Could the United States government have done anything to prevent the Great Depression? Why or why not?

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In hindsight, there are many things the government could have done to limit the effects of the Depression, if not avoid it altogether. The government could have encouraged more trade with Europe and taken a greater role in bringing Germany back into the European economic community. The Hawley-Smoot Tariff was...

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In hindsight, there are many things the government could have done to limit the effects of the Depression, if not avoid it altogether. The government could have encouraged more trade with Europe and taken a greater role in bringing Germany back into the European economic community. The Hawley-Smoot Tariff was one of the major events that deepened the Depression as European economies became more protectionist in retaliation for this act by the U.S.

The government could have also created price floors for farmers. Farmers had gone into debt to take advantage of the boom in commodity prices during WWI. When the war unexpectedly ended, farmers were left with a lot of debt and falling prices, which caused overproduction and more losses. Since many Americans were still employed in agriculture, this move would have made the Depression less painful for most of the United States.

The government could have also regulated Wall Street. There was actually some talk of limiting the amount of money that banks could put into the stock market, but this notion was dismissed as defeatist. People who bought stock on margin were especially hurt by the Depression, as they lost their stock when they could not raise the money to pay their debts. Stock manipulators took advantage of insider knowledge in order to take advantage of the smaller investors. Accurate information on stock values would have led to more moderate growth; though less popular, this would have led to less market volatility.

All of these things would have alleviated the Depression, if not entirely prevented it; however, the United States was coming out of a recession in the early 1920s, and everyone thought that American production and profitability would only continue. Hoover actually commissioned a study of the soundness of the American economy in early 1929. No one knows when the next bubble will happen or when it will burst, but historians can see warnings in many economic sectors in 1929.

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The government could've been much more proactive in regulating the banks. To a large extent, the Great Depression was caused by banks making risky investments. This created a gigantic speculative bubble that would inevitably burst sooner or later, causing considerable damage to the American and international economy.

The banks were able to engage in such irresponsible speculation because there were no rules or regulations in place to stop them from doing so. Had the federal government been more interventionist in its approach, then the worst effects of the Wall Street Crash could well have been ameliorated. To be sure, it's almost certain that there would've been an economic downturn at some point, but the lack of effective banking regulation made the downturn considerably worse than it otherwise would've been. Banks are the foundation of any capitalist economy, so when the banks started to fail—due largely to their risky lending practices—some kind of economic depression was inevitable.

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Yes.  The government should have removed all obstacles to trade with foreign nations which would have stimulated the world wide economy after World War I.  Instead, the raised protectionist tariffs that effectively stifled trade at a time when Europe, which had been devastated by the war, could have efficiently rebuilt.  Secondly, the government could have, as previously stated, curbed abusive investment practices which were defrauding small investors and also causing huge swings of capital to enter and exit the market over a short time, causing market instability, and actually triggering the crash the caused the Depression. Finally, had the victors in World War I not destroyed the German economy through the Versailles Treaty, perhaps all of Europe wouldn't have fallen after the market crash in the US.  The Federal government, doing what it shouldn't have, and not doing what it should have, transformed a moderate economic problem into a disaster.

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I would say that government monitoring of business practices throughout the 1920s might have helped to limit the impact of the depression.  On some levels, it could be argued that strict government intervention might have even prevented the abuses that allowed for the Great Depression.  The artificial inflation of stock prices proved to be one of the primary causes of the collapse that triggered the Great Depression.  If government had taken a more regulatory role and more vigilant role of business practices, as opposed to colluding with so many economic interests, one could make the argument that the financial system might have had some level of foundation which could prevents such a drastic and profound collapse.

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All three 1920s Presidents, Warren G. Harding, Calvin Coolidge and Herbert Hoover were laissez-faire capitalists, meaning they felt that government should tax and regulate the economy as little as possible.  As Coolidge once remarked, "Business is King". So they did not regulate trading on the stock market, allowed margin buying (borrowing to buy stocks) and even insider trading.  They also allowed a lot of foolish borrowing, and installment payments for consumer goods that people would not necessarily be able to afford (sound familiar?).

Even minimal regulation in these areas by the mid-1920s might have been enough to avert the crash.

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I suppose the main thing the government could have done to prevent the Great Depression would have been to stop the bubble in stock prices from happening.  They could have outlawed (or at least regulated) the margin buying and some of the other abuses that were pushing up stock prices.

They might also have been able to prevent the Depression by doing some of the things they ended up doing after the Depression had started.  Insuring bank deposits would have made a huge difference because the banks going broke was one of the major things that spread the Depression.

Of course, it's pretty hard to expect them to have seen all of that stuff ahead of time.  Our own situation today shows it's hard to tell when theings are about to go bad.

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