The Great Depression - Essay Example

The Great Depression Introduction From the around the 1930 to the 1940, almost a decade before World War 2, a great economic depression, known as the Great Depression, was experienced. It was the longest, widest, and deepest depression ever of the twentieth century. Although it had its origin in the United States of America, it spread to the other parts of the globe. It began in the month of September 1929 in the US, after a devastating fall in the stock market prices. In the first six months of 1930, government and businesses spent more than they had in the previous six months. The citizens, on the other hand, cut down their expenditure. It then spread to the other parts of the world because of the relationships the US had with other countries. Both the poor and the rich countries felt the effects of the great depression. Cities were affected and mostly the ones which depended on heavy industry. Construction and farming were hit hard. The level of joblessness rose. Citizens blamed the president in power for the economic depression they were facing and were not willing to re-elect him back to power. This led to the election of President Roosevelt, a democrat, who applied some changes in the economy of America and adopted new policies. In the mid 1930s, some economies began to recover with some recovering after the end of the World War 2. This essay will look into the causes of the Great depression and the reasons it lasted so long. Causes of the Great Depression The economic depression happened because of a number of causes. The crash of the stock market is said to be the spark that ignited the fire of the economic depression. A number of scholars agree that it is the leading cause of the great depression. At the end of the market day on 24 October, the market had declined by 21 percent from the high. The market fell by several points in the first three quarters of the year. A selling panic occurred. By the year 1932, when the crash was completed, stocks had lost almost 90 percent of their value. The great depression could not be avoided despite the fact that the stock market recovered some of its losses (Walton 424). Another cause of the depression was the reduction in purchasing. After the fall in the stock market, people of both the upper and lower classes stopped purchasing items. This was due to the fear of probable future economic problems. No one was ready to risk his property. Resultantly, the production of items decreased leading to need of a smaller work force. Employees had to sack a number of their employees to reduce the workforce resulting in a rise in the number of the unemployed to a percentage of around twenty-five. The people who lost their jobs could not continue paying for the items they had bought hence led to repossession of their items (Walton 425). Another great cause of the depression was bank failures. Over nine thousand banks failed throughout the 1930s. This failure led a massive number of people losing their savings and rendering them broke. The few surviving banks were concerned with how they will be able to continue. They hence had to come up with new strategies on how they will continue without failing. One of the strategies was they are not extending loans. This lead to a worse situation than it was after savings got lost because of bank failures. People spent less since they had lost savings in the failed banks and the surviving banks were not ready to give them loans. Hence, the demand went down (Walton 429). Things got more difficult and businesses started failing. The American government thought that creating an American economic policy with Europe will save the situation but it did not. This policy was called the Smoot-Hawley Tariff and was created in the 1930. Its aim was to help protect the American companies. The policy increased the import tax charge. This increase in the import tax led to less trade between America and foreign countries. Countries found it expensive to trade with America after the increase in the import tax. The commodities that were not being taxed before were now being taxed. Apart from the decreased trade relations, the policy brought with it other economic retaliations (Robbins 69). A serious drought occurred in the Mississippi Valley that destroyed many farmers’ crops. The drought indirectly contributed to the Great depression. Vast numbers of crops were destroyed because of the drought. There were no crops to sell and farmers underwent so much loss. The effect of the drought was such that most farmers could not afford to pay their land taxes and other debts. They were therefore left with no choice except to sell their land at no profit or at a loss to pay their debts and help them (Walton 429). Why the Great Depression Lasted Long The longevity of the great depression is blamed on President Roosevelt’s government and policies that interfered with the labor market. These policies were in the National Industrial Recovery Act. They exempted industries that agreed to collective bargaining agreements that raised wages significantly from the antitrust prosecution. More than five hundred industries had entered the collective bargaining agreement by 1934 because antitrust protection ensured higher prices for services and goods. Although the policies were short-lived, they did have an impact on the great depression longevity (Higgs 11). The unrealistic wages that were imposed by the president rendered a high percentage of people jobless since employers could only afford to employ fewer people. The joblessness of people extended the depression. Consequently, the price of products rose to an average of twenty three percent above where it should have been. Higher prices for goods and services made it hard for the consumers to purchase leading to a low demand of the same resulting in a fall in gross national product by twenty-seven percent (Walton 439). The labor provisions of the National Industrial Recovery Act were made strong in the National Relations Act. This only made matters worse. Union membership and the labor’s bargaining power doubled. Wages in protected industries were still higher than should have been and unemployment persisted (Higgs 14). The longevity of the depression can be blamed on the Smoot-Hawley Tariff of the 1930 as well. When things got tougher and businesses began to fail, the American government resolved to create an American economic policy with Europe called the Smoot-Hawley Tariff. It increased the taxes for imports and imposed taxes on commodities that were not being before. The policy consequently led to the reduction in trade between America and other foreign countries since it was now expensive to trade with America. It also caused other economic retaliations that led to the lengthening of the great depression (Robbins 69). Conclusion The great depression of the twentieth century is one that has never happened. The effects of it were felt far, wide, and deep. Industrialized cities were hit harder than the less industrialized one. Construction and farming were greatly affected and the employment levels rose drastically. Given a choice, the depression is something that no country would want to experience again. However, since it happened once, it is very possible that it can happen again. It is up to the governments of the different states to work hand in hand with scholars of the economy and political economy to analyze the causes of the great depression and see how they can prevent a repeat of the same. Prevention is better than cure. Work Cited Higgs, Robert. Depression, War, and Cold War Studies in Political Economy. New York: Oxford University Press, 2006. Internet resource. Robbins, Lionel. The Great Depression. Auburn, Ala: Ludwig von Mises Institute, 2007. Internet resource. Walton, Gary M, and Hugh Rockoff. History of the American Economy. , 2014. Print. Read More