During the Great Depression, many families were striving to meet their basic needs, which drove people into different ways of facilitating supplies and upholding their status in society. At this time, most civilians blamed the government for the challenges they were experiencing and considered the banks to be oppressive1. People needed hope and support to survive these challenges. While some people worked to improve their status, Bonnie Parker, Clyde Barrow, Alphonse Capone, John Dellinger, and John Ashley rose as criminals during these times to suit society’s expectations, hence promoting their popularity.
Bonnie Parker and Clyde Barrow
People loved the two for their autonomy in taking care of themselves since they were born in low-income families. Bonnie and Clyde were taken as robin hood figures despite their actions during the time2. The tough economic times drove everyone to seek sustenance to avoid starvation and losing homes, and the preexisting economic challenges caused their efforts. The national and local governments did not offer practical solutions to deal with the challenges citizens were facing. Thus, they opted to take action on their own hands. Their actions were considered to be combating the oppression from banks by undertaking bank robbery. They would send what they got to their families, and their families would support them in situations of trouble.
People viewed Bonnie and Clyde as a revolutionaries. The couple was also famous due to the Americans due to Bonnie’s gender. It was not common to have a woman tied to a crime spree and involved in a national-wide search in the US. She became a focal point for most by showing that females had power too. People made portraits of her holding a gun and smoking to show she was considered unique. More people followed their stories, making them well-known.
Alphonse Gabriel Capone
Capone was dear to the American people due to his generosity. He was also gregarious, which made people award him public sympathy. People, to an extent, considered him a robin hood figure or a man of decent who would work alongside the people during the times. He consecutively used the press through his soup kitchen to gain sympathy3. However, people’s love for Capone began deteriorating during exposure to brutal violence, tax evasion, and murder to the public.
The Impact of the Great Depression on their Persona
Bonnie Parker and Clyde Barrow
In the 1930’s most people in America were feeling the impact of the Great Depression due to the crashed economy. The crime was high all over the nation since each family was working to evade starvation or losing their homes. Clyde, born in a family of seven and grown up in poverty, had moved out of Dallas with his family, and they could not afford a tent. On the other hand, the government did not offer practical ways of handling the crashing economy, which made it worth it for their actions to take care of themselves through illegal means. When Bonnie and Clyde had money, they would send it back to their families. The great depression pushed them to seek a means of survival.
Alphonse Capone
During the great depression, most people were facing the challenges of starving and losing their homes. Capone used the impact on people to show his generosity by creating a soup kitchen in Chicago. He was able to feed millions of people in the area, which built his reputation of a caring person. Capone would offer meals and a resting place for the struggling population and even offer jobs to some people. He would also attend public gatherings and encourage people while showing his feelings and sympathy for those facing difficulties. He used the soup kitchen to clean up his name by using his crime money for charity works.
Changes Made to Criminal Justice System due to their Exploits
Bonnie and Clyde had made a mockery of the criminal fighting networks in the US during the Great Depression period. The two had shown the power of outlaws and made the crime networks seem weak. After their ambush, the criminal fighting networks have become more professional and have experienced many transformations, with the agents receiving reinforcements and being allowed to carry weapons with them. Congress has also granted the criminal agents full police powers.
From Alphonse Capone, the law adopted the idea of stop and frisk, which still works today, especially by the police departments. However, the idea of universal suspicion is not favored; instead, frisking is becoming common to ensure that now weapons or lawlessness are embraces. Furthermore, the harsh punishment for Capone might have resulted from the Mexican judge, and today the US is against any racial profiling acts and prevents illegal immigration into the country.
Conclusion
Criminals such as Bonnie, Clyde, and Capone rose during the great depression and gained popularity because of their courses. Bonnie remains revolutionary for women during the times. The couple is seen as heroic since they were against the oppressors, cared for themselves and supported their families. Capone gained public sympathy and love from his charity work since most people were starving and did not have shelter. Bonnie and Clyde led to the full authorization of agents to carry weapons, and Capone led to the reinforcement of frisking laws.
References
Lubis, Fauziah. “Legal regulations the role of professional advocates as reporting parties in preventing and eradicating money laundering crimes in Indonesia. “ International journal of innovative research and advances studies (IJIRAS) 7, no.2 (2020).
Schroeder, Maggie. “Bonnie and Clyde: Exaggeration Rooted in Truth.” (2019).
Straw, Will. “After the event: The challenges of crime photography.” In Getting the Picture, pp. 139-144. Routledge, 2020.
Footnotes
Straw, Will. “After the event: The challenges of crime photography.” In Getting the Picture, pp. 139-144. Routledge, 2020.
Schroeder, Maggie. “Bonnie and Clyde: Exaggeration Rooted in Truth.” (2019).
Lubis, Fauziah. “Legal Regulations The Role Of Professional Advocates As Reporting Parties In Preventing And Eradicating Money Laundering Crimes In Indonesia.” International Journal Of Innovative Research And Advances Studies (IJIRAS) 7, no. 2 (2020).
Historically speaking, America has always been a country of affluence and excess. That is why when the country finds its economic stability threatened, it enters a tailspin that results in economic losses for the country and its population that also causes a ripple effect in the international community. These kinds of effects, which we are seeing now, were first seen and experienced by the nation way back in 1929, the era of the Great American Depression.
The Great Depression was more than a state of mind for the people back then. It had long-reaching psychological and physical effects on most people due to their sudden lack of ability to provide for the most basic necessities such as food, shelter, and clothes. Oftentimes, they blamed themselves for their sorry state of life without realizing those bad economic decisions and political motivations of the government they elected to protect them actually caused their social situation. Nobody was spared from the depression. Together with the stock market crash, the upper crust of society found themselves without the financial ability to continue their lavish lifestyles dictated by the affluence of the era. Those who were unemployed believed that it was their fault they did not have a job. These were the people whose psyches were affected. Their self-blame and doubt spread across the lower tier of society until it became so widespread that it took the New Deal Era of governance to reverse the mindset. This was the program that opened the eyes of the people to the fact that the depression era did not affect just the low bracket of society and that if they were to overcome it, all sectors of society had to work together.
The Depression Era actually affected the international community as a whole. The world was changing and developing at a fast pace but the salary brackets of workers across the world did not compensate nor keep up with the growing world population. In Germany for instance, the nation struggled to afford the cost if World War I reparation and peace settlements. People were looking for somebody to blame for their hardships in life. Refusing to accept the truth that they caused the predicament they now found themselves in.
Countries like Britain and Europe took longer to feel the effects of the economic turmoil because of their political power setup. Britain was already suffering from a huge unemployment rate but because they had unemployment insurance and welfare, the jobless were somehow shielded from the effects of the depression. France on the other hand barely felt the effects because of their less industrialized status as a country.
The stock market crash of 1929 was caused by the greediness of people who borrowed heavily from others in order to play the stock market. Stock prices were at their peak and the market seemed to be the best bet in terms of investments. By 1929, the market bubble had burst and the stocks lost at least 80% of their value. People were left feeling destitute and the stock market could not entice new investors to spend in the market. The banking system was left in utter chaos as stock market loans remained uncollectible and, because banks themselves had invested in stocks, they found themselves unable to answer to their own depositor obligations, causing numerous bank runs across the nation. Upon Roosevelt’s ascension to power, he initiated a 3 day bank holiday in order to help banks copes with the bank runs. Later on, the Federal Deposit Insurance Corporation was established in order to ensure that a repeat of the bank runs would never happen again. Under the FDIC, banks could no longer invest in the stock market. This is perhaps the biggest change that occurred within the stock market as a result of the stock market crash of 1929.
Representation of Workers, Immigrants and African Americans by the New Deal
When President Franklin D. Roosevelt was elected in 1932, democrats developed a plan focusing mainly on the minorities such as African Americans, workers, immigrants, and religious minorities. The Civilian Conservation Corps (CCC) and the Works Progress Administration (WPA) were some of the many programs representing minorities in the New Deal. The goal of CCC was to protect the nation’s natural resources by employing minorities. The African Americans participated in the construction of road and rail tracks in North Carolina. They removed dead tree trunks preventing forest fires, and received 30 dollars from the government (Patel, 2021). They were provided with food, shelter, and education as CCC had a rule prohibiting recruitment based on race or religion, which favored the minorities well.
The WPA focused on the well-being of minorities by ensuring that their psychological, social, and economic problems were solved, giving them peace of mind. An estimated 15% of the WPA workers were immigrants, and others were discriminated against in race (Kelley, 2021). It had federal music and theatre initiatives that supported the talents of musicians and African American actors without any favor. WPA allowed women to perform clerical jobs, canning as well as working as librarians. Through the federal writer’s project, black history and culture were conserved.
Extend to which the New Deal Ended Great Depression and Restored the Economy
WPA and CCC played a compatible role in ending the Great Depression and restoring the economy. The two programs provided jobs to minorities who could work in various public projects, leading to the recovery of the nation’s economy. The CCC was created to address the unemployment issues among minorities during the Great Depression period. By conserving natural resources, about two million minorities received 30 dollars (Patel, 2021). WPA provided opportunities to the minority groups that participated in clerical and librarian positions and gardening jobs, which enhanced the people’s purchasing power, leading to economic recovery. The New Deal elevated the financial situation by addressing unemployment by providing assignments that solved social and economic problems. Problems such as declining industrial output and lack of jobs were reduced by half, and millions of immigrants and African Americans got jobs. This shows that the New Deal helped to end the Great Depression and restore the nation’s economy.
References
Kelley, S. (2021). 8. Democracy and the New Deal Party System. In Democracy and the welfare state (pp. 185-206). Princeton University Press.
Patel, K. K. (2021). The Rise of Comparison and the Rise of the New Deal Order. InDecentering Comparative Analysis in a Globalizing World (pp. 193-212).
The Great Depression is one of America’s worse periods in history. The period officially began on what is commonly referred to as the black Tuesday, 29 October 1929. On this day, stock prices dropped to unimaginable levels plunging the country into panic. For almost 10 years, America had a thriving economy and everyone was optimistic about a better future. However, many people did not know that this was a lull before the storm because on that particular Tuesday the stock market tumbled like a house of cards. In the panic, people rushed to sell their stocks that of course, no one was willing to buy. It then became apparent to everyone that the stock market that was perceived as the best way for one to gain wealth was now the surest way to poverty. (Bernanke 30)
The stock market was not the only one that was affected. The banks that had also invested big amounts of their customer’s money in the stock market were negatively affected by its collapse. This collapse led to the closure of many big banks plunging many people into misery since the banks closed down with their savings. Customers with money in banks that had not yet shut down rushed to withdraw their money. In turn, these banks could not manage to operate due to the huge amounts of money that the clients were withdrawing leading to more closures.
To deal with the tough economic time, individuals began to cut down on their spending. People only bought the essential goods to save their almost non-existent capital. The reduced spending by consumers caused businesses to reduce the wages of their workers to cope with the reduced profits. Even with these measures, some businesses closed down leaving their employees without a source of income. Already owed heavily, individuals also cut down on borrowing to cut down on debt.
The federal government on its part led by President Roosevelt came up with recovery measures that were called the First New Deal. The measures involved giving relief to those who had lost their jobs due to the recession and to farmers who were badly affected due to prolonged drought in the land. The packages also undertook to reform businesses and financial institutions and to bring them back to profitable ways. Lastly, Roosevelt sought to promote the recovery of the economy that had taken a nosedive during the recession.
To achieve these goals, the federal government increased its control over the economy and regulated the supply of money. The government also controlled the prices of commodities and products in the agricultural sector. Though all these measures were geared toward bringing an end to the depression, this did not happen immediately. Historians relate the end of the great depression to the start of the second-word war. This in essence means that the federal governments’ measures did not achieve their main purpose. The people on the other hand learned to live within their means and were patient throughout the recession period.
Today, the US is in a recession and the economy is bleak for many Americans. Like in the time of the Great Depression, many Americans have been rendered jobless and the economy is at its lowest peak. Many people have also lost their homes. This is a trend that was characteristic during the great depression. Like the federal government back then, the Obama administration is also putting in measures to fight the effects of the recession.
However, there is a big contrast between how the federal government dealt with the Great Depression and how the current recession is being dealt with. While the banks were allowed to crumble during the depression, the government is not letting that happen today. The government has pumped in billions of dollars to ensure that there is no repeat of what happened during the depression. Instead of letting businesses sink, President Obama has embarked on a program to ensure that no company crumples. To ensure that no one is homeless, Obama signed into law an incentive that gives up to $ 8000 tax credit for first-time house buyers. This is meant to ensure that no one is left homeless for inability to buy a home.
The government has also been giving cash bailouts to big companies that were on the verge of collapse. An example of this was the bailout of the biggest insurance company AIG. The company got $ 150 billion as a bailout package the largest that has ever been given to a single company. This in turn prevented the company from collapsing thus preserving thousands of jobs and securing clients’ money. This is something that the federal government did not consider doing during the Great Depression. This led to the loss of numerous jobs and customers’ money after the collapse of such kinds of financial institutions.
The great depression was a period characterized by the loss of jobs and the collapse of businesses. Individuals tried as much as they could to cope with the hard economic times. They did this by cutting down on their spending and failing to borrow cash that could in return increase their debts. The government then came up with packages that sought to lessen the effects of the depression. Like in the Great Depression, America is today going through a time of economic recession. The government has however undertaken fast measures to make sure that people do not suffer as they did during the great depression.
Works cited
Bernanke, Ben. Essays on the great depression, 10-40. Princeton University Press. 2000. Print.
The Great Depression in Canada lasted from 1929 to 1939. Like many fledgling industrial nations at that time which included its neighbor the United States and Great Britain, this was a period marked by both financial and social problems. Unemployment attained a high of 27% when the depression was at its hardest in 1933. Families were plunged into massive debt with the wiping out of their assets.
The hardest-hit sectors of the economy were those that employed a “big proportion of the population and this included farming, mining and logging.” (Paul Alexander, 1996)1The corporate world was also massively scarred with “corporate profits that had amounted to $396 million in 1929 being totally erased and instead turned to losses of $86 million by the year 1933.” (Berton, 2001, p 252) 2The result was the closure of many businesses due to the continued decline of the prices of commodities which made this business venture unprofitable even though these massively reduced prices were still beyond the reach of an unemployed and broke public. (Berton, 2001, p 252)
Root Causes of the Great Depression
Before the onset of the Great Depression from the years 1919-1929, Canada had the fastest growing economy amongst the developing nations and the only blip to this record was the slight recession they suffered during the 1st World War.
The country was quite prosperous especially in the 1920s where its standards of living showed marked improvement. The country was certainly on the right path towards matching its close cousin the United States economics. An important point worth noting is that the onset of the great depression and the subsequent recession that followed did not start suddenly but it was a slow process that was fueled by the prevailing economic conditions and certain economic policy decisions that were undertaken by the Canadian Government like raising of export tariffs.
Even though the Canadian public was hit hard by the depression, the effects cannot be compared to the events that were unfolding in the United States. Over 9000 banks collapsed in America taking with them the life savings of millions of citizens. In Canada, it is not surprising that there were no reported cases of banks filing for bankruptcy due to their stringent banking regulations which were more conservative than their counterparts. Even though the unemployment rate (in Canada) was still high, those who were still employed could earn real wages; the only catch is the number of hours they could work per week was greatly reduced. (Watkins, 1993, p 101)3
Wheat Crop Failure
It is a well-known notion that the “Great Depression was triggered by the Wall Street Market Crash”(Watkins, 1993, p 103) but some analysts beg to differ for the case of Canada adding that the failure of the wheat crop harvest of 1928 also played a part. With the subsequent crash of the wheat crop, many citizens were rendered jobless and the supply of money and even food was at critically low levels.
The standards of living took a beating with the minimum income required to support an average family “declining from $1200-$1500 to less than $1000 a year.”(Lambert, 2006, p 1234) The failure of the wheat crop can be attributed to the drought that afflicted the prairies for several years and the dust storms that followed which made it almost impossible for farmers to grow large quantities to match the market demand.
The bare amount of wheat that survived these harsh conditions could not produce maximum yield due to the lack of rainfall. The farmers were eventually caught up in financial turmoil since the credit they hard borrowed from the banks to purchase seeds and farm machinery could not be paid off due to the poor harvest. Most of them filed for bankruptcy and the few that survived these harsh times had to pay lesser wages or lay off the farm laborers to stay afloat.
Lack of Market
The boom in economic growth from 1919-1929 can be attributed to a flourishing export market that had close ties with its commonwealth counterparts Britain and Australia, and also trade with its close ally the United States. This triggered a rapid and almost uncontrolled expansion of Canadian industries and companies. The demand for their products was there and the “over production and over expansion was facilitated by credit lending institutions like banks.”(Shlaes, 2008, 371) 5This however changed when Wall Street crashed in 1929. Suddenly, the demand for goods and services disappeared and these companies were faced with a huge debt that they could not serve because of a lack of market for their goods and services. Massive layoffs ensued and the prices of these commodities tumbled. (Shlaes, 2008, 371)
Furthermore, the lack of market for goods resulted in a decrease in demand for natural resources which put the country in a fix since it “depended too much on a few primary products” (Shlaes, 2008, 371) to define its export market which accounted for “25% of Canadian Gross National Product.”(Shlaes, 2008, 371) Most of these products were destined for the United States and when the depression hit the United States, the demand for their products reduced, and Canada was sucked into the ensuing depression. Two key points, therefore, contributed to the economic depression that hit Canada. The over-dependency on the American market for its products was the beginning of their downfall and the miscalculation of Canadian industries and companies of a guaranteed future demand for their products only exacerbated an already precarious economic recession.
Black Tuesday
Falling commodity prices in the United States that can be faulted on oversupply in the market contributed to a massive drop in share prices in the United States which culminated in a full-blown stock market crash on October 1929, a day referred to as Black Tuesday. It is worth noting that we look at the events that preceded Black Tuesday. Like Canada, America had also been enjoying an economic boom that was being driven by a strong manufacturing sector.
This had created a huge and prosperous middle-class population that had borrowed heavily from the very flexible banks and most of this wealth was invested in the stock exchange; which had been enjoying a rally like never before. Trouble started when the banks realized they had lent too much and the number of defaulters was also increasing. Sensing trouble, the banks started recalling their loans and some of them were tied up in the stock exchange. Millions of borrowers cashed in their shares in an attempt to pay off their loans which led to a massive drop in trade volume and share prices. (Bliss et al, 1971) 6
Falling share prices sent the entire economic system into panic mode which led to a reduction in public spending because most people were inclined to save whatever little they had. The lack of demand for commodities led to falling prices which hit the industries and companies hard. With the economic situation looking uncertain, most citizens started withdrawing their savings from the banks and this coupled with a large number of loan defaulters contributed to the collapse of the banking system.
Sensing that people were hoarding cash instead of spending it, the “Federal Reserve reduced money supply by one-third,”( HoarCopp, 1969, 45) 7which later proved to be an error since the slight recession that had been triggered by the stock market crash turned into a full-blown depression. Canada had close economic ties with the US and the shockwaves from the collapsing stock market reverberated to Canada. The Canadians had also borrowed too much to buy stocks and when the Black Tuesday crash occurred the defaulters tried everything possible to pay off the borrowed credit. They sold their personal belongings and those who were still short had their processions reprocessed.
Government Intervention
The country’s gross national product had fallen from $6.1 billion in 1929 to $3.5 billion in 1933 and the value of industrial production had reduced by a half. Therefore, a timely intervention was necessary if there was any hope of reversing this trend. The Mackenzie administration that was charge before and during the onset of the depression seemed unable to grasp the veracity of the economic situation. They thought the depression was simply a blip that would pass with time. They denied federal aid to the provinces that were in economic turmoil but instead offered only “moderate relief efforts.” They were voted out in the 1930 elections and R B Bennet’s Conservative Party came into power. (Bliss et al, 1971)
Bennet showed a bit more initiative than his predecessor and he instituted make “work programs plus welfare and other assistance programs” (Horn, 1972, p 128)8 to aid the unemployed population. “Unemployed single men worked in camps that had been established in British Columbia.”(Horn, 1972, p 128) However, the massive spending created a massive deficit in the federal budget which the administration tried to counter by cutting back on spending. This only exacerbated the situation. “Government employees were rendered jobless and the public works projects were cancelled.” (Bliss et al, 1971)
Great Britain introduced trade-protectionism which was designed to favor its commonwealth members Australia and Canada that were massively in debt. Both of these countries were given preference when it came to exporting their commodities to the British market. Furthermore, the volume of trade being imported by Britain from Canada doubled from 1929 to 1939 and this helped to jumpstart the Canadian industries that were reeling from the recession. This enabled Canada to start paying off its huge public debt.
The Bennett government tried to institute minimum wage programs through the Industrial Standards Act but the plan massively failed. Their failure led to the ousting of his administration and McKenzie King’s Liberals returned to power in 1935. During his tenure, “the worst of the depression was over” (Bliss et al, 1971) but McKenzie’s government established relief programs like the “National Housing Act and National Employment Commission. He also established Trans-Canada Airlines which laid the foundation for Air Canada in 1937.” (Paul Alexander, 1996) It wasn’t until the outbreak of the 2nd World War in 1939 which fuelled an arms race and a subsequent mass production of arms and machinery that pushed the Canadian economy back to the pre-1929 levels.
Works Cited
Berton Pierre, “The Great Depression: 1929-1939”, Anchor Canada, 2001, pp 252-279
Bliss Michael Bliss and Grayson L M, The Wretched of Canada: Letters to R.B. Bennett 1930 –1935, University of Toronto Press, 1971.
HoarCopp Victor, The Great Depression: Essays and Memoirs from Canada and the United States, Clark Publishing, Toronto 1969, pp 45-48.
Horn Michiel, The Dirty Thirties: Canadians in the Great Depression, Copp, Clark Publishing, Toronto 1972. pp 125-128.
Lambert Ann Barbara, Rusty Nails, and Ration Books: Memories of the Great Depression and WWII 1929-1945, Trafford Publishing, 2006, pp 123-129 (Primary Source)
Paul Alexander Gusmorino III, 13th May 1996, “Main Causes of the Great Depression”. Web.
PBS: The American Experience “Surviving the Dust Bowl”. Web.
Shlaes Amity, The Forgotten Man: A New History of the Great Depression, Harper Perennial, 2008, pp 369-375.
Watkins, T.H. The Great Depression: America in the 1930s. Toronto: Little, Brown & Company, Ltd., 1993, pp 101-109.
Wecter, Dixon. A History of American Life: The Age of the Great Depression, 1929-1941, Toronto: Collier-Macmillan Canada Ltd.
Footnotes
Paul Alexander Gusmorino III, 13th May 1996, “Main Causes of the Great Depression”.
Berton Pierre, “The Great Depression: 1929-1939”, Anchor Canada. 2001, pp 252-279.
Watkins, T.H. The Great Depression: America in the 1930s. Toronto: Little, Brown & Company, Ltd., 1993, pp 101-109.
Lambert Ann Barbara, Rusty Nails, and Ration Books: Memories of the Great Depression and WWII 1929-1945, Trafford Publishing, 2006, pp 123-129 (Primary Source).
Shlaes Amity, The Forgotten Man: A New History of the Great Depression, Harper Perennial, 2008, pp 369-375 (primary source).
Bliss Michael Bliss and Grayson L M, The Wretched of Canada: Letters to R.B. Bennett 1930 – 1935, University of Toronto Press, 1971.
HoarCopp Victor, The Great Depression: Essays and Memoirs from Canada and the United States, Clark Publishing, Toronto 1969, pp 45-48.
Horn Michiel, The Dirty Thirties: Canadians in the Great Depression, Copp, Clark Publishing, Toronto 1972. pp 125-128.
The Great Depression was one of the most meaningful and devastating events of the 20th century. It affected every person in the United States and other countries, no matter their status, money, or job.
The collapse happening was influenced by the consequences of World War I and other factors that combined at that time. The Great Depression was a highly significant and destructive event caused by multiple factors, ending in a shift in the whole world and every structure and changing Americans’ attitude toward the government. The Great Depression was the most severe recession of the past centuries. It affected the whole world and lasted for approximately 12 years.
Main body
Field claims that gross domestic production (GDP) fell by 30%, almost half of the banks in the United States collapsed, and about 25% of the population became jobless during the Great Depression (para 1). Unemployment insurance did not exist at that time, and no one was prepared for these events, and it became a disaster for millions of people. Kiger states that the Great Depression affected everyone, from investors who became bankrupt overnight to clerks and factory workers who became unemployed (para 1).
The event influenced every person despite their status or profession.
Thus, the Great Depression was a devastating event that affected everyone.
It is believed that the reason for the recession was the market collapse in 1929; however, it is not. There was no one exact reason for the collapse happening.
Field claims that the genuine reason for the event was a combination of different factors, such as ill-timed tariffs and misguided moves (para 2).
Thus, the Great Depression had predispositions and was provoked by many factors.
Moreover, Segal, Cheng. et al. affirm that “inactivity followed by overaction by the Fed also contributed to the Great Depression” (para 6).
After the eight-year inactivity, Fed, the central US banking system, drastically increased the money supply, which influenced the economy and became a predisposition for the collapse. Thus, there were several factors that contributed to the Great Depression happening. Furthermore, it is believed that the consequences of World War I also caused the Great Depression. The world experienced a crisis and tried to stabilize the economy.
Kiger states that after the war, the level of consumption increased, which brought wealth to many businesses (para 9). However, this also made them vulnerable to any changes in consumers’ preferences.
Kiger adds that the economy throughout the world was unstable and many connections were broken, and cooperation between many countries stopped (para 9). This led to exaggerating the problem with the economy and made all the businesses unstable and at constant risk of bankruptcy. Thus, World War I impacted the collapse severely and destroyed the ability of cooperation among many countries.
The consequences of the Great Depression were deplorable and, meanwhile, significant: it affected people’s lives and their attitudes toward the government. It is hard to determine the exact number of human casualties during that time.
However, Amadeo, Kelly et al. state that the rate of committing suicide increased by 22.8% at that time (para 25). His means that the recession severely affected people’s mental health. Amadeo, Kelly. et al. affirm that in the 1930s, the level of trust in the government reached its peak and was never higher (para 26). Americans believed in the New Deal that was formed after the Great Depression and its decisions. Thus, the collapse changed the population on different levels and shaped its relations with the government.
Conclusion
In conclusion, the Great Depression was a meaningful and devastating event of the 20th century that led to a significant shift in the world and changed the attitude of the US people toward their government. It was caused by a combination of varied factors, such as the consequences of World War I, the Fed overaction, lack of cooperation of many countries, and others. The event made many humans suffer; however, it led to stabilizing the economy and evoked trust and cooperation between the residents and the government.
The great depression was an economic and financial slump that occurred globally between the fiscal 1920s and 1939. The depression severely affected many countries and crippled world economies. Canada was not spared either. This country had its own share of mystery as a result of its affiliation with global and international trade.
The affiliations saw Canada being dragged into the tenets that appeared with the depression and the economy suffered a major setback with various government interventions proving futile in alleviating the problem. The depression took some time to abate despite its far reaching effects on Canadian residents and its economy as well. International trade that Canada depended on was shuttered while foreign financial markets were hit by a slump similar to that which crippled the U.S. economy.
All through that period, the Canadian government battled the effects of the depression that threatened to derail the lives of Canadians. The head of the Canadian government was by then King Mackenzie, who did nothing to abate the prevailing economic conditions[1].
As a result, he was forced out of the prime minister seat and gave way to a more practical and result oriented Prime Minister, Richard Bennett. With the new prime minister, Canadian government embarked on several measures and adopted policies to ensure that the effects of the depression did not adversely affect the entire Canadian population.
Some of the measures that Bennett put in place included camps to support the old and sick as well as the distribution of aid to the unemployed and disadvantaged in the country. Although, charity organization existed even before the depression, they operated on low scale and were therefore caught unaware by the level of humanitarian aid that the depression effects needed. In fact, they could not cope with the magnitude of the crisis.
Besides, during the period of the great depression, the government prioritized charity to families and somehow neglected the unemployed and single individuals throughout the country. The mobility of unemployed people in search of charity made the Canadian towns and city dwelling rules to keep out the unemployed from other cities or towns. The government spent heavily on relief and charity work, lowered tax rates and offered subsidies to help spur economic growth.
The causes of the great depression in Canada
It is estimated that the depression had been long in coming and several warning signs had been present. Prior to the depression, Canada’s population had become a mass consumer society. Industries were venturing into the production of consumer durables and labor-saving equipment that were guzzled up by anxious consumers.
The onset of the advertising industry worsened the situation as it encouraged mass consumption. The upcoming and developing transport networks linked producers to consumers and offered easy access to consumer goods. It also linked industries to the consumers.
Moreover, Britain was replaced by the U.S. as the primary source of investment and became the basic foreign-exchange souk for the Canadian Republic. As the U.S. economy continued to do well and the Wall Street posted huge profits in the stock markets, Canada was poised to be one of the leading economies of the world. However, the extra-reliance on industries in Canada proved disastrous during the depression as governments efforts backfired and created far worse problems[2].
The association of Canada with U.S. later on proved problematic in the build up for the crisis. Prior to the depression, the stock market was characterized by excessive and speculative buying of stocks. There were increased cases of buying in credit. This buying mania had earlier caused a global recession in the early 1920s although it was easily quelled.
The recession forced small banks and financial institutions to collapse. Therefore, the stock market crash in October 29, 1929 was not unprecedented, but had been looming. The economic boom created a volatile economic situation that could not last. In Canada alone, industries produced surplus of goods in anticipation of generating huge profits.
When the stock prices in the Wall Street slumped, over-priced shares in addition to massive trading in the shares led to unexpected plummeting of the prices. The results affected the Canadian foreign investments due to its connection with the U.S. Countries and people lost fortunes whereas global world economies especially Canada felt the full blow posed by the slump[3].
Another major cause of the great depression in Canada was the lack of economic diversification. The Canadian economy heavily relied on two major economic activities to spur its economic growth namely agriculture and industries. Agriculture entailed the production of export wheat by the prairies farmers.
Periods prior to the great depression, the economic boom that the world experienced provided huge returns to the Canadian wheat farmers. Conversely, industries relied on the wheat proceeds to market their own goods. When the wheat prices were high, the industries indulged in over-production of luxurious goods and consumer deliverables.
The slump that followed shuttered the boom in the wheat price and consequently declined the foreign export of wheat. When wheat prices went down at an unprecedented rate, Canadian farmers lost most of their farms to the lending institutions that also went bankrupt. Wheat farmers became desperate and were soon forced out of their farms.
The industries that relied on these farmers shortly closed due to poor sales and excessive production. Jobs were lost in industries as well as in the agricultural sector and the unemployment rate became the highest for the first time in the Canadian history. Industries closed due to surplus production and lack of consumers, while greedy banks mortgaged their premises to recover their capital[4].
After WWI, industries in Canada opted to seriously indulge in production. They were in dire need of capital. The industries could only access capital by going into debts with banks, lending institutions and trading in bonds and stocks. The resulting effect was high levels of shares and bonds in the market. The traders took the bait and in expectation of the prices rising, raised the prices to unrealistic levels that did not warrant such industries.
As traders run out of credit and industries promoted high consumption of unimportant and luxurious goods, credit buying was introduced. This tendency created a deficit in shares as traders moved into the profitable stock market, driving the share prices even higher. With the fall of the U.S. stock market, the Canadian investors felt the pressure and its share market plummeted to vey low levels.
The high dependency on the economy of the U.S. is also one of the leading causes of the great depression in Canada. Canadian economy prior to the depression relied heavily on export to the U.S. for the growth of its economy. It was also a government option that introducing high tariffs in the export industry could protect the local industries and stabilize the employment sector.
Failure by the government to deviate its economic activities meant that whether the tariffs were high or not, the whole employment sector depended on international trade. The onset of the great depression in America meant that Canadian economy was too going down.
When trade declined sharply, the unemployment rates in Canada rose. As most of the industries depended on export trade to finance and pay off their workers, a decline in international trade that reached a maximum of 50% in 1933, meant that industries had to lay off workers and others were forced to close down. The high tariffs had created a volatile job market and Canada was to face the music[5].
In summary, the global recession in early 1920s set the stage for the onset of the great economic depression. It acted as an early warning of the consequences to follow due to the volatile economic and financial systems in place. The great boom was also a center stage that could have been acted on to prevent the depression.
The great crash of the New York stock market in October 29, 1929, ushered in the real recession and paved way for the global fall in financial and economic systems. The drastic fall in the stock prices that followed in the Wall Street and the global pegging and dependence on the U.S. stock market meant that international trade would face a similar fate.
After the crash in the stock market, the United States invoked Canadian export tariffs, leaving its goods locked out of the US market. The collapse of the economy ensued[6]. Farmers suffered from crop failures and severe droughts. There were escalating levels of unemployment, considerable drop in commodity prices and weakening of the purchasing power.
The impact of the Great Depression on Canada
The resultant effects from the crash in prices in the U.S. stock market heavily affected Canada. Financial and economic adverse effects were experienced all over the world with Canada bearing the high effects due to its association with the U.S. The great depression continued well into the World War II, where the effects abated but never disappeared completely.
The historical effect
The great depression affected the Canadian population to varying degrees. The worst hit areas happened to be the agricultural and industrial areas. In the prairies provinces where farmers relied on wheat exportation to survive, the effects were severe.
The Great Depression in the prairies was coupled up with severe natural and climatical conditions that further added to the farmers’ mysteries. Long spells of drought, grasshopper plagues and inadequate rainfall coupled up with loss of lands due to mortgage loans too, dealt a fatal blow to the prairies dwellers[7].
As industries lost their main markets in the U.S., high unemployment rates set in. It was estimated that by the year 1931, Canada gross unemployment rate rose to 30%[8]. The poor policies of raising tariffs by Bennett aimed at protecting the indigenous industries and employment made Canada to further plummet to disastrous conditions.
Policies like high tariffs, subsidies and low government spending only served to worsen the conditions of the Canadians. Banks underground and various industries closed due to lack of markets for their goods. Canadians were transformed to beggars and the government cut down the tax rates to enable people affords basic needs. The government set up institutions to help the poor, needy, the sick and the impoverished.
The effect of the Great depression on the Canadian provinces
Canada relied heavily on international trade to propel its economic forward. Through international trade, Canada exported its industrial and agricultural goods mainly to US that generated 33% of the total Gross Domestic Product on the national scale. This stated an overreliance on international trade and a dangerous trade that thrive on forged relationship with the US.
After the US experienced the trade hunch, it invoked tariffs that existed with the Canadian government to protect its domestic market. The invocation meant that the Canadian industries lost their market and revenue. Additional, domestic market fetched low price for industrial goods that could not sustain the economy.
In the Saskatchewan provinces that relied on wheat export, the effect was adverse. The region was not only affected by the economic slump but nature provided a nasty scenario. Grasshopper plagues, droughts and long spells of reduced rainfall rendered the prairies useless.
The farmers were faced with unpaid mortgages and banks closed in on their lands forcing them out. Provincial income in Saskatchewan plummeted down by 90% and people were forced out to seek relief. Other provinces that relied on industrial production were also hard hit. The only remnants of the industrial provinces were Quebec and Ontario that relied on domestic industrial production[9].
Other economic areas that were spared partly by the depression were fish, fruits and lumber markets but they somehow went low during the Great Depression periods[10]. Among the Canadians, the depression was felt differently. Poor living standards characterized the unemployed while living standards for the employed and property owners went up plummeting merchandise costs[11].
Effects on individuals, population and industry
As the great depression raged on, the rate of unemployment went higher to unprecedented levels. As industries lost their key market in the slump and consequently their revenues, they laid off a high number of workers. Consequently, there was no hope that the existing industrial workers could continue as industries halted their production due to low prices that could not even meet production costs.
The failure of the stock market and the continuing bite and worsening of the economic crunch provided no hope of industrial reawakening. Unemployment rates were high and families lost their sources of income[12]. A lot of Canadians turned beggars as they relied on the government for relief food and charity organizations to make ends meet.
Furthermore, the immigration rates to Canada that offered cheap labor to the industries were cut off. This was essential to enable the government comprehend with the situation at hand. Immigrants were not allowed government relief and tax cut offs. The number of immigrants that Canada allowed into the country was drastically reduced and deportations of immigrants increased.
The situation was to remain this way until the depression abated[13]. In this period also, Canada experienced the lowest population growth rate ever. The birth rate in Canada dropped to 9.7% in 1937 from 13.2% live births that were reported per one thousand in the year 1930. This persisted to be the least percentage up to 1960s[14].
Industries received the full blow of the depression. Due to the heavy reliance on international markets, especially in the US, the plummeting of the international trade and revoking of the trade tariffs worsened the condition of the industries. Preceding the great depression, industries had indulged in excess production that the depression cut off its market. Some of the industries closed while other lay off thousands of workers.
Groups and expansion introduced in Canada as a result of the Great Depression
The Great Depression in Canada witnessed several regimes come up with various litigation measures to alleviate the condition of the Canadians and help spur economic growth. Starting with Mackenzie and Bennett ill advised policies, the Canadian government failed to make any impact on the economic and financial condition of the nation.
Bennett as well as Mackenzie thought that the introduction of government intervention like high tariffs, cutting off aid to some provinces and adjusted financial plans could abate the situation. These plans and policies backfired and only produced disastrous results for the Canadians. The failure of the latter plans and policies called for new transformations. The new alterations combined the social credit theories of inflation, the democratic socialism and the BC Premier Wages and Work program[15].
On the political scene, the economic slump saw the alteration of the modernization party steered by Stevens and the advent of Herridge New Democratic drive party. Canada’s Communist Party was virtually proscribed starting from the year 1931 after nine of its associates were detained and imprisoned for being supporters of illegitimate associations till 1936. The Communist Party was also outlawed after the 1939 declaration of war.
Nevertheless, the National Unemployed Workers Association performed a critical role in the organization of the jobless and unskilled Canadians to demonstrate and protest against the Great Depression impacts and the reluctance of the government to take drastic measures[16]. While it might be perceived that domestic effects of such organizations were negligible, the Great Depression finally gave rise to the extension of the Canadian government accountability as regards to social and economic prosperity
How the governments handled the crisis
The Canadian government started off by denying various projects and provinces financial aid to aid economic recovery in the belief that the slump was momentarily[17]. During Bennett’s reign, the government initiated futile attempts but provided the needed aid to the struggling population. These futile attempts proved helpful in that they set the stage for other useful transformations like the Work Program and BC Premier Wages.
Conclusion
The unprecedented wave of the economic slump that hit the world in the early 1920s and ensued till the World War II proved so much for the financial and economic systems of Canada. From the over-reliance on industrial and agricultural export trade, the whole of Canada and its population felt the extreme effects of the depression.
Unemployment ensued and formerly employed Canadians relied on government relief and charity grants for survival. In essence, the great depression wrecked the whole system of life in Canada and disturbed the economic and financial system prompting a new inquiry.
Work Cited
Bordo, Michael and Redish Angela. “Credible Commitment and Exchange Rate Stability: Canada’s Interwar Experience.” Canadian Journal of Economics 23 (1990): 357–380. Print.
Bryce, Robert. “Maturing in Hard Times: Canada’s Department of Finance through the Great Depression”. Toronto, Ontario: Institute of Public Administration of Canada, 1986. Web.
Bryden, Penny. Visions: The Canadian History Modules Project: Post-Confederation, Toronto: Nelson Education, 2010. Print.
Granatstein, John and Norman Hillmer. “The Great Depression: Canada’s Century.” July 1999. Web.
Haubrich, Joseph. “Nonmonetary Effects of Financial Crisis: Lessons from the Great Depression in Canada.” Journal of Monetary Economics 25 (1990): 223–252. Print.
Horn, Michiel. The Great Depression of the 1930s in Canada, Ottawa: Canadian Historical Association, 1984. Print.
Irwin, Douglas. “The Smoot-Hawley Tariff: A Quantitative Assessment.” Review of Economics and Statistics 80 (May 1998): 326 -334. Print.
Maclean. “The Great Depression – Causes & Concerns”. 1934. Web.
Neatby, Blair. The Politics of Chaos: Canada in the Thirties, Toronto: Corp Clark Pitman, 1986. Print.
Romer, Christina. “What Ended the Great Depression?” Journal of Economic History 52 (1992): 757-784. Print.
Safarian, Albert. The Canadian Economy in the Great Depression, Toronto: Univ. Pr., 1959. Print.
Schwartz, Anna J. “Understanding 1929 -1933”. In The Great Depression Revisited, Boston: Martinus Nijhoff, 1981: 5-48. Print.
Sprinkling, Noah H. “Serving the Great Depression.” British Columbia History 31.4 (1998):2. Web.
Footnotes
Bordo, Michael and Redish Angela. “Credible Commitment and Exchange Rate Stability: Canada’s Interwar Experience.” Canadian Journal of Economics 23 (1990): 357–380.
Maclean, Mag. “The Great Depression – Causes & Concerns”. 1934. Web.
Maclean Mag. “The Great Depression – Causes & Concerns”. 1934. Web.
Maclean Mag. “The Great Depression – Causes & Concerns”. 1934. Web.
Maclean Mag. “The Great Depression – Causes & Concerns”. 1934. Web.
Irwin, Douglas. “The Smoot-Hawley Tariff: A Quantitative Assessment.” Review of Economics and Statistics 80 (May 1998): 326 -334.
Neatby, Blair. The Politics of Chaos: Canada in the Thirties (Toronto: Corp Clark Pitman, 1986) 23.
Bryce, Robert. “Maturing in Hard Times: Canada’s Department of Finance through the Great Depression”. Toronto, Ontario: Institute of Public Administration of Canada, 1986: 1.
Schwartz, Anna J. “Understanding 1929 -1933”. In The Great Depression Revisited (Boston: Martinus Nijhoff, 1981): 5-48.
Safarian, Albert. The Canadian Economy in the Great Depression (Toronto: Univ. Pr., 1959) 27.
Romer, Christina. “What Ended the Great Depression?” Journal of Economic History 52 (1992): 757-784.
Granatstein, John and Norman Hillmer. “The Great Depression: Canada’s Century.” July 1999: 48. Web.
Haubrich Joseph. “Nonmonetary Effects of Financial Crisis: Lessons from the Great Depression in Canada.” Journal of Monetary Economics 25 (1990): 223–252.
Sprinkling, Noah H. “Serving the Great Depression.” British Columbia History 31.4 (1998):2. Web.
Romer, Christina. “What Ended the Great Depression?” Journal of Economic History 52 (1992): 757-784.
Bryden, Penny. Visions: The Canadian History Modules Project: Post-Confederation (Toronto: Nelson Education, 2010) 298.
Horn, Michiel. The Great Depression of the 1930s in Canada (Ottawa: Canadian Historical Association, 1984) 34.
The great Depression took place in America during the 1920s and its effects were unprecedented as it caused poverty and suffering upon the society.
Many believe that that the depression was caused by the U.S. stock-market crash that took place in 1929. Nonetheless, there is no consensus on its cause as other factors are also acceptable. The economic devastation of the 1920s led to the Great Depression and brought a tragedy for the whole society.
Causes of The Depression
Many causes have been put forward to explain the causes of the great Depression over which the economists have disagreed. However, one thing that cannot be disputed is that the Depression had major impacts upon the country and the lives of people.
Crash of stock market
The crash of the stock market in 1929 ushered in the Great Depression. The capital in America was represented by stocks. There were easy-money policies that caused the stocks prices to go very high and this led to a big speculation that made people invest all their money in the stock market.
Eventually, the price of the stocks went down sharply and people started selling their stocks in panic. The number of stocks available for sale was higher that the number of people willing to buy and eventually the market crashed (Great Depression, 2008).
Uneven distribution of prosperity
The 1920s saw the American economy rise but the prosperity was unevenly distributed and the farmers as well as the untrained laborers were largely excluded. It therefore led to the nation having a greater production capacity and could not match in consuming the products.
Policies
Moreover, the policies of the Republican administration in regards to war-debts and tariff had led to a decline in market for the American goods (Great Depression, 2008).
Effects of The Depression
The effects of the Great Depression were felt both at home and abroad. No one escaped its reeling effects. For example, countries in Europe were affected greatly as their economies were hit hard. In Germany, the economic blow led to social dislocation that is alleged to have played a major role bringing Adolf Hitler to power (Great Depression, 2008).
Unemployment
When the Great Depression set in many people lost their jobs. The unemployment levels rose as many factories closed and up to about 16 million people had lost their jobs between 1932 and 1933 (Great Depression, 2008). The Great Depression compares to the economic recession that took place in 2007 in American and its effects felt on a global scale.
For instance, the following words by president Obama show the similarities “Even though economists may say the recession officially ended last year, obviously for the millions of people who are still out of work… it’s still very real for them” (Hill, 2010).
Massive poverty
Consequently, job losses and loss of money in the stock market the people fell into massive levels of poverty. The people did not have a source of income and suffered a great deal. The country’s economy suffered too” The gross national product declined from the 1929 figure of $103,828,000,000 to $55,760,000,000 in 1933” (Great Depression, 2008, par. 2).
The suffering led economic hardships as well as physical, emotional, emotional and cognitive sufferings to the people because the Depression was a big tragedy hence they exhibited signs that people going through other crises exhibit (Barr, 2005).
Conclusion
The Great Depression led to untold suffering to millions of Americans as well as the devastation of the country’s economy. The effects extended to other countries as well due to international trade just as it happened during the recent economic down turn. No country is in isolation and its activities affect other countries too even if they do not have a hand in causing the problems.
It therefore follows that countries must take precautions to prevent an event like the Great Depression by learning its causes as well as its effects in order to minimize future damage or suffering in case of a similar tragedy.
Reference List
Barr, J.G. (2005). Predicting and Managing Crisis Behavior.
Great Depression. (2008). Retrieved from EBSCOhost database.
According to majority of the authors and scholars, The Great Depression is the worst economic downturn in the history of the United States of America. The economic slump is attributed to a number of factors. These are both domestic and global conditions. It led to several consequences thereafter.
This paper unfolds the causal-effect relationship of the Great Depression, in a bid to uncover some of its causes and impacts. It proceeds from the ground that the economic recession had an array of causes, as well as several negative impacts on the US and foreign nations.
Causes and Effects of the Great Depression
Stock Market Crash of the Year 1929
October 29, 1929 is a day that will linger in the minds of many Americans for several years. The stock market crash that occurred on this day (commonly known as Black Tuesday), was a leading cause of the recession. The stock market had grown tremendously in the 1920s, prompting many people to invest in stock broking (Jakob 853).
Following the stock crash of 1929, the stockholders had to pay on stocks that were less than their initial payment. Those who had borrowed to buy the stocks could not repay their loans, and the lenders bore the biggest brunt by losing vast sums of money. At the end of 1930, America entered the economic decline, which impacted heavily on stockholders. They lost more than $40 billion dollars of investment two months down the line (Robert & Feldman 860-862).
Bank Failures
Many of the small banks, especially in the rural areas, offered uninsured deposits to farmers. The leading banks had offered monumental loans to other countries. The banks that survived the harsh economic times were unwilling to give new loans, owing to the declining economic conditions.
This threatened their survival (Stauffer 110-112). When the banks failed to lend the foreign countries, European nations defaulted on all their outstanding loans. Consequently, many banks were rendered bankrupt and others got out of business.
The American Foreign Policy with Europe
The sharp fall in international trade championed the depression after 1930. When businesses started declining, the US government introduced the Smoot-Hawley Tariff in 1930 (Robert & Feldman 859-863). This was in an effort to safeguard American companies from the recession.
The tariff worked by charging high taxes for imports, and establishing retaliatory tariffs in different nations. Foreign trade accounted for a small portion of US economy, but it was adversely affected. The volume of trade between Americans and foreign countries reduced to an anticipated level (about 30%). The American exports also reduced, which forced many farmers to default their loans (Jakob 850).
Reduction of People’s Purchasing Power
Following the stock market crash and the overriding economic woes, many individuals stopped buying items. Consequently, there was a reduction in production and manufacture of items. This led to a reduction in the workforce. Failure to make payments led to item repossession by companies. Many inventories accumulated, the unemployment rate increased by more than 25%, and people had to spend less of their money, in a bid to cope with the economic situations of the time (Chee-Heong& Crowley 10-20).
Conclusion
The Great Depression is attributed to domestic and worldwide factors, and its effects were felt on all sectors of the US society; economic, moral, psychological, and social sectors. The country took long to recover from the economic downturn, and many people lost faith in the American economy. Nonetheless, the economy finally recovered, although it experiences some mishaps occasionally.
Works Cited
Chee-Heong, Quah, and Patrick Crowley.“A Reconsideration of the Great Depression.”South Asian Journal of Management 16.3(2009): 7-23. Print.
Madsen, Jakob.“Trade Barriers and the Collapse of World Trade during the Great Depression.” Southern Economic Journal 67.4 (2001): 848-868. Print.
Archibald, Robert, andDavid Feldman.“Investment during the Great Depression: Uncertainty and the Role of Smoot-Hawley Tariff.” Southern Economic Journal 64 (1998): 857-879. Print.
Stauffer, Richard. “The Bank Failures of 1930-31.”Journal of Money, Credit andBanking13.1(1981): 109-113. Print.
The year 1929 to 1939 marked the period when the western world was almost brought on its knees. Never in the history of civilization had the Western world experienced such a severe and prolonged period of depression.
The depression effects spread from United States to the rest of the world. Generally, there were spiraling rates of unemployment, reduced output and high levels of deflation across the globe. The economic and cultural crisis occurring as a result of the depression almost paralleled what was experienced during the Civil War.
Economic History
The effects of depression were felt at different times in different parts of the world. Europe and the United States were most affected. On the other hand, countries like Japan and those in Latin America were the least affected.
The depression was triggered by several factors such as inappropriate economic policies in United States that led to a decline of output, a fall in consumer demand and widespread financial panic (Duiker, 2007). The downturn was transferred to other parts of the world more conveniently due to the gold standard that was used by all countries to facilitate exchange of currency.
In retrospect, the great depression was brought to an end when the countries unanimously agreed to do away with the gold standard. Instead, a consensus of expanding the monetary policy was reached to reduce the likelihood of such an occurrence. New economic theories were adapted, new global economic institutions built and new microeconomic policies enacted and implemented (Romer, 1992).
The economic downturn began in the summer of 1929. The great depression was to wreck havoc from this period up to early 1933. Prices and output fell sharply. The United States experienced a 47% decline in industrial production and its GDP fell by 30%. Deflation which is the measure of a fall in wholesale price index had fallen by 33%. Unemployment is said to have gone up by 20% according to statistical reports (Keylor, 2001).
A person can understand best the severity of this depression when the foregoing statistical results are compared to the recession occurring from 1981 to 1982 in the United States. In between this period, GDP plummeted by 2%, unemployment had gone up by 10% and the prices increased dramatically though they suddenly started declining. The condition of gradual decline in prices after previously rising sharply is called disinflation.
A country like Great Britain had to endure prolonged periods of depression especially during the 20’s after having decided to revert to gold standard system with an overvalued currency (Crossley et al., 2009). However, the situation was less serious in Britain compared to United States if statistical evidence is anything to go by.
Statistics indicate that decline in industrial production in UK was a third that of the US. Though the effects of great depression were slightly felt in France, this country had difficulties recovering from slowed economic growth in 1932. This led to a substantial decline in prices and production from 1933 all the way to 1936.
Some countries in the Latin America were not spared from the effects of the great depression which occurred much earlier in comparison to United States i.e. in 1928 and 1929. Argentina and Brazil were least affected.
In Japan, the downturn occurred a little bit late i.e. in early 1930 and was not severe in comparison to United States and other parts of the globe. In every country that was affected, deflation of prices became similar to what was being experienced in United States. Wholesale prices plummeted by a margin of 30% in all developed countries from 1929 to 1933.
The reason why Japan was least affected was due to the flexibility of its price structure. This is what led to the occurrence of a rapid deflation from 1930 to 1931. It was this occurrence that prevented production in Japan from remaining low for a long period of time. Much of the prices of primary products such as cotton, rubber and others were sliced by half from 1929 to 1930(Keylor, 2001). This led to a decline in terms of trade for anyone who dealt with products of such nature.
Things began looking brighter in the mid – 1930’s. Output had begun rebounding and in the spring of 1933, recovery began to be experienced everywhere. In between 1933 and 1937, United Sates GDP is recorded to have grown at a steady rate of 9% annually. However, things worsened in between 1937 and 1938 but this condition did not last for long since it was replaced by a period of increased prosperity at the end of 1938.
The increase in output had stabilized by the end of 1942. The economy of Great Britain began improving a couple of years later after abandoning the gold standard in late 1931(Keylor, 2001). The same applied for most economies in Latin American which attained full recovery at the beginning of 1932.
In the fall of the same year, the economy of Japan and Germany had begun rebounding. Most European countries and Canada had their recovery go hand in hand with that of the United States that began in early 1933 (Crossley et al., 2009). Some developed countries and France in particular took longer to recover. This is because this country experienced depression much later and recovery began taking place at the fall of 1938.
Principle Causes of the Great Depression
The great depression was triggered primarily by a reduction in spending or aggregate demand. This forced manufacturers to shrink production after speculating a possible rise in inventories.
Other causes that led to a reduction in aggregate demand followed throughout the depression period and the effects were transmitted from the United States which was in essence the ‘epicenter’ of the depression to the rest of the world courtesy of the gold standard system. Other countries had unique factors that contributed to the escalation of depression.
The Crash of the Stock Market
Too much speculation in the stock market led the United States government to act by tightening its monetary policy. This move sparked a decline in output immediately after it was enacted in 1929. The economy was performing fairly well prior to the tightening of the monetary policy.
Mild recessions occurring in between 1924 and 1927 notwithstanding, the wholesale prices of goods continued to be stable for a whole decade. However, there were excesses in the stock market in that the prices of stocks were four times more at the end of the decade. In other words the stock prices were rising at an astronomical rate up from a low in 1921 and onto the peak that was reached by the close of 1929 (Findly & Rothney, 2006).
The Federal Reserve wanted to contain the spiraling stock prices and the stakeholders thought the best way to reach this end was to tighten monetary policy. This was in form of raising interest rates to a level that would make speculation to be difficult. The result was that sectors that were sensitive to interest rates drastically reduced their spending (borrowing).
These sectors included real estate, automobile and construction industry. This led to a decline in production. According to Crossley et al., (2009) a boom in housing construction may have also led to excessive supply of housing that consequently led to a decline in construction by the close of 1929.
The foregoing events made it almost impossible to gauge stock prices against anticipations of future earnings. Thus, when a minor event triggered a gradual reduction of prices by the fall of 1929, investors were no longer willing to take any risk. This happened in October 1929 and the stock market bubble finally burst due to pressure exerted by the monetary policy. Investors due to panic began selling their stock at very low prices.
This was sad mainly because most of the stock traded was bought using loans. The decline in stock prices was made worse by the fact that most investors were forced to liquidate their holdings (Findly & Rothney, 2006). On what is commonly called black Thursday on October 24, 1929, the prices had fallen by a record margin of 33% on the Cowles Index. The magnitude of the decline was so huge that the event taking place on this particular day was given the name of the Great 1929 Crash (Duiker, 2007).
American consumers were no longer capable of investing and in buying durable goods. The combined lack of spending by firms and individuals led to a sharp decline of output. Indeed, it was the great crash and the great depression combined with reduction of stock prices that led to unprecedented increase in unemployment and reduced output during this period (Keylor, 2001).
The Run on the Bank and Monetary Policy
By the close of 1930, great fear fell on all investors holding their money with the banks across the United States. The depositors due to widespread fear demanded their investments with the bank in the form of cash. Banks normally hold a small fraction of deposits in form of cash.
Thus, when faced with a situation where all depositors want their money immediately, banks are left with no choice but to initiate a process of quick liquidation of loans. This kind of action is very harmful in that even the strongest of the banks can end up closing.
There was a run on many banks across the United States from 1930 to 1932. The situation was so severe that President Roosevelt decided to close all banks on the 6th of March 1933 (Adas, 2006). A bank would only be allowed to open after a rigorous process of vetting to ascertain its solvency. By the end of 1933, a third of the Banks in the United States had their doors closed permanently, never to open again.
The United States Federal Reserve failed to act promptly in order to contain the run on the bank. Consequently, people held more money than what they had as bank deposits. This led to a 33% shortage of money supply in US from 1929 to 1933. The situation was aggravated by the Federal Reserves decision to contract money supply.
Moreover, the Federal Reserve also raised interest rates thereby forcing most European countries including Britain to abandon the gold standard for the fear that the Dollar would as well be devalued. This led to a further reduction of money supply which in turn led to reduced output.
The Gold Standard
According to Adas (2006) the motive behind the contraction of money supply by the Federal Reserve was to try and preserve the gold standard system. This standard allowed individual countries to back their money in terms of gold. Under the system, an increase in demand of US products especially of stocks and bonds by foreign countries led to increased inflows of gold into the United States and vice versa.
The contraction meant that there would be large amounts of gold flowing from foreign countries and into the US. This is true because Americans found it difficult to purchase foreign goods and the deflation experienced throughout the country provided foreigners with an opportunity to purchase US goods.
Foreign countries reacted by raising their interest rates to counter possible US trade surplus and minimize the chances of weakening foreign currencies against the dollar. Thus, every other country that was privy to the gold standard systems was forced to reduce its money supply.
Recovery
To contain the ill effects of the great depression, governments across the globe were forced to devalue their currencies and expand their monetary policies. Countries that were quick to devalue their currencies and quick to abandon the gold standard recovered relatively fast.
Devaluation allowed countries to increase their money supplies with little regard to effects due to the exchange rates and the gold standard (Romer, 1992). However, recovery as a result of this action was quite slow in comparison to abandonment of the gold standard.
The Federal Reserve relaxed its monetary policy by increasing money supply between the periods of 1933 to 1937 by a margin of 42% (Findly & Rothney, 2006). This was possible because so much gold had found its way into the United States especially due to widespread instability that rocked Europe and that eventually led to the start of the Second World War. Similarly, other governments across the globe followed suit and increased their money supply.
This was made possible by lowering interest rates to encourage borrowing and investments so as to stimulate the economy by increasing output. Countries like Japan and Germany used Fiscal policies to stimulate economic recovery. However, this did not work well with the United Sates. Spending due to military activities increased the supply of money in most countries that went to war.
After the recovery, crucial measures were undertaken to cushion the depositor from losses in case a downturn of such a magnitude was to occur again in future. Banks were no longer allowed to trade in securities (Yetman, 2003). Furthermore, legislation was passed that allowed for the regulation of stock markets and banks were forthwith required to insure depositors’ money.
The depositor insurance policy received global acceptance and it led to increased depositor confidence. Moreover, governments around the globe resolved to increase government spending to impede any possible depression (Eichengreen & Sachs, 2008). Other measures such as reduction of taxes from time to time and monetary expansion would be used to curtail future deflationary effects.
References
Adas, M. (2006). Turbulent Passage: A Global History of the Twentieth Century. New York, NY: Longman.
Crossley, P. K., Lees, L. H., & Servos, J. W. (2009). Global Society: The World since 1900. Boston, MA: Houghton Mifflin.
Duiker, W. J., (2007). Contemporary World History. Boston, MA: Wadsworth.
Eichengreen, B., & Sachs, J. (2008). Exchange Rates and Economic Recovery in the 1930s. Journal of Economic History 4 (5), 925-946.
Findly, C. V., & Rothney, J. A. M. (2006). The Great Depression and the Second World War. Boston, MA: Wadsworth.