The economic business cycle of the world is its own living and breathing entity expanding and contracting with imprecise balances involving supply and demand. The expansions and contractions also known as booms and recessions support a delicate equilibrium of checks and balances, employment and unemployment. The year 1929 marked the beginning of the downward spiral of this delicate economic balance known as The Great Depression of the United States of America. The Great Depression is by far the most significant economic event that occurred during the twentieth century making other depressions pale in comparison. As a result, it placed the world’s political and economic systems into a complete loss of credibility. What transforms an ordinary recession or business cycle into an authentic depression is a matter of dispute, which caused trepidation among economic theorists. Some claim the depression was the result of an extraordinary succession of errors in monetary procedure. Historians stress structural factors such as massive bank failures and the stock market crash; economists hold responsible monetary factors such as the Federal Reserve’s actions when they contracted the currency distribution, and Britain's attempt to return their Gold Standard to pre-World War parities. Subsequently, there are the theorists such as the monetarists, who presume that it began as a normal recession, however many policy errors by the monetary establishment forced a reduction in the money supply, which worsened the economic condition, thereby turning the normal recession into the Great Depression. Others speculate that it was a failure of the free market or a failure of the government in their efforts to regulate interest rates, slow the occ... ... middle of paper ... ... Ronald W. "Pre-Keynesian Monetary Theories of the Great Depression: What Ever Happened to Hawtrey and Cassel?” (1991): "Economics of Crisis: Policies: Lessons from the Great Depression, 1929.” Economics of Crisis. http://www.economicsofcrisis.com/economics_of_crisis/depression.html (accessed June 26, 2010). "Great Depression: The Concise Encyclopedia of Economics | Library of Economics and liberty.” Library of Economics and Liberty. http://www.econlib.org/library/Enc/GreatDepression.html (accessed June 26, 2010). Greenspan, Alan. "321gold: Gold and Economic Freedom by Alan Greenspan 1966.” 3 2 1 g o l d ... Welcome! http://www.321gold.com/fed/greenspan/1966.html (accessed June 26, 2010). "Sliding into the Great Depression.” Brad DeLong's Website Home Page. http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html (accessed June 26, 2010).
The traditional view of Franklin D. Roosevelt is that he motivated and helped the United States during the “Great Depression” and was a great president, however, as time has passed, economist historians have begun analyzing Roosevelt’s presidency. Many have concluded that he did not help America during the Great Depression but instead amplified and prolonged the depression. Jim Powell wrote about FDR economic policies and did an excellent job explaining Roosevelt’s incompetent initiatives. Roosevelt did not know anything about economics and his advisors made everything worse by admiring the Soviet Union.
On October 29, 1929 marks the official opening of the Great Depression. During 1933, the unemployment rate in United State reached 25%; it was not until the second quarter of 1933 where the US economy started to reclaim. President Franklin D. Roosevelt formed the foundation of the New Deal within the First Hundred Days when he came into power. To determine the New Deal Program’s role during the Great Depression, the sources used in this investigation include: The Great Depression and the New Deal by Robert F. Himmelberg, and Depression Decade: From New Era through New Deal, 1929-1941 by Broadus Mitchell. There will also be a discussion involving World War II’s role in ending the economic crisis. A journal article “The Reality of the Wartime Economy” by Horwitz, Steven and McPhillips, Michael J. will help disperse the theories behind Second World War.
The Great Depression was a period of first-time decline in economic movement. It occurred between the years 1929 and 1939. It was the worst and longest economic breakdown in history. The Wall Street stock market crash started the Great Depression; it had terrible effects on the country (United States of America). When the stock market started failing many factories closed production of all types of good. Businesses and banks started closing down and farmers fell into bankruptcy. Many people lost everything, their jobs, their savings, and homes. More than thirteen million people were unemployed.
“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.”
5. Friedman, M., & Schwartz, A. (1963). A Monetary History of the United States 1865-1960. National Bureau of Economic Research. Retrieved April 21, 2010, from GoogleBooks
According to the Austrians, each depression follows a “boom-bust” cycle caused by multiple errors in economic decision-making. Rothbard explains these common features as a “cluster of errors.” The “boom” of a depression is a time of wasteful investment. This is caused by banks loaning out money at too high a rate. As newly acquired funds pour into businesses, businesses believe the supply of funds for investment has greatly increased and the interest rate falls. Businesses invest this money at a higher rate in the capital goods market, as they have been “tricked” into believing there has been an increase in saving by the consumer. Soon this bank caused inflation will trickle down the economy in the form of higher wages. The consumers, who have not actually increased their preference for saving, rush out to by consumer goods. The investment in capital goods by businesses turns out to be a waste.
The occurrence of the Great Depression was an inevitable economic disaster that was caused by a variety of reasons and events that happened in the U.S. and across the world. The lack of diversification was one of the main causes of the Great Depression as the dependence on only certain industries like the automobile industry began years before; and because of the prolonged success of such industries, their demise could not have been predicted. World War I was an event that had a major impact on the Great Depression because of the complexity of the international debt owed to the U.S, and the decline of international trade. In addition, the failure of the bank system and the reckless investments that banks, businesses and the American public made contributed to the manifestation of the Great Depression.
In the late 1930’s, America slipped into an economic depression. Stocks plumited and so did the value of a dollar bill. Many people in America were angry and nearly all were affected by it. Many americans viewed the depression as entirely the bank’s fault.
On October 24, 1929, a day historically known as “Black Thursday”, the United States stock market crashed due to investors in the market starting to “sell off their shares, which resulted in a decline in stock prices.” (Dau-Schmidt, pg 60) This economic downturn in the market gave birth to financial ambivalence in the country, increasing unemployment, as well as other consequences on the landscape of international economics. When President Franklin D. Roosevelt took over as president in the year of 1933, “The country was in its depth of the Great Depression.” (Neal, 2010) Roosevelt’s New Deal consisted of implementing relief programs such as the Work Progress Administration and the Civil Works Administration, which aimed at revitalizing the U.S. labor market. However, these programs were short-lived due to insufficient funding. Although these programs were effective, their short life span only sought temporary remedy. The on again off again pattern of these programs existence caused a cyclical trend in the increase and decrease of unemployment. “John M. Keynes born on June 5, 1883 was one of the most influential economists of the Twentieth Century.” (Pettinger, pg 1) Keynes argued that the doctrine of the New Deal was a slow remedial procedure to restoring the economy. Although, Roosevelt’s efforts helped reduce unemployment in spurts, it was ultimately an ineffective plan because according to Keynes, to restore the economy during the Great Depression, there had to of been deep government spending and increased high taxes.
A rise in crime, unemployed individuals had to look toward petty theft to put food on the table, suicide rates increased, malnutrition, prostitution, no adequate Health care, Alcoholism increased with Americans in search of ways to escape the crisis, prohibition and much more unfortunate situation unfolded during the time of The Great Depression. This troubling time lasted from 1929-1939. The Great Depression was a time of worldwide economic depression, the most disastrous of all economic crisis in the history of the United States. The Nation was falling apart, and something needed to be done about the crisis facing the country. The American people needed a change in the situation. After winning the election and defeating Hoover, President
...sez-faire" and relied heavy on market forces to achieve necessary economic corrections. But market forces alone are not always able to achieve the desired recovery in the economy. Whether in the form of taxation, industrial regulation, public works, social insurance, social welfare services, or deficit spending the government must assume a principal role in ensuring economic stability. New theories and ideas came out of the depression like Keynesian theory. Which states that recessions and depressions happen because people hoard their money and to fix this the government should do the opposite and spend money(5).
The US government’s role in the Great Depression has been very controversy. Different hypothesizes argued differently on the causes of the Great depression and whether the New Deal introduced by the government and President Roosevelt helped United States got out of the depression. I would argue that even though not the only factor, the US government did lead the country into the Great Depression and the New Deal actually delayed the recovery process. I will discuss five different factors (stock market crash, bank failure, tariff and tax cut, consumer spending and agriculture) that are commonly accepted to cause the depression and how the government linked to them. Furthermore, I will try to show how the government prolonged the depression in the United States by introducing the New Deal.
Smiley, Frank. "The Concise Encyclopedia of Economics Great Depression." Library of Economics and Liberty. 30 March 2010. .
Chapter 3 in The Age of Extremes by Eric Hobsbawm discusses the lead up to the Great Depression, firstly putting forward the idea that the Depression might not have happened if the First World War had have happened in an "otherwise stable economy and civilization." Hobsbawm talks about how the economy before the Great Depression went through ups and downs that were "accepted by businessmen and economists rather as farmers accept the weather..." and he says that these ups and downs were both positive and negative to growth, but on a whole, the economy grew very well. He goes on to say that though the world economy did continue to grow, and to an outsider, like a "Martian", the rise and fall of the economy, would have appeared to be growing during the Great Depression, but in fact the economy was only growing at half the rate of the previous years. He talks about why the Depression happened "Why did the capitalist economy between the wars fail to work?" and what was the result of it, in particular the political ideals that came out of it. "The Great Slump confirmed...in the belief that something was fundamentally wrong with the world they lived in"
The true causes of the Depression are still with us. Personal debt, workers demanding higher wages (often without producing any more), business cutting corners, employee theft, and speculation. If you want to see how the economy of the future will be, specialists believing that we have to watch the way people as a whole are dealing with each other and how they live their own lives. In other words, are workers producing more, are employee and shoplifting thefts down, are we borrowing less, is the federal economy in the black? The top economists scoffed when he said, on September 5, 1929, "Sooner or later a crash is coming and it may be terrific... factories will shut down... men will be thrown out of work... the vicious circle will get in full swing and the result will be a serious business depression" (John Kenneth Galbraith, The Great Crash, Houghton-Mifflin, 1955, pp. 89-90). Government economists, on the other hand, seemingly clambered over each other to reassure the many paper-thin speculators that such talk was impossible, unthinkable.