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Published: Friday 25th of January 2013

The Great Depression Essay Example


The Great Depression is a global phenomenon that mainly originated from the US. It is arguably the most important economic event in US history. This great catastrophe was responsible for the loss of millions of jobs in the US. It is difficult for those who did not live through this period to fully comprehend the full force of this worldwide economic meltdown. As a result of this, the government got involved with the country’s economy and also the society in general. This was a period of anguish in the US after years of optimism and prosperity. Black Tuesday was the name given to the day when the great depression first occurred. It was also the day when the stock market collapsed. The stock market prices crashed to the point where people lost hope in it ever rising again. A prolonged period of panic followed and there was uncertainty with regards to stock market prices. Many individuals tried as much as they could to get rid of their stock, but, unfortunately, no one was willing to purchase. The stock market that had for an extended period seen as the gateway to wealth and prosperity was now a guaranteed path to bankruptcy. No one knew how best to deal with the crisis. President Hoover believed that local governments and charities should offer relief to those who had lost their jobs and the homeless. Franklin Roosevelt, then governor of New York, partnered with Frances Perkins and Harry Hopkins to start a work relief program back in 1931. However, this did not yield much. By 1932, about a fifth of government funds was spent on relief. Those severely affected sank into despair. Suicide rates rose from 14 to around 17 per 100, 000.

Causes of the Great Depression

What led to this economic meltdown? According to the former chairman of the Federal Reserve, Ben Bernanke, the actions of the central bank fueled it. He stated that it should not have utilized tight monetary policies. He noted the following main mistakes:
  • When the market collapsed, most investors resorted to the currency markets. During that period, the value of the dollars held by the government was supported by the gold standard. Around 1931, many speculators started to trade in their dollars for gold, eventually leading to a run on the dollar.
  • The Fed did not increase money supply to tackle deflation.
  • The Fed started to raise the fed fund rate in the spring of 1928. The rate was increased throughout a recession that began in August 1929.
  • Interest rates were again raised by the Fed to preserve the value of the US dollar. This action limited the availability of money for people to invest in their businesses.
  • Another great mistake was that investors withdrew all their money from banks. The banks’ failure led to more panic. The Fed did not pay attention to the plight of the banks. Eventually, people lost confidence in the banking sector. People took their money and hid them under their mattresses, refusing to use or spend it. The result? Money supply was inhibited.

The Aftermath of the Great Depression: Economic Effects

The Collapse of the Stock Market

The crashing of the stock market was just the beginning of the Great Depression. It was not the only thing that was severely affected. The environment at that time did not favor those who had already invested their money. Many financial institutions had done that, and that led to a huge loss to the clients. It was also a double loss since not only had the clients lost their money, but the banks were also forced to close down. This is due to them (the banks) directly relying on the stock market. As a result of this, there was widespread panic all over, even to other people. This made them go to the other banks that were still open to completely withdraw their money. This kind of large withdrawal of money severely affected the banks’ operations, leading to their closure. Besides, those who did not reach their banks on time could not withdraw their money. As a result of the banks being closed, many people went bankrupt and could not claim anything.

Large-Scale Farmers Disadvantaged

Farmers were also significantly affected by The Great Depression. Even though they managed to survive other depressions, this one was the mother of them all. Before the onset of The Great Depression, most farmers were located at the Great Plains. This area was impacted so severely by drought and dust storms which were always terrible. This led to a phenomenon called the Dust Bowl. In addition to overgrazing, the farmers had to also deal with the effects of drought, thus substantially affecting the farmers. The farmers were even left without food and crops for their animals. The grass that their animals fed on had already dried up and disappeared over time. On the other hand, the loose dirt was blown away by wind, thus exposing the topsoil. Eventually, the farmers were left with no crops as the wind blew away everything in its path.

Small-Scale Farmers Disadvantaged

Unlike large-scale farmers, small-scale farmers were more disadvantaged. They had small pieces of land on which they had to work on to get something to eat. Most of these small-scale farmers requested for tractors from their respective governments and were then made to part with some amount of money to cater for them. The Great Depression greatly affected the farmers to the extent that they were unable to pay their debts. Also, they could also not fend for their families. Most of these farmers had also invested in the stock market and had savings in the banks. Since the stock market had collapsed, the banks and the farmers suffered also. Losing their investments and crops greatly affected how they related with one other and their contribution to the economy of the land. The state at large lost many laborers and this led to the deterioration of the economy of the nation.


The Great Depression led to many losing their jobs. These job losses significantly affected people's ability to put food on the table. While most families were forced to sell their homes and move into apartments, others were forced to move in together since the living standards were deteriorating as days went by. It was even complicated for people to divorce or separate (this was the period when the rate of separation and divorce reduced). Each person needed the other’s contribution, particularly when it came to paying the rent. As a result of ego, men who had already lost their jobs felt ashamed even to walk around town, and thus they were forced to stay at home. If it happened that all the wives and the children were working, the men felt that their status was being challenged. Even in this situation, the two categories mentioned above were forced to look for jobs. At some point, the women were even accused of taking the man’s place after getting a job. In the absence of steady income flow, it became much difficult for women to deal with matters concerning clothing, food and medical care (since at that time their main role was being housewives). Birthrates reduced as couples postponed conception until they could secure financial stability. It was not easy to get jobs locally because the whole country had been adversely affected. Many people were all over looking for jobs. Many people could not afford luxurious commodities like cars, and therefore, very few vehicles were seen on the roads. Due to high maintenance costs, many vehicles were put on sale. The majority of teenagers were also highly impacted by the economic meltdown as they were the people who were seen on the roads up and down looking to get any kind of job.
The elderly were also in trouble. They would be seen boarding trains just to cross and see if they could get any job. Whenever there was a job opening, many people applied for that position and chances for employment were very low. Those who could not secure employment ended up living in shanty towns which were outside the city. The houses in these shanty towns were made of cheap materials like cardboard, wood, newspapers, and iron sheets. Farmers that were not able to afford their previous lives any longer could be seen moving to Western California as a result of the agricultural opportunity rumors that came from that region. The farmers came to be known as Arkies and Okies. The Great Depression occurred during President Herbert Hoover’s reign. The people kept on blaming the President, though he was always optimistic. Most of the shanty towns that were far from the big cities were named after him, for example, Hoovervilles. The newspapers that those who slept in the streets used to cover themselves were nicknamed Hoover Blankets. In addition, even the bad looking cars were nicknamed the Hoover Wagons.

Human Suffering

The Great Depression caused a lot of human suffering. It took a short time, and the standards of living went down significantly. People started borrowing from one other as a means of survival. Since industries could not employ people anymore, the unemployment levels greatly increased. These industries could not afford to pay the workers what they deserved. Research revealed that at least a fourth of the labor force in all industrialized countries could not find work anymore. The industries could not meet their wage demands. This was noticed in the year 1930, and the entire recovery was only accomplished by the end of that decade.

Collapse of Industries and Businesses

Not only was the stock market affected, various industries and businesses were also impacted too. This is as a result of them working in conjunction with the stock market. These businesses and industries lost their savings and capital after the stock market had closed down. This profoundly affected the labor in the businesses. They had to reduce the number of workers who worked in the companies. Employees’ remuneration was also impacted because these businesses could not afford to pay them as expected. Moreover, the customers were also affected by the stock market situation because they stopped buying and spending on lavish things. The industries that produced these commodities were significantly affected with regards to sales and profits. Eventually, these businesses and industries too had to close down.

End of the International Gold Standard

The Great Depression is viewed as a cause of the decline in the international gold standard. There was no money to invest, and the interest rates went down also. The floating rates were also introduced at this time, and people stopped utilizing fixed exchange rates. Furthermore, the welfare state and labor unions expanded in 1930. Union membership doubled between that year and 1940 due to the extreme unemployment levels and the National Labor Relations Act that was passed in 1935. All this eventually resulted in collective bargaining. The United States went further and came up with unemployment compensation. It also included the old age and the survivors’ insurance. In the same year, this was then incorporated in the Social Security Act. Its primary objective was to cater to the hardships that the people were experiencing in 1930.

Increase of Government’s Economy Regulation

This economic meltdown led to the rise in government regulation of the economy, whereby the government mainly focused on the financial markets. Various institutions that were to carry out this function were established, for example, the Securities and Exchange Commission which was established in 1934. The main role of these bodies was to control and regulate stock issues in the stock market, particularly with regards to the new products. The Banking Act, on the other hand, went ahead to create the deposit insurance. The role of this insurance was to work with the banks by prohibiting them from underwriting. However, it was not so popular in the world until the Second World War. This time, it was able to work more efficiently, thus achieving its mission and objectives.

Development of Macroeconomic Strategies

The goal of this was to deal with the economic ups and downs. Various methods were established to fight the Great Depression. An increased focus on how the government spends, tax cuts, and expansion of the monetary fund were some of the strategies used to fight the phenomenon. The government was also trying its level best to address the issue of unemployment. Furthermore, the banks too were working against recessions.

Homelessness, Discrimination and Racism

As mentioned above, many people lost their jobs and thus became even more difficult to pay rent. They had to shift to shanty areas which also were not very affordable. Others could not afford anything to cover their heads. This led to the establishment of the Hoovervilles. The high unemployment rate led to an increase in competition for the few jobs left. Very few could secure jobs, and those who did were not paid enough. Under these circumstances, discrimination increased, and African Americans could rarely get a job. Racism was a significant issue during that period. People became more aggressive because job opportunities had become scarce. The African Americans, Asian Americans, and Hispanics were the people who went through a lot. This is due to discrimination and racism that was happening at that time. Furthermore, the whites were securing the jobs which were paying poorly, thus taking up the opportunities that these minorities had before Hoovervilles.


Recovery from the depression started in 1933 for most countries. In the US, even though recovery began in early 1933, it did not return to the 1929 GNP for over ten years. The unemployment rate was still about 15% in 1940 (a reduction from 25% in 1933). The common thinking among economists is that President Roosevelt’s New Deal was responsible for the recovery of the economy. President Roosevelt's administration also came up with the Agricultural Adjustment Act which provided various incentives to cut farm production to increase farming prices. On the other hand, the NRA (National Recovery Administration) came up with a number of changes to the economy. Businesses were required to work together with the government to come up with price codes to deal with cut-throat competition by setting up minimum wages and prices, and competitive conditions in all industries. The NRA further encouraged unions to increase the working class’ purchasing power. By 1936, most economic indicators had returned to the late 1920s levels. Industrial output surpassed that of 1929. Between 1933 and 1939, federal expenditure increased threefold, and most people argued that President Roosevelt's policies were transforming America into a socialist state. As a consequence of the Great Depression, there was the implementation of social democracy in Europe after World War II. During this war, Roosevelt’s decision to back France and Britain led to more private sector jobs as things like weapons had to be manufactured. After the attack on Pearl Harbor, The US entered World War II. Thus the country’s factories went back into production.