Final Draft — The Great Depression and Its Impacts
The Great Depression was a tragic historical event in the American and international history. The event destroyed national and international markets, crashed the economy, and enhanced the unemployment rate. During the Depression, the stock market declined, impacting all fields of economies, and promoted depreciations by reducing prices for goods, companies, banks, with other organizations starting to go bankrupt. The event’s time frame was from 1929 to 1939 and was caused by the empowerment of the state involvement in the national economy and the community’s life (History.com, 2021). It was a duration of a big crash and big despair, considered the greatest crash in Wall Street history (Greatest Crash, 1929). The Great Depression was considered one of the strongest and longest periods of Depression which the Western nations have ever experienced. Its beginning was defined by Black Tuesday, which was the final day of the stock market crash. Most people believe that the causes of the Great Depression were due to the old economic order breakdown, which was created on unhampered markets, unfair competitions, speculations, profit motives, and property rights. The event proved the certainty of new orders developed on government interventions, bureaucratic and political control, and state welfare and human rights. It began in the United States with a stock market crash. After that, it had rippling effects on the worldwide economies (Byjus, 2021). This research discusses primary and secondary sources with the purpose to understand the primary causes of the Great Depression, its economic history, and the global impacts.
Causes of the Great Depression
The American Central Bank adopted a tight monetary policy. According to Ben Bernanke, a former Federal Reserve chairman, the Central Bank of America assisted in creating the Great Depression (Bernanke, 2018). The bank applied a tight monetary policy when it should have done the opposite. Bernanke highlighted various Fed mistakes that led to the Great Depression. For instance, The Fed started raising their funds’ rates in 1928 and kept increasing them through recessions that began in the following year (August 1929) (History.com, 2021). Investors also turned to the currency market when the overall stock market collapsed. At the same time, gold standards encouraged the value of the U.S dollar held by the Fed and the U.S government. Investors started trading in their dollar for gold in 1931, which enhanced run-on dollars. The Fed increased interest rates to preserve the value of dollars. This restricted the availability of dollars and cash flows for businesses, causing bankruptcy. Fed did not increase the supply of money to combat the inflation and deflation rate. Therefore, several investors withdrew their deposits and savings from banks, which created more distress. Fed ignored the bank’s plights, and most citizens removed their funds and put them under their mattresses, which reduced the money supply. There was not enough money for circulation to develop the economy. Instead, the Fed encouraged the total collection of funds to decrease by a third. Bernanke’s assessment was later supported by various research (Gopinath, 2020).
Furthermore, monetarist and the demand-driven economic theories of the Depression explain the major causes of the event. The demand theory stated that a huge-scale loss of confidence caused a sudden reduction in investment and consumption spending. Once deflation and panic set in, most individuals believed they could no longer avoid additional losses by maintaining their market trends. Holding funds became profitable as prices decreased. On the other hand, monetarists thought that the Great Depression began as a typical recession. Still, the money supply decrease was influenced by significant economic situations that caused the recession to descend into an economic Depression. Further, during World War I, the U.S. industries made significant mistakes experienced in the previous recession. WWI caused many challenges for the international and U.S. economies (Albers & Uebele, 2015). Wall Street emerged as the world financial market, increasing share prices. It later became detrimental because shareholders and businesses were irresponsible with their funds.
The Economic History and Impacts of the Great Depression
The Great Depression affected different nations in diverse ways, with different duration and rates of severity. The European and United States economies experienced the hardest impacts. Latin America and Japan suffered less. Also, families, huge organizations, farmers, and small firms around the countries were impacted by the crisis, causing banking panic, decreased consumer demands, and a higher suicide rate (The World, 1933). The improper policy of the state caused the fall of the U.S output known as the Gold Standards, which offered fixed currency exchange rates to all nations. The stock market also crashed in 1929, which accelerated the international economic crisis that began as an irreversible process. Most U.S. banks failed by the end of 1933, including unemployment rates (Encyclopedia Britannica, 2021). Despite President Herbert Hoover’s assurance that the economic crisis would end, situations were still not promising. The nation’s industrial production dropped significantly. The number of the homeless and the poor increased, which became more common in the United States’ cities and towns. Farmers and investors could not afford to harvest their produce and financial resources. Thus, they were forced to leave their harvests to rot on the farm while others starved.
Herbert Hoover was the American president when the Great Depression started for only eight months. As the event unfolded, President Hoover held general views of the U.S. economy and spending based on self-reliance. He believed that it was the responsibility of citizens to care for themselves and not depend on government assistance. Therefore, he did not agree that the state should intervene in the economic crisis of the Great Depression. This affected the rest of the world as several exports declined significantly. America was based on the principle of capitalism. The idea was that the U.S. government played a role as small as possible in international economies and allowed citizens to take control of their economic well-being. However, when Roosevelt was elected as U.S. president, he took instant actions to solve the nation’s economic situation by publicizing a four-day mandatory “bank holidays.” Banks were closed to allow Congress to enact reformation laws. Only effective financial institutions were reopened. Roosevelt’s administration passed legislation that reformed economic systems, created Federal Deposits Insurance Corporations (FDIC) to protect customers, and Security and Exchange Commissions (SECs) to control stock markets and prevent financial misuses (Robbins & Weidenbaum, 2017).
The event was considered the worst financial turmoil in the U.S. and international history, enduring from 1929, during stock markets, to 1939. Wall Street was sent into economic woe, which destroyed several international investors. Over the Great Depression, consumer expenditure and investments decreased, resulting in a steep decline in employment and industrial production as failing organizations fired employees. The American economy declined rapidly, and the country’s wealth and money supply tripled, causing inflation. However, Roosevelt’s administration passed legislation that reformed financial systems and attempted to stabilize the overall economy. Further, the beginning of the Depression was defined by Black Tuesday, which was the final day of the stock market crash. In the Depression, the stock market declined, impacting all fields of economies, and promoted depreciations by reducing prices for goods, companies, banks, and other organizations started to go bankrupt. Lastly, monetarist and the demand-driven economic theories of the Depression explain the major causes of the event. For instance, the demand theory stated that a huge-scale loss of confidence caused a sudden reduction in investment and consumption spending, and monetarists believed that the event began as a usual recession but escalated to the economic crisis.
Reflection paragraph:
This class was a great surprise! I honestly didn’t know what to expect, but it was very enjoyable to learn about historical study. I loved the Medium platform and the idea of connecting us through Twitter, because even though we’re not having classes in person, we still got to interact with each other. Professor Morgan was very organized which made this class easy to follow. The weekly schedule was very helpful and having all the explanation for every unit on Medium made it easy to understand the assignments and due dates. I wish that every professor who’s teaching online would be this organized!
References
Albers, T., & Uebele, M. (2015). The global impact of the Great Depression. Economic History Working Paper Series, 218. http://eprints.lse.ac.uk/id/eprint/64491
Bernanke, B. S. (2018). The real effects of disrupted credit: Evidence from the global financial crisis. Brookings Papers on Economic Activity, 2018(2), 251–342. https://doi.org10.1353/eca.2018.0012
Byjus. (2021). What was the Great Depression? Definition, causes. Retrieved 4 November 2021, from https://byjus.com/commerce/great-depression/.
Encyclopedia Britannica. (2021). Great Depression — Economic impact. Retrieved 4 November 2021, from https://www.britannica.com/event/Great-Depression/Economic-impact.
Gopinath, G. (2020). The great lockdown: Worst economic downturn since the Great Depression. IMF blog, 14, 2020.
https://www.newsofbahrain.com/epaper/15-04-2020/single/page-06.pdf
Greatest Crash in Wall Street History (1929, October 25). Daily Mail, 1. Retrieved 28 November 2021, from https://momarf.wordpress.com/2009/10/16/some-historic-news/
History.com. (2021). Great Depression history. https://www.history.com/topics/great-depression/great-depression-history.
Robbins, L., & Weidenbaum, M. (2017). The Great Depression. Routledge.
The World Suicide Rate to a New High in 1932 (1933, July 1). Literary Digest, 18. Retrieved 28 November 2021, from http://www.oldmagazinearticles.com/article-summary/suicides-during-the-great-depression#.YaQG1S2cZQI
