The Great Depression
The Great Depression was a harsh worldwide economic depression that occurred in the period preceding World War II. The actual time of the great depression in most countries began in the early 1930 and lasted until middle 1940’s. This was actually the greatest depression that ever occurred in the 20th century and commonly used in the 21st century to show how far the economy can depreciate. The depression first began in the United States after stocks began to depreciate in the year September 1929 and later in October 1929 it became worldwide news when the stock market crashed. The impact of the Great depression was felt in both the rich and the poor countries. The depression affected different aspect in the lives of people but more severely attacked personal income, profits, tax revenue and besides drop in prices. By the mid period of the depression international trade had declined by 50%, unemployment rate in the United States rose by 25% but the rise was even higher in some other countries. Cities all over the world faced serious challenges of ensuring stability and continuity especially those that were dependent to heavy industry. The rural areas were also hit hard because farming and crop prices declined by approximately 60%. Trade and jobs sources crashed due to the fact that the economic struggle negatively affected primary sector industries such as mining, logging and cash cropping. However, after the mid 1930’s the economies began to recover the negative effects of the Great Depression and the stock market began to rise (Gary & Rockoff, 379- 383).
Buying on margin was one of the initial causes of the great depression. People invested in the stock market heavily in the early years of 1920s and the stock market continued to increase. In fact, people could become rich overnight after buying and selling shares for a profit. The buying of shares was too favorable to the extent that people could buy shares at installment buying, this meant that it was easy for a huge population to get involved in the stock market investment. The price continued going up to the extent that the stock price was more than the value of the companies. As a result in 1928 and 1929 the system ceased to work and stock market investors stared to encounter losses. Investors warned the bull market would end and shares would depreciate even further (Bernanke, 34).
Buying items on credit is another major cause of the Great Depression (Gary & Rockoff, 381). Since 1920s were tears of the great economic boom people felt the need of owning multiple items such as cars, refrigerators and furniture but mostly on credit. It make common to get items but pay for them on weekly, monthly or annually. The system of purchase was called installment buying and was quite effective until Black Tuesday when the stock market crashed. After the crash installment buying could not be effective and this left several people in debt. The crash left many jobless and in debt making it difficult to settle their debt and these worsened as the period went by.
Supply and demand of goods also contributed to the rise and length of the Great Depression. Americans firms during the economic boom produced large of products. After the begging of the depression, these firms did not change their level of production but continued to produce the same. The depression in this line was mainly brought about by the fact that the firms continued to produce large amounts of goods but paid the workers the same amounts. As a result, the public was not in a position to purchase all the largely produced goods by the firms or companies. After firms realized the low demand, it became necessary to cut down production which also brought about lay off some employees. The unemployed workers could not also have money to purchase anything and that further worsened the level of firm’s product demand resulting to further lay off. Within a short period, many workers had being laid off and twenty-five percent of the population was unemployed (Bernanke, 35).
The stock market crash on October 29, 1929 which was later referred to as the Black Tuesday was the beginning of the great depression. In the summer of 1929 most investors had realized that the stock market was performing quite poorly and the fear of incurring severe losses made a few investors to sell their stocks. After a few had began selling their stocks others also desired to sell and soon after too many shares were being sold hence resulting to a domino effect. President Herbert Hoover tried to reassure the citizens that the country was okay and there was no need to worry but his words did not help since investors continued to sell. Nervous brokers also made the situation worse but forcing investors to settle their debt and when they could not they forced them to sell their shares. During the period there were so many desperate sellers but no buyers, millions of dollars were lost and the stock prices plummeted. As a result the stock market crashed due to sudden decrease in stock market on the Black Tuesday which led directly to the Great depression (Bernanke, 52).
Drought of 1930’s that affected mainly Texas and North Dakota also contributed to the harsh economic times. Due to the drought overgrazing, wind erosion and lack of rain fall meant hard times for the farmers. It therefore became essential to escape the Dust Bowl which later became common in most states. Migration from southwest and Midwest using Route 66 to “lands of milk and honey” was common. Dust Bowl hurt Oklahoma and Arkansas farmers the most and they were forced to migrate to new areas though they were not welcomed and had to work with minimum wages (Walton & Rockoff 383).
The Great Depression lasted for seven years which meant that the level of economic decline and free market had declined severely. To recover from this decline it is clear that the world needed a quick effective plan. As a possible solution, most developed countries especially the United States embraced the policy approach which aimed at establishing financial stability to the public. Since most people felt an urgent need to correct the economic disaster, waiting for years felt as is the depression took a very long period of time. According to Walton and Rockoff, “the federal government took a much larger role in the economic life of the nation” (379). This meant that the main role of rectifying the depression effects was left to the government. Implementing a policy to correct a financial challenge that had lasted for seven years was a problem, mainly because it required reassuring investors, rebuilding companies as well as strengthening individuals’ income. Implementing corrective policies which is a similar idea as to what is received from the white house today meant that proper consultation, discussions and involvement of multiple parties both domestic and international was required. Therefore, the policy implemented by the federal government was not only thoroughly researched but also quite effective. The period that was spent correcting the financial challenges was sufficient and not as slow as depicted, what took most time is attainment of the previous standards that had been set by the economic boom of 1920s. it is thus correct to argue that the great depression lasted a normal period to correct economic challenges but what took time to retrieve is the economic trends of 1920s.
In conclusion, the “Great Depression of the 1930’s was a cataclysm of unparalleled magnitude” (379) which was as a result of the collapse of the stock market, supply and demand as well as drought. To resolve the economic challenge and financial instability that resulted to the depression the initial steps were to reestablish the banking sectors, companies as well as improve personal income. To achieve these resolutions, time passed making individuals and government quite anxious. The reasons behind the fact that the Great depression lasted a long period to end cannot be blamed on the federal policies implemented but on level of damage caused by economic boom era. During the economic boom era in 1920’s the economy was growing at a rapid rate due to installment buying and buying on credit which brought long term negative effects such as domino effects and instability in the production sectors.
Bernanke, S. Essays on the Great Depression. Princeton University Press. (2000)
Walton, G & Rockoff H. Hisotry of the American Economy: Cengage Learning, (2010)