The Great Depression
The Great Depression was an extensive economic crisis in the world’s economy which began in the United States in 1929 and later took hold of other countries of the world. Officially, this economic crisis ended in 1940, but effectively the US economy began to recover after the WWII. Definition ‘the Great Depression’ is usually used precisely in relation to the United States; for the rest of the countries it is usually applied as the ‘world economic crisis’. This crisis affected almost each developed country of the Western world (Berton, 2001). October 24, 1929, is known in modern US history as ‘the black Thursday, when the US stock market suddenly collapsed with a catastrophic drop in the share price. The latter was an unprecedented discharge of share prices in the history of world trading. Thus, the current paper looks into the probable reasons of the economic collapse that significantly influenced further course of history.
There are several theories and explanations of the causes of Great depression. Many think mistakenly that the stock market crash that happened on Black Tuesday, October, 1929 is just one and the same with the Great Depression (Berton, 2001). As a fact, it was one of the main causes that resulted in the Great Depression. Another cause was American economic policy with Europe. As businesses began declining, the government formed the Smoot-Hawley Tariff in 1930 to assist and protect American companies. This tariff charged a high tax for goods into the country, thereby resulting in less trade between foreign countries and the United States. Another argument for the cause of the Great depression was the failure of banking system (Berton, 2001). All through the 1930s, over 9,000 banks collapsed. There was no insurance of bank deposits and, therefore, as banks failed, individuals lost their savings. The remaining banks, being concerned with their existence and uncertainty about the economic situation, stopped creating new loans. This accelerated the situation leading to less and fewer expenditures. The final cause was related to the fact that there was a reduction in the purchasing power of the goods and services. During this era there was a huge gap in distribution of incomes and, what followed, was that people lowered their ability to purchase goods and services resulting into the unproductivity of businesses and unemployment rates rise (Berton, 2001).
The world economic crisis in many ways affected Western industrialized world and hence the governments made deliberate efforts to check the existing macroeconomic policies to boost purchasing power and boost levels of investment in their country. The latter, in the long run, enabled the governments to pull out of this great economic downfall and stabilize the currencies (Bernstein, 1989). The tough measures proposed by the Roosevelt administration were not profoundly market-oriented. Although, they helped to alleviate a burden of depression, the Supreme Court considered those measures as restricting freedom of competition and recognized the law on the restoration of industry and the law on the regulation of agriculture as unconstitutional. The economy of the country began a slow recovery and was considered again as market-oriented.
In conclusion, only by 1940 the United States reached the level of 1929 in terms of basic economic indicators, but even at that time the unemployment rate was the lowest at 14%. The economic crisis of the 1930-40ss was the most severe crisis of the 20th century, it embraced all capitalist countries, all spheres and fields of the economy. Huge amounts of raw raw materials were destroyed just to support pricing in the market. Collapse of the finance in the world’s financial center led to the immediate isolation of national economies and ruined trust between their financial systems. Perhaps, the crisis could have been avoided, or at least mitigated, but the state did not react immediately, and each event had its own chain reaction which seized more market branches. Not having it stopped from the very beginning, the state failed to get rid of the crisis and suffered unprecedented losses.
- Bernstein, M. A. (1989). The Great Depression: Delayed recovery and economic change in America, 1929-1939. Cambridge: Cambridge University Press.
- Berton, P. (2001). The Great Depression 1929-1939. Toronto: Anchor Canada.