The great depression originated in the United States in the 20th century. This was during 1929 after the effects of various factors within the economy led to the great depression. The depression affected the world economies for a period of about 10 years from 1929 to 1939. The depression affected most economies in the world and this came as a lesson to the world economies of how fast the economies of the world can come down. The depression has been described as the worst depression in the American and also in the world history. Factors that led to the depression were driven by both domestic and international factors in the global market. However, economists have failed to agree on the main causes of the great depression.
The great depression is said to have been started by the weak structural factors that dominated the U.S economy. This included the destabilization of the stock market and the failure of the banking system. The government was blamed greatly for its failure to control the interest rates and thus the money supply within the economy. The free market that dominated the market was also blamed for its emphasis on the capital accumulation theory. Economists have argued that capital accumulation led to over-accumulation of wealth which resulted in the wastage of massive resources (Rothbard, 2000, p. 23).
The crash of the stock market in the United States which occurred on the Black Tuesday of October 29, 1929 has been greatly been referred to as the primary cause of the great depression. This day saw the stock market trading fall drastically to 12.8% (Rothbard, 2000, p. 25). This incident happened after crashing two other stock markets that are the Black Tuesday of October 24th and the Black Monday of 28th October. The stockholders who had invested in the stock market lost close to $40 billion dollars. The failure of the banking system in the United States accelerated further the effects of the great depression. During the period of 1930s, the banks in the United States experienced massive failure. Most of the deposits that were in the banks were uninsured and this meant that the customer’s savings were lost when the banking system failed. The surviving banks could not offer any financial support to the individuals and also corporations due to the fear of the economic situation. This resulted to very limited or reduced spending by the individuals, government and also the corporations. The construction industry, the farming industries and also the industries dealing with heavy investments were greatly affected. Reduced spending across the economy led to the third main cause of the depression. When the expenditure in the economy reduces it simply means that the purchasing of the manufactured as well as other goods produced in the economy will also be reduced. The purchasing power of the economic variables was greatly diminished (Rothbard, 2000, p. 29).
The industries were soon unable to sustain their workforce and this led to many individuals losing their jobs. Most of the items that had been purchased on hire purchase or credit terms became very hard to pay and most of the property had to be repossessed. Unemployment rates in the economy were on the increase going beyond 25%. This greatly affected the economy since the production of goods and services were reduced and thus the economy’s income was also reduced.
Another cause which has been regarded as indirect is the great drought that resulted from the prevailing economic conditions in 1930. The drought-affected many individuals’ financial positions and many of them could not manage paying their bills including taxes to the government. The debts accrued to most individuals and most of them ended up selling their farms at an invaluable value. As the economy deteriorated, the American government took a move of creating a Smoot-Haley tariff to protect the American companies. This attracted very high taxes on the country’s imports. The taxes resulted in reduced business transactions between America and the other foreign companies which served to deteriorate the economy further (Rothbard, 2000, p. 37).
In conclusion, the great depression will always remain a period of historic memory in the U.S economic history. The depression affected the U.S economy reducing the economic activities of most industries and sectors. Unemployment increased from 4% to a figure of 25% (Rothbard, 2000, p. 17). The industries which were greatly affected included the agricultural sector, mining industries and lumber among other heavy industries.
- Jim Powell (2004). FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression. Three Rivers Press.
- Murray N. Rothbard (2000). America’s Great Depression. Ludwig Von Mises Institute