Essay About Effects Of The Great Depression And Different Ways

Effects of the Great Sepression
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Effects of the Great Depression
The introduction of the discussion will focus on the origins of
the Great Depression and the escalating events that led to it. This
will provide adequate foundations to bring up questions and attempt to
answer them in an objective fashion as to why and how the Depression
affected different industrialized countries in different ways.
The core of the debate will consist of detailed comparable
analyses of the consequences of the Depression with an emphasis on
the economic aspects. The conclusion will provide a brief overview of
the ways used by the different governments to get out of that dark
episode of world economic history.
When studying the Great Depression and its effects, it is not
unusual for historians to choose World War I as a starting point for
their investigation. The reason for that is the importance of the
repercussions the conflict had on the economies of all the countries
that were involved in it.
First of all, the War made it impossible for Europe to
maintain previous levels of production. For example, before the War,
France, the U.K. and Germany accounted for about 60 percent1 of the
worlds exports of manufactured goods, a share of the market which
they could not sustain during the conflict. Consequently, Europe took
many of its markets to the U.S. and Japan. The stunted growth of the
European economies meant a lower demand for raw materials, which in
turn lowered the demand for European exports.
In agriculture, things didnt look any better, as it was the
sector which employed the most people. At the end of World War I,
Europe was forced to import food from the U.S.. Moreover, these
transactions were conducted on a credit basis since Europe could not
afford to pay for its purchase at that time.
Clearly, the U.S. was going from being a traditional debtor of
Europe before World War I to becoming its creditor: America had
financed the war and it was issuing loans for its reconstruction.
However, the attitudes in the U.S. were evolving in an unusual
direction: an increasing number of American financiers were starting
to literally seek ut potential borrowers which led to competition
among U.S. banks and the spreading of unsound lending.2 The main
object was to “do the most business”, even at the expense of essential
caution.
What seemed like a beginning of recovery from the Great War,
was in fact an immense accumulation of debts, which made the
international economic order vulnerable to depression. Analyzing these
events with the insight we have today, they seem even more
unbelievably audacious given the high instability of the borrowing
nation. (i.e., Europe)
The triggering event was the crash of the Wall Street stock
market in October of 1929. The stock market collapsed after steady
declines in production, prices and incomes over three previous months
which forced the speculators to revise their expectations. Anxiety
soon gave place to panic which led to the crash. However, the
depression affected the different industrialized countries in various
ways and degrees of intensity.
The depression was of especially great magnitude in the U.S.
because there were not any welfare benefits for laid off workers. In
the period between 1929 and 1933, money income fell by 53 percent
(real income fell by 36 percent.)3 As a consequence, demand fell
significantly, which in turn led to lower production and more
layoffs– up to a high of 25 percent rate of unemployment in 1933.
Despite the severity of the situation, the Federal Reserve did
not pursue a monetary expansion on policy which would have stimulated
the economy through lower interest rates and increased the stock of
money in circulation. This inaction is often attributed to the fact
that market interest rates in 1930-1931 fell to very low levels, much
lower than in the earlier recessions (of 1924 and 1927), and
therefore, the Federal Reserve Board wrongfully saw no need to pursue
an expansionary monetary policy.4 An indicator of that inaction is
that open market operations did not provide sufficient money reserves
for a banking system faced with depositors anxious for liquidity
(monetary expansion would have filled that need). If the Federal
Reserve