The Great Depression refers to the worldwide economic downturn that started in 1929 and went through up to 1939. Research has revealed that it was the most severe and most extended depression experienced by the developed countries, resulting in immediate changes in economic institutions, economic theory, and macroeconomic policy. Although the Great Depression originated from America, it resulted in severe decreases in output, radical unemployment, and acute deflation in almost every corner of the world. Its cultural and social impacts were no less staggering, particularly in America, where the Great Depression represented the most challenging harsh conditions faced by people in the United States since the onset of the Civil War. The depression did not only send Wall Street into panic, but it also wiped out many investors. Over the next several years, investment and consumer spending dropped sharply, resulting in steep declines in employment and industrial output as failing organizations, laid-off employees. By 1933, when it had reached its lowest point, the Great Depression had made about 15 million people in the United States jobless, and almost half of all financial institutions in the country had failed. The three most important problems to remember about the Great Depression are the living conditions, lack of employment, and what people could do for pleasure.
Causes of the Great Depression
Throughout the 1920s, the economy of the United States expanded quickly, and the wealth of the nation increased more than fifty percent between 1920 and 1929, a period is known as “the Roaring Twenties.” The stock market, centered in New York City, was the scene of uncontrolled assumption, where everybody from cooks to millionaire tycoons and janitors took their savings into stocks (Albers, 2018). Consequently, the stock market experienced quick expansion reaching its peak toward the end of 1929. During this time, unemployment levels had increased, and production had already decreased, leaving the stock prices to be abnormally higher than the actual price. On top of that, wages were low at that time, consumer debt was multiplying, the agricultural industry was struggling because of the drought and decreasing prices of food, and financial institutions had an excess of huge loans that could not be liquidated. The economy of the United States entered a mild recession at the onset of the summer of 1929, as consumer spending and unsold goods started piling up, which in turn resulted in decreased production in factories. Nonetheless, the prices of the stocks continued to increase significantly, and by the fall of 1929 had gone to stratospheric levels that could not be defensible with desired future earnings.
Stock Market Crash
On 24th October 1929, as anxious investors started selling high-priced shares en masse, the stock market crash that some people feared took place at last. 12.9 million shares were sold on that day alone, making it to be dubbed “Black Thursday.” On 29th October, five days later, or what came to be known as “Black Tuesday,” some sixteen million shares were sold after yet another wave of panic hit Wall Street (Kuzmin et al., 2020). As a result, millions of shares ended up being worthless, and millions of investors who had bought shares with borrowed money (“on margin”) were entirely wiped out. As consumer confidence vanished in the wake of the stock market crash of 1929, the decrease in investment and consumer spending made factories and other businesses slow down in terms of production and started laying off their employees (Bordo & Meissner, 2020). For the lucky enough workers to remain in the job market, wages fell, and the purchasing power declined. Many people in the United States forced to make purchases on credit fell into debt, and the number of repossessions and foreclosures increased sharply. The international adherence to the gold standard, which joined countries worldwide in a currency exchange that was fixed, assisted in spreading economic woes from America to other countries across the globe, especially Europe.
The Hoover Administration and Bank Runs
Despite assurances from the Hoover administration that the Great Depression will run its course, things continued to get out of hand for the following three years. Research has shown that by 1930 4 million Americans looking for a job could not find it; that number increased by six million in 1931. In the meantime, the industrial production of the country had decreased by fifty percent. Soup kitchens, bread lines, and increasing numbers of homeless Americans became more and more common in cities and towns in the United States. Farmers could not finance the harvesting of their crops, leaving them to rot in the fields while other Americans elsewhere were starving (Robbins & Weidenbaum, 2017). In 1930, severe droughts in Southern plains led to dust and strong winds from Texas to Nebraska, destroying crops, livestock, and people. The “Dust Bowl” encouraged many individuals to migrate from rural areas to cities, searching for job opportunities.
In the fall of 1930, the 1st of four waves of panic in financial institutions started, as many investors lost confidence in the solvency of their financial institutions and demanded them to make deposits in cash, forcing the institutions to liquidate loans to complement their inadequate cash reserves on hand. By 1933, thousands of banks had closed doors because of the bank runs that had swept the country (Calomiris et al., 2020). In the face of the Great Depression, Hoover’s administration attempted to support the failing financial institutions with loans from the government; the idea was that the financial institutions, in turn, would give loans to other businesses to enable them to hire back their employees. Hoover believed that the government should not intervene directly in the country’s economy and that it was not supposed to create job opportunities or develop a strategy of reviving the economy for the sake of its citizens.
In summing up, the Great Depression refers to the worldwide economic downturn that started in 1929 and went through up to 1939. It was the most severe and most extended depression experienced by the developed countries, resulting in immediate changes in economic institutions, economic theory, and macroeconomic policy. Living conditions, lack of employment, and what people could do for pleasure are the three most important problems to remember about the Great Depression. There is no agreement among historians and economists concerning the exact causes of the Great Depression. Hoover’s administration tried to loan failing banks with the idea that they will lend to other businesses to enable them to hire back employees; it aimed to address unemployment rates and decreased production levels. However, Hoover thought that the government should not get involved directly in the country’s economy and that it was not supposed to create job opportunities or develop a plan of stimulating the economy for the sake of its citizens.
References
Albers, T. N. H. (2018). The prelude and global impact of the Great Depression: Evidence from a new macroeconomic dataset. Explorations in Economic History, 70, 150-163.
Bordo, M. D., & Meissner, C. M. (2020). Original Sin and the Great Depression (No. w27067). National Bureau of Economic Research.
Calomiris, C. W., Jaremski, M., & Wheelock, D. C. (2020). Interbank connections, contagion and bank distress in the Great Depression✰. Journal of Financial Intermediation, 100899.
Kuzmin, P., Kalashnikov, V., Kalashnykova, N., & Watada, J. (2020). The Great Depression: Econometric Analysis and Fuzzy Regression. Journal of Advanced Computational Intelligence and Intelligent Informatics, 24(6), 785-791.
Robbins, L., & Weidenbaum, M. (2017). The great depression. Routledge.
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