiting working hours and raising wages to help improve the lot of workers (Robbins and Weidenbaum, 2009). Both Roosevelt’s explanation and the efficacy of the new deal he deemed to be the solution have been questioned as some believe Roosevelt may be susceptible to the same criticisms he himself levelled at Hoover in not going far enough (Bernanke, 2000). It has also been suggested that the new deal was merely an extension of what Hoover had started, and in fact the two presidents were not as different they are sometimes portrayed (Bernanke, 2000).  For one, both Hoover and Roosevelt convey in their speeches that the problems of the depression were not limited to the newly urbanised areas. During the First World War, Americas farming sector had been supported by federal subsidies as food production took on a higher importance during a time of conflict (Fiehn et al, 2003). Conversely, Republican presidents who favoured limited government and minimal state intervention, removed these grants in the twenties with drastic consequences. Farmers were now often over-producing in comparison to the demand that existed particularly since Republican isolationism had made it difficult to sell produce abroad, and this combined with the advent of  expensive equipment such as new tractors and the arrival of artificial foodstuffs crowding out the domestic market made it increasingly difficult to sustain a living farming (De Pennington, 2005). By nineteen twenty eight total farm incomes had fallen by nearly fourteen billion dollars (De Pennington, 2005) and during the main span of the depression average farming incomes fell by around six thousand dollars in just four years with America suffering greater risk of starvation as its food supply shrank (Willoughby and Willoughby, 2000). Environmental forces impacted upon on agriculture as well. Centring around the mid-west region in states like Oklahoma, Colorado and Kansas, over-cultivation combined with harsh droughts had turned the topsoil to ash which when carried by the wind – in some cases as far as three hundred miles- led to this phenomena being known as the Dust-bowl causing thousands of farming families to leave their homes as they lost their livelihoods (Fiehn et al, 2003). Therefore, it could be seen that both the problems of over-production and of the depression more generally, were significant rural issues as well and not limited to the urban towns and cities.    Retrospectively, the historian Michael Bernstein investigated not just the causes behind the Great Depression but moreover why it lasted for as long as it did. In his work Bernstein, rather than looking at the strength of the currency globally or other factors which some deem him to unreasonably omit (Galbraith,2007), advocates that the initial recession from which he felt recovery was possible, turned into the depression of the thirties due to the timing at which it occurred (Bernstein, 1987). Bernstein espouses the belief  that had the downturn begun a few years earlier the strength of the auto-mobile and construction industries amongst others would have supported the economy and enabled a reasonably expedient recovery, though as it was in actuality many of these industries had entered into decline before then and as such were not of sufficient strength to prevent the depression (Bernstein, 1987). Furthermore, had the recession started a few years after it had in the early in thirties, then the newly emerging and expanding sectors such as electronics and chemicals would have aided the economic recovery, where-as in reality they were not yet developed enough to do so when the recession actually occurred (Bernstein, 1987). Following on from Bernstein’s argument furthermore it has been suggested that the reason the Second World War was able to end the depression was because it involved investment into developing industries, a notion which affected financial policy for years to come (Bernstein, 1987).  In summation therefore, the over-production of American manufacturers could certainly be considered as contributory towards the Great Depression therefore making the statement somewhat accurate. In isolation however this can only be the case to a limited degree given the multiplicity of other opposing views -not referring to over-production but rather to economic policy, the fallout from the Great War or other factors entirely- which have been offered since. Perhaps the sheer volume of different interpretations which have been put forward suggests much about the complexity of this event, the causes of which cannot be narrowed down with any great ease even with passage of time and the hindsight that inevitably brings.Bibliography:Bernanke, B.S. (2000) Essays on the Great Depression. Princeton: Princeton University Press. Bernstein, M.A. (1987) The Great Depression Delayed Recovery and Economic Change in America, 1929-1939. Cambridge: Cambridge University Press.Brogan, H. (2001) THE PENGUIN HISTORY OF THE USA. 2nd ed. London: Penguin Books Ltd.Clements, P. (2008) Prosperity, Depression and the New Deal. 4th ed. London: Hodder Education. De Pennington, J. 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