Essay details:

  • Subject area(s): Marketing
  • Price: Free download
  • Published on: 14th September 2019
  • File format: Text
  • Number of pages: 2

Text preview of this essay:

This page is a preview - download the full version of this essay above.

From the Financial Panic of 33 AD in Rome to the Great Recession of 2007-2008, economic crises have played a significant role in shaping the history of human civilization. According to IGI Global, an economic crisis is “a period of shortage in production, marketing, and consumption of products and services.” Economic markets are destined to keep repeating this trend of boom and bust even as governments and humans become more proactive. And inevitably, the abhorrent result involves financial assets losing value, bank runs, and massive unemployment. However, no economic crisis was as devastating as the Great Depression, which lasted from 1929 to 1939; Kathi Appelt, an American historian, remarked, “An entire nation, it seemed, was standing in one long breadline, desperate for even the barest essentials. It was a crisis of monumental proportions.” Never before had there been a downturn of such magnitude, and there has been none since. It resulted in billions of dollars being wiped off the market and initiated a period of financial hardship for millions of people. International trade, personal income, profits, and prices of goods dropped massively. Moreover, nearly ¼ of the US workforce was unemployed, 5,500 banks closed, and 32,000 businesses went bankrupt, all repercussions of overconfidence in the agricultural sector, an overextension in credit, problems in America's financial system, and a period of overspeculation in the US stock market. However, mismanagement on the part of the US government and the Federal Reserve exacerbated this crisis. Everyone from the upper-class to the lower-class lost a huge part of their savings and had to embrace a new level of frugality in daily life. While the Great Depression caused the United States tremendous tragedy over the course of 1929 to 1939, the American people experienced remarkable triumph in the form of monumental economic change through the New Deal; but perhaps more importantly, the Great Depression served as a reminder of the resilience of the American people in the face of crisis.

To understand the Great Depression, one must comprehend the succession of factors that occured to cause this catastrophic event. First, the crisis originated from an overconfidence in the agricultural sector of America. During World War I (1914-1918), President Herbert Hoover encouraged US farmers to increase production exponentially because European production had disrupted in the war. The US had to supply its European allies with food, allowing the US agricultural sector to prosper. Technology helped increased production, and soon, the agriculture industry employed 25 to 30 percent of the US workforce. However, the whole industry relied on the income from food exports to Europe, and this soon became its downfall. European countries began their own food production after the war, and competition from South America and South African countries made it tougher for the US to compete on the global market. However, US farmers remained confident and continued to overproduce. Due to extreme surplus, prices for farm products fell dramatically, but President Herbert Hoover neglected to do anything about the struggling agriculture industry. Thus, the farmers' situation rapidly worsened in the 1920s, and farmers were forced to take out loans against their property to buy equipment. Still, prices continued to fall, and many farmers remained perpetually and hopelessly in debt. Consequently, between 1921-1929 more than six hundred banks failed annually. By 1929, roughly a quarter of the US population was desperately struggling. The overconfidence and lack of government diligence regarding the agricultural sector was a central facet in the forthcoming of the Great Depression.

Beyond the failure of agriculture in the United States, overextension of credit and spending in the manufacturing sector played a huge role in causing this unprecedented economic downturn. During the 1920s, manufacturing rolled along at top speed thanks to assembly lines and new machinery, and by 1929, stores and warehouses in America were bulging with goods. In the manufacturer's point of view, the more goods produced and sold, the greater their profit. Despite the fact that most Americans had little money left over after paying for essentials such as housing and food, they found a way to buy automobiles, electric washing machines, and radios due to a new payment system called credit, or installment buying. A small payment was initially made and then the rest of the price was paid over time. This system worked well in safe doses and as long as the buyer had a job, however, Americans continued to overspend and use credit to purchase new goods. Eventually, following normal market habits, buying slowed down. However, by 1929, stores had built up huge inventories of goods. It was clear that manufacturers had overproduced, and they began to cut back. This was the beginning of a vicious spiral downwards. Factories began laying off substantial numbers of workers. A growing number of unemployed people bought only bare necessities, and thus goods sat on shelves in stores. Manufacturing halted, and more and more people were laid off as a result, making it clear that overextension in credit was one cause of the Great Depression.

At the time, America's financial system looked fine on the surface, but when examined with a microscope, it was clear that there were a variety of flaws under the surface which caused the Great Depression. In 1929, preceding the Great Depression, there was a blatant income inequality problem. Income inequality occurs when a society has an uneven distribution to wealth. The top 0.1 percent of American families had a combined income equal to the total income of the bottom 42 percent of the population. Between 1920 and 1929, the disposable income per person rose by 9 percent for most Americans, but the top 1 percent of the population saw a 75 percent increase. The reason for the gap between rich and poor had much to do with wages. During the 1920s, goods were bought rapidly. As a result, profits soared. Corporate profits increased by 62 percent, but those profits went predominantly to the factory owners, not to the workers. American workers were increasingly unable to purchase the vast amount of goods they were producing, even with installment buying. Of course, the wealthy spent money on luxury items, but this spending could not counteract the mounting financial distress of the masses in America. A downturn in spending by the masses led to an economic slowdown which ultimately morphed into the Great Depression. The unsound American banking system added to this budding financial distress. In 1900, there were roughly twelve thousand commercial banks, and by 1920, the number had risen to thirty thousand due to lack of regulation. Banks that were not damaged by the struggling agricultural industry aggressively competed with one another for deposits. To win deposits from businesses and individuals, banks offered to pay higher and higher interest rates. To cover the expense of high interest rates paid out to customers, banks needed to make more income from the interest they charged on loans. Therefore, they made loans easy to obtain, readily lending money for business activities, real estate, and investments in stocks and bonds. Banks assumed the economic boom of the 1920s would go on forever. But eventually, the economy slowed down rapidly in late 1929. By the end of the decade, individuals and businesses would be unable to keep up with their payments on these loans. Without the funds from loan repayments, many banks were forced to close their doors. Income inequality, in conjunction with the unstable banking system in the US contributed to the collapse of the American economy.

Finally, one of the most influential causes of the Great Depression was speculation in the stock market. Essentially, speculation in the stock market means to buy stocks with the assumption that it can always be sold at a profit. It was critical for businesses to sell stock to raise money to expand. In the mid-1920s, only two percent of Americans were purchasing stock, however, and as the economy continued to expand, this number grew massively. In the late 1920s most Americans saved enough money to buy stocks. On the surface, investing in stocks seemed like an especially safe way to make money. However, investors were not protected from misleading information about stocks. Companies told the public that they were doing well, but the public had no means to confirm that the companies' financial reports were actually reliable. And to make matters worse, a dangerous way of buying stocks developed called “buying on margin.” Buying on margin meant that a person could purchase stocks by using only a little bit of his or her own money and borrowing the rest, similar to credit. For example, to purchase a $100 stock the buyer might put up $20 and borrow $80 to make up the entire price. Investment brokers got their loan money from banks; brokers and banks alike believed that the stock market was on a permanent upward climb. Investors, using their increasing profits and borrowed money, continued to buy stocks. This growing demand for stocks pushed stock prices up, causing a dangerous and dramatic discrepancy between the stock's real, intrinsic value based on the company's profits and financials and their market price. Eventually in late October of 1929, the market plunged as the economy slowed down. Nearly all stocks lost a good portion of their value. Problematically, the investor had no ability to pay back their loans from investment brokers, contributing to the faltering bank system. In only a few days, several million investors lost all the money they had invested, as the market was at its twentieth century worst. One day, these investors had been wealthy; the next, they wondered how they would survive. The irresponsibility with which investors borrowed added to the failing bank system and plunged many into irrevocable debt, which was a large contributor to the Great Depression. By October 1929, these various economic problems, overconfidence in the agricultural sector, an overextension of credit, flaws in the financial system, and over speculation in the stock market collided and signaled the start of the Great Depression.

The US government did nothing to address these blatant issues, and thus allowed the Great Depression to occur right in front of their eyes. President Hoover could have been more proactive in encouraging the agricultural sector to slow down production by instituting a cap on the credit allotted to citizens. However, he was an advocate of laissez-faire, or hands-off policy between the government and the economy. Hoover's laissez faire policy was emphasized in his State of Union Address when he said, “Economic depression can not be cured by legislative action.” His ineffective policies essentially allowed the Great Depression to occur. However, in some cases, government action actually made the problem worse. For instance, policies such as trade barriers instituted by the government exacerbated the issue. Tariff barriers, such as the Hawley-Smoot Tariff in the United States, passed in 1930 were erected to protect domestic markets. These impediments to international trade added to the deflationary forces already at work, and the US economy slipped further into depression. Additionally, the government made income inequality worse. Andrew Mellon, secretary of the treasury under Presidents Harding, Coolidge, and Hoover, was one of America's richest men. He saw to it that tax cuts for the wealthy passed through Congress in the 1920s, helping the rich retain even more of their wealth. When workers tried to organize and use unions and strikes to improve their wage and health benefits, the government was hostile to such activities. The government also failed to address the unsound banking system. Furthermore, the meek Federal Reserve system, established in 1913 as the nation's central bank, could have possibly controlled the wild speculation in the stock market; instead, they were overpowered by Wall Street and unable to control the number of loans taken by investors and the rampant speculation. The inaction, and in some cases misaction, by the US government and the Federal Reserve allowed this crisis of unimaginable proportions to occur.

This drastic change in the socioeconomic sphere due to these culmination of factors and government inaction led to a reimagining of daily American life. Essentially, the Great Depression powerfully tested the will and courage of the American people. By late 1932, 25 percent of the workforce was unemployed. Bread lines became prevalent for those who were unemployed. Those who managed to stay employed saw their salaries experience a massive decline by 40 percent. Prices of goods dropped, too; however, they did not drop enough to offset unemployment and salary cuts. It was quite common for a wage earner to have the burden of supporting relatives or friends who had just lost their jobs. Families in the United States tried their best to carry on and keep their lives as close to normal as possible by making life changes to cut costs to maintain a manageable standard of living. They attempted to cut down on purchases, make goods at home, grow their own vegetables, and sew their own clothing. In order to maintain their social status, families painted their houses to pretend that all was well on the inside. The Great Depression also greatly affected family structures.  For instance, marriages were postponed, fewer babies were born, and households collaborated to help the impoverished. Many teenagers were forced to stay in school and live at home longer because there were no jobs while some teens, feeling they were a burden to their families, left home and hit the road or the railways. Many Americans depended on strong family ties to see them through these hard times. However, for others, the economic pressures were so overwhelming leading to permanent fractures in their families. American families had to accustom themselves to a frugality that tested their will and was completely new to them.

The Great Depression was one of the most catastrophic tragedies in history that had major ramifications on every aspect of American society. The facts speak for themselves: GDP plummeted 50%, unemployment spiked to 25%, international trade plunged 60%, profits declined by 83%, and private investment declined by a massive 91%. The depression ripped at the very fabric of the American economy. And as a result, Americans were forced to dramatically alter their lifestyle in ways they never had to before. It also shook America's blind faith in laissez-faire capitalism. However, while it is clear that the Great Depression was a tragedy, the depression brought forth triumphant efforts to reform and restore the US economy.

Through the New Deal, a collection of policies and government reforms initiated by the Franklin D. Roosevelt administration in 1933, the US government successfully installed safeguards to protect the American people from an economic downturn of the same magnitude of the Depression. President Franklin D. Roosevelt remarked on the New Deal:

“Men may differ as to the particular form of governmental activity with respect to industry and business, but nearly all men are  agreed that private enterprise in times such as these cannot be left without assistance and without reasonable safeguards lest it destroy not only itself but also our processes of civilization.”

The plan included the Emergency Banking Act, which stabilized banking, the creation of the National Recovery Administration, which established fair-practice codes to stimulate business, and the Agricultural Adjustment Administration, which distributed subsidies to farmers as part of a plan to reduce production and raise the value of crops and livestock. These reforms helped combat the immediate crisis and alleviate the suffering of the American people. Additionally, the New Deal instituted reforms that are still present in contemporary society such as Social Security, which provided unemployment insurance, retirement benefits for the elderly, and funds for the poor, and the Securities Exchange Commission (SEC), which regulated stock trading in effort to prevent speculation. Furthemore, the passage of the National Labor Relations (Wagner) Act in 1935 allowed for collective bargaining and finally allotted workers more power and rights. These reforms created long-term institutions that produced a more just system. Essentially, these policies transformed the role of the federal government in the economy and allowed the government to intervene to make sure the economy was working to the benefit of all Americans and not just the 1%. By bringing income inequality and corporate misconduct into the federal government's jurisdiction, the American government's relationship with corporations changed forever. It is uncertain whether these changes would have eventually occurred in the United States without the Great Depression. Thus, it is evident that while the Great Depression was a tragic event in itself, it was the impetus behind triumphant and meaningful reform and changes that would ensure such a event would never occur again.

As tremendous of a tragedy that it was, the Great Depression served as a reminder of the strength of the American people. During and after the period of turmoil, Americans became more compassionate and generous as they empathized with each other's struggles. Paul Boatin, a man who experienced the depression first hand, recalled, “The majority of the people, the majority of the people stood together, even though different interests, the shopkeeper and the worker, the bar owners, so forth…” This account reminds us that solidarity in the worst of times can inspire people to appreciate and empathize with others around them. Additionally, the Great Depression shows that America has always remained strong in the face of struggles and impending collapse. Americans continued to move forward from the Great Depression, one of the worst events of our time, embarking on a frontier of countless possibilities.

After examining the causes of and the daily life during the Great Depression, it is clear that while it remains one of the most tragic events of human civilization, the Great Depression  served as an crucial impetus for meaningful economic reform and was a reminder that the American people could overcome anything as long as they were united in the face of struggle.

...(download the rest of the essay above)

About this essay:

This essay was submitted to us by a student in order to help you with your studies.

If you use part of this page in your own work, you need to provide a citation, as follows:

Essay Sauce, . Available from:< > [Accessed 22.02.20].