The Great Depression is most known as the worst economic downturn in American history which lasted approximately from 1929 to 1939. Many economists have speculated on the sources of the famous economic crisis, the Great Depression. However, the cause of the Great Depression doesn’t amount to just one, but a combination of many.
One of the many causes of the start of the Great Depression is the stock market crash in 1929. The Great Depression ultimately began with the stock market crash in 1929 and was made further severe by the happening of the Dust Bowl. Not only did the only did the impact of the Great Depression reach America, but also influenced many other countries as well. It also marked the beginning of involvement from the government in United States’ economy and society. In general, there are many reasons which caused the Great Depression to occur.
The combination of the stock market crash of 1929, bank failures, reduction of purchasing, American economic policy with Europe, and drought conditions all came together in creating the global economic crisis. The stock market crash happened when stock prices began to decline in September and October. It began on October 24 and continued on until October 29, 1929 when share prices on the New York Stock Exchange collapsed.
Billions of dollars were lost and many investors were wiped out as a result. In the past, both during and post war times, US economy has seen a boom in their income and a huge amount of trade with Europe and Germany. The 1920’s initially started out to be a decade of prosperity.
Because of the prosperity, there was a large number of investments made within the United States stock market at the time. At an attempt to put a stop to the increase of stock prices, the Federal Reserve then highered interest rates of loanable funds which led to a decrease in the number of stocks in many companies or fall in stocks. Between October 14 and October 15, Dow Jones fell by 33 percent and the occurrence became known as the Stock Market crash of 1929. The stock market crash in 1929 caused an increase in turmoil around the country, decrease in consumer spending, decrease in real output, and decrease in business investment. The stock market crash is credited to marking the beginning of the Great Depression.Another factor that contributed to the severity and happening of the Great Depression are the bank failures.
Because the worsening economy in the 1930’s, farmers and other citizens had less money to purchase which caused many banks to fail. From the 1920’s to the 1930’s there were ten time as many bank failures than in the 1920’s. As many as 9,000 banks failed within the first year of the 1930’s. By 1933, billions of dollars were lost from the depositors because banks had no supply of money to give back to its depositors.
As a result, more and more citizens stopped depositing money to banks, causing bank failures to become a huge issue. In general, the bank failures had added to the severity of the economic crisis and contributed in extending the crisis longer. Because of the stock market crash and increased economic uncertainty, citizens within the society had stopped all types of purchasing. Because the amount of consumer purchases decreased, the production of the items and workforce also decreased. This ultimately leads to a higher unemployment and many people losing their jobs. However, more unemployment meant citizens would not be able to afford purchasing items which meant less people would buy.
The rate of unemployment at the time was a staggering estimate of 25 percent. The amount of purchasing of an economy is what drives the economy; therefore, the decrease in transactions between producer and consumer pushed the economy even further down. Another source of the Great Depression includes the American economic policy with Europe.
As the economy continued to spiral downwards, the United States government created the Hawley-Smoot Tariff in 1930. The Hawley-Smoot Tariff raised tariffs on more than 20,000 imported goods. After World War I occurred, there had been an increase in competition with other countries and no profit gained for the farmers. Therefore, the intentions of the tariff were to protect US farmers and companies from foreign imports and to help the economy recover.
Because of the tariff, there was a rising amount of economic strain between countries around the world and the United States. Many foreign countries did not harbor good feelings towards the act and instead their tariffs as well. The high tariffs caused many countries’ banks to fail and decreased international trade dramatically. World trade between 1929 and 1934 had ended up decreasing more than 50 percent. The decrease of international trade resulted in the start of a more global economic downfall.
Another reason that could be credited to influencing the Great Depression to occur was the drought conditions at the time. In the 1930’s a drought occurred in the Mississippi Valley in the plains. The drought was followed by the failing of crops, dust storms, insect infestations, and rare rainfall. As a result, the agriculture economy was drastically damaged. No longer able to gain profit, many inhabitants in the drought areas moved to other territories to find new employment.
The citizens looking for new employment ended up competing with the citizens who already had jobs. Other citizens had to rely on government financial assistance and relief programs to survive. The continuous droughts in the United States raised the unemployment rate even higher adding to the economic depression.After the disaster happened, recoveries in many different economies were taking place. One of the factors which stimulated the recovery was the occurrence of World War II which pushed for more demand of goods and services.
At the time, President Roosevelt made a decision to join the war and support Britain and France against the Axis Powers. Because of the United States’ involvement in World War II, production within factories increased. The expanding demand for production and enlistment of soldiers lowered unemployment rates which ended the Great Depression.In addition, the programs and institutions of the New Deal helped get the United States’ economy out of the Great Depression. When Franklin D. Roosevelt became president in 1933, the government began instituting New Deal projects over the course of 8 years to recover the broken economy.
Some of the programs provided were CCC, WPA, TVA, and SEC. The TVA enabled the US government to provide navigation, fertilizer manufacturing, better flood control, and encouragement for the economy in the Tennessee Valley which had been greatly affected by the Great Depression. Nextly, the WPA gave out jobs to many unemployed citizens by giving them public work projects which included the creation in post offices, bridges, or schools. The New Deal and its programs all contributed in picking the economy back up.
Overall, the whole society and the population of the United States was affected by the occurrence of the Great Depression. The Great Depression raised the levels of crime, suicide rates, and the use of alcohol. Many families had to live in poverty, malnutrition became a normality, and some had to resort to stealing as a means to survive. Even though education was out of reach for most citizens, the students who were in school remained longer than usual because jobs were so difficult to attain. The school fundings decreased however because of the Great Depression which led to many schools shutting down.
In addition, birth rates had fallen because children were deemed as more unnecessary debt to the family. And as previously stated, many citizens from the Great Plains migrated to other states for better job opportunities and lifestyles. The Great Depression not only left depression in the economy, but also the people.Economically, the Great Depression caused GDP to fall, banks to fail, unemployment rates to rise, economic output to decrease, and an economic contraction to occur. In the first five years of the Great Depression, the economy shrank approximately 50 percent. During the first year of the Great Depression, the GDP or economic output totaled to a sum of 105 billion dollars which would be around 1 trillion dollars in current prices.
At the end of 1929, studies have shown that around 650 banks had failed by then. During the second year of the Great Depression, the economy continued to shrink by an amount of 8.5 percent based on the Bureau of Economic Analysis.
In 1931, GDP then fell 6.4 percent and in 1932 GDP fell another 12.9 percent. Because of the falling of GDP, by the year 1933 economic output had halved compared to the previous economic output in 1929. In addition, deflation occurred and the Consumer Price Index decreased around 27 percent in the first four years of the Great Depression. Deflation and the decrease in prices also made many firms go out of business.
On the other hand, unemployment rate had reached an alarming amount of 24.9 percent in the year 1933. However, the federal government passed the New Deal which had helped GDP grow from 1934 to 1937. The New Deal only lasted until 1938 and caused the depression to return. Another factor brung our GDP up by 8 percent in the year 1939 which was the preparation for World War II. Also, the type of economy we have changed during the Great Depression.
Our economy started as a free market economy and ended up as a mixed economy which protects private property and gives some economic freedom, but allows for the federal government to have power in economic issues.Politically speaking, the Great Depression greatly impacted the results in the presidential election during the economic crisis and changed the role of the government in regards to the economy. During the time of the Civil War to the time of Great Depression, the Republican party held the upper hand in the United States. However because of the New Deal promised by president Franklin Roosevelt, the Democrats had become the more dominant party instead. The other candidate Herbert Hoover advocated for zero government interference with the economy. While, Franklin Roosevelt would win the election because he advocated for government intervention to promote economic growth through ways such as increasing demand.
Franklin also promised that the use of government spending would help to end the Great Depression and help to protect the citizens. In the 1930 midterm elections, the Democrats ended up controlling the House of Representatives and then made up the majority in the midterm elections in 1932. Not only did the Democrats introduce the New Deal, but also programs like Social Security.In response to the Great Depression, the government spent millions of dollars in relief programs. However by doing so, the government spending on education, health care, and other programs decreased.
The government also laid off many civil employees and decreased overall wages. In addition, the United States had borrowed large amounts of money from foreign countries in order to help the economy get out of the depression. After much thought, I think the Great Depression could possibly reoccur. One of the biggest reason for the Great Depression includes the Federal Reserve taking out money and credit from the economy which resulted in a lack of money supply.
In order to cause another Great Depression, the factors you would need to include are impossibly high interest rates, blockage of free trade, and diminishing of incentives using high taxes. As long as we make the same mistakes as during the time period of the Great Depression, then history could repeat once again. Despite many new financial regulations, the global financial system has not changed as much as we think. In addition, economic recession are a natural process and occurrence in our economy.
However, normal economic recessions can be prolonged and made severe by unexpected factors which was the situation during the Great Depression.