The Great Depression

Introduction
The Great Depression is said by economists to be the worst economic downturn to ever occur in the Western World. It started in 1929 and lasted for 10 straight years. The economic depression was triggered by a stock market crash in the October of 1929. The stock market crash sent shockwaves through Wall Street resulting in investors losing millions of dollars. After the stock market crash, investment and consumer spending naturally dropped in the following months and years. This had a negative effect on manufacturing and employment resulting in millions of Americans being laid off. At its lowest point, the economic depression had forced approximately 15 million to lose their jobs. Moreover, nearly 50 percent of the America’s banks collapsed during the Great Depression. This paper discusses the great depression, its causes, the negative effects it had, and the recovery.
What caused the Great Depression?
From the turn of the 20th Century, the US economy was one of the fastest growing in the world. The peak of this growth was in the 1920s. From 1020 to 1929, the economy grew by more than 100 percent. This period of spectacular growth was referred to as the “roaring twenties” by many analysts (Kyvig and Kyvig).The New York Stock Exchange embodied most of this growth and the wealth that came from it. It here that Americans from all walks of life speculated on the future of the many companies that seemingly had a bright future. Many people bought as many stocks as they could with their savings. This really pushed the turnover of the New York Stock Market to its highest level in the August of 1929.
By the mid-1929 the manufacturing sector was already slowing down and unemployment was rising. This turn of the country’s economic fortunes, left stock prices at prices several times their real values. Moreover, because of rapidly declining food prices and drought, the agricultural sector was also struggling. Consumer debt was also high and the wages were extremely low. What’s worse, most banks had given out plenty of money and could not recover the same (Watkins; Kyvig and Kyvig). These factors triggered a mild recession that started from the summer of 1929. This, in turn, reduced consumer spending resulting in a pile up of unsold goods. As expected, this led to a decline in manufacturing. However, despite these changes, the stock prices were still on an upward trend and by the fall of the same year they had reached absurd, unjustifiable levels that did not match the approximated future earnings.
The Stock Market Crash of 1929
By the 24th of October 1929, many investors had panicked and were selling their shares fearing that a stock market crash was imminent. On that day about 13 million stocks were traded. The day was dubbed the “Black Thursday” (Romer, 11). Less than a week later on October the 29th about 16 million stocks were traded. This day was dubbed the “Black Tuesday.” This panic trading rendered many stocks worthless resulting in some investors being wiped out completely.
The stock market crash completely eroded consumer confidence resulting in even less spending and investment. Industries had to slow down production and some even fired workers to save costs. Americans from all over the country could not adequately take care of their needs on their salaries. This resulted in many buying things in credit. Non-repayment of loans and mortgages led to repossessions and foreclosures. The fact that America was participating in the gold standard led them to caused the depression to spread to other countries around the globe that were also participating in the fixed currency exchange (Eichengreen and Temin, 183-207).
Bank runs and the governing administration
The administration in charge of the American Government was the Herbert Hoover Administration. It assured the population that the crisis would quickly run its cause but that did not end up being the case. Things got worse especially over the next three years. By the year 1930, over 4 million Americans were unemployed (could not find work), the number rose to approximately 6 million Americans by the end of 1931 (Simpson, 187-219). Industrial production declined by more than 50% during the two years. Furthermore, by the end of the 1930, the 1st of 4 waves of economic panic swept through the banking sector. Many investors and holders of savings accounts had lost confidence in banks and wanted their money in cash. This prompted many banks to liquidate their loan books in a bid to supplement their dwindling cash reserves (Eichengreen and Temin, 183-207). The situation reoccurred in 1931, 192 and 1933, forcing many banks to close down.
By 1932, about 20% of adult Americans were unemployed. This amounted to approximately 15 million Americans. This year is considered to be the lowest point of the depression. Most Americans were disappointed by the administration hence they voted overwhelmingly for the alternative, Franklin D. Roosevelt, the presidential elections that took place that year. Roosevelt had promised to take various steps during the campaigns to address the economic woes that faced the country. One of the immediate steps he took was to sanction a 96-hour holiday for banks to enable congress to pass reform laws. After the ‘holiday’ only the banks that were sound were allowed to open. The new President also began addressing the public through a series of talks. The talks are thought to have helped restore the public confidence in the country banking sector (Romer, 597-624). The congress was also able to pass legislations which helped spur agricultural and industrial production.
The New Deal: The Road to Recovery
Before the commencement of the Great Depression, America was the only Western Industrialized country that had no form of social security/ unemployment insurance. One of the new legislations passed by the new administration was the Social Security Act of 1935. For the very first time in the country’s history, its citizens could enjoy unemployment benefits, disability benefits and pension benefits (Simpson, 187-219). From 1933, the economy started showing some real signs of recovery. It is approximated that the economy grew by 9 percent over the next three years.
However, despite the strong signs of recovery, the economy took another dip in 1937. This new recession was thought to have been caused by the Federal Reserve’s policy decision that required more cash in reserve. Although the country’s economy was back on its recovery path about a year later, the second recession eroded many of the gains that had been made in different sectors of the economy including manufacturing production and employment. Researchers argue that it is this recession that prolonged the Great depression to 1939 (Hobsbawm; Elder). The depression hardships are thought to have been some of the reasosn that led to the rise in popularity of extremist parties in the various European nations including the Socialist Workers Party (the Nazi party) in Germany. Of course, Adolf Hitler one of the leaders of the party would later take power and lead Germany to the Second World War.
The Second World War Begins and the Great Depression Ends
When war broke out, the United States at first took a neutral stance. However, they later joined the war to support France and Britain against German aggression. Americans participation in the war greatly increased its industrial production getting millions of Americans jobs in the private sector. America later sent its own troops to the war after the Japanese bombing of Pearl in 1941. The military job plus the increased defense industrial production increased employment to the pre-depression levels. In other words, it effectively ended the depression and allowed America to focus on the Second World War.


Works cited
Eichengreen, Barry, and Peter Temin. "The gold standard and the great depression." Contemporary European History 9.2 (2000): 183-207. Web.
Elder, Glen H. Children of the great depression. Routledge, 2018. Web.
Hobsbawm, Eric. "The age of extremes: A history of the world." New York: Pantheon (1994). Web.
Kyvig, David E., and David E. Kyvig. Daily life in the United States, 1920-1940: how Americans lived through the" Roaring Twenties" and the Great Depression. Chicago: Ivan R. Dee, 2004. Web.
Romer, Christina D. "The great crash and the onset of the great depression." The Quarterly Journal of Economics 105.3 (1990): 597-624. Web.
Simpson, Brian P. "The Great Depression." Money, Banking, and the Business Cycle. Palgrave Macmillan, New York, 2014. 187-219. Web.
Watkins, Tom H. The great depression: America in the 1930s. Boston, MA: Little, Brown, 1993. Web.