What Caused The Great Depression

The Great Depression is a phrase that is used to describe a global economic crisis that took place in the 1930s. The exact timing of the depression differs between countries, however, in the majority of nations it began during the 1930s. The depression was characterized by a decrease in the global GDP by approximately fifteen percent (Brunner, 2012). The impacts of the depression were devastating and they included a significant reduction in income, profits and tax revenue. In addition, there was also a reduction in the level of international trade. In the majority of countries, the level of unemployment rose by approximately thirty-three percent, whilst in the United States it increased by twenty five percent (Brunner, 2012). Virtually all
industries were affected by the depression. The Great Depression is widely discussed in literature with emphasis on the United States. However, the causes of the depression are widely debated by different scholars. There are different cause theories that have been formulated by economists and these include debt deflation (Saint-Etienne, 2013).
The chain of events that are associated with this theory include debt liquidation and the contraction of monetary supply. Following the paying off of loans, there was a reduction in the value of assets, and profits made by businesses. There was pessimism and people began hoarding money. The end result was an increase in deflation adjusted rates of interest. Another theory is that of productivity shock, which involved the surge in mass production and electrification (Saint-Etienne, 2013). In addition, there was an increase in the farm machinery and motorization of transportation. Hence, the increase in the level of production led to an excessive amount of production. Hence, there was an increased amount of excess production, which led to a reduction in prices and the foreclosure of many
companies. Another reason for the great depression in Europe is that there was an unequal distribution of wealth. As mentioned above, there was overproduction during this period. Hence, there was a production of more goods than members of the community could purchase. Another reason for the low purchase of products was that the incomes were too low. During the 1920s, the average wages were increasing at a slower rate than the productivity (Brunner, 2012). The profits that were made from the higher rate of productivity were put into the stock market bubble. This theory is recognized globally as many European countries overinvested and the wages from independent business were reduced. There were also other factors that contributed to the depression and these include the crash in the stock market. This created a uncertainty in the financial community. There were also a high amount of tariffs and debts that many countries had to repay after the war. Another issue that is discussed concerning the great depression is the response of President Hoover and the Republican Party towards the crisis.
Many individuals are critical of his efforts and he is notoriously regarded as one of the least caring presidents. The approach taken by Hoover was mainly aimed at restoring the level of confidence people have in the economy and banking system. In the process, Hoover provided authorization for farmers and agricultural businessmen to stop bankruptcy. Another feature of the approach that was taken by Hoover is rugged individualism, whereby, each individual should fend for him or herself (Brunner, 2012). However, the approached by President Hoover were insignificant and harmful to the American community. The economic situation continued to worsen and one of the underlying problems was not
addressed. As mentioned above, there was excessive production in comparison to the number of available buyers. Hence, Hoover made the situation worse by continuing to invest in the production industry. In addition, he held the belief that each individual should fend for him or herself. Hence, the buying power of the individuals was still low and further reduced by the level of inflation and the growing inflation rate. Hoover lost the support of many Americans due to his approach towards the economic crisis. He further worsened his reputation by breaking up the Bonus Army. This was a group of approximately 20 000 war veterans that were requesting for money from congress. The WWI veterans had been promised money which was only paid back in the 1940s. Hence, a combination of the economic situation and the approaches by President Hoover resulted in the republicans losing the 1932 elections (Robbins, 2011). Therefore, the great depression was a tough economic period for both Americans and the rest of the world. There were a combination of factors that led to the depression and these include poor monetary policies, over production, unequal distribution of wealth, financial panic and a crash of the stock market and war debts and high tariffs. The response by President Hoover was too narrow and failed to resolve the numerous problems with the American financial system. He mainly attempted to restore confidence in the economy and he further worsened the status of the American people by neglecting their low incomes and lack of employment.