Compare and Contrast Great Depression

Topics: Great Depression, Economic bubble, Wall Street Crash of 1929 Pages: 9 (3440 words) Published: November 20, 2013
The 1929 stock market crash and the subsequent ‘great depression’ was the biggest economic crisis that the world has experienced. The depth and length of the crisis and the suffering that it caused is legendary. Therefore when the global financial crisis struck in 2007, many rushed to proclaim that we were about to experience another depression on a similar scale, or at least what some have termed a ‘great recession’. This essay will compare and contrast the two economic crises to analyse the key similarities and differences between the two. To do this, the essay will firstly provide an outline of the conditions that led to the 1929 crash in the economy. Moving on from here the essay will then look at the policy responses that were implemented to tackle the crisis before analysing the conditions that precipitated the 2007 financial crisis and the policy responses, to draw out the similarities and differences of each of the crises, and to ascertain were any lessons learned during the current global crisis from the policies of the great depression era. Finally the essay will conclude with a discussion of the main points raised by the analysis of both crises and a look at the future prospects for recovery. Capitalism is a system of economic development that has crises as an inherent feature. Many crises have occurred both before and after the 1929 stock market crash, however the length and depth of the great depression has made it the point of reference for judging the severity of a financial crisis. Much debate has occurred over the causes of the great depression. While many see the late October 1929 New York stock market crash as the defining feature of the crisis, the reality was much more complex and multifaceted. As (Teichova 1990, p.8) suggests, the great depression was “the deepest, all embracing (agricultural, industrial, financial, social and political) and longest crisis with catastrophic consequences”. As well as this, although the United States led the way, this crisis was global and the rest of the world also experienced depression. So, any analysis of the great depression must look at the various factors that caused and perpetuated it. The 1920s in America have been described as the roaring twenties. After the devastation of the first-world-war, during the 1920 to 1925 period US and international economies were experiencing a boom. During that period, world mining and manufacturing output grew by nearly twenty percent (McNally 2010, p.63). However, in terms of inequality the poor were less poor but the rich were getting richer at a rate of four to one. As well as this, four fifths of American had no savings compared to twenty-four thousand families at the top who held a third of all savings combined (Canterbery 2011, p.13). During the boom, ninety percent of all Americans saw their incomes fall in relative terms (McNally 2010, p.64). A factor in this was an increase in union-busting and anti-labour laws which increased income inequality. As well as this, agriculture, coal mining and textile industries were suffering from a post-war hangover which saw their profitability decline and in many instances wiped out. This inequality which concentrated wealth in so few hands led to a huge increase in consumer credit which in turn sparked off rising levels of private debt and a massive speculative bubble in the form of a property boom in Florida (Canterbery 2011, pp.13-14). The mania of speculation was not confined to property and between May 1924 and the end of 1925, there was a huge eighty percent rise in stock prices. The trend continued and as Galbraith (2009, p.16) has suggested, “in early 1928, the nature of the boom changed. The mass escape into make believe, so much a part of the speculative orgy, started in earnest”. During 1928, the Times Industrials (a pre-cursor to the DOW) gained a huge thirty-five percent, from two-hundred and forty-five points to three-hundred and thirty-one points. To maximise their...
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