The Great Depression between 1929 to 1933 - Essay Example

The Great Depression (GD) The Great Depression (GD) refers to the period between the late 1920’s and late 1930s whereby the United States and the world, in general, experienced the largest economic contraction and collapse since time immemorial. It ostensibly commenced on 29 October 1929, a day nicknamed ‘Black Tuesday’. However, historians and economists suggest that there were earlier signs of the GD. The economic downturn signs constituted various factors that happened before 1929 as opposed to one specific event (McNeese 130). The event of the ‘Black Tuesday’ is just one of the causes of the GD. The Great Depression (GD) had a major impact and lesson on the world economy. Causes One of the major causes of the GD was the Wall Street Crash of 1929, which was a psychological blow. Contrary to the majority’s belief that the stock market crash and the GD are one and the same thing, the market crash served as one of the causes whereby stockholders lost over forty billion dollars in a period of two months after the crash (Saint-Etienne 18). Despite the efforts made to regain the losses made, it was still evident that America had veritably entered the GD. In 1926, despite the boom witnessed, there was evidence of it being under threat. For instance, the state of Florida experienced a crumple of land prices. After a period of continued rise in the value of real estates in Florida, earlier investors wanted to lock in their profits and hence opted to sell their holdings. Prospective investors also lost interest in the real estates. In addition, South Florida was hit by a destructive hurricane that left the County of Palm Beach a swampy land. These factors led to the crash of the real estate market. In addition, the Valley of Mississippi underwent a drought period in 1930 that led to difficulty in tax and debt payments of the citizens. This meant that people had to trade their firms without any gain thereof (Saint-Etienne 20). These events contributed to the GD in their respective natures. Banks in the early 1930s had insufficient funds that would not match with the increased savings take-out that took place during the autumn of 1929. In spite of the banks being many, their small nature did not allow them to insure the bank deposits. The result is that the failure of the banks translated to people losing their savings. The few banks that survived had to pay much emphasis on their survival due to the prevailing conditions at that time and hence they deterred from loans creating (Saint-Etienne 25). This measure worsened the situation by resulting to less expenditure. In response to the stock market crash, people ceased from purchasing items. Intrinsically, the number of items produced had to reduce and a decline in the number of people needed to produce the goods. The workers affected had to lose their items that they used installment plans to purchase. The selling firms reposes the items and a large amount of inventory was accumulated. With the unemployment rate rising above twenty-five percent, a worse situation was anticipate, a further less expenditure to palliate the situation of the economy (Saint-Etienne 28). Goods remained unsold and more and more workers were laid off, extending the GD. The Federal government, in its effort to protect businesses and companies in the U.S., established a Smoot-Hawley tariff. This 1930 tariff had the effect of economic revenge over the lessened trade between the U.S and other foreign states. The European countries had also borrowed a lot of money from America. Following the stock market crash, it was only wise for America to recall their debts and this had a scourging strike on the economy of Europe. A worldwide financial crisis occurred after the European banks collapsed (Saint-Etienne 21). The GD happened because of the great influence the European economy has on the world economy. People became concerned about the safety of their investments when the stocks began to fall. Most of the Americans had no savings apart from the mortgaged stocks. Given the situation, they began to buy more stocks in hope of getting more money and saving the market. Unfortunately, the companies suffered as a result. The concern about losing money, for those who had savings in banks, led the withdrawal of all the savings by people at the detrimental expense of the banks. People handled their depression through movie watching in cinemas. Movies like Superman and Snow White were used to lighten the people’s mood to enable them to go easy on their daily lives. Factory workers and farmers who had lost their jobs travelled around the state in hope of finding jobs. For those who were lucky to have odd jobs, they stayed in Hovervilles while they looked for greener pastures. The rest of the citizens were involved in small riots and hunger marches thought the country (Whisenhunt 48). The disparity in reaction roots from different perception of situations by various people. Apart from the essential service provision to the citizens, the government had the obligation of paying interests on the nation debts that prevailed. The GD forced the government to heighten its relief expenditure to save the far-flung unemployment during in the 1930s. On the other hand, the government further contributed to the crisis through employee lay-off programs that aimed to reduce government expenditure. The government took immediate action over the allegations of corruption involving officials of high ranks by inaugurating the Commission of Government. The government also sort to borrow more funds across the boundaries and to reduce departmental spending to the best level. The civil service had one-third of its employees laid off with reduced wages being implemented for the rest. A new tax regime was introduced and had the effect of increasing the living costs by almost 30 percent. The police force was doubled up for effective maintenance of law and order while spending on education and health was reduced. Eventually, the government reduced its relief program, the dole, to encourage people to continue looking for work (Fellows and Mike 22). Despite the government’s positive motive, many people remained disadvantaged. The GD began with a stock market crash which was initially known as the most certain way of becoming affluent. People had invested much money in stocks and banks used their deposits in the stock market. The crash saw many banks close down causing yet another panic throughout the nation. More banks closed since people rushed to the remaining banks to withdraw their savings to avoid further loss. For those who were not prompt enough, they were left bankrupt since the bank did not insure the deposits. The bank-closures and the crash causing them to lay off some workers also adversely affected industries and businesses. The result is that consumers had to cut on their spending. Other businesses were not able to sustain the prevailing conditions and hence closed down. A large number of the labor force was rendered unemployed (Malchik 12). Industrial workers who were laid off had no means of supporting themselves and their families. Contrary to other depressions, the GD constituted of the Dust Bowl, which involved dust storms and severe droughts. Overgrazing exposed the loose dust particles that led to the dust storms that destroyed the crops and settlement. The farmers and their families were left homeless, unemployed and hungry. The unemployed population hit the road, riding on trains, in search of jobs with the farmers opting for west California where, allegedly, there were agricultural jobs. In spite of the seasonal works that the farmers were lucky to get, the working conditions were hostile to a point of compelling John Steinbeck to immortalize these stories in The Grapes of Wrath (Malchik 18). The GD really ought to be blamed on the government for its failure to implement adequate programs to curb its adverse effects. When President Roosevelt took office in 1932, he ordered for the closure of all banks until they attained stability, after which they would open. He also devised New Deal programs that were purposed to help farmers and control the level of unemployment through the hiring of citizens to take up various projects. In harmony with Roosevelt’s efforts, the US economy had a major turn-around after bombing the Harbor of Pearl and entering the World War II. Men received the essential training to become soldiers while women took control of the businesses and grew crops to serve as food both at home and overseas during the war (Navarro 19). With the world War involvement, the unemployed got some form of employment to sustain themselves and their families. The GD influenced Keynes’ ‘General Theory’. In pursuit of highlighting the validity of the full employment assumption that was inherited, he gave the Great Depression as an exceptional case to the assumption. He suggested that full employment was not achievable in an economy where debts and contracts are limited to monetary terms and the consumers have the discretion of limiting their spending habits. He concludes by saying that the only way to correct such an economy is through government intervention as opposed to self-correcting mechanism (Taylor, John, and Akila 607). The Great depression played a key role in laying the basics for Keynes’s theory. The GD and the recent Great Recession (GR) have similar characteristics with minor differences. Just like the GD, the Great Recession, since 2008, has been characterized by panic in its course; unemployment is at ten percent as compared to twenty five percent in the GD and large national debts that hinder smooth international trade. The only difference is that, the Federal government uses fiat money in the contemporary setting as opposed to the use of currency that is backed by precious metals in the 20th century (Navarro 2009). Both GR and GD are indeed similar. Conclusion The GD had adverse effects on the economy of the U.S and the world at large. The policy makers should use the lessons learnt from the GD as a benchmark to avoid hitting such a bottom-line again. As Keynes postulate, the government should devise mechanism to deal with financial crisis instead of being ignorant. Given that, the citizens should elect effective leaders into power like Roosevelt in order to enjoy the fruits of good governance. Works Cited Fellows, Nick, and Mike Wells. The Great Depression and the Americas 1929-39. Cambridge: Cambridge University Press, 2013. Print. Malchik, Antonia. The Great Depression by the Numbers. Pelham, NY: Benchmark Education Co, 2011. Print. McNeese, Tim. The Great Depression, 1929-1940. New York: Chelsea House, 2012. Internet Resource. Navarro, Armando. Global Capitalist Crisis and the Second Great Depression: Egalitarian Systemic Models for Change. Lanham: Lexington Books, 2012. Print. Saint-Etienne, Christian. Great Depression. Stanford University: Hover Press, 2013. Print. Taylor, John and Akila Weerapana. Principles of Economics. Mason, OH: South-Western Cengage Learning, 2012. Print. Whisenhunt, Donald. Utopian Movements and Ideas of the Great Depression: Dreamers, Believers and Madmen. 2013. Print. Read More