Discuss the international economic policies of the United States from 1918 to the beginning of the Great Depression, and explain why those policies failed to sustain a healthy world economy. Conclude with your interpretation of whether or not the Great Depression could have been avoided. Why or why not?
After World War I ended, the United States pursued policies that minimized the role of government in economic activities as much as possible. This laissez-faire policy called for little government intervention or regulation of the economy. As a result, businesses were free to pursue activities knowing there would be little government intervention.
There was some concern that Germany couldn’t repay its reparations to the Allies. Thus, the Dawes Plan was developed to try to make this happen. The United States would loan Germany money to pay the Allies. The Allies would agree to an amount less than the $33 billion called for in the Versailles Treaty. The Allies would take the money they got from Germany and use it to repay their debts to us. Then, Germany would repay us for the original loan at a later time. Unfortunately, the plan was not successful in resolving the issues it tried to eliminate.
The United States also passed a high protective tariff in 1930. This tariff, the Hawley-Smoot Tariff, raised taxes on imports in order to encourage Americans to buy our products during the Great Depression. However, other countries retaliated with their own high tariffs, so we had trouble selling our products to other countries.
It would have been possible to avoid the Great Depression if wise decisions were made. Asking Germany to pay $33 billion in reparations was unreasonable. That requirement doomed Germany’s economy to fail. This failure had major economic and political implications for the world. Americans weren’t wise with their financial decision-making. Too much individual investment without proper research wasn’t wise. It was risky when people bought products without being able to pay for them in full. Passing high protective tariffs hurt our trade. The policies of the Federal Reserve were really poor. They should have raised interest rates in the 1920s instead of keeping them low when there was a lot of investment in the economy. They should have lowered them in 1930s instead of raising them when the economy went into the depression. Some people believe the actions of the Federal Reserve made the depression into the Great Depression. Thus, steps could have been taken that might have prevented a depression from occurring.