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Introduction to Depression

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❶It took a very short time, and the levels of living went down drastically. The homeless rate increased dramatically.

Essay on The Causes and Consequences of the Great Depression

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The Great Depression key events/summary of events
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Consequently, the American government at that time did not formulate policies and measures to ensure that the country did not experience the same meltdown as Europe. The Great Depression in America began with overproduction and low prices in the agricultural sector.

The country was well advanced in technology and farmers increased their production levels. Prices dropped due to increased supply, which was followed by a drought. Farmers could no longer pay their loans and some banks closed down. The American economy policy in the s was laissez faire and this led to uneven distribution of wealth. The rich controlled major sources of income and became richer. There was a significant and constant decrease in spending.

International policies in Europe and America that supported an increase in tariffs brought international trade to a standstill. Nations that owed America billions of dollars could not honor their obligations because of the effects of the depression. Older men, women, and families at large were on the rails too. They would be seen boarding trains just to cross and see whether they could get some occupation. Those who could not get the job would end up living in shanty towns which were outside the town.

The houses in such places were made of affordable cheap materials like newspapers, wood, mud, cardboard, and iron sheets. Farmers who could no longer afford their previous lives would be found in western California. This is because of the agricultural opportunity rumors that came from that area. It is true that there were periods of agricultural opportunities.

The farmers were nicknamed as Okies and Arkies. The citizens always blamed the governing President, though he always talked about optimism. Some of the shanty towns which were far from big cities were named after him — for instance, Hoovervilles. Interestingly, newspapers used to cover people sleeping in the streets were called Hoover Blankets. What is more, even bad looking broken cars were referred to as Hoover Wagons Martin The Great Depression had a huge impact in that it caused human suffering.

It took a very short time, and the levels of living went down drastically. People started borrowing from each other just to survive. Unemployment increased since industries could not take employees anymore.

They could not afford to pay the people what they deserved. Research shows that at least a fourth of the labor force in all the industrialized countries could not work anymore Martin The industries could not satisfy them in terms of wages. This was noticed in , and the total recovery was only realized by the end of that decade.

End of international gold standard. The Great Depression is seen as a cause of international gold standard. There was no money to invest anymore, and it was evident that the interest rates went down too. There was also the introduction of floating rates, and people stopped using the fixed exchange rates.

On the other hand, there was an expansion of the welfare state and labor unions in Union membership went to an extent of doubling between that year and This was a result of extreme unemployment and the National Labor Relations Act which was passed in All this led to collective bargaining.

The US took an extra mile of coming up with unemployment compensation. This was incorporated in the Social Security Act the same year. Its aim was to cater for the hardships that the citizens were going through in The rate at which the government regulated the economy increased substantially. The focus was mostly on the financial markets. Different bodies to carry out this function were established.

These included the Securities and Exchange Commission which was established in The main role of these institutions was to control and regulate stock issues in the stock market, especially with regard to the new products.

The Banking Act went ahead to come up with deposit insurance, whose role was to work with the banks by prohibiting them from underwriting. Deposit insurance was not so popular in the world up to the Second World War. This time it was able to work effectively, hence achieving its mission and objectives. Growth of macroeconomic strategies. The aim of the latter was to fight the economic upturns and downturns. As a matter of fact, different strategies were established to fight the Great Depression.

An increased focus on how the government spend, tax cuts, and expansion of the monetary fund were some of the ways to fight the the phenomenon under consideration. The government was also trying to work to its best so as to fight unemployment. The banks were also working against recessions. Homelessness, discrimination and racism. Many people had lost their jobs and it became even hard to get rent for their houses.

They had to move to shanty areas which also were not very affordable. Others could not afford anything to cover their heads. This led to building the Hoovervilles. Since so many people were unemployed, there was a huge competition in the job market.

Very few could get jobs, and those who did were not paid according to what they delivered. Under the circumstances, discrimination grew and African Americans could rarely get a job. 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: 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. 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: 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.

Thus while the quotes were collapsing, Congress was playing with fire: 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. 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.

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The Great Depression. The Great Depression was the worst and longest economic downturn in the history of the world economy. The Depression began in and lasted until This economic meltdown affected Western industrialized economies but its effects spread across other nations.

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Introduction The Great Depression in the United States, which lasted from the end of until the early 's, was the worst and longest economic collapse in the history of the modern industrial world. The Wall Street stock-market crash of began the Great .

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