Causes and effects of the Great Depression in The United States Essay Sample

This paper discusses and analyzes the causes and effects of the Great Depression which happened in the United States during 1929 to late 1930s or early 1940s. The causes of the Great Depression are several. for illustration. the drastic diminution in the measure of money in industrial economic systems and the beads of the monetary value on agricultural merchandises. Since the Great Depression is the longest. most widespread and worst depression in the twentieth century. the effects are enormous. Like economic patriotism formed because of the Great Depression. and even the explosion of WWII is related to it. Finally. the paper would come up with recommendations on how to avoid this sort of depression in the hereafter.

Introduction:
The Great Depression is a planetary economic depression which began on 1929. and it lasted until late 1930s or early 1940s. The Great Depression originated in the U. S. . on September 4. 1929. the stock monetary values started diminution around this period. On October 24. 1929. known as the “Black Thursday” in the American Financial history. a immense figure of American investors sold their stocks on the markets because of terror and rumour. this caused stock monetary values to drop enormously. which led the paper value of dollar drained. Then on October 29. 1929. known as the “Black Tuesday” . another moving ridge of selling stocks occurred. which leads to farther bead in the monetary value of stocks. hence it rapidly spread universe widely to about every county in the universe. Like a common people rime said “Mellon pulled the whistling. Hoover rang the bell. Wall Street gave the signal and the state went to hell” . Mellon’s full name is Andrew William Mellon. he is an American bankers. industrialist. altruist. and most of import. the Secretary of the Treasury during the beginning of the Great Depression. Hoover is 31st President of the United Stated besides during the Great Depression.

And as said in the common people rime. the stock market clang is a symptom or signal. instead than a cause for the Great Depression. As Table 1 in the Appendix shows. the Industrial Average falls drastically during October. 1929. The Great Depression was the longest. most widespread. and deepest depression of the twentieth century. and it is still used as an illustration of how bad the world’s economic system can worsen for presents. During merely 2 hebdomads from October 29 to November 13. 1929. there was wealth worth than 30 billion dollars eliminated from the market. it equals to the overall disbursement in the WWI for the U. S. Furthermore. in the early 1933. the unemployment rate reached its extremum at 25 % ( Swanson. 1972 ) . caused over 13. 7 million workers lost their occupations. And about 10. 000 Bankss had failed ; 100s of 1000s of Americans became stateless. and began congregating in shanty towns-dubbed “Hoovervilles”-that began to look across the state ( Bryant 1964 ) . Harmonizing to Table 2 in Appendix. we can see how bad the United States suffered from the Great Depression by comparing to other states besides affected by the Great Depression. Like the unemployment in the U. S. is up to +607 % . which means if the unemployment was 1 worker before and now is 6. while the Great Brain is +129 % . France is +214 % and Germany is +232 % . So it is evidently of import to analyze why the Great Depression happened in the U. S. and the effects on economic construction and society. and come up with recommendations on how to avoid this sort of depression in the hereafter. Causes

There were several causes of the Great Depression. First we begin with a study of the 1920s as an scrutiny for the overall production in the economic system. GNP. the most comprehensive step of aggregative economic activity. The existent GNP growing in the 1920s was rapid ; from 1920 to 1929 is 4. 2 per centum a twelvemonth harmonizing to the most researches ( Historical Statisticss of the United States. or HSUS. 1976 ) . Real GNP per capita grew 2. 7 per centum per twelvemonth between 1920 and 1929. GNP represents Gross National Product ; it is the step of national income and national end product. So it seems the U. S was in a good concern form. which originated from the stats above. the national income is increasing every bit good as national end product. But the national income is non the existent pay ; existent pay is equal to nominal pay. which is the national income divided by monetary value degree. And the national end product degree addition means that the net export of the state increases. As the Figure 1 showed below. we can see the increasing-trend line of GNP per capital. ( Smiley 2010. under “National Product and income and prices” )

The WWI brought unexpected prosperity to American husbandman. as the demand for agricultural merchandises in Europe. because of the intervention of war. agricultural production in Europe declined. hence the demand for American agricultural exports increased. doing the rise of agricultural merchandise production and incomes. So consequently. American husbandmans expanded production by traveling the production country to fringy farming area. Therefore. the effect is resulted in the increasing of farming area monetary value. particularly fringy farming area. and debt of American husbandmans increased drastically. However. the recovery of Europe agricultural production was better than most people expected. Therefore. the demand for agricultural merchandises decreased in Europe. therefore doing the agricultural merchandise monetary value to drop. As the Figure 2 showed below ( Smiley 2010. under “Agriculture” ) . from twelvemonth 1921 to 1925. the existent income per farm supports increasing. after 1925. the major tendency of existent mean income per farm started diminishing. particularly after twelvemonth 1929. beads drastically. Figure 2-Real mean income per farm

Furthermore in the twelvemonth of 1928. the lumber monetary value in the U. S. falls. because of the competition of lumber market against the Soviet Union and in 1929. American authorities had to take down the monetary value of agricultural merchandise since Canada overproduced wheat. Therefore. the depression in agribusiness and the dependence of developing states on unstable international markets for their primary products’ exports is one cause for the Great Depression.

Harmonizing to Milton Friedman’s measure theory of money. the equation of exchange is m*v=P*Y. where thousand represents measure of money. V is the speed in circulation. P is the monetary value degree and Y is existent GDP end product. And in order to get at the measure theory of money. foremost the speed in circulation does non alter as money supply alterations. Second the end product degree does non alter as the measure of money alterations in the long-term. So we can rewrite the equation as m* ( v/Y ) =P. ( v/P ) remains changeless in the long-term. so if the money supply beads. the monetary value degree besides follows to drop and the per centum lessening in the money supply peers to the per centum lessening in the monetary value degree. as if the money supply falls by 10 % . so the monetary value degree will besides fall by 10 % ( Fahmy 2011 ) . So as the drastic diminution in the measure of money. that is besides known as the diminution in money supply in major industrial economic systems in the U. S. . leads to the bead in the monetary value degree. As a consequence of this. deflation is expected.

And there are some economic experts argue one of the grounds that the American money supply declines is to endorse up money to continue the gilded criterion. Gold criterion means that the country’s currency is converted to a specified sum of gold on demand. After World War I. the United States was runing under the gilded criterion. If a state is under the gilded criterion. the authorities must honour its debt without fall backing to inflationary funding that is publishing money to finance its shortages when such paper money is non to the full backed by gold ( Fahmy 2011 ) . And a country’s currency is besides backed by revenue enhancement gross and foreign assets. since the currency is non to the full backed by gold ; the authorities needs to finance it by raising revenue enhancement or selling foreign assets. which would act upon the economic system and criterion of life.

Between 1926 and 1931. the world’s major economic systems insisted a gilded criterion with fixed exchange rates ( Hamilton 1988 ) . But before that. the universe economic system is earnestly hurt by the WWI. which caused the misallocation of the world’s stock of gold. and the dislocation of the gilded criterion after WWI. Since the U. S. authorities is committed to the gilded criterion to forestall it from prosecuting in expansionary pecuniary policy. high involvement rates had to be maintained as an attractive force for international investors who can purchase foreign assets with gold. However. high involvement rate decreased domestic concern adoption. Consequently. the ingestion and investing outgo would fall.

Figure 3 shows. income per capita of the U. S. diminishing drastically after 1929. during that clip. the authorities is in the fixed gold criterion. As the trigon point shows in the figure. that is the point when the state left gilded criterion. consequently the income per capita started to retrieve. Figure 3-income per capita

Bank failure is another cause of the Great Depression. The influences of bank failure are evident as merely numbering of the Numberss of Bankss that fails. At the early phase of the Depression. Bankss that loaned to investors who were puting money in stock market were instantly at hazard. As Figure 4 shows below. There were more than 25. 000 Bankss in the U. S. in 1929. and in 1933. which was the lowest point ; there were simply 15. 000 Bankss left. And as the paper mentioned earlier. as the increasing loan made for husbandmans. and they can non pay back the loan. hence dead loan is another component of the bank failure. Banks failed the public merely by Page 6

losing the nest eggs. Even though there were Bankss still working. they concerned about the unstable economic environment. hence they would non be willing to impart money to public. accordingly doing less outgos. So the depression was acquiring worse. Figure 4- figure of Banks in the U. S. ( 1000’s )

Besides there are many other causes of the Great Depression. like the break of trade by following protective instead than free trade steps. for illustration. high duty policy. Economic patriotism Acts of the Apostless as an economic policy in the 1920s and so on. due to the restriction of paper content ; we are non discoursing the inside informations here.

Effectss
As the Great Depression acquiring worse. the authoritiess started to step in to economic system. In the twelvemonth of 1930. President Herbert Hoover performed several plans to contend the Great Depression ; one of them was the Smoot-Hawley Tariff Act. which increased duties on imported points. Consequently. this Act intended to promote Americans to buy domestic merchandises by increasing the cost of imported goods. meanwhile raising gross for the federal authorities and protecting consumers and husbandmans. But other states besides increased duties on American merchandises. therefore cut downing international trade. so declining the Great Depression. As the most obvious economic impact of the Great Depression was human agony. During the Great Depression. productiveness and criterions of life dropped sharply. The unemployment rate was unbelievable as 25 % as the Figure 5 showed below. Figure 5- U. S. unemployment rate

The recovery of the Great Depression is ever related with the New Deal. The New Deal is a series of economic plans implemented in the United States from 1933 to 1936 and they were passed by the U. S. Congress during the first term of President Franklin D. Roosevelt. Figure 6-U. S. existent GDP. As the Figure 6 shows below. the existent GDP started to retrieve around twelvemonth of 1934 after a immense bead because of the Great Depression. In the “First New Deal” of 1933-4. plans. such as the National Recovery Administration ( NRA ) . sought to excite demand and supply work and alleviation through increased authorities disbursement.

To stop Deflation the Gold criterion was suspended and a series of panels consisting concern leaders in each industry set ordinances which ended what was called “cut-throat competition. ” believed to be responsible for coercing down monetary values and net incomes countrywide ( Blanchard 2009 ) . And during the Great Depression. dozenss of Americans could non happen a occupation. the Works Progress Administration ( WPA ) . acted as an ambitious New Deal plan. set over 8. 000. 000 people back to work infinite. In short account. the New Deal is the alleviation of the unemployed and hapless. the recovery of the economic system and reform of the fiscal system to forestall a repetition depression. And in 1941. as the U. S. entered the WWII. the effects of Great Depression were eventually eliminated and the unemployment rate was down below 10 % as showed in Figure 5 above.

Decision
Harmonizing to the researches in the paper. The Great Depression is the consequence as a complex combination of factors-tight pecuniary & A ; financial policies. bank failure. prostration of the gilded criterion. decreasing of agricultural products’ monetary value. the diminution in domestic money supply and so on. And I’m convinced that the Great Depression could be avoided in the hereafter if above factors get well-solved and with appropriate ordinance on economic system and market by the Federal Government. like gold modesty and standard ordinance. currency flow and monetary value control.

Mentions

Swanson. Joseph and Williamson. Samuel. 1972. “Estimates of national merchandise and income for the United States economic system. 1919–1941” . Explorations in Economic History 10: 53–73. Joyce. Bryant. “The Great Depression and New Deal” by. Yale-New Haven Teachers Institute. Smiley. Gene. 2010. “THE U. S. Economy in the 1920s” . hypertext transfer protocol: //eh. net/encyclopedia/article/smiley. 1920s. concluding ( accessed February 1. 2010 ) Hamilton. James D. 1988. “Role of the international gold criterion in propagating the Great Depression” . Contemporary Economic Policy. volume 6. issue 2. pages 67-89.

Friedman. Milton and Heller. Walter W. 1969. Monetary vs. Fiscal Policy: A Dialogue. W. W. Norton & A ; Company. Inc. . pp. 79-80.
Blanchard. Olivier ; Illing. Gerhard. Makrookonomie. Studium. Pearson. 2009. ISBN 978-3827373632. p. 696. 697
Fahmy. Yasser. 2011. “The decomposition of national and international economic systems with the first World War” . The International Economy in Historical Perspective. Published by Linus Publications. Inc.