The Great Depression: The Causes Of The Great Causes of the great depression essay. It is one of the worst and longest years of low business activity in the USA. In fact, this was the global economic crisis, however, it received its title namely due to the emotional state the society found itself in: people really plunged into a depressive state of torpor. Blaming the Gold Standard eventually ignores the role of significant monetary manipulations made by the Federal Reserve System together with governmental institutions. However, the manipulation with money and credit flows is an absolutely different matter. Militarism played a similar role in Japan. All industries and companies were affected by the crisis.
Conclusion
The Great Depression was a long-lasting economic crisis in the global economy which started in the U. inand later involved other countries. The Great Depression officially ended inbut in reality the U. economy started recovering only after World War II. The Great Depression was synchronized and comprehensive and affected all the sectors of the global economy. In fact, this was the global economic crisis, however, it received its title namely due to the emotional state the society found itself in: people really plunged into a depressive state of torpor. Huge numbers of researches are now devoted to studying the Great Depression and its impact on the USA and the lives of millions of Americans. Thus, Alan Reynoldsp. People still share the feeling that a sharp economic slowdown can happen at any time: without any warning and without any reason.
This fear is nowadays often exploited as a major justification for the practically unlimited intervention of the government into the economic sphere. As a result, many scientists today also take the position of criticism over the market capitalism and support economically destructive policy of the authorities. Further in this paper, we will critically examine social and economic causes of the Great Depression, as well as analyze its consequences through the prism of different approaches. We claim that the distortions in the economy were caused by the FRS monetary policy together with incompetent policies of the authorities, which finally led to the World War II. Because of this fall million people in the U. suffered losses Rossp. According to Keynesian theory the Great Depression of in the United States occurred due to overproduction of commodities and lack of money to buy them Rothbardp.
Since the money was tied to gold reserve, and the amount of this causes of the great depression essay was limited, there occurred a shortage of money, and hence the shortage of effective demand for goods and services. Further, in the chain reaction: a sharp drop in prices for goods deflationbankruptcy causes of the great depression essay enterprises, unemployment, protective duties on imported goods, fall of consumer demand, and a sharp drop in living standards Rothbardp. Before the beginning of the Great Depression the rate of the U. gold reserve growth was slower than the development of economy. This led to the emergence of hidden inflation, as the government printed new money for the rapid growth of the economy. Thus, as Edsforthp.
The situation occurred where the growth of labor productivity in industry declined, and the amount of pseudo-money bills, receipts, etc. However, there is another point of view about the causes of the Great Depression. According to the Marxist approach, the Great Depression was preceded by the rapid growth of the U. Thus, from to the U. national income almost tripled. Conveyor production was invented, the stock market was rapidly developing, the number of speculative trading was growing, the real estate prices were going up McElvainep. The increase in production of goods required the increase in the money supply, but the dollar was pegged to gold Bernsteinp. Another common view discussed by Marxist approach is that the responsibility for the Great Depression lies on capitalism and market economy, and only the intervention of the state led to the economic recovery of America Reedp.
According to this simplified approach, America was smashed and pulled into the depression by the stock market, one of the pillars of capitalism. President Herbert Hoover, a supporter of the laissez-faire principle non-interference of the state in the economy refused to use the tools of state power, and as a result the economic situation deteriorated. The conclusion seems obvious: capitalism cannot be trusted, and the state should play an active role in the economy to save us from inevitable decline Reedp, causes of the great depression essay. A popular explanation of the stock market crash of is based on a criticism of using borrowed funds to buy securities.
The authors of many historical studies argue that rampant speculation in shares was associated with the excessive use of leverage. Moreover, the fall of the margin requirements began to rise, and borrowers had to pay in cash most of the cost of the purchased shares Smileyp, causes of the great depression essay. So, the argument about the leverage does not hold water. However, the manipulation with money and credit flows is an absolutely different matter. Most economists-monetarists, in particular the representatives of the Austrian school, note the close relationship between cash flow and economic activity.
When the state makes cash and credit injections, interest rates fall at first, causes of the great depression essay. Companies invest this easy money in new projects in the production sphere and the commodity market is booming. With the stabilization of the situation, causes of the great depression essay, the costs of doing business rise, interest rates are adjusted upward, and profits fall. Thus, the effect of easy money comes to naught, and the causes of the great depression essay authorities, causes of the great depression essay, fearing of price inflation, slow down the money supply growth or even reduce it. In any case, these manipulations are sufficient to deprive an economic card-castle of its shaky foundation Reedp.
According to Rothbardsuch an increase of money and credit flows led to a reduction in interest rates, brought the indexes of the stock market to unprecedented heights and created the phenomenon of the roaring twenties. Unrestrained growth of the credit monetary mass became what the economist Benjamin Anderson called the beginning of the New Deal — the well-known interventionist policy carried out later by the President Franklin Roosevelt. However, other scientists doubt that the Fed move was the cause of inflation, and point to relatively stable prices for raw materials and consumer goods inwhich, in their opinion, suggests that monetary policy was not so causes of the great depression essay Higgsp.
Of course, a significant reduction of the high income tax rates under Coolidge helped the economy, and perhaps smoothed the price effect the FRS policy, causes of the great depression essay. The tax reduction stimulated investment and real economic growth, which further led to new technological breakthroughs and business inventions in terms of production cheapening. Undoubtedly, the booming growth of labor productivity had a stabilizing effect on prices, which would otherwise be higher Reedp. The actions of federal authorities in response to the recession only led to its aggravation Higgsp. It was a complement to the Fordney-McCumber Tariff ofwhich led the American agriculture to a crisis in the previous decade. Smoot-Hawley Tariff, the most protectionist bill in the U.
history, practically closed the borders to foreign commodities and initiated a bitter trade war Reedp. Officials from the administration and Congress were convinced that putting trade barriers would make the Americans buy more domestic commodities and this would finally solve the unemployment problem. But they apparently did not know an important principle of international trade: the state cannot block the import without blocking the export at the same time McElvainep. In general, the distortions in the economy caused by the FRS monetary policy led the country to the path of recession, but the further steps of the state turned a recession into a full scale disaster.
In turn, Roosevelt, indeed, made some changes, but they were apparently not the changes the country hoped for. In his first hundred days he took severe measures to limit profits. Instead of removing the barriers to the growth of wealth erected by his predecessor, he created his own ones. He weakened the U. dollar in every way through increase of its quantity and worsening of its quality. Almost all the bankrupted banks had worked in the states with causes of the great depression essay system laws these laws prohibited banks to open branches and thereby diversify their portfolios and reduce risks. InRoosevelt persuaded the Congress to establish a Causes of the great depression essay Security system, and in to introduce the minimum wage for the first time in the history of the country.
Although the general public still puts these measures to his credit, many economists have another point of view. As a result of the introduction of the minimum wage, many inexperienced, young, unskilled and vulnerable workers became too expensive for the employer according to some estimates, the provisions on minimum wage adopted in under another law, left unemployed aboutAfrican Americans Smileyp. And current researches and evaluations show that the Social Security system has evolved in such a nightmare that it will be necessary either to privatize it, or raise the already high taxes to keep it afloat Edsforthp. In general, as a result of his efforts, the economy was depressed till the end of the decade. The Great Depression had important consequences both for the U.
economy and the global economy as a whole. In the U. But, undoubtedly, the greatest burden of the economic crisis objectively rested on the shoulders of ordinary citizens. The massive decline in industrial production, the closure of tens of thousands of factories, mines and huge underemployment of production facilities — all this led to a tremendous increase in unemployment. If we add the fact that the U. had no state social insurance system, causes of the great depression essay, and many banks collapsed taking away the deposits of citizens, we can say that people had no hopes either for aid from the state or to get their money back. Many people faced a real threat of starvation. People lost the faith in themselves, their power and for a long time were in a state of psychological depression, which was much worse than the economic one McElvainep.
However, the situation of people who kept their job was not much better. The constant oppressive feeling of insecurity and fear of losing their jobs was supplemented with the constantly lowering wages. In addition, despite the fact that carrying out economic reforms newdealers were guided primarily by pragmatic considerations a certain objectively historical pattern loomed in their actions: they pushed and forced the state-monopolistic tendencies in the development of American capitalism. Thus, the reforms proved to be a tool to strengthen the state-monopolistic nature of American capitalism.
In general, the inefficiency of the financial and economic measures of the New Deal brought the advent of the new economic collapse in Bordop. The depression immediately spread to the European economies, but Europe really felt the whole force of the impact in It was an especially hard time for Germany depending on the depleting American loans and investments. Unemployment in the country reached 6 million people Gatesp. Within weeks, the crisis followed in Britain; it also impacted less industrialized nations such as France and Italy, causes of the great depression essay. With the sharp decline in demand for many products — such as coffee, sugar, cotton and silk — most of exporters got impoverished, from Brazil to Japan Gatesp. In Britain the Labour government fell, and the party itself was split.
Labourist leaders entered into the coalition with the Conservatives and the Liberals and formed the coalition government which cut unemployment benefits and salaries to civil servants. Government failed to save the pound and Britain had to refuse from the gold standard — financial stability. The principle of free trade was also sacrificed: to protect domestic producers, Britain imposed duties on many imported goods. This policy, known as protectionism, was applied by many countries, which led to reduction in global trade and slowed the overall economic recovery Gatesp.
In Germany, the depression caused such a causes of the great depression essay and anger that Adolf Hitler and his Nazi party came to power. It could have been a coincidence, but Hitler chose an economic course, unsuccessfully advocated by the British economist John Maynard Keynes, who argued that the government should not save but spend, start big public works projects to create jobs and give a new impetus to the economy Bordop. The Nazis were spending money on arms and construction of roads, because of it was required by the aggressive plans of Hitler, but the result was exactly what Keynes predicted: unemployment disappeared, and Hitler became a miracle worker in the eyes of millions of people Gatesp.
Militarism played a similar role in Japan. As a result, we can say that the Great Depression, which began in the U. Indeed, the reduction in world trade caused by tariff wars became one of the prerequisites of the Second World War, which began a few years later. Inother countries owed 30 billion dollars to U.
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Most importantly, just when the economy was purely dependent on low-interest rates and inflow of money from federal reserves, Fed increased interest rates, and subsequently, the market was in turmoil; hence the Great Depression was inevitable Knoop Contrastingly, the move by Federal Reserve to lower interest rates can be viewed from another angle whereby their action can be attributed to greed than an economic miscalculation. Federal insiders could have set low-interest rates to send wrong signals of an economic boom to investors Knoop Concurrently, as farmers and small businesses owners borrowed heavily to expand their investment base, insiders were also doing the same.
However, they were quick to offload their assets just before inflation Knoop The fact that the Federal Reserve gave no warning about the possibility of raising interest rates is enough evidence that insiders are to blame for causing the depression Knoop The period during the Great Depression was the best time to accumulate assets at huge discounts. In a nutshell, the Great Depression is the most unpopular economic event in US history. What began as sheer speculation of US stock prices finally erupted to be the worst economic downturn, whose devastating effects were felt across world economies. However, several decades down the line, economists have been unable to establish the actual cause. Knoop, Todd, A.
Recessions and Depressions: Understanding Business Cycles. Santa Barbara, Calif: ABC-CLIO, Causes of the Great Depression. This paper was written and submitted to our database by a student to assist your with your own studies. You are free to use it to write your own assignment, however you must reference it properly. If you are the original creator of this paper and no longer wish to have it published on StudyCorgi, request the removal. Introduction Several decades later, the aftermath of what is regarded as the worst economic slump in US history is still being felt across global economies. Learn More. Hope for New Life Ministries' Organizational Capacity. UK Aerospace Industry: Key Policies. Cite this paper Select style. Select citation styles APA-6 APA-7 MLA-8 Chicago N-B Chicago A-D Harvard.
Reference StudyCorgi. Thus, Alan Reynolds , p. People still share the feeling that a sharp economic slowdown can happen at any time: without any warning and without any reason. This fear is nowadays often exploited as a major justification for the practically unlimited intervention of the government into the economic sphere. As a result, many scientists today also take the position of criticism over the market capitalism and support economically destructive policy of the authorities. Further in this paper, we will critically examine social and economic causes of the Great Depression, as well as analyze its consequences through the prism of different approaches. We claim that the distortions in the economy were caused by the FRS monetary policy together with incompetent policies of the authorities, which finally led to the World War II.
Because of this fall million people in the U. suffered losses Ross , p. According to Keynesian theory the Great Depression of in the United States occurred due to overproduction of commodities and lack of money to buy them Rothbard , p. Since the money was tied to gold reserve, and the amount of this metal was limited, there occurred a shortage of money, and hence the shortage of effective demand for goods and services. Further, in the chain reaction: a sharp drop in prices for goods deflation , bankruptcy of enterprises, unemployment, protective duties on imported goods, fall of consumer demand, and a sharp drop in living standards Rothbard , p.
Before the beginning of the Great Depression the rate of the U. gold reserve growth was slower than the development of economy. This led to the emergence of hidden inflation, as the government printed new money for the rapid growth of the economy. Thus, as Edsforth , p. The situation occurred where the growth of labor productivity in industry declined, and the amount of pseudo-money bills, receipts, etc. However, there is another point of view about the causes of the Great Depression. According to the Marxist approach, the Great Depression was preceded by the rapid growth of the U.
Thus, from to the U. national income almost tripled. Conveyor production was invented, the stock market was rapidly developing, the number of speculative trading was growing, the real estate prices were going up McElvaine , p. The increase in production of goods required the increase in the money supply, but the dollar was pegged to gold Bernstein , p. Another common view discussed by Marxist approach is that the responsibility for the Great Depression lies on capitalism and market economy, and only the intervention of the state led to the economic recovery of America Reed , p.
According to this simplified approach, America was smashed and pulled into the depression by the stock market, one of the pillars of capitalism. President Herbert Hoover, a supporter of the laissez-faire principle non-interference of the state in the economy refused to use the tools of state power, and as a result the economic situation deteriorated. The conclusion seems obvious: capitalism cannot be trusted, and the state should play an active role in the economy to save us from inevitable decline Reed , p. A popular explanation of the stock market crash of is based on a criticism of using borrowed funds to buy securities.
The authors of many historical studies argue that rampant speculation in shares was associated with the excessive use of leverage. Moreover, the fall of the margin requirements began to rise, and borrowers had to pay in cash most of the cost of the purchased shares Smiley , p. So, the argument about the leverage does not hold water. However, the manipulation with money and credit flows is an absolutely different matter. Most economists-monetarists, in particular the representatives of the Austrian school, note the close relationship between cash flow and economic activity.
When the state makes cash and credit injections, interest rates fall at first. Companies invest this easy money in new projects in the production sphere and the commodity market is booming. With the stabilization of the situation, the costs of doing business rise, interest rates are adjusted upward, and profits fall. Thus, the effect of easy money comes to naught, and the monetary authorities, fearing of price inflation, slow down the money supply growth or even reduce it. In any case, these manipulations are sufficient to deprive an economic card-castle of its shaky foundation Reed , p. According to Rothbard , such an increase of money and credit flows led to a reduction in interest rates, brought the indexes of the stock market to unprecedented heights and created the phenomenon of the roaring twenties.
Unrestrained growth of the credit monetary mass became what the economist Benjamin Anderson called the beginning of the New Deal — the well-known interventionist policy carried out later by the President Franklin Roosevelt. However, other scientists doubt that the Fed move was the cause of inflation, and point to relatively stable prices for raw materials and consumer goods in , which, in their opinion, suggests that monetary policy was not so irresponsible Higgs , p. Of course, a significant reduction of the high income tax rates under Coolidge helped the economy, and perhaps smoothed the price effect the FRS policy. The tax reduction stimulated investment and real economic growth, which further led to new technological breakthroughs and business inventions in terms of production cheapening.
Undoubtedly, the booming growth of labor productivity had a stabilizing effect on prices, which would otherwise be higher Reed , p. The actions of federal authorities in response to the recession only led to its aggravation Higgs , p. It was a complement to the Fordney-McCumber Tariff of , which led the American agriculture to a crisis in the previous decade. Smoot-Hawley Tariff, the most protectionist bill in the U. history, practically closed the borders to foreign commodities and initiated a bitter trade war Reed , p. Officials from the administration and Congress were convinced that putting trade barriers would make the Americans buy more domestic commodities and this would finally solve the unemployment problem.
But they apparently did not know an important principle of international trade: the state cannot block the import without blocking the export at the same time McElvaine , p. In general, the distortions in the economy caused by the FRS monetary policy led the country to the path of recession, but the further steps of the state turned a recession into a full scale disaster. In turn, Roosevelt, indeed, made some changes, but they were apparently not the changes the country hoped for. In his first hundred days he took severe measures to limit profits.
Instead of removing the barriers to the growth of wealth erected by his predecessor, he created his own ones. He weakened the U. dollar in every way through increase of its quantity and worsening of its quality. Almost all the bankrupted banks had worked in the states with branchless system laws these laws prohibited banks to open branches and thereby diversify their portfolios and reduce risks. In , Roosevelt persuaded the Congress to establish a Social Security system, and in to introduce the minimum wage for the first time in the history of the country.
Although the general public still puts these measures to his credit, many economists have another point of view. As a result of the introduction of the minimum wage, many inexperienced, young, unskilled and vulnerable workers became too expensive for the employer according to some estimates, the provisions on minimum wage adopted in under another law, left unemployed about , African Americans Smiley , p. And current researches and evaluations show that the Social Security system has evolved in such a nightmare that it will be necessary either to privatize it, or raise the already high taxes to keep it afloat Edsforth , p.
In general, as a result of his efforts, the economy was depressed till the end of the decade. The Great Depression had important consequences both for the U. economy and the global economy as a whole.
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