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factors that led to great depression
globalization and international economy
globalization and international economy
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Eight decades has elapsed since the outbreak of the Great Depression, but the continuing mystery of its cause keep provoking academic debates among scholars from various fields. Eichengreen and Temin joint the debates by linking the gold-standard ideology with the cause of the Great Depression. They content that because of this ideology monetary and fiscal authorities implemented deflationary policies when the hindsight shows clearly that expansionary policies were needed. And these contractionary policies consequently pushed the stumbling world economy into the Great Depression. Eichengreen and Temin put heavy weight on analyzing why the prewar gold standard could be a force for international financial stability while interwar gold standard was the force that led the world into economic catastrophe. Their compelling arguments are important contributions to the understanding of the cause. However, by looking into the details of their explanation loopholes can also be found.
My analysis of Eichengreen and Temin’s argument falls into three parts. In the first part, I elaborate their explanation of the cause of the Great Depression and why interwar gold standard failed while its predecessor succeeded. In the second part, I highlight two aspects of the strengths of their explanation. And in the last part, the weaknesses of their studies will be examined
The cause
Eichengreen and Temin attribute the cause of the Great Depression to the mentality amongst central bankers and political leaders that the restoration of pre-WWI gold standard was essential for restoring the healthy international order and economic prosperity. They admit that the initial economic decline may begin from the Wall Street Crash of 1929 in the United Stat...
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...redibility of individual national commitments to gold and the disputed issues of German reparations and war debts increased the distrust between countries which made international cooperation unlikely. Without credibility and cooperation the gold standard was not sustainable. Eichengreen and Temin successfully demonstrate that the success of prewar gold standard was because of the international cooperation rather than the existence of a hegemonic stabilizer. And they also employed compelling evidence to show that gold standard could not be a source of stability in the interwar period. However, there are loose ends in their explanation. First, they didn’t explain the different domestic politics of breaking with gold standard. Second, they also overstated the influence of gold-standard mentality and its power to change economic history through a small group of elites.
The fundamental weakness and contradictions of the world economy was the actual cause of the Great Depression. The international economy was in shambles because of the cost of war and the American economy was indirectly damaged by this; however, October 29, 1929 is the official beginning of the Great Depression because of the stock market crash of 1929. Paper fortunes had vanished but money was the foundation of American life. People usually took loans from banks so they could start businesses but because of the Depression, they took out loans so they would have e...
There was too much OPM (“Other People's Money”) that tripled from 1921 to 1940. Decline in value against fixed debt was large, but less severe than in Great Recession.
There is perhaps no other political issue in our contemporary society that is more pertinent, pervasive, and encompassing than a nation’s economy. From the first coins used in Greece and the Asia Minor in the 7th century BCE, to the earliest uses of paper money, history has proven time and time again that the control of a region’s economy is absolutely crucial to maintaining social stability and prosperity. Yet, for over a century scholars have continued to speculate why the United States, one of the world’s strongest and most influential countries, has one of the most unstable economies. Although the causes of this economic instability can be attributed to multiple factors, nearly all economists agree that they have a common ancestor: the Federal Reserve Bank – the official central bank of the United States. Throughout the course of this paper, I will attempt to determine whether or not there is a causal relationship between the Federal Reserve Bank’s monetary policies and the decline of the U.S. economy. I will do this through a brief analysis of the history and role of this institution, in addition to the central banking system in general. In turn, I will argue that the reckless and intentional manipulation of the economy by the Federal Reserve Bank, through inflation and the abolishment of the gold standard, has led to the current economic crisis in the United States.
The Great Depression of the 1930's is a benchmark for all depressions and recessions in the past and in the future. In the booklet "The Great Depression of the 1930s in Canada" , Michiel Horn gives an intellectual dissection of the events that occurred during the Great Depression. Michiel Horn's approach leaves the reader with a foul taste for the Dirty Thirties. This essay will summarize Michiel Horns key points as well as discuss the ability of Michiel Horn to report his findings.
Horwitz, Steven, and Michael J. McPhillips. "The Reality of the Wartime Economy: More Historical Evidence on Whether World War II Ended the Great Depression." Independent Review Vol. 17, No. 3 (2013): n. pag. Questia School. Web. 2 May 2014.
“In 1928 there was a synchronized, global contraction of monetary policy, which occurred primarily because the Fed was concerned about stock prices.” (Cogley). Though most people think of the Great Depression as the result of few government restrictions and a nonexistent monetary policy, the truth is quite the opposite. Though during immediate months before the Depression, there was virtually nothing occurring, this was a very short period of time. The government was actually actively attempting to limit speculation. To do this, they kept a very direct approach to guiding the economy. In an attempt to stop the inflation bubble from getting too large, they popped it prematurely. “The Fed succeeded in putting a halt to the rapid increase in share prices, but in doing so it may have contributed one of the main impulses for the Great Depression.”
This article is about the circumstances that led to the collapse of the economy in 1929. It relates to my research proposal because I am evaluating historic events that led to the financial crisis of 1929. The article discusses how deflation played an important role in expanding the depression, and how the Gold Standard, a monetary system in which a country’s government allows its currency unit to be freely converted into fixed amounts of gold and vice versa, was an extremely bad decision because it caused the dollar to lose its value. This source was informal because it discusses prehistoric events that led to the crash of and I love how the article discusses that the Federal Reserve played a key role in the failure of the stock market. The Federal Reserve supports any war the United States is involved.
Speculation does not take place in a vacuum and therefore must come from somewhere. Galbraith points to the flow of gold into the United States from 1925 on and the subsequent reduction in the Federal Reserve rediscount rate as the first step. He immediately points out that available funds will not by itself lead to speculation. This is a fair assumption given that people with a substantial amount of savings or income are not always going to plunge into the market in order to double their money. In fact, Galbraith notes that the majority of people during this time did not have substantial savings or high incomes. The author also points out the lack of distribution of wealth as an underlying cause of the crash because the economy was dependent on the financial contributi...
In The Return of Depression Economics and the Crisis of 2008, Paul Krugman warns us that America’s gloomy future might parallel those of other countries. Like diseases that are making a stronger, more resistant comeback, the causes of the Great Depression are looming ahead and much more probable now after the great housing bubble in 2002. In his new and revised book, he emphasizes even more on the busts of Japan and the crises in Latin America (i.e: Argentina), and explains how and why several specific events--recessions, inflationary spiraling, currency devaluations--happened in many countries. Although he still does not give us any solid options or specific steps to take to save America other than those proposed by other economists, he thoroughly examines international policies and coherently explains to us average citizens how the world is globalizing--that the world is becoming flatter and countries are now even more dependent on each other.
The first factor in the start of the Depression was the lack of diversity in the American Economy. It relied strongly on only a few basic industries, notably the construction and automobile industries. In the 1920's those 2 industries began a rapid decline: construction became scarce and fell from 11 billion to under 9 billion between 1926 and 1929. The automotive industry fell more than one third in the first nine months of 1929. Second, there was a maldistribution of purchasing power, and as a result a weakness in consumer demand. As major industries increased, the percent of profits going to consumers was to small to create adequate market for the goods the economy was producing. A third major problem was the credit structure of the economy. Farmers were greatly in debt, and crop prices were extremely low. Small banks were in trouble, many customers defaulting on their loans. Big banks were in trouble as well, many investing recklessly in the stock market then losing it all when the stock market crashed in 1929. The fourth factor was Americas position in the international trade market. In the late 20's, Europe's demand for American goods began to decline, partly because their industry was becoming more productive and partially because their economy was destabilized from the international debt structure that emerged in the aftermath of WW1. The international debt structure was a fifth and final factor contributing to the Great Depression. At the end of the war in 1918, all the European nations that had been allied with the US owed large sums of money to American banks and could not repay them with their shattered economies. The reparation payments were needed greatly from Germany and Austria, yet they were no more able to pay than the Allies were. This caused American banks to begin making large loans to European governments which they used to pay off their earlier loans, really only piling up debts. The collapse of the international credit structure in 1931 was one of the reasons the Depression spread to Europe.
...e excessive speculation in the late 1920's kept the stock market artificially high, but inevitably led to the big crash. Overproduction may have seemed like a good idea but in the long really hurt the U.S. as the farm industry fell, workers fired, and purchasing levels across the country were at all time lows. These speculators combined with the overproduction and the maldistribution of wealth, caused the American economy to crash. Today, our government still argues over who should have the nation’s wealth and even if the wealthier should pay higher taxes then the less wealthy. Some could argue that the government should of utilized laissez faire and kept there hands off of the people’s business and let the people work things out on there own. Either way, the country did a very good job of making changes and not letting anything get as worse as it was in the 1920’s.
The causes and far-reaching effects of The Great Depression are examined. Discussion includes its impact on both American cultures and nations around the world. The role of World War II and the New Deal in overcoming the Depression are explored.
Although a shared belief by many economists that the Great Depression was triggered by the 1929 crash of the stock market. An Overview by David C. Wheelock explain that “The 1929 stock market crash often comes to mind first when people think about the Great Depression. The crash destroyed considerable wealth. Perhaps even more important, the crash sparked doubts about the health of the economy, which led consumers and firms to pull back on their spending, especially on big-ticket items like cars and appliances.” Wheelock went on to argued that “Some economists point a finger at protectionist trade policies and the collapse of international trade. The Smoot-Hawley tariff of 1930 dramatically increased the cost of imported goods and led to retaliatory actions by the United States’ major trading partners. The Great Depression was a worldwide phenomenon, and the collapse of international trade was even greater than the collapse of world output of goods and services. Still, like the stock market crash, protectionist trade policies alone did not cause the Great
At war time, Roosevelt demanded that good military jobs were given minorities. With these jobs came fair compensation and respectable benefits. When Pearl Harbor was bombed it transformed the U.S. economic and social status for good. Some say that the bombing of Pearl Harbor marked the end of the Great Depression. When the World War II began troops were needed. Men were drafted and women were needed to work in factories and stayed behind to sustain the family.
In the "Dawn of Affluence" J. Stevenson and C.Cook discuss the effect of the Great Depression on the world economy, in particular, the British economy. They start the account by contradicting the long held view of many, that the Depression was a time ."..of unrelieved economic disaster." Through-out their account, they point out many facts and figures that support their view, either neutral or positive growth figures, e.