What Were the Causes of the Great Depression? Discuss How Fdr’s Economic Philosophy and Policies Differ from Those of Hoover?

Thomas Opitz

Professor Carlo

Final Exam: Part 1

5/13/14

What were the causes of the Great Depression?  Discuss how FDR’s economic philosophy and policies differ from those of Hoover?

        FDR once said “It is common sense to take a method and try it.  If it fails, admit it frankly and try another.  But above all, try something.”  Two elected presidents took office during a juncture in American history known as “The Great Depression.”  The United States economy had collapsed as President Hoover was entering his first and only term as president of the United States.  He assumed his position as President with a plan to turn America’s economy around and was unable to do so.  In 1933, President Hoover lost the presidential race to Franklin Roosevelt.  Roosevelt had different economic views than Hoover and was determined to lead America out of the economic depression they were currently in.  It was common sense for Hoover to try his methods, they failed.  It was FDR’s turn to try another method.

        The Great Depression was not a single person’s fault and did not occur as a result of one industry failing.  Some of the factors that contributed to the great collapse of America’s economy were unregulated banks, buying on credit, buying stocks on margin, overproduction in farming and manufacturing, Wall Street was unregulated and corrupt, and the real estate market was sagging.  A lot of these problems were due to people spending more money than they had; including the banks.  A second cause of these problems was the investment in an unregulated market.  Banks, major firms, and the average citizen were investing in the stock market.  The market became too inflated with money that could not be paid back, causing the collapse.

        President Hoover’s economic policy was focused on six major points.  These points were federal spending, agriculture, wage policy, immigration, international trade, and tax policy.  Hoover’s plan for federal spending was to increase the federal budget.  Hoover failed to realize the effects that a deflating economy would have on increasing the federal budget and ended up unintentionally over spending.  The second part of Hoover’s six part plan was to reboot the economy through agriculture.  In order to do this, Hoover expanded the FFB, Federal Farmer’s Board.  Hoover began subsidizing the famer’s more than usual with the intention that this would keep the prices of crops high.  This part of Hoover’s backfired because the farmers began to overproduce, increasing their surplus and lowering the price of crops.  The third part of Hoover’s economic plan was to increase the current wage policy.  President Hoover believed that this would lead the United States back into a state of prosperity because if the consumer had more money to spend they would be more inclined to purchase a greater quantity goods with the falling prices.  What President Hoover failed to acknowledge was that the firms could not afford to employ the same number of people at the new wages.  Therefore, unemployment began to sky rocket.  This was a result of the firms a having to fire many employees in order to stay open.  Hoover’s policy on immigration was to put a halt on immigration in order to allow American’s to get jobs immigrants would have a chance to steal.  In 1930 Hoover passed the Smoot-Hawley Act.  The Smoot-Hawley Act increased tariffs on a wide variety of imported goods; directly effecting international trade.