The Great Depression

Great Depression was one of the worst events in American history, as well as the track record of capitalism itself. Causing great suffering for over a decade, the Great Depression was a result of poor banking and speculative practices that turned into a widespread global financial disaster. Yet, initial government pushes to curb it did not meet successful hopes. However, the later policies implemented in the Second New Deal did prove more successful.

The Great Depression was the worst economic disaster in American history.

What led to such a massive economic collapse was not one primary factor, but in fact a multitude of combining factors; "It was not just one factor, but instead a combination of domestic and worldwide conditions that led to the great depression," (Kelly 1). It led to massive unemployment, with entire fortunes being lost at the whim of the market conditions. Millions of Americans were forced into dire living conditions, with many homeless and relying on the government to provide basic necessities such as food and shelter. It was a very dark time in American history, one which took years to pull ourselves out of. The Depression itself lasted about a decade, until World War II brought back with it wartime prosperity to American business which was then filtered into individual American wealth.

Many believe that an earlier agricultural depression helped pave the way for the more widespread panic of the Great Depression. According to research, an independent depression in agriculture helped to cause the stock market crash, the decline in industrial output, and the banking collapse," (Kindleberger 70). This depression was set off primarily by an overproduction of particular agricultural products which flooded the market and forced profits through the floor. Additionally, earlier in the decade, a series of natural droughts had decimated much of American agriculture, leading to a recession in the industry. These great drought conditions in the Midwest led to massive exoduses of people into larger cities looking for work when their crops failed and their farms were repossessed. Therefore, when the Great Depression hit, there were a multitude of poor and out of work farmers who flooded the cities and strained local budgets for social programs. If there had not been so many mouths to feed, based on the failures of agriculture, the Depression might not have had such dramatic consequences.

The 1920s are typically thought of as a time of great wealth and prosperity, but what few people realize is that this was only for a small portion of the population. Yet, in fact "Money was distributed disparately between the rich and the middle class, between industry and agriculture within the United States, and between the U.S. And Europe," (Gusmorino 1). During the time before the market crash, major innovations in industry were causing serious increases in production levels, leading to massive profits for American business. Yet, these profits were rarely shared with the individual workers who actually were doing the labor in the manufacturing process. According to research, "From 1923-1929 the average output per worker increased 32% in manufacturing. During that same period of time average wages for manufacturing jobs increased only 8%," (Gusmorino 1). Therefore, the culture of the United States at the time was seemingly accepting of this great misdistribution of wealth. The rich were getting richer, and the divide between themselves and he poorer classes was becoming wider than every in America history. Thus, "This imbalance of wealth created an unstable economy," (Gusmorino 1). With such an unstable economy at the heart of American life and culture, it was only a matter of time before things utterly collapsed.

One of the primary economic reasons for the onslaught of the Great Depression was the stock market crash which occurred on October 29, 1929. The crash itself was largely due to high speculation, "The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to a large market crash," (Gusmorino 1). The stock market had been artificially bloated based on increasing speculation, and as is typical n such patterns, a crash were inevitable. This signaled the beginning of the crumbling of the capitalist system that had made the nation so prosperous earlier in the decade of the 1920s and only "two months after the original crash in October, stockholders had lost more than $40 billion dollars," (Kelly 1). Even though the stock began to eventually recoup from some of its massive losses, it was not enough, and as 1930 rolled in, the Great Depression hit the country hard.

After it was official, the economy situation of the Great Depression just got worse and worse. In the entire length of the decade of the 1930s, there were over 9,000 local and national bank failures (Kelly 1). This meant dire circumstances for many Americans who had their entire savings in the American banking system, for "bank deposits were uninsured and this as banks failed people simply lost their savings," (Kelly 1).

Moreover, many banks failed I their duty to properly warn about high investments and allowed business men to invest recklessly without regard or regulations. According to research, "business men were mislead by bank credit inflation to invest too much in higher-order capital goods, which could only be prosperously sustained through lower time preferences and greater savings and investment," (Rothbard 11). Yet, the necessary conditions for generating profit within such a limited market were soon cut down by the instability of the American economy at the time. Therefore, as soon as the inflation permeates into the mass of the people, the old consumption-investment proportion is reestablished, and business investments in the higher orders are seen to have been wasteful," (Rothbard 11). Many business men invested their entire fortunes in an unstable market place, only to have them completely depleted when the stock market crashed.

Additionally, when the Great Depression hit, people tightened their grip on the money they had not already lost. According to research, "with the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items," (Kelly 1). This put American businesses in an extremely tough bind, for sales dropped through the floor. In order to save face, many American companies cut their workforce in an attempt to keep in business. This led to a massive increase in unemployment, which some estimates all the way up at 25% unemployment rate (Kelly 1). Thousands of Americans then found themselves out of working and draining national resources for basic necessities such as food and shelter.

Along with severe internal problems faced in the Great Depression, there were also widespread global ramifications as well. Several other industrious nations suffered tremendously based on their close economic ties to the United States. The gold standard which was implemented after World War I held several dominant countries together in terms of related economic conditions and prosperity. Thus, "The existence of the gold standard linked economic conditions across countries to a much greater extent than is currently the case, and it is because of this linkage that the Depression was a worldwide event," (Hall & Ferguson 31). Alongside the United States, many countries felt the pain of a restrictive gold standard implemented by government and the massive and quick deflation that came along with it; Deflation (and the constraints on central banking policy imposed by the gold standard) was an important cause of banking panics, which occurred in a number of countries in the early 1930s," (James 70). This massive deflation continued to weaken already crumbling banking structures and deepened the nation's and the world's position within a global recession. According to research, "deflation creates an environment of financial distress in which the incentives of borrowers are distorted and in which it is difficult to extend new credit," (James 71). Therefore, Americans in the midst of the Depression found no help in trying to pull themselves out based on the restrictive policies of bank practices within such massive periods of deflation.

The 1920's also saw the federal government favoring the rights and policies of big business. During the Coleridge administration, it was clear that the federal government favored the wealthy who were the primary backers of big business in comparison to the every day laborer (Gusmorino 1). This lead to looser restrictions and regulations on speculation. Income taxes were drastically reduced to help provide more incentives for the maximization of profits in American industry. Yet, this also dramatically reduced the level of income for the federal government, which was later a painful factor when trying to implement costly public programs in the midst of the Depression. In addition, the Federal Reserve had seen the crash coming based on the shaky levels of high speculation and was quick to differentiate themselves, but not restrict private banks from continuing. According to a statement from the Reserve itself, the board had "no disposition to assume authority to interfere with the loan practices of member banks so long as they do not involve the Federal reserve banks," (Hall & Ferguson 30). Thus, when stricter regulations should have been implemented, they were not, and the avoidable became utterly unavoidable. The president Hoover's initial reaction was to allow the market to fix itself, thus going alongside his lassiez-faire beliefs. Yet, he was forced by Congress to act, but did so minimally (Wilkison 1). Thus, it was not long before the nation was in demand of a more hands on president who was willing to implement new social and economic programs to get the United States back on track to economic prosperity.

When Franklin D, Roosevelt took over the Oval Office, he inherited a multitude of problems still reeling from the onslaught of the Great Depression. In his formulation of a plan, Roosevelt created the New Deal, which "sought to save capitalism and the fundamental institutions of American society from the disaster of the Great Depression," (Wilkison 1). Thus, Roosevelt created a multi-faceted approach to dealing with both the short- and long-term ramifications of the Great Depression and its horrendous affects on the lives of every day Americans. Relief programs were implemented in Roosevelt's New Deal in order to "alleviate immediate suffering," (Wilkison 1). These programs were based on short-term implementations and expectations. May focused on caring for those in dire need at the time, and established funding for providing food and shelter for those who had lost everything. Recovery programs were "long-term programs to strengthen the economy back to its pre-crash level," (Wilkison 1). These programs were meant to stimulate the economy and bring jobs back to those who had seen the horrors of unemployment during the midst of the Great Depression. Various government agencies were created to implement robust programs that would hire Americans for innovative and constructive practices all over the nation. Many of our nation's parks and modern road systems began in the various reform policies as a way to both improve the face of the United States and implement programs aimed at employing the massive numbers of the unemployed in the country at the time. Finally, reform policies were "permanent structures meant to prevent further depressions," (Wilkison 1). These were such progressive policies such as the creation of Social Security and stricter bank and business practice practices to ensure that the massive scale of economic panic that occurred in the Great Depression would never again are in such a serious problem. Roosevelt's policies were split up between two versions of his New Deal, the First New Deal and the Second. Although controversial in its closeness to a government that was much involved in its nation's affairs, the basic fundamental point to such policies were to provide structured support for capitalism to return to a strong position and once again take over American economics.