The Great Depression in America was a time of economic decline around the 1930’s. At this time, most of the Americans lost their savings, homes, and jobs. Nonetheless, the U.S happened not to be the only country affected by the economic slump. The depression was all over the world. Most of the people were attributing it to Black Tuesday in 1929 when the New York Stock Exchange crashed. To understand the factors leading to the depression, one ought to go back in time to look at more sensitive issues that had occurred before (Rauchway, 2015). The Great Depression came about as a result of several combined political and economic causes that were building up months before the fall.
According to writings by Temin, (2010), after the end of the First World War, Farmers in America were having a hard time in their businesses and were registering no profits. The depression of agriculture in the 1920’s was one of the significant factors leading to the Great Depression. The production in the farms was at a surplus compared to the consumption rate in America. The prices of most or all farm products dropped by around about 45 percent by the year 1921 and maintained at a low for almost ten years. A significant percentage of the farmers at the time were in deficit and were even unable to pay for leases and farm mortgage and some of them had to leave.
War debts and tariffs were some of the political factors leading to the Great Depression. America was a debtor to some European countries including the United Kingdom in reparations of the 1st World War. As a result of this, the economies of other nations were reliant on the U.S. economy. As the U.S. went through this economic downturn, some other were hit by the same since America was insisting on the repayment of debts. Countries in Europe were not in a position to repay their debts. There was a further exacerbation of tensions after the passing of the Hawley-Smoot Tariff Act of 1930(Rauchway, 2015). Due to protectionism ideals, the act led to the increase of import duties so that they could protect the businessmen and farmers in America. This led to a major decline in world trade by more than 60percent from the year 1929 to 1934 and thus became a cause of enormous international economic strain.
Most of the historians discovered that Herbert Hoover, the then President made things even worse. Through his thought of balancing the national budget, he increased taxes. This made spending harder for consumers and business couldn’t spend money on expansion. A 10-year drought hit America in the 30s, and vast tracts of land were deemed infertile and unproductive. This led to more unemployment for farmers (Lichtenstein, 2017).
To this very day, economists keep talking about the factors that led to The Great Depression. They, however, reached a conclusion that contrary to the common belief, the Great Depression was not caused by the 1929 Stock Market Crash but was instead brought about by different political and economic factors (Basile, Landon-Lane, & Rockoff, 2013). These are things that happened before the economic downfall. As means for preventing another downfall in the American Economy, the government is always ready to spend whenever there is an economic slowdown. The government always pays back money to the citizens through financial support and tax cuts. The Federal Reserve also helps by cutting down interest rates, and this brings down the cost of borrowing. These different policies have been put in place to make sure that America will never be at the same place again.
It created 42 new agencies. They were designed to create jobs, allow unionization and provide unemployment insurance. Many of these programs still exist. They include Social Security, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation. These programs help safeguard the economy and prevent another depression. Many argue that World War II, not the New Deal, ended the Depression. But if FDR had spent as much on the New Deal as he did during the War, it would have ended the Depression. In the nine years between the launch of the New Deal and the attack on Pearl Harbor, FDR increased the debt by $3 billion. In 1942, defense spending added $23 billion to the debt. In 1943, it added another $64 billion. For more, see. Financial stress made Germans desperate enough to elect Adolf Hitler’s Nazi party to a majority in 1933. If FDR had spent enough on the New Deal to end the Depression before Hitler rose to power, World War II might never have happened.
References
Basile, P., Landon-Lane, J., & Rockoff, H. (2013). Money and Interest Rates in the United States during the Great Depression. Doi: 10.3386/w16204
Lichtenstein, N. (2017). The United States in the Great Depression. University of Illinois Press. doi:10.5406/Illinois/9780252037856.003.0012
Rauchway, E. (2015). The Great Depression & the New Deal: A very short introduction. Oxford: Oxford University Press.
Temin, P. (2010). The Great Recession and the Great Depression. Doi: 10.3386/w15645