Great Depression
Great depression, which emanated from the United States, is an economic depreciation that began in 1929 and lasted for a decade to about 1939. Great depression took long; hence was the longest and the most critical ever experienced in western world countries, which led to significant changes in economic sectors. It led to a drastic decrease in output, led to the loss of employment and also caused substantial acute deflation in almost every country in the world. The great depression had both social and cultural effects, especially in the US, where it represented the severe and most severe adversity faced by Americans since the Civil War.
Economic History
Significant depression effects were different from one country to the other. It also came at different times in every country in the world. The depression was much serious in America and European countries, less severe in Japan and much of Latin American states. Great Depression had several impacts in the US, i.e. lowered consumption demand, led to financial panicking and also misguided policies that are made by the government institutions. This led to the fall of economic output not only in the United States but also it was transferred to other countries.
The gold standard was the medium of exchange that linked most countries of the world. Therefore it played a crucial role in causing the American economy to fall to other countries of the world since they used the same medium of exchange. Reviving the economy from this Great Depression menace was enhanced by doing away with gold Standard as a medium of exchange and ensuring that there was the introduction of money currency in most countries. The great depression had a negative impact economically, which led to human suffering and a lot of changes in economic policy.
Timing and Severity
The great depression menace just started ordinarily in 1929, and the fall economically became worse towards the end of 1929 and continued for four years to the beginning of 1933 (Benmelech et al. p. 543). Actual output or production and prices dropped drastically from highest to lowest, Production in the industries of the US fell by 47% and its real gross domestic product dropped by 30% ((Benmelech et al. p. 545). The wholesaling price index fell by 33%, and lack of employment is believed to have gone above 20% at its peak. Effects and seriousness of this Great depression in the US become clear when in comparison with Great Recession of between 2007 and 2009 during which the real gross domestic product dropped by just 4.3% which is far less and the unemployment rate was highest at less than 10% which is also far less than that during the great depression (Benmelech et al. p. 547).
These Great depression effects were felt in every country in the world. However, the time and size of the fall were different in each country of the world .for example in Great Britain which had low growth in late1920s and the state did not get into severe economic fall until a year later where its fall in its production was much less than that of US it is believed to be a third that of US (Hansen, p.559). France’s industrial production and prices had a shortfall in the economy the same year with Great Britain but later became worse for three years, I.e. 1933-1936. Germany’s economy started falling in 1928 before stabilizing and then turned down in late 1929. Its fall was believed to be the same as that of the United States; Latin American countries fell into depression slightly before the United States output declined. At the same time, Argentina and Brazil had a mild fall in their economy; other third world countries experienced a severe fall in their economies. Japan experienced mild depression which started quite late as compared to other countries and ended much earlier due to flexibility of pricing structure
Generally, there was a price deflation in all countries. Every industrialized country had to bear with a decline in wholesaling prices of 30% or more. Primary commodities prices like coffee, cotton, silk and rubber declined in the whole world. It is in the spring of 1933 that the US economy started recovering. For fours, i.e. 1933-1937, real gross domestic production rose at an average of 9% yearly. United States economy got yet another challenge between 1937 and 1938. Still, in mid the following year, it started proliferating, and its industrial production returned to its growing trend after another four years (Hansen, p.566).
In the other countries of the world, the recovery of the economy was different in each state. The British economy is said to have stopped going down immediately. Great Britain stopped using the standard gold medium in late 1931 that is September. Latin American country’s economies strengthened towards the end of 1931 and the beginning of 1932, Japan and Germany economies started recovering in 1932 while in Canada, and other smaller European countries began to recover at about the same time with United States (Hansen, p.571). Only France did not start improving that time until around 1938 when it began recovering.
Sources of Recovery
Monetary contraction and gold standards played a vital role in the great depression. However, currency devaluations and monetary expansion brought about recovery in the whole world. There was a correlation that was noted between the times at which countries abandoned the gold standard and when they experienced renewed growth in output production. Abandonment of gold standard is said not directly increase the production but rather allowed all the countries to raise the money supply in their countries without concerning the movement of the gold and rates of exchange, and it was evident that the countries that took advantage of this experienced the most recovery. It is in the United States that monetary expansion began, and America’s money supply raised by 42% for four years only. The monetary expansion brought about political instability in European countries, which fueled the Second World War.
The monetary introduction or production increased usage by decreasing or lowering interest percentage and availing much money hence creating expectations of inflation, and this gave people intending to borrow more confidence that their salaries and gains would be enough to cover their due loans if they had chosen to go for the loan. Fiscal policy played a small impact in the recovery of the economy, for example, increasing taxes in America to attempt to balance the spending budget, and it was a big blow to the economy. The decline in spending was the most fundamental cause of the great depression, which led to a reduction in production. The decline in America was later transferred to other countries of the world due to the standard gold medium of exchange.
There was another factor, like a stock market crash. The prices of the commodities had risen more from low in 1921 to peak in 1929 (Newman, p.134). Federal Reserve raised interest rates in hopes of slowing the rapid rise in the prices of the commodities, which in return led to decrease interest key and sensitive spending areas like the construction sector and automobile purchases sector, which in return reduced the rate of production. Banking panics began when depositors in the United States started losing confidence in the Solvency of banks and demanded that their bank deposits be paid in cash. This process of harsh liquidation can easily cause banks to fall; the United States experienced such panics and the final wave that led to the president declaring a bank holiday. This holiday led to the closing of all banks. It was only allowed to open only after they had been declared stable by governments’ inspectorates. The National Industrial Recovery Act set up the administration, which is said to have made institutions adopt a code of conduct hence abolished competition and also set minimum salaries in each Industry.
Economic Impact
The great depression caused a lot of human suffering, and hence within a short time, the production of commodities went down, and living lifestyle became worse. Total recovery was only experienced at the end of 1939. Labour union and welfare state expand, which was stimulated by lack of employment and also the making of laws and this was also experienced in Europe due to the Great Depression. The great depression brought about political instability.
Depression
No decade was more terrifying than the 1930s. It brought about the economic disorder, led to the rise of totalitarianism, and the fueled war. Bank panicking in the United States led to the destruction of trust in the economy and joblessness. Also, the most severe famine was experienced during this decade of the great depression. The most significant cause of the economic collapse known as The Great Depression was the introduction of credit or installment buying. When people realized that they could buy things that they could not afford and pay it off over an amount of time, they bought as much as they pleased, which lead to great overspending of money they did not have. This caused many banks to close, as they could not keep up with the rapid spending of their customers. Americans were blind to the effects of spending money that they did not have, as they were too absorbed into the instant gratification of materialism. This is considered the most prominent cause of The Great Depression because of its rapid, uncontrolled growth. While other things played significant roles in causing the Great Depression, nothing compares to the speed at which overspending collapsed the economy.
Many factors were leading to The Great Depression, but overproduction of crops, stock market speculation, and overspending can be described as the three leading causes. Each of these took a devastating blow in the economy. While overproduction of crops and stock market speculation significantly weakened the economy, the speed at which overspending destroyed the economy is unprecedented, making it the leading cause of The Great Depression. While there were many other causes of The Great Depression, these three were selected, as each had a direct and nearly immediate reason on the weakening of the economy. Great Depression is significant in American history, as it was the most substantial economic recession ever seen in America. It is still widely studied today, as all of the factors contributing to the financial collapse were preventable, and considering these factors can decrease the likelihood of another recession of this magnitude in the future.
Works Cited
Benmelech, Efraim, Carola Frydman, and DimitrisPapanikolaou. “Financial frictions and
employment during the great depression.” Journal of Financial Economics 133.3 (2019): 541-563.
Hansen, Per H. “Hall of mirrors: the great depression, the great recession, and the uses—and
Misuses—of History.” Business History Review 89.3 (2015): 557-569.
Newman, Patrick. “Barry Eichengreen, Hall of mirrors: The great depression, the great recession,
and the uses-and misuses-of history.” The Review of Austrian Economics 30.1 (2017): 131-135.