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Published: Tuesday 29th of October 2013
Have you ever heard of the great depression? Well, it’s an economic tragedy that put millions of United States citizens out of work. It also marked the start of the government’s involvement in the country’s economy and society. After nearly ten years of optimism and prosperity, the US found itself exposed to anguish and despair. On this day, commonly known as Black Tuesday, the stock market collapsed. This was the official beginning of the Great Depression.
Prices in the stock market hit an all-time low with no indication that they would rise again. There was an extended period of panic, followed by darkness in the economic sector. Of course, a good number of people still looked for someone to buy their stocks, but no one was interested in buying them. For a long time, this market was seen as the best way to get riches and wealth. However, it was now the clearest path to poverty or bankruptcy.
The Great Depression went from 1929 all the way to 1939 and was the worst economic tragedy in America’s History. Historians and Economists view the crash of the stock market on October 24, 1929, as the beginning of the crisis. However, many factors led to the Great Depression and not only one event.
It crippled the Reign of Herbert Hoover, leading to the election of Franklin D. Roosevelt in the year 1932. He promised the country a new breath of life, and he would go on to serve the nation for a long time.
However, it didn’t only affect the US as other countries in Europe also felt the ‘pinch’ of the economic depression. For instance, it contributed to the growth of the Nazi reign which ultimately led to World War 2. With that said, the following are the effects of the Great Depression!
1. Stock Market Failure!
The United States stock market was the first ‘victim’ of the Great Depression, but it was not the only one affected. Even so, it did not favor those who had previously stored their cash in the market to make some investments. Banks were the hardest hit business entities, and they lost a huge bulk of their clients. Besides, it also came as a double tragedy because most of them eventually closed. Such is because most of them couldn’t operate without a stable stock market.
Furthermore, closure of banks came at a huge disadvantage to those clients who couldn’t withdraw their cash in time. As such, people went broke as they couldn’t claim what was likely theirs.
2. Businesses and Industries Collapsed
Large and small companies were also affected by this economic tragedy. Why? Well, economists found out that they also depended on the success of the stock market. After stocks closed, both the capital and saving went to waste, affecting the labor force. Here, they had to reduce the number of employees working in corresponding industries.
Apart from that, the wages of employees also reduced because companies were unable to pay them as required. Customers also minimized their spending on different luxurious goods. This significantly affected those businesses, which produced such commodities for sale and profit. In the end, even the largest companies closed down.
3. Farming and Agriculture
The Great Depression also affected the American farmers most adversely. Although they had previously gone through other economic challenges, this one was just a terrible occurrence, which caught them off-guard. Most of these farmers were hit by the Great Depression while living in the Great Plains. This area was affected by dust, drought, and storms which were horrendous. They made a situation commonly known as Dust Bowl.
Farmers practiced overgrazing combined with the impact of drought; this was simply a huge blow to them. They also didn’t have crops and food for their livestock as all grass had already dried up! The land was now a bear ‘wasteland’ full of dust which was constantly blown away by the wind, leaving the topsoil fully exposed. Therefore, they were left with no crops as winds took ‘everything’ with them along the way!
4. What about the Small-Scale Farmers?
These farmers found themselves more disadvantaged, than their large-scale counterparts. They had small pieces of land from which they had to make ends meet. Some of them requested for tractors from the state governments, but they had to pay a certain amount. So, because of the great depression, farmers could not pay these debts. Sadly, they couldn’t feed their families or themselves.
Some of them had even capitalized on the bank and stock market. In this case, the collapse of the stock market and banks caused a lot of suffering. They lost their crops and investments, which greatly affected the way in which they interacted with each other. Besides, it also had a profound impact on their specific contributions to the economy. The country lost a lot of its workers, leading to deterioration of the economy.
5. It Led to High Numbers of Unemployed Citizens
During the Great Depression, many citizens ended up losing their jobs. After being dismissed, they could hardly put food on a table. Most families sold their houses and moved into apartments. Others had to live together with each other because of the increased standards of living. Paying rent became somewhat impossible and even difficult for people to divorce or separate. Fortunately, this was when a separation and divorce rate went down. Such is because people needed each other to pay rent. Also, because of the male ego, men who lost their jobs couldn’t comfortably walk into towns. Instead, they chose to ‘hide’ at home. They felt their status was being challenged by both their children and wives, who were working. During such a time, women were blamed for taking the place of men in the job sector.
In fact, because all parts of the country were affected, it was quite challenging to get a job. A lot of people were constantly on the road looking for jobs. They couldn’t afford luxurious goods such as cars; hence, there were only a few of them in the streets. Many vehicles were on sale because maintenance costs were all unaffordable. Teenagers were greatly affected as they were always walking from one point to another in search of jobs.
The women, older men and their families as a whole were all on the move too. They turned to boarding trains as they looked for suitable occupations. Every time there was a certain job opening, people were quick to apply for such rare opportunities. Those, who couldn’t get their hands on a good job, ended up living in shanties outside large cities and towns.
The homes in these areas were made from affordably cheap materials like wood, newspapers, mud, iron sheets and cardboard. The farmers who could no longer afford the expenses of their previous lives were forced to live in Western California. Such is because of the farming opportunities that came from this area. Yes! There were some periods of agricultural growth. The farmers were nicknamed as Arkies or Okies.
This economic tragedy took place in President Herbert Hoover’s reign. During this time, citizens blamed Him, but instead, he always encouraged them to be optimistic. However, there are some Shantytowns like Hoovervilles which were named after him. Shockingly, those who slept on the streets used newspapers called Hoover Blankets. What’s more, even ugly looking vehicles were called Hoover Wagons.
6. Increased Human Suffering
The Great Depression also caused human suffering. It took quite a short time for the cost of living to rise, and people kept on borrowing from one another to only survive. Unemployment also increased because companies could no longer employ qualified US citizens. Even research shows that close to a fourth of the country’s labor force couldn’t work anymore. Companies couldn’t meet their wage demands in 1930, and the full recovery was only realized at the end of that decade.
7. What About the International Gold Standard?
Many people view the great depression as the sole cause of the international gold standard. Here, there was no longer enough cash to invest, and interest rates decreased too. There was even an introduction of the floating rates which made people stop using fixed exchange prices.
Furthermore, there was a huge expansion in labor unions and welfare state organizations in 1930. Interestingly, they hit double figures between 1930 and 1940! Experts say this is as a result of huge unemployment plus the National Labor Relations Act of 1935.
All this caused a collective bargaining agreement where the government went the extra mile in creating an unemployment compensation. In the payment package, it included old age and survivor’s insurance. It simply tried to cater for the difficulties that the citizens faced in 1930.
8. Increase in the Country’s Economic Regulation
The manner in which the government regulated the country’s economy increased greatly. They concentrated mostly in the financial stock exchange market. Here, it established bodies to undertake this crucial function. These included exchange commissions and securities.
Their primary role was to regulate and control stock issues in the financial market, especially those involving new products. There were also deposit insurance schemes, created by the Banking Act. Their main duty was to work for a hand with banking institutions to prevent them from just underwriting. Keep in mind that deposit insurance programs were not popular across the world until the end of the Second World War. During this time, people could work better and more efficiently to achieve their objectives and mission.
9. Growth in the Macroeconomic Strategies
These were meant to fight the downturns and upturns of the economy. Therefore, numerous strategies were created to combat these effects of the Great Depression. There was an increased focus on how the US government spending, expanded its monetary fund and tax cuts.
These were just some of the ways to fight this issue under consideration. The government was also trying to do its best in fighting unemployment, and banks were also doing their best to solve recessions.
10. Discrimination, Racism and Homelessness
As previously mentioned, because many people lost their jobs, it became even harder for them to pay house rent. As a result, they had to move into substandard living areas which were not also so affordable. Likewise, others couldn’t afford suitable places to lay their heads during the night which led to the creation of Hoovervilles.
During this time, very few people were unemployed, and there was a large competition for jobs in the market. Very few couldn’t get jobs, and those who did were not paid enough. Under such circumstances, an increased growth in discrimination and racism was a huge issue. Citizens also became a bit more aggressive because they sensed that the situation was not going to improve. Again, the whites took over the low paying jobs previously held by the minority groups. Therefore, it’s clear that in any country, there are various levels of people earning different incomes. Where one lives varies depending on what they eat. Their lifestyles depend on how much they earn!
Canada was also hit quite hard by this economic tragedy. Here, close to 30% of the country’s labor force was pushed into unemployment. The rate of unemployed citizens remained below 12% until the start of World War 2.
Australia was not also left out. Wages and salaries fell in 1931 and unemployment was close to 32%.
Unlike other countries across Europe, France did not face a lot of economic difficulties. The main reason behind this is because it didn’t heavily rely on trade. Even so, there was still civil unrest because of increased unemployment.
After the World War One, Germany got loans from America to help it rebuild its economy. However, when the Great Depression hit the US, there were no more loans left. This caused the rate of unemployment to increase leading to political extremism.
Because the US invested heavily in South American economies, countries such as Brazil and Argentina suffered from effects of the Great Depression. More specifically were nations such as Bolivia, Peru, and Chile which were terribly hurt!
The Netherlands was hurt by the economic depression from 1931 to 1937. This was mainly because of the crash in the United States stock market back in 1929 together with various internal factors.
In the United Kingdom, effects of the Great Depression varied depending on the specific area. In industrial areas, the impact was huge because of the demand for various products. Effects on coal mining and industrial regions were devastating and immediate as the demand for products collapsed.
The level of unemployment rose to 2.5 million towards the start of 1931. Even so, once Britain abandoned the gold standard, its economy started recovering in 1933.
1. International Debt
After the end of the First World War, most European Countries owned American banks huge sums of money. These loans were so high meaning that these countries couldn’t pay them. The American government was reluctant in lowering or forgiving such debts. Hence, these countries were forced to borrow money to pay off most of these debts.
Unfortunately, as the economy of America slowed down, the European countries found it hard to borrow money. On top of that, the United States government made it hard for these countries to sell their products by putting increasing tariffs. Such meant that European nations couldn’t sell their goods in the U.S market.
Also, after the stock market collapsed, banks tried to stay afloat. To do so, they had to recall all their loans. As cash flowed from Europe and into the American economy, Europe started falling apart.
2. International Trade
The United States raised their tariffs in 1930 by 50% on all imported goods to boost the demand for domestic products. This, however, did not work as it only increased unemployment abroad as industries shut down. Interestingly, this also caused people to lose their jobs in the United States as foreign trade decreased by a shocking 33%!
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