Causes Of The Great Depression
1920s was the sweetest decade for most of the people in United State, and it had to be credited to the stock market boom and the people could buy the stocks on margin as they thought stock market at that period was infallible investments where they can see their money grow effortlessly and easily. For the Americans, they perceived 1920s as the “Roaring Twenties” as the people had earned a lot of money from the stock market due to the stock price soared in upward trend started in 1924, reached its peak in 1928. Thus the people enjoyed all the luxury goods such as electric appliances, cars, ready-to-wear clothes and even houses. None of them can ever foresee the austerity is coming at the next decade when they were in the time of prosperity in
…show more content…
1920s. Thereby, when the stock market crash of 29 October 1929 occurred, the fact that the stock price plummeted with the hopeless of recovery had overwhelmed the whole country.
It led to the people’s urge to sell all the stock immediately, afraid losing all they had. With stock market crash as a major factor, it triggered the Great Depression. However there is public perception that stock market clash of 1929 is equal to the Great Depression. In fact, Great Depression can be attributed to several causes other than stock market crash. According to Kelly (2012), the top five causes of the Great Depression are stock market crash of 1929, bank failures, reduction in purchasing across the board, American economic policy with Europe and drought condition. By here, the terms ‘stock market’, ‘bank’, ‘economic policy’, more or less link to investment when it comes to determining the prosperous ages or recession era, even without people notices. Therefore, it is apparent that investment is critical in determining the level of prosperity, especially after the lesson learnt from Great …show more content…
Depression.
However, what makes investment so critical in determining the level of prosperity? This is an intriguing question. Firstly, what is investment? For general perception, investment is all about stock market, stock price, earning per share, finance and everything that can be related to stocks and shares. Nevertheless, the real definition of investment in economic sense is the purchase of goods that are not consumed today but are used in future to create wealth with the expectation of the value of the particular goods would increase by time (Anon, 2012).Besides that, investment also included capital expenditure and saving other than purchases of bond and stock. Capital expenditure is the funds invested by the firms or corporates to acquire or upgrade physical asset such as property, machines and equipment in order to maintain or even increase the output of production. Before going back to the main question, why do people inject money into investment? The answer is very obvious and simple. People involve themselves in investment, all they are expecting and desiring is profit, no matter it is high or low profit. When there is a high expectation of profit, it will attract more people to invest. When there is more money injected into the market, the economy is stimulated, people gain what they expected: the high profit. It will eventually lead to a higher level of prosperity as people earn more money from the stock market as it happened in 1920s.
On the other hand, the reason of investment becomes so critical in determining the level of prosperity is due to the multiplier effect, or snowball effect. The economy cycle is an endless cycle made up of consumption and production. There is many factors can affect consumption and production, for instance, capital expenditure, consumption expenditure and saving. And most importantly, these factors are interdependent to each other in order to support and move the economy forward. For example, capital expenditure fell led to plunge in consumption expenditure during the early 1930s, caused investment to plummet even more due to multiplier effect. Eventually, consumption dropped as a result of plunge of investment; in turn it pulled down the capital expenditure (Heilbroner & Milberg, 2011). As mentioned before, when investment falls, people earn less or most probably they lost more. Thereby, the people spend lesser, save more and cut back the investment, more money leak out from the market, causing recession and the economy is not moving forward. Thus the level of prosperity drops. By here, the closely linked relationship of investment and the level of prosperity had been proven again.
Besides that, investment is greatly important when there is a new emerging industry.
A huge amount of money is needed to be invested into it in order to start up and establish a new-born industry. When a great investment is made to build up a tremendous industry, the level of prosperity would increase (Heilbroner & Milberg, 2011). It was due to when a new industry is ready to be building up, it created more job opportunities and it lowered the unemployment rate, more people were getting salaries and wages, led to improvement of their standard of living and have more money to spend. It can be proven when Industrial Revolution taken place during 1820 to 1870 (Kelly, 2012). However, when the industry is matured and well-established in 19th century, investment was considered as completed. At this critical moment, the level of prosperity would drop if there is no second wave of equivalent attractive investment to rise and take place immediately (Heilbroner & Milberg, 2011) . Therefore, the level of prosperity rises when investment is
active.
In conclusion, investment is playing a very critical and vital role in determining the level of prosperity. Through the lesson of Great Depression, it is apparent that the more active the investment as it was during 1920s, the more prosperous the society is; and when the investment plummeted during 1930s, the level of prosperity fell as well as led to Great Depression. The relationship between investment and the level of prosperity is closely link to each other as one can influence another easily.
Reference:
1. Anon, 2012. Investopedia. [Online]
Available at: http://www.investopedia.com/terms/i/investment.asp#axzz2Cg8esQ82
[Accessed 19th November 2012]. 2. Heilbroner, R. L. & Milberg, W., 2011. The Making of Economiv Society. 13th ed. s.l.:Pearson. 3. Kelly, M., 2012. American History. [Online]
Available at: http://americanhistory.about.com/od/industrialrev/a/indrevoverview.htm
[Accessed 19th November 2012]. 4. Anon, 2012. History. [Online] Available at: http://www.history.com/topics/great-depression [Accessed 19th November 2012]
1920s. Thereby, when the stock market crash of 29 October 1929 occurred, the fact that the stock price plummeted with the hopeless of recovery had overwhelmed the whole country.
It led to the people’s urge to sell all the stock immediately, afraid losing all they had. With stock market crash as a major factor, it triggered the Great Depression. However there is public perception that stock market clash of 1929 is equal to the Great Depression. In fact, Great Depression can be attributed to several causes other than stock market crash. According to Kelly (2012), the top five causes of the Great Depression are stock market crash of 1929, bank failures, reduction in purchasing across the board, American economic policy with Europe and drought condition. By here, the terms ‘stock market’, ‘bank’, ‘economic policy’, more or less link to investment when it comes to determining the prosperous ages or recession era, even without people notices. Therefore, it is apparent that investment is critical in determining the level of prosperity, especially after the lesson learnt from Great …show more content…
Depression.
However, what makes investment so critical in determining the level of prosperity? This is an intriguing question. Firstly, what is investment? For general perception, investment is all about stock market, stock price, earning per share, finance and everything that can be related to stocks and shares. Nevertheless, the real definition of investment in economic sense is the purchase of goods that are not consumed today but are used in future to create wealth with the expectation of the value of the particular goods would increase by time (Anon, 2012).Besides that, investment also included capital expenditure and saving other than purchases of bond and stock. Capital expenditure is the funds invested by the firms or corporates to acquire or upgrade physical asset such as property, machines and equipment in order to maintain or even increase the output of production. Before going back to the main question, why do people inject money into investment? The answer is very obvious and simple. People involve themselves in investment, all they are expecting and desiring is profit, no matter it is high or low profit. When there is a high expectation of profit, it will attract more people to invest. When there is more money injected into the market, the economy is stimulated, people gain what they expected: the high profit. It will eventually lead to a higher level of prosperity as people earn more money from the stock market as it happened in 1920s.
On the other hand, the reason of investment becomes so critical in determining the level of prosperity is due to the multiplier effect, or snowball effect. The economy cycle is an endless cycle made up of consumption and production. There is many factors can affect consumption and production, for instance, capital expenditure, consumption expenditure and saving. And most importantly, these factors are interdependent to each other in order to support and move the economy forward. For example, capital expenditure fell led to plunge in consumption expenditure during the early 1930s, caused investment to plummet even more due to multiplier effect. Eventually, consumption dropped as a result of plunge of investment; in turn it pulled down the capital expenditure (Heilbroner & Milberg, 2011). As mentioned before, when investment falls, people earn less or most probably they lost more. Thereby, the people spend lesser, save more and cut back the investment, more money leak out from the market, causing recession and the economy is not moving forward. Thus the level of prosperity drops. By here, the closely linked relationship of investment and the level of prosperity had been proven again.
Besides that, investment is greatly important when there is a new emerging industry.
A huge amount of money is needed to be invested into it in order to start up and establish a new-born industry. When a great investment is made to build up a tremendous industry, the level of prosperity would increase (Heilbroner & Milberg, 2011). It was due to when a new industry is ready to be building up, it created more job opportunities and it lowered the unemployment rate, more people were getting salaries and wages, led to improvement of their standard of living and have more money to spend. It can be proven when Industrial Revolution taken place during 1820 to 1870 (Kelly, 2012). However, when the industry is matured and well-established in 19th century, investment was considered as completed. At this critical moment, the level of prosperity would drop if there is no second wave of equivalent attractive investment to rise and take place immediately (Heilbroner & Milberg, 2011) . Therefore, the level of prosperity rises when investment is
active.
In conclusion, investment is playing a very critical and vital role in determining the level of prosperity. Through the lesson of Great Depression, it is apparent that the more active the investment as it was during 1920s, the more prosperous the society is; and when the investment plummeted during 1930s, the level of prosperity fell as well as led to Great Depression. The relationship between investment and the level of prosperity is closely link to each other as one can influence another easily.
Reference:
1. Anon, 2012. Investopedia. [Online]
Available at: http://www.investopedia.com/terms/i/investment.asp#axzz2Cg8esQ82
[Accessed 19th November 2012]. 2. Heilbroner, R. L. & Milberg, W., 2011. The Making of Economiv Society. 13th ed. s.l.:Pearson. 3. Kelly, M., 2012. American History. [Online]
Available at: http://americanhistory.about.com/od/industrialrev/a/indrevoverview.htm
[Accessed 19th November 2012]. 4. Anon, 2012. History. [Online] Available at: http://www.history.com/topics/great-depression [Accessed 19th November 2012]