Introduction
Great Depression was a worldwide economic decline that affected different countries between 1929 and 1930. It is believed to be the worst and longest economic depression that ever affected the world to date. It is currently used as a lesson to show how world economy can decline causing suffering to all people in the world.
Major causes of Great Depression
Many researchers believe the great depression that occurred in 1929 was a result of stock market crash that occurred on 29 October 1929. Stakeholders lost more than 40 billion dollars two months after the original crash. Despite the stock market regaining slowly by slowly later great depression continued to take place. During this period, many people had invested heavily in stock market. Therefore, collapse of stock market made many people lose every investment they had.
Collapse of banks led to great depression. More than 9,000 banks were closed making the investors to loose all their savings. This is because this banks were not insured leading to total loss to any one who had invested his money in those banks. This brought money in circulation to reduce drastically affecting businesses.
The few banks, which were operating, found it hard to lend money to the public. This aggravated the problem making great depression to occur. People lacked confidence in the banks making them demand their savings. The banks having no liquid money to their disposal were forced to close.
Decrease in purchasing power of people. As a result of stock market crush, individuals developed fear for further economic problems. Many people ceased to buy products leading to low production of the products. This led to closure of industries rendering people jobless. The unemployment led to people purchasing power diminishing thus making the economic situation worse.
Drought conditions in Mississippi are a cause of great depression. The drought make people fail to repay their loans, pay taxes and even sell their lands at a price through. Food was expensive to purchase making people spend most of their money on food at the expense of savings and investment.
This led to collapse of industries increasing unemployment rate. Unemployment led to inability to purchase goods and services provided by few industries operating making them close their operations. This led to further loss on the side of government as taxes reduced drastically.
Mechanization in industries led to many people being rendered jobless. Industries produced many products thereby making supply exceed demand significantly. This led to low markets as laid down workers could not purchase the produced products. Industries were frustrated with this low demand of their products.
Decrease in population as a result of world war 11 led to reduction of labor force and market for industries. The war killed many youths thereby disrupting family structures. People were concerned with war at the expense of marrying and getting children. The disease outbreaks such as the 1918 flu led to low demand for housing and housing loans. Household markets failed drastically making the industries producing such products close.
The 1930 enactment of Smoot- Hawley tariff: this policy was meant to protect farmers from international competition. Agriculture products from other countries were taxed heavily making them become expensive in American market. This made the demand of American agriculture products to be cheaper thus be preferred to foreign products by consumers.
The countries, which exported products to America, retaliated and started putting restriction on American products. This led to lose of market for American industries and led to trade disagreements among nations. The problem led to collapse of many industries as demand decreased amicably.
International debts: many countries had borrowed money to rebuild their nation after World War 1. These countries were later unable to repay their loans and begged America to cancel these loans. The countries had no choice when America refused to cancel the loans and they had to pay at the expense of boosting economic development in their countries.
Federal Reserve decisions: despite the fact that lack of confidence in banks had led to rise in currency-to-deposit ratio to rise significantly making money supply in U.S. to reduce. Federal Reserve contracted money supply deliberately and increased interest rate. Scholars’ believe that this move by Federal Reserve led to rise of great depression. This is because reduction in money supply affected spending of individuals.
As a result of actual price fall and money supply decline, many people in business and customers expected deflation. They feared to take loans as they thought future profits would not be enough to cater for the loans acquired. This led to low spending by consumers and business spending too. Moreover, failure of numerous banks hindered lending minimizing the capital needed to finance investments (McElvaine 58).
Reasons why Great Depression lasted long
The great depression lasted for longer periods because of several factors. Some of these factors include:
Government policies that interfered with labor markets. Government introduced policies which forced industries to pay workers high wages. Government policies curtailed forces of demand and supply to work independently forcing industries incur many expenses in paying employee wages. Workers unions were empowered through inaction of National Labor Relations Act making them agitate for higher wages to their members. Employee working hours were not increased despite higher wages employee gets.
Continuous workers unrest led to workers wasting a lot of time away from their work. This led to workers spending more time outside their work. This lead to few production of products which made economic recovery hard making great depression to last for long. The workers’ unrest discouraged investors to establish new industries.
Unevenly distribution of income made great depression to last long. This is because government encouraged establishment of industries as well as mechanization of these industries. This led to many people being rendered jobless and thefore their purchasing power reduced. The products produced by the industries lacked market-making production unprofitable.
Federal government introduced high tax rate of 79%, which discouraged investors to establish industries. This led to lack of job creation making many people fail to be involved in any productive activity. The unemployment made people purchasing power low thus incapable of driving the economy forward resulting to great depression to last long.
High tariffs imposed on imports from other countries developed bad trade relationship with trading partners making international market to deteriorate. Countries were unable to sell their products leading to supply in the domestic market to flood leading to price fall and wastage. This discouraged producers and they opted to reduce their production rate making great depression last long.
New Deal policies campaigned for individuals to establish industries but failed to give private investors confidence to invest. This made private investors reluctant to put their investment in the economy and prefer holding their money. This reduced job creation thereby people’s purchasing power reduced.
This brought great hindrance for economic recovery. New Delphi policies benefited only the few workers and ignored the majority of people who were not employed. The few employed employees who benefited from this policy could not drive the economy making the Great Depression to last for longer time.
Work Cited
McElvaine, Robert. The Great Depression:America 1929-1941. London: Times Book Publisher, 1993.Print.