The Great Depression refers to the austere global economic depression in the interwar period. By the interwar period, it is meant, the time between World War I and World War II. Although the actual timing of the Great Depression varies greatly, there is consensus that it started in 1929, going through to the early 1940s. So great were the consequences of the Great Depression that it is always used as the example of the greatest extent the world's economy can decline. In particular, the Great Depression is known to have precipitated from the fall in the stock prices, thereby leading to the stock market crash on October 29th, 1929, in the US.
It is from this above juncture that the Great Depression began to spread to every country, the world over. The glaring effects of the g Great Depression were far reaching, but the most dominant cases were: the plummeting of tax revenue, personal income, profits and commodity prices; the plunging of international trade; high unemployment rates; developmental stagnation, especially in cities which were centered on heavy industry; and the stagnation of primary sector industries such as mining, cash crop farming and mining, among others.
Perhaps one of the most salient features that prevailed during the Great Depression is the sharp, widespread and significant reduction of industrial and business investments. This happened mainly in the 1930s as interests rates plunged to very low levels. Rothbard (56) postulates that the situation was aggravated by the deflation which was aided by the persistent resistance of Americans towards borrowing. Apart from the fact that this would totally undermine consumer spending, the same would pave way for banks being limited to the exaction of low interest rates as a way of attracting potential debtors and clients. So low was consumer spending that spending was mainly limited to domestic and basic commodities such as food, clothing and shelter. Because of the low consumer spending, automobile sales sharply declined in 1930s, to levels worse than the case witnessed in 1928. As such, the prices for non-primary commodities began to gradually but steadily decline, especially in the 1930s, while wages remained relatively stable. It is until 1931 that that the situation worsened.
Partly, the worsening of the aforementioned situation was catapulted by the US' crafting and ratification of protectionist policies such as the Smoot Hawley Tariff Act. This is because; it is against this premise that other nations saw the need to exact retaliatory tariffs as a way of either: showing dissent towards America's protectionist policies; and protecting local industries and economic interests, or both. It is obvious that this chain reaction brought about the domino effect which was the then collapse of global trade. This served as the turning point that would catalyze the effects of the Great Depression: it is at this point that the steady decline in the world's economy begins to unrelentingly and consistently set in. 1933 would serve as the culmination of this development since it is at this time that international trade would hit rock bottom.
According to Robbins and Robbins (75), the limitation of international trade as a facet of the Great Depression is known to have come about as nations and states sought to institute corrective mechanisms out of the national economic downturn. For instance, in the US, the then president Herbert Hoover initiated several but botched programs, despite the god intentions he had for the country. Among these is the Smooth Hawley Tariff Act which sought to raise tariffs on imports. Though deemed as dangerous by modern day economists, the purpose of the Act was to facilitate higher sales for American made products, as an artifice to raising revenue for the federal government, while protecting the US farmers. Partly, the raising of the import prices was but a face of the Smooth Hawley Tariff Act.
The flipside of the above measure was that other nations exhibited similar reactions, thereby increasing the tariffs on American exports- a development which can aptly be described as a retaliatory move. This above situation led to the stagnating of international trade and exacerbating the already existing crises stemming from the Great Depression.
Temin (22) observes that many companies, factories, enterprises and business ventures at this time lost capital greatly as the stock market crushed. Besides many banks having failed in the Great Depression , given that banks and other micro and macro financial institutions were also victims to the losses that came with the crush of the stock market, securing loans and grants became very hard for industrial owners, businessmen, entrepreneurs and factory owners.
Apart from the fact that both macro and micro financial institutions had been critically affected by the fall of the stock market, cases of families and businesses defaulting on servicing their loan payments began to massively abound, making banks to develop austere measures towards lending. Initially, to curtail the very high prospects of making losses, it became inevitable that downsizing of workers be executed. Nevertheless, with the continual setting in of the economic vagaries, these businesses, enterprises and factories continued to make losses, making the ubiquitous witnessing of massive industrial foreclosures a stark naked reality.
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Rothbard (84) divulges that it is from the above juncture that the problem of unemployment became totally full-blown. It is pointed by experts that by 1933, unemployment reached its peak in the history of the US, having reached an all time high of 25%, much to the chagrin of other economists who surmised that the 23.6% unemployment rate of 1932 was the very epopee.
The widespread state of poverty also continued to stifle the very basic sign of life out of America, courtesy of a drought which persisted at the time. The drought was serious as it had struck America's agricultural heartland, making agronomy a crippled industry. As a result of the above development, it was logical that the American citizen suffered protracted pangs of hunger due to food shortage. Jobs in large scale farms became faced out as a result of the unsettling development.
Conversely, it would be obvious that any critical analyst would see that earning a living became a totally unfeasible and unattainable ideal for the average American citizen. As such, numerous families encountered serious socio-economic problems, thereby opening up a Pandora Box to the American social order. As a matter of fact, the financial crises that families in the US underwent are epitomized by a situation whereby many of these families could not afford decent homes. While many others found themselves living in the streets, other hundreds of thousands of Americans became homeless, congregating around several Hoovervilles that had began to take shape across the US.
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The political ramifications of the Great Depression cannot be sidestepped in this analysis. According to Robbins and Robbins (65), responding to the crises of the Great Depression, the Congress, together with President Hoover sought to pass the Federal Home Loan Banks Act as a way of stemming the settlement crisis. This act was meant at stimulating the construction of new homes and the stalling of foreclosures. Alongside the above move, Hoover and the Congress passed the Emergency Relief and Construction Act also known as ERA to cater for among other things, the funds meant for public works programs such as roads, dams and the Reconstruction Finance Corporation (RFC), 1932.
It is through the RFC that government-secured loans to railroads, farmers and other financial institutions were to be issued. Nonetheless, given the full throttle that the Great Depression had already taken the two acts above were not able to delay the downhill plunge into primrose. Profits, prices and even employment continued to fall, thus paving way to new political realignment in 1932. It is this development that would see Franklin D. Roosevelt come to power.
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Temin (31) observes that further than the above, the Great Depression would shake the economic ideologies and frameworks that had been being used before and during the interwar period. Particularity, it is Franklin D. Roosevelt who would successful move the push for the neglecting of the economic liberal approaches for the Keynesian policies. The Keynesian policies amplified the duty of the US federal government in the US' economy. Keynesian policies seemed to make struggling inroads into fame, given that between 1933 and 39, the expenditure of the federal government tripled.
In another wavelength, it is the Great Depression that would herald the adoption of social democratic ideals, alongside planed economies, as a way of extirpating a relapse of the glaring socio-economic effects of the Great Depression. It is against this backdrop that welfare programs such Food Stamps, Subsidized Housing and Medical services were instituted into the US to ensure that despite one's economic status, the right to live is not interfered with during hard economic times. These all serve as harbingers of other programs that would come later so as to ensure the realization of an egalitarian America, with the former President George W. Bush's 2001 No Child Left Behind Act (NCLBA) being an example.