1929 America crisis - Research Paper Example

1929 America Crisis INTRODUCTION The Great Depression is a historical economic tragedy that placed many Americans into a situation of the economic death. The 1929 American crisis lasted from 1929 to the early 1940, and has been marked as one of the most important periods in the history of America. In this paper, I will start with an overview of the great depression. I will also look through the causes that have been considered to lie in the base of the American crisis of 1929. Finally, I will also dwell on social and economic effects of the great depression on America and conclude by looking through the end of the Great depression in America (Burg 90). OVERVIEW OF THE GREAT DEPRESSION The years preceding the Great Depression were marked by economic recovery evidenced by a rise in stock prices in 1928. The situation of trade in the preceding year also greatly mushroomed, and Americans were so engrossed in their economic prosperity that it became very easy for an individual to access a credit. The signs of a fluctuating economic situation became noticeable in the autumn of 1929, and the crisis was a surprise and a major blow to those who were caught unaware. This was followed by several activities by financial movers to save the economy: it is on Tuesday in October 1929 that 16 million of stock shares were directly traded, and the industrial index declined by the amazing 10%. Within the period that followed, shares of stock continued to lose their value at more than a half. It is these events that marked the official beginning of the American crisis of 1929 (Watkins 67). CAUSES OF THE GREAT DEPRESSION IN THE USA One of the distinguished causes of the Great depression was the buying behavior of American investors who took on a habit of buying on the margin. In the 1920s, many Americans invested in the stock market in larger numbers than it had happened before. This resulted into such a marked rise in stock market prices that it became possible for an individual to turn rich in one night just by buying and selling stocks. The behavior of people buying shares on the margin was so rampant that it translated to stocks that have been bought on an installment basis. The stock prices were on a periodical rise, and, therefore, a buyer would hold a stock until the stock rose to the preferred level and then sell it at a profit. In the period of 1928 and 1929, however, the value of the shares of stock grew to so much higher levels than the value of the companies they represented that this resulted into an inappropriate situation where the companies could not meet up with the value of their stock shares (Fearnow 89). Another major cause of the Great depression in America was the behavior of Americans who used to buy on credit which was on the rise in the 1920s. This was a period of a marked economic boom, and this placed people in a situation of less thought and care about their future. There was a lot of installment buying where many people bought cars and electronics of high value which did not match the money they had in the possession or in savings. The availability of installment buying encouraged so many people to buy things on credit that when the stock market came to a crash, many people were left with huge debts to settle. This was followed by many people losing their jobs, and it became virtually impossible to settle their highly accumulated debts (Kupperberg 98). The supply and demand situation also played a great role in contributing to the start and lengthening of the Great Depression in America. During the period of economic prosperity in the 1920s, the American manufacturing industries and agricultural sectors produced large quantities of goods and services. This resulted in the market acting up with an increase in prices which was not marked by the adjustment in American workers’ wages which remained constant, but the workers had no more to keep up with the soaring prices, therefore, they stopped buying the goods and services. Factories, however, did not adjust their production to match the decreased demand, and their production volume remained the same. It is not until the Great depression struck in 1929 that the factories cut off on their production as they realized that people had no money to buy their goods and services. A cut in production meant that industries had to lower the number of their employees, and layoffs took place in America, thus, resulting into too many people becoming unemployed (Fearnow 78). The stock market crash was the peak of the Great depression. It is in the summer of 1929 that a few investors started to sell off their stocks out of speculation of an end of the bull market, which would lead them into debt. This, however, led to a state of anxiety among the American citizens, and they all moved to sell their stocks in the same fear of debts. That time president of America Herbert, tried to improve investor’s confidence and assured them of the economic situation being under control and no need of fear. This, however, was treated with deaf ears, and the Americans continued to sell their stocks in the New York Stock exchange. Brokers too became nervous and asked the investors who had bought on margin to repay their debt. The investors who couldn’t manage to pay for their stocks were forced to sell, and this resulted into a further decline in stock prices. It is the black Tuesday of October 1929 that was marked as a direct cause of the Great depression in America (Lenthall 56). Drought was also an evident cause of the extended situation of the Great Depression. In previous years when America had experienced minor depressions, agriculture was not hurt at all by the effects that ensued. In the 1930s, however, the Texas plains were hit by drought and dust storms which was worsened by the effects of overgrazing on the plains. Many farmers were hit hard as their lands and crops were destroyed, and the situation was aggravated by the situation of debt. The failure of banks and financial institutions was also one of major causes of the Great depression. Banks were put in desperate situations as they called in for loan payment from Americans who did not have any money. This made banks build on their capital reserves, which also led to an aggravated situation of the deflationary pressure. There was a situation of a vicious cycle in the banking sector which was worsened by poor policies such as the lack of utilization of the Federal Reserve which sat idly in spite of banks collapsing. The Federal Reserve failed to provide emergency lending to banks, resulting in the great depression and its continued state (Rothbard 45). EFFECTS OF THE GREAT DEPRESSION IN THE USA The effects of the Great Depression were felt at both the social and economic levels in America. One of the major social efforts was a loss of jobs among the Americans as industries collapsed and businesses laid off their workers to cope with the sudden decline in demand. The Americans were plunged into a miserable situation as they wanted jobs, but they could not find them. This brought the situation of an individual blame where many people felt as failures as they failed to understand why they could not be able to sustain their livelihoods. The Great depression also resulted into the social despair as people sank into self-pity and shame because they had accumulated debts that they could not settle. For many American families, it called for a complete change of lifestyles as they shifted to more affordable lifestyles in terms of food and the houses they lived in. The Americans were so desperate that they lived in a hand to mouth lifestyle (Hearn 102). The Great Depression also resulted into the reversed roles in the society. This was especially so because it became virtually impossible for men to secure jobs in factories and industries while it was a bit easier for women as they could work in some rich homes. Women were, therefore, able to secure odd jobs which helped to sustain their families during the depression. Unlike in the past, men stayed at home while women became breadwinners, which further led to the disorientation in many means at the period. The Great depression also had severe economic effects in America. One of the most visible economic effects of the Great depression was a decline in people standards of living as a result of poverty that resulted from the unemployment. The poor standards of living in America had glaring effects on the economy as it became unsustainable to people needs (Rothermund 34). The Great depression also led to the collapse of industries and banks which are a back bone of a flourishing economy, thus, resulting into a situation of economic uncertainty. In spite of its negative effects on the economic situation in America, it also helped people become more aware of the necessity to have a social protection and a rise in the number of labor unions appeared when more people went into labor union membership. In 1934, the government being more prepared and after much suffering established the Securities and Exchange Commission which was charged with the future role of regulating new stock issues and stock market practices. There was also a banking Act that was put into practice, in future it would help with the regulation of bank activities and would also place a prohibition on banks engaged in security trading (Bernstein 23). At the same time the Depression had a positive effect on the economic preparedness, which was marked by the establishment of macroeconomic policies that sought to deal with future economy upturns and downturns (Young & Young 14). THE END OF THE GREAT DEPRESSION The beginning of a direct solution to the Great Depression began with the President Roosevelt’s New Deal, though it did not end the depression completely. It helped in restoring people’s confidence in their government. The Emergency Banking Act was proclaimed. It helped to make the financial system more open and honest, thus, restoring people’s confidence. New protective agencies were also formed such as the Home Owners Loan Corporation that helped to provide aid to the homeless in the society. An agricultural Adjustment Act was established too; it sought to regulate the overproduction and deal with agricultural anomalies. The beginning of the Second World War was the mark of the official end of the Great Depression as the unemployment was completely slashed out, and instead labor shortages were created, moreover, women and African Americans were also absorbed into jobs (Rauchway 14). Works Cited Burg, David. The Great Depression. New York: Infobase Publishing, 2009.Print. Fearnow, Mark. The American Stage and the Great Depression: A Cultural History of the Grotesque. London: Cambridge University Press, 1997.Print. Hearn, Charles. The American dream in the Great Depression. New York: Greenwood Press, 1977.Print. Kupperberg, Paul. Critical Perspectives on the Great Depression. New York: The Rosen Publishing Group, 2005.Print. Lenthall, Bruce. Radio's America: The Great Depression and the Rise of Modern Mass Culture. Chicago: University of Chicago Press, 2008.Print. Bernstein, Michael. The Great Depression: Delayed Recovery and Economic Change in America, 1929-1939. London: Cambridge University Press, 1989.Print. Rauchway, Eric. The Great Depression and the New Deal: A Very Short Introduction. New York: Oxford University Press, 2008.Print. Rothbard, Newton. America's Great Depression. Auburn, Alabama: Ludwig von Mises Institute, 1972.Print. Rothermund, Dieter. The Global Impact of the Great Depression, 1929-1939. London: Routledge, 1996.Print. Watkins, Hall. The Great Depression: America in the 1930's. New York: Little Brown, 2009.Print. Young, William, & Nancy Young. The Great Depression in America: A Cultural Encyclopedia. New York: Greenwood Publishing Group, 2007.Print. Read More