Industrialized countries of the West experienced the greatest economic depression between 1929 and 1939. The US economy was facing a severe downtrend, six months after which the New York stock market crashed in October 1929. This was followed by insolvency of banks, economic ruin of thousands of stock holders, and widespread catastrophe of forced unemployment.
As the United States had established strong economic and trade ties with other European countries, post World War I, the crash of the American stocks spelt crisis and an unprecedented slump in the economy of many European countries. The worst hit were Great Britain and Germany.
Most countries resorted to curbs in international trade to contain the crisis, as a result of which, three years later (1932) world trade hit the bottom with only 50% of what it was earlier.
The Main Reasons That Led To The Depression
Worldwide economic disasters and some dismal consequences in the economic scenario of the US together snowballed into the great depression of 1929. The main reasons can be enumerated as
- Crash of stocks: Over 40 million dollars were lost in shares when Wall Street came crashing down in October 1929. Though there seemed to be signs of recovery in the stock market, was one of the chief events leading to the Great Depression
- Collapse of Banks: A year after the debacle of the stock market banks started collapsing with the inability to activate developmental loans. A record 9000 banks and more faced abject financial failure. This led to a sharp reduction in state expenditure
- Fall in purchasing power: With the dismal scenario of the economic downfall people stopped buying. Purchasing fell, manufacturing reduced and unemployment was on the rise
- The drought: The drought conditions that occurred in the Mississippi valley at the same time forced the farmers in the area to sell away their land without gain in order to pay taxes and other dues. Though this was not a direct cause for the depression, it contributed to the growing economic concern of the period
- Economic policies with Europe in 1930 were redefined when high tariffs were charged to help boost American companies. This decreased many trade options with European countries for the US, leading to more bleakness in the economy.
Political implications
- Franklin D Roosevelt was elected President of the US and introduced several economic reforms to combat the crisis
- Yet, the crisis was so severe that in 1939, at the outbreak of the World War II 15 to 25 % of the workforce was still without work
- However, when the country was inundated with requests for manufacture of ammunition and weapons new employment was generated. Because of this, the Depression was on its last leg by 1941.
- In a similar manner, the ammunition and weapon production in Hitler’s Germany brought an end to the unemployment crisis and the Depression by 1936.
The great depression also led to a lot of emotional, psychological and mental stress for thousands of those affected by the economic crisis. While economically the country tried to bounce back to healthier norms and reforms it took a pretty much longer time for the people to get back their emotional bearings.
Blurb: The Great Depression of the US and the other countries worldwide was initially caused by the collapse of the stock market in the US after increased speculation and failing business. Along with this came the failure of banks and this brought in a lot of emotional trauma to the people who struggled to make ends meet.