The Great Depression (Economic Essay Example)

The Great Depression is one of the most significant periods in the modern history of the United States. The Great Depression is a term denoting a psychological and economic crisis that emerged in the United States and in some European countries. In fact, it is a global economic crisis but the term is usually used in reference to the United States. The Great Depression began with the global economic crisis in 1929, which had the biggest influence on the United States. The acute phase of the crisis dragged on for three years – from 1929 to 1932 – the beginning of 1933 (Gunderson 10). The economy could not fully recover from the crisis until 1939. Therefore, this period was called the Great Depression because of its duration and serious consequences for society. With respect to the US economy recession reasons, there are many versions, which, in general, complement each other. The purpose of the current paper is to study the causes, consequences, and reasons for a long duration of the Great Depression.

In the early 20th century, the United States experienced an extraordinary economic boom. There was the steady growth in the share price of the largest companies. The volume of production and consumer loans increased greatly. There was virtually full employment and all areas of the economy flourished. The unemployment rate was in the range of 4-5% of the working population and the average salary was increasing steadily (Gunderson 7). All politicians and ordinary people believed that the United States would have the same growth in future. However, the situation greatly changed in the 20s. Even these days, historians and economists argue about the possible causes of the crisis. Nevertheless, they all have a common opinion that the crisis began because of the Stock Market Crash. It happened in October of 1929 (Gunderson 7).

Thus, this month in history is usually called Black October. Black October was considered the beginning of the Great Depression. The 1920s in the United States were associated with the consumer revolution and the subsequent speculative boom. At that time, the stock market was growing at the faster pace. The average value of the securities raised by 40% per annum, while trade turnover increased from two million shares a day to five million (Gunderson 11). People obsessed with the idea to get rich invested all of their savings in stocks of corporations to sell them more expensive in future. As it is known, demand creates supply and, thus, the value of securities grew in geometric progression. Inflated stock prices did not stop Americans. In order to purchase the securities, investors actively borrowed money in the banks. The excitement in stocks generated a bubble, which, according to the laws of economy, had to burst sooner or later. The bubble blew on the black Thursday in 1929, when the Dow Jones index was down to the level of 381 and investors began to panic in order to get rid of the securities (Gunderson 11). In one day, more than 12 million shares were sold, while the Dow Jones index fell by another 11% (Gunderson 11). Black Friday was followed by Black Thursday and, thus, the whole October became “black”.

One more reason for the development of the crisis was the oversupply of goods. The natural development of the market and the presence of big capital, which operated outside of the national regulation, led to the fact that it produced such a great number of all goods, including food and many other things that the market could not digest them (Cravens 22). The purchasing power of the population did not correspond to the quantity of goods that were produced and were on the market. As a result, there was a market’s collapse.

Financial speculation was another reason for the Great Depression. It was a time when the financial market developed and trade shares grew. However, this process also occurred out of control causing the inflation of many financial bubbles, commitment of financial speculation, creation of speculation fictitious companies, and occurrence of different other frauds (Cravens 25). Shares were issued by all of the fraudsters. This fact also led to inflating of the financial bubble and a sharp collapse in the value of shares, which served as another strong impetus for the economic crisis.

The economy of the United States during the period of the Great Depression experienced a real collapse. The decline of the US economy during the crisis was extremely deep. In the book Great Depression: People and Perspectives, it is affirmed that “a serious worldwide economic depression occurred throughout the 1930s and its effects in the United States were catastrophic and widespread” (Cravens 5). All spheres felt its devastating impact. Some industries were in a catastrophic situation. It is especially true for the financial sector of the United States. The financial sphere in the country experienced several crises during the Great Depression. The first crisis was in 1929. However, a few months later, the situation slightly changed for the better (Walton and Rockoff 425).

The second financial crisis began in 1933. This time, it was even more serious and devastating. The situation worsened because of the financial sphere in Austria. Its major bank located in Vienna failed. People in Europe started converting paper money into gold. This fact contributed to the general panic in all of the European countries. After the failure of the bank in Vienna, the panic has spread around all of the European states. Thus, other major European banks also collapsed. At the beginning of 1933, the entire financial system in the United States was practically ruined. In the book History of American Economy, it is noted that “between 1930 and 1932, more than 5000 banks containing more than $3 million in deposits had suspended operations” (Walton and Rockoff 425). Therefore, a great number of banks were closed. The debt crisis was highly serious. The drop in share prices was great. The fact that both private investors and companies sought to withdraw their money from the banks only worsened the situation in the state. It led to the fall of the entire banking system, which was blocked and later stopped functioning.

There was the great decline of economy. The decline in industrial production actually approached 50% and in some areas, this figure was even higher (Cravens 54). The Great Depression particularly affected the sphere of agriculture. Farmers who could not sell their products became bankrupt. During this period, more than 600,000 of farms collapsed (Cravens 55). The Great Depression led to the extreme reduction of GDP in the country. In the book History of American Economy, it is stated that “the US gross domestic product (GDP) in current prices declined 46 percent, from $104.4 billion to $56 billion” (Walton and Rockoff 418). People in all cities of the country have experienced great difficulties.

It should be noted that a problem of famine was highly serious. The threat of hunger in the United States was absolutely real. The threat which was distributed in large industrial centers hung over a large part of the rural areas. It is associated with the fact that about 10 states, in addition to the decline in agricultural production were struck by a very powerful drought (Cravens 55). As a result, it became impossible to live in these states. People moved to more prosperous areas of the country. However, even in big developed cities of the United States, the situation was extremely difficult. Many workers have lost their jobs. It should be stated that 1933 was the hardest year for the country. The authors Gary Walton and Hugh Rockoff (2010) affirm that “in 1933 the worst year, one-quarter of the civilian workforce was unemployed or had to get by on emergency ‘make work’ jobs created by the federal government” (419). Thus, many people moved to different countries in search of better life. However, the situation in European countries was practically the same as in the United States.

The lack of investments has significantly contributed to the fact that the Great Depression lasted for such a long period of time. Many economists and historians have studied the causes and consequences of the Great Depression. However, very little attention has been given to the study of question of why this crisis lasted for such a long period of time. The American economist Charles Kindleberger has pointed to the cause of the protracted nature of the Great Depression. According to his opinion, the main cause for it is a political certainty (Cravens 104). This theory holds that even when market prices are significantly reduced to attract investors back into the economy, investors may still abstain. It is associated with the fact that the volatility of public policy makes it impossible to count the profits with any degree of accuracy. Political uncertainty relates to the larger than usual uncertainty in any business due to the change in consumer preferences or the implementation of a business plan. It has to do with the additional uncertainty caused by the state policy of active intervention demonstrably undertaken to improve the conditions, which, however, worsens the situation.

In the 1930s, policy uncertainty was caused by fluctuating the changeable nature of policy intervention in price control issues, price subsidies, labor law, and confiscation of gold. Moreover, it was aggravated by the decisions of the Supreme Court, which supported one program and canceled the other. Even with the huge untapped labor resource and extremely low prices, the capitalists were bystanders in the 1930s (Cravens 105). It was as long as the cloud of political uncertainty was not dissipated under the pressure during World War II and, finally, with a reduction in taxes in 1946 (Cravens 105). Only when the government moved away, the economy of the United States got rid of the Great Depression.

Overcoming the Great Depression in the United States is usually associated with the radical New Deal of President Franklin Roosevelt. As a result of the measures taken, the U.S. economy managed to reach the level of 1929 by 1937 (Cravens 121). Roosevelt improved the rate of unemployed and increased the real gross national product. Despite this fact, the United States was able to recover from the effects of the Great Depression only at the beginning of World War II.

The Great Depression is a long-lasted economic crisis in the world economy. It initially began in the United States in 1929 and then spread to other countries. Causes of the Great Depression are subject of constant debates about the role of the private business activity and government policy. In general, it can be said that the main cause of the crisis was the fact that capitalism had ceased to be a self-regulating system. It was a crisis of over-production of many goods, which were followed by a period of prosperity and the rise of the U.S. economy. The crisis began after the collapse of share prices on the New York Stock Exchange. All spheres suffered from the crisis. People lost their jobs and moved to other countries and regions. The duration of the crisis was associated with the lack of investment and only Theodor Roosevelt managed to take the country out of the crisis.