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The causes of the Great Depression Arshia Alyas

Background The Great Depression was an economic slump in North America, Europe, and other industrialized areas of the world that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world. The Great Depression was an economic crash in 1929 and even till today there is a great argument what caused the great depression. One of the realistic ways of arguing is that the stock market crash is what started the great depression. However it is not that difficult for a healthy economy to recover from such a stock market crash. Many firms and companies were optimistic about the future and invested their earnings into expansion. This made it difficult for companies to recover and led to The Great Depression. Other factors such as Bank failures and, reduction in purchasing products, and war debts also contributed to it.

Stock Market Crash of 1929: The Stock Market Crash was the main causes that lead to great depression. Stockholders had lost more than $40 billion dollars. Stockbrokers and banks funded the reckless speculator. “Borrowers were often willing to pay 20% interest rates on loans, being certain that the risk would be worth the rewards because the future looked bright”(Harold, 1992). The lender was also so certain that the market would rise that such transactions became commonplace, despite warnings by the Federal Reserve Board against them. Clearly, there was going to be a limit to how high the market could reach, before it collapsed. On October 24, 1929 the stock market crashed marking the end of six years of economic prosperity. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not enough and America truly entered what is called the Great Depression (Harold, 1992).

Bank Failures: Throughout the 1930s over 9,000 banks failed (Kelly, 2012). Bank deposits were uninsured and therefore as banks failed people simply lost their savings. Surviving banks, doubtful of the economic situation and were concerned for their own survival, so they stopped being as willing to create new loans. This forced the situation leading to less and less expenses. There were also few regulations on banks, which caused banks to loan money to those who spent them recklessly on stocks and other products (Kelly 2012).

Reduction in Purchasing Across the Board: “Before the stock market crash there was already too much investment in industry capacity and not enough investment in wages and earnings. Factories started to produce more than people could afford to buy.” After the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. More and more inventory began to accumulate. The unemployment rate rose above 25%, which meant, of course, even less spending to help alleviate the economic situation (Kelly, 2012). The wealth was concentrated into the hands of the higher class. Such wealth, given to only a few people made it difficult for the economy to grow. For an operating economical system wealth needs to be spread out evenly amongst many people. Farming was unable to spark any sort of recovery because agricultural prices were already low during the early twenties (Kelly, 2012).

World War One

After world war one many countries failed to pay their War debts. Europe had to pay for reparations for the damage caused in the War. “After World War One, most of the European countries owned a lot of money to American banks. These loans were so high the countries were unable to pay them. The American government refused to lower or forgive the debts so the countries which caused the countries to borrow more money to pay off their debts. However, as the American economy began to slow down the European countries began to find it difficult to borrow money. At the same time the United States had high tariffs so that the Europeans could not make money selling their products in the United States markets. The European countries began to default on their loans. After the 1929 stock market crash American banks tried to stay afloat. One of the ways they did this was by recalling their loans. As money flowed out of Europe and back to the United States the economies of Europe began to fall apart.”

American Economic Policy with Europe: As businesses began failing, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. “The United States raised tariffs by up to 50% on imported goods to increase demand for domestic goods, and earn more”. However, instead of increasing demand for domestically produced goods it created unemployment abroad as the factories shut down. This not only caused other counties to raise tariffs themselves but it combined with a lack of demand for U.S goods because unemployment abroad resulted in increasing unemployment in the US. "The World in Depression 1929-1939" Charles Kinderberger shows that by March 1933 international trade plummeted to 33% of its 1929 level.

How The Population Was Effected The population growth in the 30's had reached the lowest since 1880 due to the plummeting numbers of immigrants and births. “The number of Immigrants into Canada dropped from 169 000 in 1929 to fewer than 12 000 in 1935 and for the rest of the thirties it did not rise about 17 000. Almost 30 000 immigrants were forced to go back to their home country due to illness and unemployment”(Macleana&Stewart, 1995). The number of deportations also rose from fewer then 2000 in 1929 to more than 7600 within three years. The death rate also rose due to poor living conditions, starvation, and disease. The birth rate dropped from 13.1 live births per 100 in 1930 to 9.7 in 1937(Harold, 1992).

How The Individual and Industry Was Effected For an unemployed individual person during the depression there were no jobs and for those that had a job there was a really high chance that they could lose the job. Also, there was little income from the majority of jobs. Tens of thousands of people were dependent on government relief, charity and food handouts for daily survival. Parents found it difficult to keep young children in school because they were needed on the farms to bring in as much goods as possible. University students were also dropping out all over the country because tuition was too much to pay. The home workers of the houses had to find part time jobs to "make ends meet."(Bernanke, 1983). The same fortune was felt by industry business. The values of stocks were dropping rapidly and as the demand for goods and services dropped business firms ceased to exist. “Even the CPR, considered on the world's most reliable income earners, didn't make enough money in 1932”(Bernanke, 1983) HOW POLITICS PLAYED A ROLE There was so much economic pressure and upset the country turned to politics to help solve the situation that they were facing every day. The country removed their past political party run by Mackenzie King and brought in the conservative Lawyer, Richard Bennett, hoping that he could make a difference.

GROUPS AND EXPANSIONS INTRODUCED TO CANADA The depression of the thirties resulted in the expansion of government responsibilities for the economy and welfare of the country and its people. Born in 1932 the Canadian Radio Broadcasting Commission was created. In 1934, Bennett's government made the Bank of Canada to regulate the Monetary Policy. “The Canadian Wheat Board was created in 1935 to market and establish the minimum price for wheat.”(Folsom, 2006) The depression also sparked a variety of reform movements including, Social Credit, "Work and Wages" Program, Co-operative Commonwealth Federation, Union National and W.D. Herridge. “There was also the relief program that was set up for families in need and the monthly rate for a family of five varied from $60 in Calgary to $17 in Halifax.The depression also leads to the outlaw and eventually the banning of the Communist Party of Canada. The Party was outlawed from 1931 to 1936 when a group of nine leaders were arrested for being members of an "unlawful association"”(Folsom, 2006). They were again banned when war was declared in 1939 although groups of workers', the Unity League, the Relief Camp Workers Union, and the National Unemployed Workers Association made an organization and protested.(Folsom, 2006).

How It was Resolved From 1931 to 1939 unemployment was extremely high. In April 1939, almost ten years after the crisis began, more than one in five Americans still could not find a substantial job. On the surface World War II seemed to mark the end of the Great Depression. In the begging of the war more than 12 million Americans were sent into the military, and a similar number toiled in defense-related jobs. Those war jobs seemingly took care of the 17 million people unemployed in 1939(Folsom, 2006).

Bibliography

Ben S. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression." The American Economic Review, Vol. 73, No. 3, (June 1983) pp. 257-276.

Cleveland, H., & Brittain, B. (1975). Foreign Affairs. A World of Depression, 53(2), 223-241.

FOLSOM, B. (2006, September 12). what ended the great war. the freeman. Retrieved November 23, 2012, from www.fee.org/the_freeman/detail/what-ended-the-great-depression/http://

Harold, J. (1992). Depressions. Financial flows across frontiers during the interwar depression, 45(3), 594-613

Nelson, C. (n.d.). About the Great Depression. Welcome to English « Department of English, College of LAS, University of Illinois. Retrieved October 3, 2012, from http://www.english.illinois.edu/maps/depression/about.htm

Peter, T. (2010). Global Financial Crisis. The Great Recession & the Great Depression., 139(4), 115-124.