This essay discusses the causes, effects and implications of the Great Depression. The Great Depression began in America and spread around the world during the 1930s. Although the US and other countries have seen significant economic declines since then, none of them can compare with The Great Depression. In some countries, it began in 1929 and lasted until the 1930s. It was caused by a massive fall in stock values on the 4th of September, 1929. This was followed by the stock crash of the 29th of October of the same year. The global GDP dropped by almost 15% between 1929 and 1932. Cities and countries that were heavily industrialized were the hardest hit. In comparison to the Great Recession that occurred in 2008/09, the world GDP decreased by less then 1%.
What causes the Great Depression then? Black Tuesday is not the only cause of the Great Depression. Such a significant event cannot simply be defined by a single mishap. Black Tuesday was not only a stock market crash that happened in October. Although investors managed to stop it, five days later a market crash occurred, causing the market to lose 12% of value and wipe out investments of $14 billion. It was the impact of this financial exchange crash that affected the banking system. Since the government could not protect stores until 1930, many banks closed. Individuals lost all of their cash when these banks collapsed. People frantically reclaimed their money, forcing more banks to shut down. By the end of the decade, over 9,000 banks were insolvent. Inability to pay installments for goods purchased, many people lost jobs. Repossessions, evictions and high unemployment rates were the result. Congress passed Tariff Act of the 1930 to protect U.S. manufacturing from overseas competition. It is also known as Smoot-Hawley Tariff. Many of America’s trading partner retaliated with tariffs, resulting in a two-thirds drop in the world trade between 1929 and 1934. This exacerbated the initial loss of confidence in Wall Street, and led the U.S. into isolation. The Reciprocal Trade Agreements Act signed by President Franklin D. Roosevelt in 1934 led to lower tariffs, which encouraged trade liberalization.
The Great Depression began in the US and continued in Europe around the same time. Germany was hard hit as American loans that were supposed to rebuild the German economy after the horrors of World War I had ceased. Unemployment increased in cities, mainly. The Lausanne Conference in 1932 suspended Germany’s war reparations. In 1932, the Germans had paid 1/8th of their reparations. In Central Europe, the banking system faced an additional challenge due to falling prices and a lackluster business environment. In 1931 a panic was caused by the collapse of Creditanstalt in Vienna. In France the depression was mild. It was caused by a fall in production of only 20 percent below 1929, and a low unemployment rate. The Depression had a dramatic effect on local economies, which partly explains why there were riots in February 1934, as well as the formation of Popular Front, under the leadership of SFIO socialist Leon Blum. In 1936, this Popular Front won elections. Ultra-nationalists gained in popularity as well, but democracy continued to prevail until World War II. In Italy, as industries neared failure, banks stepped in to save them. However, this was an illusionary bailout. The result was a severe financial crisis that peaked in the year 1932. Government intervention became necessary. In January 1933, the Industrial Reconstruction Institute took over the banks-owned companies and made Italy the biggest state-owned industry in Europe. The Great Depression had a lesser impact in Asia than it did in Europe because countries like Japan were the first to adopt Keynesian theory and put them into practice.
Keynesians thought that to avoid recession and keep production levels at a reasonable level, the private industry would have to invest more to ensure the economy remained stable. Milton Friedman, Anna J. Schwartz, and other monetarists believed that the economic downturn, which began with the stock-market crash, could have been a normal recession had the Federal Reserve taken aggressive measures.
It had both economic and social effects. The Great Depression led to major government reforms, new federal programs and the creation of Social Security and federal support for conservation tillage. It was at this point that people stopped valuing money and instead valued things like a simple radio. They didn’t worry about future problems. This event, which was both economically and socially horrifying, is unlike any other. It contributed to the start of World War II by confirming the Germans’ faith in Nazis. They say that the rest is, well, history.