Tuesday, August 10, 2010

Causes of the Great Depression

The Great Depression was caused by numerous variables. First, speculation - "buying and selling on the expectation that rising prices will yield quick gains - had taken over the stock market" (Davidson 717). As in any other era, people wanted to become rich instantly. Second, the increase of the monetary supply by $6 billion from 1922 to 1929 contributed to increased growth and credit. Once again, people wanted more and they wanted it now. Finally, the Great Crash damaged the economy tremendously: "At their peak in 1929 stocks had been worth $87 billion. In 1933 they bottomed out at $18 billion" (Davidson 717).

Speculation, the increase of the money supply, and the stock market crash in late 1929 contributed greatly to the Great Depression. In response, following Murphy's law, businesses began to fail. With failure came a decrease in employment and wages. All these conditions would contribute greatly to the Great Depression.
The text focuses on the following causes of the Great Depression: 1) overexpansion and decline in purchasing power; 2) consumer debt and uneven distribution of wealth; 3) failures of the banking system; 4) little government regulation; and 5) economic ignorance (Davidson 718-719).

The Great Depression led to the loss of employment for over 13 million Americans. Family incomes declined by 40% and many could not afford even basic necessities. The Great Depression also led to an increased government role in American society; the New Deal would drastically change society.

I personally believe that the Great Depression (the Depression, not the recession) was caused by U.S. and global governments, specifically the way they reacted to the Great Crash and its subsequent downfall. In addition, many of the policies began by governments during early 20th century contributed greatly to the event as well.

In response to the Great Crash, many nations around the world abandoned the gold standard. In response, the value of their currencies decreased as the money supply increased. Thus, a dollar was not truly equal to a dollar; its value was constantly dependant on the number of monies that was created. In addition, governments around the world raised tariffs to "protect" themselves from foreign competition. When tariffs are raised, corporations are then made to increase the cost of goods (if they want to maintain their profit margin). This would prove to hurt the poorest of Americans (especially with the Smoot-Hawley Tariff).

I believe the recession, was caused by government, but more importantly caused by greedy people throughout the world. Just as in today's world, people want to make a lot of money and they want to make it now. So, people generally get credit in order to live in such a way. Credit, when used incorrectly (as it usually always is) leads to enormous consequences - you would think after thousands of years we would understand this.

Davidson, James, Brian Delay, Christine Heyrman, Mark Lytle, and Michael Stoff, Nation of Nations: A Narrative History of the American Republic Volume II: Since 1865. New York: McGraw-Hill, 2008.

No comments:

Post a Comment