The Republican presidents of the 1920s were very pro-business, so why did the economy collapse in 1929?

Answer 1

Mostly because of agriculture problems, but, you would have to do the research to follow the money.

As agriculture collapsed because of weather and over use of land, people defaulted. Manufacturers invested in agricultural equipment couldn't sell, they defaulted. It snowballed into the stock market after a few months and crash!

I know people like to blame "greedy republicans", but it had a lot more to do with the weather and really bad loan making decisions by bank loan officers and banking laws that had been developed many years earlier.

Oh, and the 1919 deficit of 260% of government income, which really kept the government money people busy for a few years. By the time they looked up, all hell had broken loose.

Answer 2

This is a very complex question, and you will find a lot of different answers, some are all true, some are partially true, some just sound true.

One point that is true is that the stock market had gotten stupid. This isn't everything, but it is part of the problem. The market was a lot less regulated in the 20s than it is today. People could buy "on margin" a lot more easily than they can today. Buying on margin is when you only put a fraction of the price of the stock down... say 10%. The idea behind buying on margin is this. Lets say a stock is selling for a $1 a share. You have $100. You go to a broker and buy 1,000 shares on margin. The stock goes up to $1.25 a share. You sell the stock. You now have $1250. You owe the broker $900 (you only put 10% on the stock originally, remember?) so you pay the broker back. You now have $350, so you made $250 on the deal. If you had only bought what you could pay for (100 shares instead of 1000) you only would have made $25 on the deal. See the attraction?

Problem is, if the stock doesn't go up, you are stuck. If the stock drops below a certian level the broker will sell your stock for you and require you to pay back the difference. (Same as above, only the stock DROPS by 25 cents. The broker sells your shares for $750. Now your $100 investment has turned into a $150 debt. )

By 1929 the stock market had been going up for a long time, it was very much like the "tech boom" or the "dot.com" boom of the 1990s, with the new technology of radio substituting for tech stocks. Like the 90s in the 20s lots of people were in the market buying stocks who had no idea what they were buying or what they were doing. Joe Kennedy (who pulled all the family money out of the market in 1928 and stayed rich) said he knew it was time to get out of the market when his shoe shine boy started giving him stock tips.

In any case the stock market crash meant a lot of people lost a lot of money. People had bought assets at inflated prices, and now the prices had dropped, so the money had pretty much vanished. This meant that the money supply had contracted. There wasn't enough money left to keep the economy going. The economy started to contract.

At this point the government got involved. (You can't have a REALLY big gork up without the government doing it's bit.) The Federal Reserve refused to increase the money supply. Had they done so, there would have been a recession anyway, but it wouldn't have turned into a Depression. This encouraged the economy to continue to contract. Remember during a recession or a depression the economy continues to function, it is just smaller... which means it doesn't have enough jobs. From an economic perspective you just have too many workers... in real life that means people are broke and poor and hungry.

Then came the killer. The Smoot-Hawley Tarrif. This is perhaps the single stupidest thing any Republican has ever done... and there is some pretty stiff competition for that title.

Although the tariff act was passed after the stock-market Crash of 1929, many economic historians consider it a factor in deepening the Great Depression. Unemployment was at a troublesome 9% in 1930 when the Smoot-Hawley tariff was passed, but it jumped to 16% the next year and 25% two years after that. The annual rate of unemployment in the United States never fell below 9% during the entire decade of the 1930s.

Why? Well we raised our tarrifs, other nations did the same. We allready had 109 workers for every 100 jobs, then this tarrif cuts off overseas trade. We can't buy things cheaply from other nations that might make certian things more cheaply than we do here... and becuase they rase their tarrifs in retaliaiton we can't sell anything we make here over there. Buisnesses that sell things overseas start to loose customers and go bankrupt. Businesses that make things out of imported goods have to switch to more expensive domestic supplies, so they either have to lay off staff or increase prices (which means a decrease in sales and eventual layoffs anyway).

By the time all was said and done the US Economy was about 1/3 smaller than it had been when the depression started. This meant that there wern't enough jobs to go around. This meant that employers could pay very cheap wages, because everyone knew that if they made a stink they would be fired and replaced. Lower wages meant that conusmer demand was smaller (they had less $$$ to spend) and thulsy consumer demand wasn't able to drive the economy. Buisness wasn't expanding so there wasn't any buisness capital investment to drive the economy. FDR tried to grow the economy using government spending... this ultimately worked, but it took WW2 to create the needed level of governement spending. The vast amount of government spending meant increased jobs, (everyone was either in the Army or building weapons) which meant people had $$. They didn't have anything to spend it on at the time, but after the war pent up consumer demand was let loose and the economy began to grow agian.

Answer 3

In life, there a checks and balances. Ying and yang. Whatever.

The 1929 crash happened because there were loans made on stock market purchases, that had no collateral against them. Once the loans were defaulted upon, there was nothing holding it up, and it snowballed into the Great Depression.

The pro-business attitude you describe refers to letting business run away with itself, without checks and balances. Because there wasn't the rules there are today, business was tempted to make risky deals - in this case loans without collateral. That risk was simply too much for the market to bear.

Should pro-business mean anti-regulation? I think not. I think there ought to be checks and balances. Look at the latest Enron scandal - things were so "pro-business" that the auditors looked the other way. Now, the Sarbanes-Oxley Act was brought in to counter this happening again.

A system of checks and balances in both crashes was lacking.

Answer 4

The 20's was an explosive decade when it came to economic progress and prosperity but it went unregulated and anyone could get in who did not know what to do and squander in speculation which drove the market to artificial highs which were bound to fall. We must also remember that the worldwide problems of reparations which bankrupted Germany also hurt England and France because of the lack of circulation of money and trade was stymied. It was not only the economic collapse of 1929 but also how it was handled afterward that made the depression so severe.

Answer 5

It shows you that being Pro-business isn't everything; and also that we have not learned that valuable lesson, have we?