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2 Page Essay On The Great Depression

The Causes And Solutions Of The Great Depression

March 4, 2000 The Causes and Solutions of the Great Depression The collapse of the stock market began on October 24, 1924. Approximately thirteen billion shares were sold. The collapse was devastating and long-term. On Tuesday, October 29th, more damage was done. It became known as Black Tuesday, and about sixteen million more shares were sold. Many businesses closed, and millions of people were left unemployed. Wages for the employed dropped drastically. The value of money fell as the demand of goods decreased.

In John Kenneth Galbraith's book, The Great Crash 1929, one of the most renowned attempts to explain the damage of the 1929 crash was made. He claims there are five important factors: 1) The consumer gods market was limited by an inadequate dispersal of cash flow. People's incomes were not high enough to purchase the goods being manufactured.

2) Corruption and fraud was rampant in big business and in the stock market. Wall Street was depending on useless paper that had no money behind it.

3) The banking structure collapsed after making too loans that could not be called in, resulting in a loss of people's savings.

4) The United States was put in further debt when loans of large amounts of money to foreign nations could not be repaid. High trade barriers in the United States led to the damage of foreign markets because they were not able to send their exports to the United States.

5) In the years prior to the Stock Market Crash, information about the economy was not nearly as detailed and profound as it is today. Economists of the day were not able to predict economic trends in industry, investment, consumer spending, and other factors that would have allowed them to identify a potential crisis. This is known today as The Stick Market Crash of 1929 and was followed by the Great Depression (Galbraith 182-187).

According to John Garraty, people believe there are many factors that lead up to the Great Depression. One of the most widespread causes of the depression came a as a direct result of The Great War of 1914-1918, known now as World War I. After the war, a reconstruction period lasted until 1925, bringing current economic levels back to those of 1913. Continuous growth and prosperity ended abruptly in 1929. The end of the post war economic uplift was the last major increase in growth our nation was to see for the next ten years. In 1939, as quickly as the depression hit, it was over. World War II had begun (2).

Many people also feel that if the great nations of the world, who were all experiencing similar signs of economic depression, had attempted to correct them, together they could have avoided,...

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“The Great Depression of the 1930’s was a worldwide phenomenon composed an infinite number of separate but related events.”  The Great Depression was a time of poverty and despair caused by many different events.  Its hard to say what caused this worldwide depression because it’s all based on opinion as opposed to factual data.  There are many contributing factors but not one specific event can be pin pointed for starting the depression.  It is believed that some events contribute more than others-such as the Stock Market Crash of 1929.

The Stock Market Crash of 1929 was in the majorities opinion, a long and overdue crash that was bound to happen.  Prices sky-rocketed so high that when they reached what was believed to be it’s all time high, most people sold their gaining stocks for a profit.  So many people sold their stocks at a rapid rate that the corporations were unable to pay the shareholders.  Speculation arouse months before the crash when Roger Babson made his speech at the annual National Business Conference which he said “….. Sooner or later a crash is coming which will take the leading stocks and cause a decline from 60 to 90 points in the Dow Jones Barometer.”   This and many others speeches like this scared people into selling there stocks before the inevitable would happen.  This was a leading causes that assisted the Great Depression become one of the bleakest and most studied events in the history of our country: yet not the only cause.

Another large contributing factor was Mother Nature, I say this because in Oklahoma the weather was so dry that the farmers were unable to harvest their crops: these farmers became known as Okies.  The land was a barren wasteland of dust and dirt in which it got it’s name the Dust Bowl.  In other areas, the extreme opposite took place: farmers overproduced and prices rapidly dropped because the demand decreased.  The drastic result of this oversupply made it hard for farmers to make money due to the fact that they had so much that they were forced to sell it at substantial low priced just to remain competitive enough to make even the small profit they were making. The imbalances were however, self correcting in which if manufacturers made too much of something, it’s price would fall, profits would disappear, and the producers would cut back on output.  In 1932 the American writer, Stuart Chase described cycles as “the spree and hangover of an undisciplined economy.”

Economists recognized the depression as a cycle in which there were four cycles; expansion; crisis(or panic); recession (or contraction); and recovery.  The definitive description was made by Wesley Clair Mitchell of the University of California.  A cycle Mitchell explained in Business Cycles(1913) was “the process of cumulative change by renewal of [Economic] activity develops into intense prosperity by which the prosperity engenders a crisis, by which crisis turns into depression and by which depression finally leads to…. a revival of activity.”

Banks played a significant role in the depression because they were in  charge of all the money and interest rates.  For example when banks had large reserves, they lowered interest rates.  Cheaper loans encouraged manufactures to invest in new equipment and hire additional workers.  The resulting expansion of production caused an upswing of the cycle.  The increased borrowing eventually reduced the bank’s reserves, thus resulting in a drastic increase of interest rates.  That discouraged investors and slowed the economy down.  Another good explanation was the bad distribution of wealth for the cycles. During these challenging and difficult times the rich opted not to spend there money: they saved in banks, vaults, etc.  This resulted in increased investments, more production, and eventually more goods piled up on shelves and warehouses.  Prices fell, production was cut back and workers were discharged. As a result, the economy entered the depression phase of the cycle.

The crisis stage of the cycle was brought about by bank failures and by irrational selling of stocks ;thus causing business failures, a slowing in production, a rise in unemployment, and an overall optimistic view about the future.

Another helpful aide in the depression was the chief International creditor who was described as “unexperienced and less careful about it’s lendings because it was less dependent on this business than the chief pre-war tender, Great Britain.”  He granted huge short term loans to politically unstable nations.

Lionel Robbins was a professor at the London School of Economics.  He offered what was probably “the most influential contemporary explanation of the length of the downturn in the Great Depression(1934).  The World War (World War I) had destroyed much property and stimulated nationalistic sentiments that resulted in restrictions on international trade; Robbins wrote”  Robbins believed that the depression was dragging on because of structural weaknesses.  An example of Robbins philosophy was that the monetary confusion and rampant inflation after the war had hampered.

Many policies that the government put out hurt and slowed the recovering economy.  One act known as the American Hawley-Smooth of 1930 crushed the European industry which was already unstable from the depression.  It stopped European trade and prevented European from earning the almighty dollar.  This Act also destroyed any possibilities of regaining the money loaned to them during World War I.

The collapse of the German Banking system in 1931 had monumental affects on the entire world.  It aided to turn, what would have been, a small economic problem into the Great Depression.  President Hoover was outraged and blamed the Great Depression on the Europeans by saying, “the hurricane that swept our shores were of European origin.”  He also said, “European statesmen did not even have the courage to meet the real issues and heavy spending on arms and frantic public works programs to meet unemployment led to unbalanced budget and inflation that tore their system assunder.”

The Germans also blamed the depression on the harsh terms imposed by the Versailles Treaty, especially the reparation they were forced to pay.  They claimed the reparations brought down the economic vitality of their country to an all time low.

Not one single book I have read has blamed any one specific country for the start of this catastrophe.  As a matter of fact, each book has said if the countries would have worked in unison rather than focusing solely on themselves we might not have ever heard of the Great Depression.  Nobody knows what the result would have been if the countries worked together and resolved the problem before it festered as it did.  No one ever envisioned the extensive duration of the depression.  My only prayer is that we never see another time like this again.

The United States was and still is a great power in the world’s manufactured goods – twice as much as Great Britain and Germany combined.  When American producers cut back on their purchases of raw materials and other supplies, the effect on other countries was devastating.  The policies of the Federal Reserve Board in the early 1930’s put added pressure on European currencies.  After Great Britain was again forced to leave the gold standard in 1931, many foreign banks withdrew deposits from America in the form of gold: they were afraid that the United States might go off the gold standard too.  “When the Reserve Board raised the discount rate to discourage these withdrawals it inadvertently exacerbated the deflationary trend, thus deepening and prolonging the world depression.”  The America delfation was probably the cause of much of the deflation that took place elsewhere and thus an important reason why the depression lasted so long.

High unemployment was the most alarming aspect of the Great Depression.  “In every industrial nation, more people were out of work than in any period in the past.  It has been estimated that in 1933 about thirty million workers were jobless, about two-thirds of these in three countries – the United States, Germany, and Great Britain.  If anything, this estimate is low.”  In New York City a survey was conducted by the Welfare Council and in New York alone 100,000 families were being treated for physical and mental effects of unemployment.  The homeless rate increased dramatically.  So much so that many people did not even have a roof over their heads.  The majority of homeless people had nothing at all and the minority made shacks on vacant land: these shacks soon became known as “Hoovervilles”.

Women played a new role during this time.  When a man lost his job and was having difficulty locating a new one, it was up to the women to work.  This made a man “feel less than a man” because the women were supporting the family and at that point in time such an event was frowned upon.  Worldwide, in 1929 about one-third of all workers were women.  Everyone agreed that ending the depression would solve the unemployment problem or at least bring unemployment down to “manageable” levels.  There was also, however, the more immediate problem of what to do about the people who were unemployed and needed assistance merely to survive.  Whether efforts to aid the unemployed would help to end the depression or make it worse was a matter of risk-taking.  Another way to solve the unemployment problem was to export people to other countries that had available jobs so that people could survive.

I do not think the Great Depression could have been avoided: we simply do not live in a perfect world.  There is no way of telling when or if the next depression will occur.  I feel if the governments worked together then the depression would not have been such a catastrophe as it ended up being.  Did the nations not know that they influenced the course of the depression and in turn, the course of history.  Another reason why the depression lasted so long was because politicians were so busy in pointing fingers at each other instead of resolving it.

Who knows how long the depression would have lasted if World War II never came to be.  Because of World War II industries began making weapons and these industries hired the workers to meet the high demands.  The United States would sell their weapons world wide and make a profit.

This turn in events concludes the era of the Great Depression with the last cycle: recovery.

It is an amazing and complex phenomena, that at seventeen years old I am able to pin-point (in what is my opinion), the leading cause of the duration of the Great Depression: uncooperative leaders unwilling to aid and assist so that harmonious coexistence would have prevailed.

Hopefully, at this point in our history we have learned from our past mistakes and will never see such a dreadful and dire time again!

 1). Bernstein, Irving. A Caring Society, The New Deal, The Workers, And         The Great Depression.   Haugghton Mifflin Company. 1985
 2). Garraty, John A. The Great Depression. Harrcourt Brace Jovanovich   Publishers. 1986
 3). Hoover, Herbert. The Memoirs Of Herbert Hoover 1920-1933. The    Macmillan Company. 1953
 4). Meltzer, Milton. Brother Can You Spare A Dime.  Random House Inc.   1969
 5). Patterson, Robert T. The Great Boom And Panic. Henry Regenery    Company. 1965
 6). Rothbard, Murray W. America’s Great Depression. D. Van Nostrand   Company Inc. 1963
 7). Smith, Gene The Shattered Dream. William Morrow and Company. 1970
 8). Watleins, T.H. The Great Depression, America in the 30’s. Little Brown   Company. 1993

Filed Under: Great Depression, History