Throughout the 1930s, a global economic crisis known as the Great Depression caused significant suffering for individuals on every continent. The crisis began with the United States stock market crash of 1929 and expanded fast, lasting into the late 1930s. This time was marked by high unemployment, low productivity, and decreased consumer expenditure, which resulted in a downturn in economic activity and a steep decline in living standards. Many factors contributed to the onset of the Great Depression, including an increase in consumer expenditure supported by cheap credit and stock market speculation in the 1920s. The stock market crash initiated a series of events that precipitated a negative economic cycle. Businesses fell, banks failed, and millions lost jobs, severely weakening the economy. As firms battled to maintain operations without revenue, the decline in consumer spending aggravated the economic crisis.
The Great Depression was a complex economic event with many contributing factors, including both long-term structural causes and short-term occurrences, that led to a catastrophic collapse of the global economy. Some of the main reasons for the Great Depression include the following:
Stock Market Collapse of 1929: The 1929 stock market crash was one of the Great Depression’s most well-known causes. Throughout the 1920s, the stock market surged quickly due to speculation and the accessibility of low-cost borrowing. Equities were therefore selling for far more than they were worth. As a result, the October 1929 stock market crash started a series of economic developments that finally brought about the Great Depression (website)
Overproduction: One of the long-term problems that contributed to the Great Depression was overproduction in the agricultural and industrial sectors. Throughout the 1920s, productivity greatly grew due to new industrial techniques and technology that made producing goods in large quantities possible. Yet, this led to more goods being available than people could afford to buy. In agriculture, overproduction was a similar problem as farmers employed new technologies to increase crop yields. Sadly, this led to a surplus crop, which dropped grain prices and put farmers in a terrible financial situation.
Consumer expenditure is falling: Another significant factor in the Great Depression was a decline in consumer spending. The number of people working less or trying to make ends meet resulted in a sharp decline in consumer demand for goods and services. A lack of demand worsened overproduction by pushing businesses to cut back on production and lay off workers.
Insolvency of banks: The Great Depression was largely exacerbated due to the banking system’s insolvency. The economy expanded rapidly when banks lent more money to consumers and companies in the 1920s. Nevertheless, many of these loans lacked sufficient risk assessment, which led to widespread default. As a result, several financial institutions were forced to shut their doors.
Global Economy Affecting Factors: The Great Depression was felt worldwide, not only in the United States. The worldwide economic collapse of the 1920s resulted from several different countries economic difficulties. After World War I, several European countries were left with massive debts and shaky economies; because of this and a subsequent drop in demand for European goods in the United States, the European economy crashed(website). Because of this, economies everywhere suffered greatly, contributing to the Great Depression.
Americans’ lives were profoundly affected by the Great Depression: widespread unemployment, poverty, and economic distress. Some of the most significant ways the Great Depression impacted everyday Americans included: The number of individuals without work soared to unprecedented heights as businesses and whole sectors collapsed. With over 15 million people out of work, the unemployment rate in the United States reached over 25% in 1933. Additionally, The number of homeless people significantly increased during the Great Depression. Many individuals were compelled to live on the streets or in temporary accommodation due to losing their employment and being unable to pay their rent or mortgage. In the United States, it was believed that there were around a million homeless persons in 1932.
Due to the high unemployment rate, the Great Depression exacerbated poverty. US poverty rose from 15% to 35% from 1929 to 1933, affecting nearly 20 million people. The economic crisis also hurt the average American’s life. Families had to cut spending because many were unemployed and struggling. Many Americans’ quality of life suffered as they cut back on extravagances to save money. There was a dramatic increase in poverty during the Great Depression due to job losses and families’ inability to make ends meet. As a result, many Americans relied on inexpensive entertainment like radio and movies to help them unwind and pass the time. As people needed a distraction from the Great Depression, they turned to Hollywood movies.
The Great Depression tremendously impacted the United States political and economic status abroad. Before the Great Depression, the United States had the largest economy in the world and dominated global trade and banking. Regrettably, the Great Depression led to a sharp loss in American political and economic strength. First, Global trade was profoundly influenced: Some countries have used protectionist policies like tariffs and import restrictions to stabilize their economy and battle increasing unemployment. Because exports made for a sizable share of the US economy, the impacts were felt most acutely there (website). Second, the slump led the value of the US dollar, which had been the primary means of exchange for international trade, to fall. The loss of the United State’s status as a global financial stabilizing force made it harder to provide financial assistance to other countries.
Additionally, the Great Depression affected US foreign policy as well. In the years leading up to the Great Depression, the United States practised isolationism to avoid foreign wars and instead focus on home difficulties. Yet, the 1930s Great Depression compelled the United States to become increasingly involved in foreign affairs.
The Bretton Woods system was formed in 1944 in response to the Great Depression. Under this system, which also defined international commerce and banking norms, the US dollar was acknowledged as the world’s reserve currency. This structure governed the global economy, allowing for postwar development. The Great Depression also influenced how Americans saw the role of government in the economy. The US government changed its emphasis during the Great Depression from free markets to government intervention and social welfare initiatives under the New Deal. As a consequence, more individuals began to support government involvement in the economy, and the American economy stabilized.
President Franklin D. Roosevelt enacted a series of measures collectively known as the New Deal in response to the economic crisis. Among these deeds are:
- The Emergency Banking Act. The Act empowered the government to supervise and evaluate financial institutions and utilize public funds to bail out failing ones. Restoring public confidence in the banking industry and averting the collapse of other financial institutions were the main objectives here (Kus, p. 257-265). The New Deal’s numerous components significantly impacted society and the economy, shaping American history.
- CCC (Civilian Conservation Corps): The CCC program placed young men in conservation initiatives such as tree planting and path construction. The program hired almost 2 million young men, providing them with skills and job experience.
- FEMA (Federal Emergency Relief Administration): Individuals and families in need received direct assistance from the FERA. The program provided cash for food, clothes, housing, and public works projects that employed millions of people.
- AAA (Agricultural Adjustment Act): The AAA was a program that reduced output to stabilize agricultural prices. The scheme compensated farmers for lowering agricultural and livestock output to boost prices by limiting supply. The AAA was divisive and chastised for favouring large and small farmers.
- NIRA (National Industrial Recovery Act): The NIRA established industry-wide fair competition norms to foster industrial recovery. The regulations controlled pricing, salaries, and working conditions to combat price gouging and overproduction. In 1935, the Supreme Court overturned the NIRA( Williams, p. 433-440)
- TVA (Tennessee Valley Authority): The TVA was an economic development and environmental protection program in the Tennessee Valley. The initiative constructed dams, providing energy, and supported agricultural and industrial development in the region. The TVA was a model for subsequent federal initiatives to encourage regional development.
To sum up, the Great Depression profoundly impacted the economy, politics, and culture of the United States and left an enduring mark on American history. Political unrest, massive unemployment, and poverty resulted from the 1930s economic collapse. Its global repercussions aided in the rise of fascist regimes and the start of World War Two. Additionally, the Depression prompted a major rethinking of the government’s role in regulating the economy and providing social welfare, impacting American economic and political policy for decades. Notwithstanding the difficulties, the Great Depression spawned significant reforms and inventions, such as the New Deal programs and the Bretton Woods system, which helped to stabilize the US economy and position it as a major worldwide force in banking and commerce.
Works Cited
The Great Depression | Federal Reserve History (https://www.federalreservehistory.org/essays/great-depression)
Kus, B. (2020). Relief, Recovery, Reform: A Retrospective on the US Policy Responses to the Great Recession. Intereconomics, 55(4), 257-265.
Williams, M. B. (2021). New Deal. Handbuch Liberalismus, 433-440.
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