The Great Depression - Main Causes Essay Example for Free

The huge Depression Main Causes EssayIntroductionLike us, many of you had a loved one that lived during the slap-up Depression. Many of us have heard stories from our p arents or grandparents of the horrific propagation of the depression stories that told us how hard it was to find a job, put food on the table, and to provide nurture for the family. Learning how to live without things was a battle all by itself. Hearing the stories do me grateful to be born in a different era. However, all(prenominal) era has its consume battles to fight that will smorgasbord the direction of the frugality and maybe the world.Many mess feel that we are in a depression. Unemployment rising, furrow closing its doors, and poerty in the unite States on a rise, would make you think that we are in a depression. However, after careful research from articles, books, videotape, and previously conducted surveys, on the chief(prenominal) causes of the depression, we realize that the recession that we are in is far from the grand Depression. Our research also uncoered the impacts of the depression that played a piece in reforming the deliverance. Also, our research will show us how Franklin D. Roosevelt solved the depression and got the economy rolling again. Finally, there were many lessons learned by banks, business owners, and the regimen. We hope that the details of the Great Depression will give instruction you with comparisons on our current recession.Main CausesThe main causes for the Great Depression were a combination of raggedly distributed wealth, the stress commercialise crash, and lastly the bank failures. The unequal scattering of wealth existed on many levels. Money was distributed unequally between the rich and the middle class, between exertion and agriculture within the US, and between the US and Europe. This instability of wealth created an unstable economy. The excessive speculations kept the extr fulfil market artificially heights, but eventually trio to large market crashes. These market crashes, combined with the unequal distribution of wealth, and bank failures, caused the American economy to collapse.The distribution of national income became increasingly skewed in the 1920s. The nations total realized income rose from $74.3 billion in 1923 to $89 billion in 1929. However, the prosperity was non divided evenly amongst all Americans. According to a ponder done by the Brookings Institute in 1929, the top .1% of Americans had a combined income equal to the bottom 42%. That same top .1% of Americans in 1929 controlled 34% of all savings, while 80% of Americans had no savings at all. While the disposable income per capita rose 9% from 1920 to 1929, those with income within the top 1% enjoyed a staggering 75% increase in per capita disposable income.A major reason for this gap between the rich and the confinement people was the increased manufacturing output through this stoppage. Thus, wages increased 25% as f ast as productivity increased. As production costs fell quickly, wages rose s bluely, and prices remained constant. In fact, from 1923-1929 corporate lolly rose 62% and dividends rose 65%.The large and growing gap in wealth do the US economy unstable. For an economy to function properly, total demand must equal total supply. In the 1920s there was an oversupply of goods. It was non that the surplus of products was not wanted, but those who really needed them, could not contribute them.The national government also contributed to the growing gap between the rich and middle-class. Andrew Mellon, Coolidges Secretary of the Treasury, was the main force behind tax cuts that lowered federal taxes such that a man with a trillion-dollar one-year income had his federal taxes reduced from $600,000 to $200,000. Our textbooks would indicate that the purpose behind this would be that $400,000 would be spent, thus stimulating the economy. Instead, they invested it into the convey market, a nd lose eachthing.The federal government favored the new industries (radio and automotive) as opposed to agriculture. During World War 1, the government subsidized farms and paid higher prices for what and other grains. Because the government was pabuluming the US and Europe, they boost farmers to buy more(prenominal) land, investin modern methods, and to produce more food. However, when the war was over, the US stopped helping farmers. During the war, the government paid $2 a bushel for wheat, but by 1920, wheat prices fell as low as 67 cents a bushel. Farmers fell into debt farm prices and food prices tumbled. The federal government left American farmers in the cold.The problem with having large concentrations of wealth and dependence upon two industries is the economy relies on those industries to expand, grow, and invest in order to prosper. At the time, the main problem with the automotive and radio industries was that they could not expand because people could and would alone buy so many cars and radios. When those industries went down, they took the American economy with them.In 1929, 1,124,800,410 shares were championshipd on the untested York Stock Exchange. From 1928 to 1929, the Dow Jones industrial Average rose from 191 to 381. This profit was attractive to investors. Company earnings were not important as tenacious as stock process continued to rise, and huge profits could be made. Through the convenience of get stocks on margin, one could buy stocks without money to purchase them. By mid 1929, the total of outstanding brokers loans was over $7 billion, in the next three months, that number would increase to $8.5 billion. Interest rates for brokers loans were as high as 20%Prices had been dropping since September 3, 1929, but people were still optimistic. Hopeful investors continued to hand the market. Then on Monday October 21, 1929, prices started to fall quickly. The volume was so high that the ticker fell behind. Finally, investors were afraid cognise that prices were falling but because the ticker was behind, they could not tell how far they had fallen, so they started to sell quickly. This caused the collapse to occur faster. The market stabilized for a few days, and then on Monday October 28, 1929 prices started dropping again. By the end of the day, the market had fallen 13%. On Black Tuesday, October 29, 1929, 16.4 gazillion shares were exchanged.Although many were disturbed by the stock market crash, few realized that theGreat Depression was ahead. The Bank Failures would make the near next of the US economy clear.Trying to benefit from the investiture boom, like many investors, banks tied their money (customer deposits) up in the stock market. When the market collapsed, brokers began calling in margin accounts, many banks were constrained into bankruptcy closing their doors to depositors.Failures of individual banks generated runs on other banks as depositors became nervous about(predicate) the security of their accounts. A high rate of insolvencies hit the banking industry and the nations stock of money in circulation plummeted. These developments prompted a rapid tumble of the GNP that was the defining characteristic of the Great Depression.This speculation and the resulting stock market crashes, acted as a trigger to the unstable US economy. much jobs were lost, more banks went under, and more factories closed. Unemployment would grow to almost 13 million by 1932. The Great Depression had begun.Impact of the parsimoniousness on that lodge were many psychological, cultural, and political repercussions of the Great Depression. These impacts played a major role in reforming the American economy for the future that was to come. During the horrific times of the depression, everyone in America got a glimpse, whether short or prolonged, to how the United States would be under an frugal crash. As you can see from the main causes of the depression, numerous amounts of people lost their jobs, the prosperity rate significantly increased, businesses failed, and the boilers suit condition of America was faced with pure din and suffering.Among each major impact that the depression had on the American economy, the most extravagant circumstance was the rapid decrement in overall business. For instance, there were more than 100,000 businesses that failed as an impact of the depression. By 1933, more than 5,000 banks had failed. Not just did this extend to the government, but the general public and the entire economy felt the hit also. Within every bank that closed, there were public savings and checking accounts that were also demolished. With no type of security in bottom to comfort their investments and or savings, peoples money and sometimes even life savings, were gone. This decline created a continuing affect that spread throughout the economy. As a result, the national income fell by 54 percent. Close to 90 percent of industrial production ceased. The foreign trade decreased by 70 percent, and new investment in plants and equipment had plummeted by 98 percent. Hundreds of thousands of home and farm mortgages foreclosed, and there was no decent food, clothing, or trade protection to be purchased. Obviously, due to the circumstances, business was put on hold for what seemed like forever to the American economy. then to the many business failures that occurred during the depression, along with the steadily decreasing income and tremendous rise in unemployment, many people were forced to live in horrible, strict, confined, and discouraging circumstances. People were living on the streets of America striving to survive. As a result, starvation and malnutrition was a major factor that affected the general public. Thousands of people starved in the streets while unsold food piled up or went bad on the nations farms, due to the need for profit. More than 2 million Americans moved from cities to farms in the hope of being able to at least feed themselves. Despair overcame millions of people who survived the distress but could not find work for months or even years. Others were forced to work in fields in order to make the little money they could.Family tensions increased as many people lacked jobs, resulting in a major increase in mental health problems, and family violence. The spill of money and personal belongings resulted in the number of relatives in one household or apartment, stunt woman within a short amount of time. These situations developed very confined living conditions resulting in angry and unhappy circumstances. Many children had to leave their schools because they lacked clothing or the local school boards simply could not afford to maintain buildings or pay teachers. Children were forced to provide for themselves,and their family. Uncertainty and unhappiness increased over the years. The overall living conditions of the depression were very unstable and unsatisfying to the American public. Feelings of dis self-reliance towards the government and the economy emerged from every single individual.The depression had a major impact on not just the current situation, future thoughts and actions were affected as intimately. Along with distrust from the public towards the economy, grew an extreme realization of poverty and distress for American society. The experience brought about a change in the viewpoints toward many aspects of life and business. Everyone was forced with making circumstantial decisions that would forever change life situations. Ultimately, there was not one industry, bank, agricultural, or government aspect that was not noticeably affected by the depression. The impacts were felt at home in our society as well as across seas in other countries. Everyones living standards and situations suffered due to the depression. in that respect was no true consciousness of how these circumstances could have begun, and no knowledge of when it would end.Solving the DepressionDuring the early years of the depression in the United States of America, President Herbert Hoover and his administration believed, as did many bankers, economists, and pecuniary leaders, that left alone, the economy would eventually right itself. Business leaders operating through the spirit of competition would restore Americas prosperity and scotch vitality. When the economy, during the depression, did not improve during Hoovers administration, Americans began looking for a new leader, a leader who would take decisive action against the economy. The people found a new leader in Franklin D. Roosevelt in 1932, when they elected him prexy in a landside election.Roosevelt believed that the federal government should take bold steps to improve the economy. He blamed financial leaders and big business for Americas economic (depression conditions) and recommended government pattern of banks and industry.President Roosevelt had many accomplishments during his term of preside nt during the time of the depression. Some of his accomplishments wereSocial Security identification number provided for state-administered, federally funded unemployment insurance, welfare benefits, administered old age, and survivors pensions. Prior to this modulation few states provided old age pensions and un-employment insurance.Relations Act (Wagner Act) gave new life to the National Industrial recovery Act. That act gave workers the right to collectively bargain and established the National Labor Relations Board to administer union elections and investigate unfair labor practices by companies.Revenue Tax Act increased income taxes on the wealthy and on corporations.Banking act of 1935 gave the federal government additional control over the Federal moderate System.Public Utility Holding Company Act placed power, water, and other utility companies under the regulation of the newly created Securities and Exchange Commission.The Farm Act came in three stages. First the admin istration was empowered to place farm production to effective demand as a means of restoring the farmers purchasing power. Second was an successive authorization to refinance and readjust farm mortgage payments. Third the part of the act was the power for controlled inflation. compulsion Farm Mortgage Act (1993) funded loans for farmers in immediate danger of losing their farms.Wagner-Steagal Housing Act gave 500 million in loans for low-cost housing.Youth Administration was established to equalize opportunity for youth. Itwas setup to give economically disadvantage youth opportunities that were previously denied them.Tennessee Valley Authority Act Aubrey Williams stated Major Problems in the refilling of the South, address to the Southern Tenant Farmers Union and the United Cannery, Agricultural, Packing, and Allied Workers of America, Memphis, Tennessee, September 26, 1937. This act provided federal financing for the development of the Tennessee Valley.Rural Rehabilitation Div ision of FERA later called Resettlement Administration funded work-study jobs, teachers salaries, free lunch schedule and construction of new schools.Works Relief Act provided immediate increase in employment and equivalent stimulation to private industry by purchase of supplies.Works Progress Administration (WPA) put 3.5 million jobless Americans to work on roads, parks, and public building. Moreover, the WPA provided jobs for artists, writers, musicians, and authors as well as laborers.National Recovery Act encouraged business leaders to work together to create codes that would control wages and prices.Gold replacement Act was signed on Roosevelts birthday. This gave the Treasury greater control of credit and currency.In 1933, Roosevelt pushed toward a three-month period called Hundred Days when Congress enacted the most sweeping program of reform. Fifteen major laws went on the books they dealt with banking, the florid standard, relief, mortgages, hydroelectric power and regi onal planning, the stock market, and reorganizing industry and agriculture.Roosevelt throughout his term during the depression years encouraged cooperation and optimism with his speeches, fireside chats, and press conferences, which made a powerful impression on many Americans.Lessons LearnedThe Great Depression caused enormous hardship for virtually the entire industrialized world. As we look back over the many causes of the Great Depression, there were many lessons to be learned. The depression started because of the unequal distribution of wealth and the protracted stock market crash. The economy was affected by the failure of a large portion of the nations banks, businesses, and farms.There were many lessons learned in the financial aspect of the depression. First, there was massive government protection to banks in the form of the Reconstruction Finance Corporation and the Federal repository Insurance Corporation. This was brought on by the turmoil that was felt in the banking sector. By implementing government protection the banking institutes were insured against withdrawals and the suspension of convertibility. In addition, the Federal Deposit Insurance Corporations main benefit was having the central bank as the ultimate guarantor of the insurance system.As a result, during a pending financial collapse the bank removes any element of discretion about the behavior of its policymakers. Therefore, the central bank learned lessons regarding the function of the lender of last resort for short-term stabilisation of the financial system. The reasons that stemmed government protection was noticeable bank weakness, short(p) depositor discipline, the unwilling of private associations to protect solvent banks from the threat of unwarranted runs, and the favorable agreement to have deposit insurance on economic grounds.Second, there was failure of the interwar gold standard. There were certain countries that caused the world money stock to decline good and rap idly. This brought about the fix exchange rates and full currency unions.The gold standard of the interwar was referred to as a gold exchange standard and its main purpose was to establish and maintain a system of fixed exchange rates.Third, there was international trade and tariffs. Trade and payment policies were becoming very close and began to intertwine. In addition, when tariffs began they usually ended with trading blocs, bilateralism, and exchange controls. The lesson learned in this situation implies that deflation effects international trade through its impact on the real value of tariffs.Another lesson learned involved worldwide catastrophes. There was the use of cheap foreign labor to lower cost and improve profits, which drove imports of foreign made products and pushed labor offshore. There was a decline in domestic employment and it intensified the problems of the depression to the point in which caused a backlash. Then that is when the start of labor-union protectio nism began. The lesson in this situation indicated that the 1930s protectionism assisted in the end of globalize.Eventually, the depression transformed national politics by vastly expanding government, which was increasingly expected to stabilize the economy and to prevent suffering. In order to create a stabilized economy, new plans, and policies for Social Security, unemployment insurance, and federal family supporter were established.In sum, the Great Depression was caused by the stock market crash, in which led to a poor banking system, causing low interest rates, brought on by an ineffective Federal Reserve policy.Therefore, knowing and intellect these lessons listed and many others, it is safe to say that as far as our current policies today, deflation is extremely costly and a gold standard is very dangerous.ConclusionThe experience of the Great Depression brought about change in how we conduct business. For many people the depression brought on distrust in banks and our go vernment a trust that our government set out to regain in many years to come. Our government implemented federal laws and banking regulationsthat would stabilize the economy for many years. Reorganizing industries, the stock market, and agriculture provided stability that lead to trust.Each era has had its own battles that has shaped and reshaped America into what it is today. Learning from battles such as racism, terrorism, and recessions will continue to form America into a better place.Works CitedBender, David L. The Great Depression Opposing Viewpoints, 1994 Greenhaven Press, Inc. San Diego, CAGerdes, Louise I. The Great Depression, Great Speeches in History, 2002 Greenhaven Press, Inc. San Diego, CAGustmorino, Paul A III. Main Causes of the Great Depression. Gusmorino World. May 13, 1996. Online.James, Harold. The End of Globalization Lessons From The Great Depression. Cambridge London Harvard University Press, 2001Jeffries, conjuration W., Nash, Gary B., Segrue, Katherine L., The Great Depression and WWII, 1929-1945. Encyclopedia of American History.Kutler, Stanley I. Dictionary Of American History. Third Edition. Charles Scribners Sons, Inc. May 2003.Kutler, Stanley K., Dallek, Robert, Hollinger, David A., McCraw, Thomas K., Kirkwood, Judith. The Great Depression, 1929-1939. Encyclopedia of the United States in the Twentieth Century. Volume III.Watkins, T.H. The Great Depression America in the 1930s. New York Little, Brown and Company, 1993.