The aim of this paper is to analyze various historical perspectives on the Great Depression. There are different account of the scope and overall significance of this event in American history as well as of its causes and implications. The Great Depression of 1929 was one of the largest economic adversities the United States had to face. The market crash led to a worldwide halt causing inflation, inability to grow economically and poverty. The discussion of the causes and consequences of Great Depression is particularly timely now, as the world has entered deep and probably lasting recession prompted by the housing market crash in the U.S. It appears that the lessons of the Great Depression still have not been learnt.
It is of paramount importance to understand the root causes of the Great Depression. The legacy of the World War I is associated with the dramatic economic downturn in mid-1930s. World War I was not the main reason for the Great Depression, but almost all causes of this economic disaster are directly or indirectly connected with the war. For instance, if we speak about agricultural sector, during the war the government subsidized farms and paid absurdly high prices for wheat and other agricultural commodities. When the World War I was over, the federal government abruptly stopped its policies to protect farmers. Agricultural sector has suffered greatly from such unbalanced policies.
Moreover, foreign trade suffered greatly during that period. Fordney-McCumber Act of 1922, Hawley-Smoot Tariff of 1930 and a number of other laws increased import tariffs for no good reason. The result of the abovementioned tariffs was that European businesses, devastated by the war, could not sell their products on the U.S. market in necessary quantities. American citizens were deprived of a vast variety of imported goods, and transatlantic relations soured.
Another important reason behind the Depression was striking economic inequality in the American society during the decade that preceded the economic collapse. The 1920’s were the first prosperous decade for many Americans. Referred to as the Jazz Age or The Roaring Twenties, the decade introduced new music, new lifestyle and new attitude to life. It is exactly because of this prosperity and optimistic expectations that the Depression was a great psychological stress for a great number of citizens (Gusmorino, 1996). The contrast between the beautiful life of the 1920’s and the hardships of the 1930’s was very dramatic.
In fact, optimistic expectations were the root cause of the Great Depression: “The 1920’s saw a stock market boom in the U.S. as the result of general optimism: businessmen and economists believed that the newly-born Federal Reserve would stabilize the economy, and that the pace of technological progress guaranteed rapidly rising living standards and expanding markets” (DeLong, 1997, “The Great Depression in Outline”, para. 1).
On the so-called Black Tuesday – October 29, 1929 – the U.S. stock market collapsed and started the downward spiral of deflation, cutbacks in production, and unemployment. While too many investors were attracted to the stock market in the lure of quick profits and prices were going up too quickly because of poor valuation techniques, the U.S. Federal Reserve decided to raise interest rates to ‘cool off’ the market (DeLong, 1997). Eventually, however, this policy led to the collapse of stock prices and contraction in the real economy. But much like today, it was the pervasiveness of debt that eventually resulted in a very painful correction: in the 1920s banks started to loan money to investors to buy stocks using the stocks themselves as collateral (Wilkison, 2008). The “great bull market” on the New York Stock Exchange consisted from overvalued stocks because of excessive demand and limited supply.
The social consequences of the Depression were long-lasting. For the first time in history, women started to massively enter paid employment to support their families. For example, Black women found it easier than their husbands to find employment as domestic servants, clerks, or textiles workers (EyeWitness to History, 2000).
Many businesses were liquidated, banks failed, and the already vulnerable populations had to grapple not only with unemployment but also homelessness. Urban settlements consisting of tents and shacks – called Hoovervilles after President Hoover – emerged around soup kitchens operated by charities (Schultz & Tishler, 2004).
It can be argued that the U.S. entry into World War II actually ended the Great Depression. Large sums of defense spending pulled the US economy out of the Depression for the ample reason that such fields as defense and security are fairly labor-intensive. The necessity to manufacture war supplies had given rise to a powerful military-industrial complex. War machine demanded scientific innovations, so the war stimulated important research. The military-industrial complex came to play a significant role in the overall structure of the economy.
Debates still go on as to who was accountable for the Great Depression. Some believe it was Federal Reserve with its “easy money” policy. Others argue it was President Hoover who allowed for imbalanced economy and inequality. Speculators and bankers are often blamed as well, especially those who initiated the practice of buying stocks with borrowed money (much like naked short selling nowadays). The most productive view would be that a combination of all the aforementioned factors brought about the Great Depression.
Gusmorino, Paul Alexander. “Main Causes of the Great Depression”. May 13, 1996. June 16, 2009. <http://www.gusmorino.com/pag3/greatdepression>
EyeWitness to History. “The Great Depression”. 2000. June 16, 2009. <http://www.eyewitnesstohistory.com/snprelief1.htm>
DeLong, Bradford J. “The Great Crash and the Great Slump”. In Slouching Towards Utopia?: The Economic History of the Twentieth Century. February 3, 1997. June 16, 2009. <http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html>
Schultz, Stanley K., and William P. Tishler. “Crashing Hopes: The Great Depression”. 2004. June 16, 2009. <http://us.history.wisc.edu/hist102/weblect/lec18/18_preamble.htm >
Wilkison, Kyle. “The Great Depression and New Deal, 1929-1940s”. August 21, 2008. June 16, 2009. <http://iws.ccccd.edu/kwilkison/Online1302home/20th%20Century/DepressionNewDeal.html>