The Great Depression (GD) of 1929-40s refers to the collapse of the world economy. It was normally caused by the collapse of the stock market. During this epoch high levels of unemployment dominated the world thus the closure of a myriad of businesses (Rauchway 105) .
Although it had no significant impact in some countries around the globe, cases of countries such as the US was severe (Hillstrom 11). This left a large proportion of individuals jobless. In addition, the majority of them lost high valued properties and became homeless. It was therefore, necessary that, the government to compensate the affected individuals.
The government accomplished this by devising a strategy aimed at averting the situation. A number of prominent members in the government devised numerous new deals. This was the turning point as the Americans became awake and sought for the strategies of ending the depression (Edsforth 262).
A number of interested individuals brought their opinions. For instance, a democrat entitled as Glass believed in the dominance of the white, budget devoid of deficits, the statutory rights, as well as the controlled power accorded to the president. Therefore, this document will discuss the cause, effects, as well as the reactions to the great depression.
The Cause of the great depression
Before the economy collapsed, Americans experienced some problems, which later became the cause of the great the GD (Murphy 17). For instance, there was poor distribution of wealth resulting to the increased gap between the affluent and the poor. The poor banking system among the banks was an additional challenge. This is because banks were in favor of some sectors.
Unfavorable balance of payments deficits dominated the entire economy, resulting to more imports than exports hence the US turned into a creditor nation. There was also the general increase of the price of commodities in the stock exchange market. This culminated into a vast wealth accumulation among the capital class (Murphy 112). There also existed some ignorance of the less speculative economic indicators leading to high investments among the capitalists (Hillstromn 109).
The gambling of commodities created a high inflation and this weakened the economy expansively. Financial institutions such as banks started numerous loan facilities in favor of stock- buyers. This was because stocks were selling at a good price than the other commodities in the market. In addition, the banks allowed capitalists to use stock as security for loans. In case the value of stock goes down, the financial institutions have less value security of loans taken by capitalists.
This would therefore, mean that financial institutions remain with less monetary items. This is indicative that productive businesses would not thrive, and mortgages would foreclose. As a result, bankruptcy among the business people heightened due to the collapse of the stock exchange used by a large proportion of individuals as short cut to becoming wealthy.
There was an immense panic among people since they had lost confidence in their savings. The panic resulted from the investment of client’s savings on the stocks. The closure of the stock exchange market meant that banks experienced a high level of withdrawals thus their closure. A great market crash was therefore, experienced in late October 1920.
Effects of the great depression
The collapse of the stock market had a profound impact on the industries. For instance, numerous industries lost their capital in the market crash. Moreover, some industries lost their capital due to bank’s closures. Consequently, capitalists had to reduce the working duration sometimes, as well as the worker’s wage bill. This resulted to low purchasing among the customers, as well as a reduced spending on luxurious commodities.
Conversely, the reduced spending among the customers meant low demand of workforce. This further led to a reduction of the number of workers, and their wage bill. Drastically after the cost reduction measures, a myriad of businesses could not thrive leading their eventual closure. Lastly, the workers lost their jobs. Consequently, the unemployment rate escalated the ratio of dependency.
Reactions to the great depression
After the collapse of the economy, Americans sought a solution for the economic crash. Some Americans blamed President Hoover while others targeted the financial institutions and businesspersons. The collapse of the economy was not only attributed to one side, but to all structures of the American’s economy (Marsh 25).
The government responded in several ways. First, President Herbert, the President of the time in the US refused to intervene on the people’s behalf. He regarded the government intervention as a moral decay of the American person. He further argued that, during such a difficult situation in a country, proper strategic measures are crucial in curbing the situation.
Though forced by the congress to show his concern on the crash, he remained reluctant. This was due to his concern of balancing the national budget. More importantly, he was against violating his principles. He conducted spending in order to stabilize the business sector.
He was encouraged by the fact that regained prosperity calm the poor majority, who in turn they behaved unwillingly in waiting. Consequently, due to his uncaring nature, he was later defeated in a preceding elections of 1932 by Franklin D. Roosevelt. During the campaigns, Franklin had promised to respond appropriately in order to mitigate the depression.
While in office, he carefully followed his advisors instructions and developed programmes aimed at recovering the economy. He later launched the politics of the New Deal, which was a measure of essential conservation. The New Deal was to redeem capitalism and the key economic institutions of US from the dangerous depression.
The New Deal (ND)
In the first deal, the Tennessee valley Authority (TVA) of 1933 reflected on the incoming liberal means of the second ND. The TVA provided the required funds to transform the economies of seven depressed states a together with the Tennessee River. This entailed the construction of dams, power making, as well as the flood and soil erosion control.
The above construction activities were relatively high wage jobs (Edsfoth 264). Sources have shown that this is a socialism ideology. Other sources have regarded them as a proper way of solving social and economic problems. The second ND (1935-40S), aimed at ending the depression by spending in all economic activities. This increased the number of consumers, hence a higher demand for commodities. The resultant effect is a high spending hence economic growth.
Since economic depression, results from preventable factors, there, therefore, need to find appropriate prevention measures. First low spending by both consumers and the government demands improvement. The government, therefore, should use its huge financial power; inform of taxation and spending, as a precautionary measure to stabilize the economy. The increased spending needs emphasis in order to deal with depression adequately. This is crucial in the prevention of cases allied with the economic crash.
Edsforth, Ronald. The New deal: America’s response to the great depression .Malden, MA: Wiley-Blackwell, 2000. Print.
Marsh, Carole. The great depression and the new deal. Peachtree, GA: Gallopade International. Peachtree, 2005. Print.
Murphy, Robert. The politically incorrect guide to the great depression and the new deal. New York, NY: Regnery publishing, 2009. Print.
Rauchway, Eric. The great depression: A very short introduction. New York, NY: Oxford University press, 2008. Print.