Economics Essay: Global Crisis of 1930s “Great Depression”
Task: Write an economics essay determining the cause of economic deadline and major consequences on human liferelating to the background of great depression.
It is evident in this economics essaythat the global crisis of the 1930s is also known as the ‘Great Depression’, which is mainly associated with the tremendous economic depression which the world has witnessed at the end of the 20th decade of the 20th century. It can be stated that this economic depression can be an example of the decline of the global economy and the intensity of the decline. According to Verdugo, (2018, p. 80), this depression mainly started in the United States of America and the whole world got affected due to this economic depression. Through discussing the background of the great depression the main aim of this economics essayis to determine the cause of the economic decline and its consequences on human life around the world. Apart from that, this economics essayhas also given the focus on some contemporary social issues of the 1930s, which can be considered as the driving force of this economic depression followed by the recovery process.
Background of the great depression (Global crisis of the 1930s)
It has been found through the research on economics essay that there were various background facts. Among the background of the facts, the empowering of the government involvement in the economy and society are the most notable ones. Due to the depression, the people forgot everything as it was a period of big despair and a big crash. Apart from that, this depression has made the people forget about wealth, prosperity and growth of the previous decade and they encountered new and unfamiliar social and economic conditions in the process of business and living circumstance. Due to this depression, the decline in the productive process, inappropriate distribution and consumption of equal materials and foods among the people had been witnessed and the growth of the economy had been stopped. It has been found from the research of Robbins, (2011, p.11), that in this time the production in some of the top manufacturing countries declined at 30% to 50% and due to this crisis at the contemporary situation around 30 million people lost their job and it was reported by the International Labor Office.
Causes of economic depression
It has been opined by Robbins, (2011) that this economic crisis has been the most severe crisis, which is not comparable to any other economic crisis in the world, up until the present time. It also has been stated that this crisis mainly happened due to the fall of the commodity prices and the gold prices in the international market had also fallen up to 40%. According to this study, the fall of the prices is the cause of depression. It has been stated that there were mainly two types of causes for economic depression. The two types of causes are mainstream explanation and heterodox theories. The mainstream causes mainly give the focus on the two different types of possible causes viz. the insufficient and inappropriate demand from the private sector and the fiscal spending the money supply reduction and the crisis in the banking process and the increase in bankruptcy and the reduction of credit.
The Keynesian theory:
This theory considered in this economics essayhas mainly given the focus on the inappropriate demand from the private sector and the developer of this theory is the British economist Mr John Meynard Keynes. It has been opined by Keynes, 2018, that the reason for declining income and employment has mainly happened due to the slowing down of aggregate expenditure in the economy and it went below than average. Apart from that, it became the reason for high unemployment and poor economic activity in society. In the book The General theory of employment, interest and money, it has been stated that when the economy is slowing down, the government should have given the effective focus on keeping the people fully employed through making the private sector invest enough in the business process so that production level remains at normal and economic recession could be counteracted. It also has been stated by Keynes that the contemporary President of America did not give enough effort to develop the economic condition from the recession.
Another important theory apart from the theory of Keynesian theory is Monetarist theory. This theory was mainly developed by the American economists Milton Friedman and Anna J. Schwartz. Both of them have given the view regarding the economic depression which mainly indicated that due to the interruption of the money supply and crisis in the banking process and the reduction of credit. Due to the shutting down of the one-third of the bank and at the same time the reduction of the bank shareholders caused wealth drainage and the monetary construction up to almost 30%. Owing to this, the country experienced a price drop of almost 33% and due to this huge financial crisis had been experienced by the country. In this situation, all the banks have experienced the stock market crash. More than 3000 banks collapsed during the economic depression (Essayclick.net. 2020). As a result of the economic crisis, people lost their money and this gave an impact on the purchasing decision of the people. That is why the money circulation stopped in the market. It has also been stated by the Bordoet al.(2000), that the most important factors which led to the Great Depression were the effect of the banking panic, high increase of the tariffs, and the autonomous drop in consumption. The decline in the money supply process was mainly caused by the American monetary policy to offset the bank panic.
Another reason apart from mainstream theory is the Heterodox theory. This theory mainly emphasizes the inequality of the investment in the business process and the unequal distribution of the wealth, and decline in the productivity process. As per Temin, (2016, p. 145), the inequality in the distribution of wealth among the people can also be considered as the reason for the Great depression. Therefore, it can be stated that the global over-investment only in the big industrial process and neglecting the small and the medium business process is the root cause of the great depression and this is according to the theory of William Traufant Foster. Apart from that, according to the book written by Bell, 1940, 'Productivity, Wages and National income,' it has been said that due to the development of the motorized machinery, mass industrialization and the electrification the industries were witnessed the excessive production and due to this production and the effectivity of production on the output, wages this economic depression happened.
What are the political and economic consequences of the Global Crisis mentioned in the economics essay? Several types of political and economic consequences of the global crisis can be seen due to the Great depression. Among the most important consequences of the global crisis of the great depression is the Stock Market Crash of 1929. This crash can be considered as both political and economic consequences.
Stock market crash:
Thestock market crash is mainly remembered as the black Tuesday in the USA. This stock market crash mainly states the sharp decline of the stock and it has been believed that this stock market is one of the important reasons for the great depression. Due to this depression, both the industrialized and the non-industrialized countries got affected. After undergoing a rapid expansion of the stock market, the stock prices effectively reached fantastic heights in the Hoover bull market. However, after that, the market slowly started to experience the decline of the prices. As reported by Albers, (2018, p. 151), the falling prices had affected some of the notable companies who were directly associated with the American economy like American telephone and telegraph, who lost almost 100 points and apart from that, the Radio Corporation of America experienced the decline of the points from 525 to 26. There were so many other companies who experienced huge losses. It can be stated in this economics essay that there were many factors, which had effectively contributed to the collapse of the stock market. Among those factors, the most important factors are the huge economic recession, huge debt creation through the investment trust, large bank loans, huge credit by the Federal Reserve and the proliferation of the holding companies. Stock market crashes can be considered as a huge threat to economic growth (Giglioet al. 2020). Therefore, it can be stated that these are the main reasons for the stock market crash, which gave a huge negative impact on the industrial business process of America as well as of the world.
Reduction in purchasing:
According to Benmelechet al., (2019, p. 542), apart from the stock market crash, another huge problem or the consequences, which has been found, was the reduction in the purchasing. Due to the reduction of the purchasing, lack of investment was witnessed and the savings of the people diminished. Owing to this situation, people became highly depressed from mentally and physically. The industry and the market experienced the lack of consumer demand and they did overproduction of the goods. Due to all these consequences, the organizations stopped to produce goods and lay off huge numbers of workers and this made the situation worsen. Therefore, individuals lost their money and people started to withdraw money from the banks, which forced the banks to shut.
Falling off the world trade:
Due to the great depression, the American government in the year of 1930 passed an act, which is called as Tariff Act 1930, and the main aim of this act was to protect the American industries from the foreign competitors. However, the main problem was that the act was mainly based on high amounts of taxes on imported goods and products. According to Chouliarakis and Gwiazdowski, (2017), as a result of this act, the world trade hugely affected and the supply chain got affected and the companies failed to supply goods. Apart from that, in this same time, the wrath of nature also came, which has made America suffer from drought and due to this situation the firming process had also experienced huge losses.
From the year of 1933, the recovery process from the Great Depression had begun. Maximum of the economist mainly believes that the main reason for initiating the recovery process has been done due to the New Deal Policies, which has been developed by the President of that contemporary situation. These policies caused and accelerated the recovery situation for the nation. Through developing the new deal policy Roosevelt offered to solve the crisis and gave an optimistic vision to the people (Fishback, 2016). The New Deal policies were the series of some programs, which mainly includes new regulations, financial reforms, public work projects and different types of programs. These policies outlined in the economics essayhad included some of the major federal agencies such as social security administration, civil works administration, farm security administration and many more. Apart from that, it had also given support to cover the unemployment, banking process, farming process and many more things. It has also been found that the New Deal policies had directly affected the wages and the employment bargaining policies, which can be considered as an important step. It has also been found that the national recovery administration had taken various steps regarding the wages by encouraging the union formation and strengthening the bargaining power, banning the wages cuts and many more. Through developing the New Deal an effective structural and effective functioning labour market had been developed by the government (Hanes, 2017, p.2).
How relatable is the global crisis to the current global economic situation, in the face of the pandemic?
In the current global situation, the world has witnessed a severe pandemic condition, which not only affected the normal lifestyle of the people throughout the world but at the same time it has also affected the world economy to a great extent. This pandemic situation has made all the government as well as private operations in the national and the international context into temporary cancellation which has made a huge effect on the economy. It has effectively damaged the industrial production process, the farming process, the manufacturing process, the international business process and many more things. It has been found from the report used to develop this economics essay that this pandemic has directly and indirectly affected around 2.8 million people throughout the world (Lee, 2020). From the many resources it has been found that the world has effectively witnessed huge unemployment and this unemployment crisis has not spared any country.
Fig 1: Trends in Unemployability in the face of the recent economic crisis
(Source: Lee, 2020)
According to the research on economics essay, in the United States, people have experienced huge unemployment and it has been found that around 26 million jobs were lost in a very short time. According to the Bureau of Labor Statistics, the country has witnessed 4.4% of the unemployment rate in the pandemic situation (Lee, 2020). However, in the situation of the great depression the unemployment in the USA arose up to 25% (Essayclick.net. 2020). The retail industry got severely affected due to this pandemic situation. The USA had reported a sharp decline in the retail business process and this increased the unemployment rate in the USA as well as in the different countries. In the manufacturing process and the factory output the USA, as well as the other countries, has faced huge decline and due to the worldwide lockdown, the manufacturing units irrespective of small and big farms got huge impact.
Fig 2: Decline in manufacturing unit
(Source: Lee, 2020)
Through evaluating the important reports of both the crises it has been found that the great depression of 1930 was more severe because the recovery chances of that time were very less. Apart from that, in the present situation despite this severe pandemic the world has tackled this situation more easily compared to the great depression and this has mainly happened due to the advancement of technology and science. To reduce any sort of risks and hazards science can play a very important role. It has been proved that the reduction of risks can be done by the effective use of science (Aitsi-Selmiet al. 2016).
Through the above economics essay, it can be stated that the Great Depression of 1930 has given severe effect in the economic as well as the social situation not only in the USA but also in the other countries around the world. At this time the world has witnessed the rise of unemployment, an increase of the price, interpretation of the money circulation, drought, collapse of the large and medium industries and many more. Unequal income and overproduction can be considered as the main reason for this global crisis. Just like the same, almost 90 years later the world has witnessed another global crisis in a form of a pandemic but fortunately despite huge multiple loss of the resources the world took less time to tackle the situation. However, at the time of the Great Depression the world has taken a long time to recover.
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