Therefore, its collapse led to increased unemployment. Further, the trade allowed for increased government revenues through levied taxes and tariffs. To this effect, its reduction resulted to decreased government revenues. A combination of these factors reduced earnings and government spending in the economy. Consequently, the reduced international trade perpetuated reduced money supply in the global market. The global depression crisis emergence was because of reduced money supply in the market.
An additional cause for the escalation of the global recession crisis was the existence of small and numerous banks. In this regard, the banks lacked enough capital and funds to support their systems.
As a result, there emerged the cash rush. This was a process through which banking customers sought to withdraw their funds and have them in liquid cash.
Due to the advance and defaulted loans, the banking industry was unable to avail all the required funds. This led to the eventual collapse of the banking industry. The banking industry is an imperative component in the global market success and functioning. Therefore, the collapse of the banking industry led to the eventual collapse of the entire global economy as the banking services that enhanced transaction success no longer functions Rosen, Consequently, the global market failed to result in the great recession.
Moreover, the global depression crisis emergence can be hedged on the political systems and obligations imposed on nations after World War I. After the war, the USA emerged as a major power due to its late entry into the war. As a result, it advanced loans and funds towards the reconstruction of global nations such as Germany.
On the other hand, Germany was burdened with increased loans repayment as damages for the war. This culminated in the banking industry overspending and due to inflation, the banks considerably raised their lending rates leading to global market supply deficiency.
Companies invest this easy money in new projects in the production sphere and the commodity market is booming. With the stabilization of the situation, the costs of doing business rise, interest rates are adjusted upward, and profits fall. Thus, the effect of easy money comes to naught, and the monetary authorities, fearing of price inflation, slow down the money supply growth or even reduce it.
In any case, these manipulations are sufficient to deprive an economic card-castle of its shaky foundation Reed , p. According to Rothbard , such an increase of money and credit flows led to a reduction in interest rates, brought the indexes of the stock market to unprecedented heights and created the phenomenon of the roaring twenties.
Unrestrained growth of the credit monetary mass became what the economist Benjamin Anderson called the beginning of the New Deal — the well-known interventionist policy carried out later by the President Franklin Roosevelt.
However, other scientists doubt that the Fed move was the cause of inflation, and point to relatively stable prices for raw materials and consumer goods in , which, in their opinion, suggests that monetary policy was not so irresponsible Higgs , p. Of course, a significant reduction of the high income tax rates under Coolidge helped the economy, and perhaps smoothed the price effect the FRS policy. The tax reduction stimulated investment and real economic growth, which further led to new technological breakthroughs and business inventions in terms of production cheapening.
Undoubtedly, the booming growth of labor productivity had a stabilizing effect on prices, which would otherwise be higher Reed , p. The actions of federal authorities in response to the recession only led to its aggravation Higgs , p. It was a complement to the Fordney-McCumber Tariff of , which led the American agriculture to a crisis in the previous decade. Smoot-Hawley Tariff, the most protectionist bill in the U. Officials from the administration and Congress were convinced that putting trade barriers would make the Americans buy more domestic commodities and this would finally solve the unemployment problem.
But they apparently did not know an important principle of international trade: In general, the distortions in the economy caused by the FRS monetary policy led the country to the path of recession, but the further steps of the state turned a recession into a full scale disaster. Thus while the quotes were collapsing, Congress was playing with fire: In turn, Roosevelt, indeed, made some changes, but they were apparently not the changes the country hoped for.
In his first hundred days he took severe measures to limit profits. Instead of removing the barriers to the growth of wealth erected by his predecessor, he created his own ones. He weakened the U. Almost all the bankrupted banks had worked in the states with branchless system laws these laws prohibited banks to open branches and thereby diversify their portfolios and reduce risks.
In , Roosevelt persuaded the Congress to establish a Social Security system, and in to introduce the minimum wage for the first time in the history of the country. Although the general public still puts these measures to his credit, many economists have another point of view.
As a result of the introduction of the minimum wage, many inexperienced, young, unskilled and vulnerable workers became too expensive for the employer according to some estimates, the provisions on minimum wage adopted in under another law, left unemployed about , African Americans Smiley , p. And current researches and evaluations show that the Social Security system has evolved in such a nightmare that it will be necessary either to privatize it, or raise the already high taxes to keep it afloat Edsforth , p.
In general, as a result of his efforts, the economy was depressed till the end of the decade. The Great Depression had important consequences both for the U. The actions of the government led not only to the limitation of free international trade, but also to the significant decrease in the inside free entrepreneurship activity: But, undoubtedly, the greatest burden of the economic crisis objectively rested on the shoulders of ordinary citizens.
The massive decline in industrial production, the closure of tens of thousands of factories, mines and huge underemployment of production facilities — all this led to a tremendous increase in unemployment. If we add the fact that the U. Many people faced a real threat of starvation. During these challenging and difficult times the rich opted not to spend there money: This resulted in increased investments, more production, and eventually more goods piled up on shelves and warehouses.
Prices fell, production was cut back and workers were discharged. As a result, the economy entered the depression phase of the cycle. The crisis stage of the cycle was brought about by bank failures and by irrational selling of stocks ;thus causing business failures, a slowing in production, a rise in unemployment, and an overall optimistic view about the future.
Lionel Robbins was a professor at the London School of Economics. An example of Robbins philosophy was that the monetary confusion and rampant inflation after the war had hampered. Many policies that the government put out hurt and slowed the recovering economy. One act known as the American Hawley-Smooth of crushed the European industry which was already unstable from the depression. It stopped European trade and prevented European from earning the almighty dollar.
This Act also destroyed any possibilities of regaining the money loaned to them during World War I. The collapse of the German Banking system in had monumental affects on the entire world. It aided to turn, what would have been, a small economic problem into the Great Depression. The Germans also blamed the depression on the harsh terms imposed by the Versailles Treaty, especially the reparation they were forced to pay.
They claimed the reparations brought down the economic vitality of their country to an all time low. Not one single book I have read has blamed any one specific country for the start of this catastrophe. As a matter of fact, each book has said if the countries would have worked in unison rather than focusing solely on themselves we might not have ever heard of the Great Depression. Nobody knows what the result would have been if the countries worked together and resolved the problem before it festered as it did.
No one ever envisioned the extensive duration of the depression. My only prayer is that we never see another time like this again.
When American producers cut back on their purchases of raw materials and other supplies, the effect on other countries was devastating.
Causes and Effects of the Great Depression The Great Depression was a dark period in the history of theUnitedStates,affecting all the socio-economic sectors of the Americans’ lifestyle. It suppressedgreatly the economic status of the UnitedStates.
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Essay on The Causes and Consequences of the Great Depression Home \ Free Essay Sample Papers \ The Great Depression was a long-lasting economic crisis in the global economy which started in the U.S. in , and later involved other countries. The Cause and Effects of the Great Depression Essay Words | 6 Pages. crash of was the main cause of The Great Depression. In fact, The Great Depression was caused by a series of factors, and the effects of the depression were felt for many years after the stock market crash of
Explain the Causes and Effects of the Great Depression By: Liran Morav The Great Depression was one of the most significant periods in American history. It came as a blow to the American people who were used to living in the "American Dream" (Paul. A., , p.1), or the "Roaring Twenties". Writing a Cause and Effect Essay When you write a cause and effect essay, you need to explain how specific conditions or events translate into certain effects. In other words, your task is to show how one thing leads to another.