Causes of the Great Depression

Causes of The Great Depression

The Great Depression, which lasted for over a decade, was the longest and most devastating economic collapse seen in the history of the modern world. Originating in the United States, it eventually spread to many other countries, destroying their economies and industrial sectors. To understand the effect it had on the societies of America, as well as abroad, it is important to understand the major factors that led to its arrival. In the 1920s, America was experiencing a great boom in terms of its economy. It had come out of World War I intact, and was now focused on strengthening itself. However, in doing so, it became a country that was quite introverted. The focus was on “getting rich and enjoying new fads, new inventions, and new ideas. The traditional values of rural America were being challenged by the city-oriented Jazz Age…”(McElvaine, 1). This self-centered attitude and behavior seemed to fit well with the needs of the American economy at the time. The goal of the many businesses and manufacturing companies was to create a demand for the many products they produced. To accomplish, advertising methods that had been used to promote support for World War I were now used to promote the many new products that emerged. The tactic worked, and it resulted in the “mass consumption that kept the economy going through most of the 1920s” (McElvaine, 1). However, there was a drawback. Despite a booming economy, there was an uneven distribution of income. As the 1920s progressed, the ratio of income going to the wealthy increased, while the ratio of income going to the poor decreased. This was the result of two factors. First, even though businesses were showing a remarkable level of productivity, the workers were only getting a small portion of the resulting wealth. Second, huge income tax cuts in the top bracket allowed the wealthy to keep a bigger portion of their profits, while the poor lost a bigger portion of their pay. This, in turn, led to the creation of credit, which allowed the poor to purchase items their meager incomes would not allow them to buy outright. Another factor that played a role in the outbreak of the Great Depression was the new role America took on as the ‘creditor’ of the international community. The bankers and financiers, however, were not prepared for this new role. As a result of lending “heavily and unwisely to borrowers in Europe…who would have difficulty repaying the loans…”(McElvaine, 2), the financiers and bankers laid the foundation for the massive economic downturn that would occur during the 1930s. Furthermore, high tariffs maintained on imports made it quite difficult for foreign countries to sell their goods in America. Without doing so, they would be unable to repay their loans or buy American products. Thus, this vicious cycle would keep repeating itself until something gave. The final factor was the growth of the stock market, which was the result of the wealthiest Americans investing their money, particularly during the late 1920s. There was a misguided belief that the stock prices would continue rising; therefore, if one paid an inflated price for a particular stock, the hope was that the continually rising prices would enable them to sell that stock and make a profit from the sale. There was also a widespread attitude that anyone could make a killing in the stock market, so the less affluent also invested, with dreams of hitting the jackpot at some point. Unfortunately, this would prove to be a gross misconception. In 1929, all the underlying economic problems came to a head with the crash of the stock market. The value of all the stocks dropped by 40%; banks went bankrupt; businesses and factories shut down; people lost their life savings, their jobs, and their possessions. “By 1932, one fourth of all Americans were unemployed, and the depression was showing absolutely no signs of abating” (Davenport, 209). In the presidential seat at the time of the crash was Herbert Hoover. However, he seemed unable to handle the challenge of finding a solution to end the depression. His ideas of cutting government spending, raising taxes, and imposing the highest tariff in American history did little to rectify the problem. Therefore, when Franklin Delano Roosevelt won the presidency and presented a plan to combat the depression, the American people saw a glimmer of hope emerge. Roosevelt put forth his solution for the Great Depression, and it was known as the New Deal. Ultimately, it would be responsible for the creation of a wide variety of programs that were meant to “reduce unemployment, assist businesses and agriculture, regulate banking and the stock market, and provide security for the needy, elderly and disabled” (McElvaine, 3). One of the first steps Roosevelt took was to create the Federal Deposit Insurance Corporation, which was responsible for insuring savings-bank deposits up to $5,000. To accomplish this, “banks were closed, the bank examiners went over the books, and the banks were allowed to open again only if they were solvent” (Davenport, 211). Other measures taken to stabilize the banking industry included creating government agencies that would generate credit for industry and agriculture, encouraging moderate inflation, and imposing stronger regulations on the sale of securities on the stock market. To combat the high level of unemployment, the government created the Civil Works Administration, which created jobs that included such things as highway repair, building schools, and teaching in them. Another program that put unemployed people to work was the Civilian Conservation Corps. This program was geared to young people between the ages of 18 and 25. The goal was to keep them occupied rather than allow them to get in trouble on the city streets. Other programs created by the New Deal included the Public Works Administration, the Agricultural Adjustment Act, the Tennessee Valley Authority, the National Recovery Administration, the Federal Emergency Relief Administration, the Works Progress Administration, and the Farm Security Administration. The pinnacle of the New Deal, however, was the creation of the Social Security Administration, which provides for the disbursement of funds to every American citizen upon reaching the retirement age. In simple terms, every retired citizen receives a monthly check to live on. This program is still in place today, although there are some worries that it no longer will be able to live up to its goal. In the end, Roosevelt’s New Deal served as a ray of light for the American people. Although the Great Depression lasted well into the 1940s, it was made a bit easier to deal with when these various programs came into being. It made the times people were living in easier to face, as there was a limited guarantee that there was a way to help them. It also enabled Roosevelt to be the only president in American history to serve four consecutive terms, proving that he was the key piece to this New Deal program. The legacy of the Great Depression was that it was an experience that “left a lasting mark on [America] in the forms of a much greater role for the federal government, a new political alignment in which Democrats would retain the support of the majority for most of the next half century, and a general feeling that the free market must be regulated…” in order to prevent another such depression from happening again. In this, there has been success, for America has yet to see another massive level of economic collapse like that of the 1930s. The hope is that America never will.

References
1. McElvaine, Robert S. Great Depression in the United States. MSN Encarta Online
Encyclopedia. 13 December 2007

2. Davenport, Robert. Alpha Teach Yourself American History in 24 Hours. Indiana:

References: 1. McElvaine, Robert S. Great Depression in the United States. MSN Encarta Online Encyclopedia. 13 December 2007 2. Davenport, Robert. Alpha Teach Yourself American History in 24 Hours. Indiana: