The Great Depression: Causes Essay

When Herbert Hoover was inaugurated as the 31st President of the United States early in 1929. the state was basking unprecedented prosperity. But by the terminal of the twelvemonth. the stock market had crashed and the state was headed for the Great Depression. President Hoover tried to contend the Great Depression. but as he neared the terminal of his term. the American economic system was in its worst province yet. and many fearful citizens wanted a leader who would make more to relieve the crisis. They found that leader in Franklin D. Roosevelt. who promised the state a “New Deal” and with that promise won the election of 1932. Roosevelt’s New Deal had profound effects upon American history. Although it was intended to reconstruct America’s devastated economic system. the New Deal really did small to promote prosperity.

Causes of the Great Depression.

Easy Credit. Although the American economic system thrived in the 1920s. much of this prosperity was based on easy recognition. The Federal Reserve Bank kept involvement rates low. doing it easy for concerns and persons to take out loans. This policy encouraged people to travel into debt. Many people bought new places. autos. and contraptions on installment programs. Alternatively of paying the full monetary value of an point at the clip of purchase. they made a little down payment and so paid monthly installments over a fit period of clip. Equally long as people could purchase on recognition. mills kept busy and occupations were plentiful.

The stock market. The optimism of the epoch was nowhere more apparent than at the stock exchange on Wall Street in New York City. Most mills were owned by stockholders. people who held stocks in the corporations bring forthing the goods. As concerns prospered in the 1920s. stock dividends soared and many people invested in stocks. driving stock monetary values higher every twenty-four hours.

Hazardous investings. Some investors practiced guess. disregarding the true value of stocks. they tried to purchase stock while it was traveling up and so sell it at higher monetary value. Convinced that they could ever sell at a higher monetary value. speculators bought and traded stocks at far above their existent value. Stocks. like consumer goods. could besides be bought on recognition. Some people speculated on borrowed money. chancing that the stock market would go on to boom. By paying every bit small as 10 per centum of the monetary value of stock in hard currency and procuring a loan to cover the balance. people could keep stock on border. Margin purchasers hoped to sell at a good adequate monetary value to refund their loans and still do a good net income. The combination of easy recognition and hazardous investings set the phase for economic catastrophe.

The Great Crash of 1929.

Signs of a decelerating economic system. Monetary values on the New York Stock Exchange. already at a historic high. began to billow upward in the spring of 1928 and. in malice of a few slacks. continued to mount during the first half of 1929. But the careful perceiver could hold seen marks of a decelerating economic system. In June 1929. industrial production began to worsen. A few stockbrokers and economic experts warned that many stocks were greatly overpriced. and several major investor decided to sell their stocks before monetary values began to reflect the lessening in production. But most people seemed positive that the “bull market” of lifting stock monetary values would last everlastingly.

The stock market clang. By the terminal of September. stock norms had begun to worsen steadily. As more and more people began to sell. monetary values continued to drop. The stock market clang began on Thursday. October 24. when a monolithic moving ridge of selling sent stock monetary values gyrating downward and about 13 million portion of stock changed custodies. During the afternoon. several influential banking houses. including J. P. Morgan’s company. invested big sums of money in drooping stocks in an attempt to squelch the terror.

For a few Days. stock monetary values seemed to stabilise. but on October 29. 1929. remembered as “Black Tuesday. ” the underside fell out of the market. Stock monetary values plunged downward and a record 16 million portions changed custodies. The stock market had crashed. Monetary values continued to fall steadily ; by mid-November. $ 30 billion had been lost on the New York Stock Exchange. Practically overnight. many investors – large and little. rich and hapless – lost everything. The “Great Crash” left many in debt for loans they could non refund.

Bank failures. The stock market clang shut off the supply of recognition that had sustained the economic roar of the 1920s. Many Bankss had invested in the stock market and has lost a great trade of money. Banks began to neglect by the tonss. More than 4. 000 Bankss closed between 1929 and 1932. destructing the nest eggs of 1000s of American citizens. Without Bankss. concerns could non acquire the loans they needed to go on operating and consumers could non acquire the recognition they had relied on to purchase goods.

Unemployment. In add-on to the diminution in domestic trade. foreign trade fell away drastically as the effects of the Depression spread throughout Europe. Hundreds of mills. unable to sell their merchandises. had to cut back or discontinue production and lay off workers. By 1932-1933. the worst old ages of the Depression. 13 million workers. one one-fourth of America’s labour force. were out of work. The mean annual rate of unemployment throughout the 1930s was 15 % . Many workers who were non laid off had to confront a cut in rewards.

Government intercession. Although the state had experienced other recessions and depression in the past. none were every bit terrible as the Depression of the 1930s. One of import ground for the badness of the Great Depression was authorities intervention in the free market economic system. particularly intervention by the Federal Reserve System. Throughout the mid-twentiess. the Federal Reserve System had kept involvement rates comparatively low and hour angle demoralized enlargement of the money supply. But in 1930. when an expanded money supply was severely needed to help Bankss that could non run into duties. the Federal Reserve took action to contract the money supply. The consequence was a generation of Bank failures. the loss of the economy of million s of Americans. and a deepening of the Depression. The Feral Reserve System accomplished precisely the antonym of what it was supposed to carry through.

The Negative Effectss of the New Deal.

Banking and fundss. By 1933. the nation’s fiscal construction was in critical status. Tonss of Bankss were neglecting because of bank tallies. Since a bank keeps merely a fraction of its sedimentations on modesty. it is impossible for it to run into demands when all client demand their money at one time. The governor of Michigan had stopped bank tallies in his province by declaring a “bank vacation. ” shuting all Bankss within the province for eight yearss. This gave the
Bankss clip to quiet the frights of depositors and guarantee them that their money was safe. Although some Bankss had failed because of unwise investings. many remained sound. President Roosevelt’s foremost official act was to declare a national bank vacation. shuting all Bankss in the United States. At the same clip. he placed a impermanent trade stoppage on the exportation of gold. On March 9. the Hundred Days Congress passed the Emergency Banking Relief Act. which gave the President wide power to command banking policies and to reopen Bankss as he saw tantrum.

By late in March. about three-quarterss of the Bankss that had been closed were back in operation. have been declared “safe” by the federal authorities. Roosevelt’s following measure was to take the state off the gilded criterion. On April 19. 1933. he announced that all in private held gold. except jewellery and coin aggregations. was to be turned in to Federal Reserve Bankss in exchange for paper money. Paper money was no longer to be redeemed for gold. Roosevelt claimed that paper money which was backed by the federal authorities would be every bit good as gold. Taking the state of the gilded criterion shook public assurance in the U. S. pecuniary system. In add-on. the forsaking of the gilded criterion helped make a “managed currency” in the United States.

In 1934. in an effort to excite the economic system by making rising prices. the federal authorities reduced the gold value of the dollar by 59. 06 cents. or 59. 06 per centum of its former value. Now paper currency. which was already irreclaimable. was merely partly backed by gold. This did even more to spur a deficiency of assurance in the pecuniary system. The devaluation of the dollar did non well cut down its buying power in the short tally. but in the long tally the value of American currency would be earnestly affected.

Regulation of agribusiness and concern. The New Deal besides called for more authorities ordinance of agribusiness and concern. In May 1933. the Agriculture Adjustment Act became jurisprudence. Seeking to increase monetary values for agricultural merchandises by cut downing the supply of nutrient. the authorities paid husbandmans non to works harvests or graze farm animal on grazing land land. Many Americans were upset that the authorities would pay husbandmans to cut down the nutrient supply at a clip when many people could non afford to pay higher monetary values for nutrient. Besides in 1933. the National Recovery Administration ( NRA ) was established to command rewards and monetary values and to restrict competition among concerns while promoting labour organisations.

Many mills shut down of laid off worker because employers could no longer do a net income. Though these and other attempts to modulate agribusiness and concern were purportedly intended to battle the Depression. they really hurt the economic system and prolonged the Depression. Some conservativists believed that President Roosevelt and other advocates of the New Deal were intentionally seeking to protract the Depression in order to carry the American people to accept public assistance socialism as a manner of life.

Government public assistance. Another major undertaking undertaken by the New Deal was the fiscal alleviation of the unemployed. The Hundred Days Congress rapidly established the Federal Emergency Relief Administration ( FERA ) . which released big amounts of revenue enhancement money to province and local bureaus for direct alleviation of the unemployed. Headed by FDR’s friend and influential adviser. Harry Hopkins. the FERA spent $ 9 billion on federal alleviation in five old ages. The alleviation plans gave exigency assistance to many. and yet they tended to deter autonomy and single enterprise ; they encouraged people to go dependent upon the authorities for fiscal assistance. Many ordinary Americans. in malice of losing their regular occupations. fund ways to acquire through the Depression without having authorities alleviation. It is interesting to observe that in Chinese-American and Japanese-American communities. where cultural background taught that households were responsible to care for their ain relations. there were few appliers for authorities alleviation. even in the thick of the Great Depression.

Social Security Act. The Social Security Act established a authorities fund for unemployment and old-age insurance. This fund was to be financed by a revenue enhancement on employees’ rewards and employers’ paysheets. When a worker retired. he was to have regular monthly benefits from the Social Security system. Provision was besides make for alleviation of the blind. the crippled. the aged. and other dependants. The Social Security system was introduced as a voluntary plan. and the revenue enhancement on rewards and paysheets was little.

But the Social Security Administration shortly blossomed into an tremendous bureau which began to reassign huge sums of money to public assistance plans. As more people were needed to lend more money to maintain the system afloat. Social Security became compulsory for most workers and employers. and the revenue enhancement increased well. By the terminal of the century. many people would be oppugning the patterns of the Social Security Administration and doubting its hereafter ability to supply retirement benefits for subscribers.

Decision.

New Deal failures. Under the New Deal. the U. S. authorities took a large measure toward socialism. spread outing its power over American concern. industry. and agribusiness. Many people were alarmed by the comments of the New Deal politicians like New York Senator Robert Wagner. who proclaimed. “I do non believe we will of all time hold industry in order until we have a nationally planned economic system. ” The New Deal clearly threatened the American tradition of free endeavor. The New Deal besides received unfavorable judgment for its great cost and inefficiency. By 1939. after six old ages of authorities occupation plans. ordinance. and shortage disbursement. over 9 million workers remained unemployed. The New Deal had done little to assist the economic system. and in many ways. had even prolonged the Depression. FDR’s New Deal plan laid the foundation for a societal public assistance province by spread outing over concern. industry. and agribusiness. and by doing many Americans dependent on the authorities for their day-to-day demands.