The Causes, Consequences and Solutiions Concerning the Great Depression

History of ideas, science and society ii

THE CAUSES, CONSEQUENCES AND SOLUTIONS CONCERNING THE GREAT DEPRESSION

JAMILAH MUSTAPHA IBRAHIM

BU/16A/LAW/1876

INTRODUCTION

  The Great Depression in the United States, which lasted from 1929 until the early 1940’s, was the worst and longest economic collapse in the history of the modern industrial world. The Wall Street stock-market crash of 1929 began the Great Depression. The depression had terrible effects on the country. The stock market was in a bad shape. Many factories closed production of all types of goods.

  Businesses and banks closed their doors, and farmers fell into bankruptcy. People lost their jobs, homes and savings and majority relied on charity to survive. In 1933, at the worst point in the depression, more than 15 million Americans, one-quarter of the nation’s working class lost their jobs. I  will critically examine social and economic causes of the Great Depression, as well as analyze its consequences and solutions through the prism of different approaches. 

CAUSES OF THE GREAT DEPRESSION

The causes of the Great Depression in the early 20th century are a matter of active debate among economists, and are part of the larger debate about economic crisis, although the common belief is that the Great Depression was triggered by the 1929 crash of the stock market.The ever worst depression experienced by Global Economy stemed from multiple causes which are as follows:

• Stock Market Crash

  The Roaring Twenties roared loudest and longest on the New York Stock Exchange. Share prices rose to unprecedented heights. The Dow Jones Industrial Average increased six-fold from sixty-three in August 1921 to 381 in September 1929. After prices peaked, economist Irving Fisher proclaimed, “stock prices have reached ‘what looks like a permanently high plateau.’   The epic boom ended in a cataclysmic bust. On Black Monday, October 28, 1929, the Dow declined nearly 13 percent. On the following day, Black Tuesday, the market dropped nearly 12 percent. By mid-November, the Dow had lost almost half of its value. The slide continued through the summer of 1932, when the Dow closed at 41.22, its lowest value of the twentieth century, 89 percent below its peak. The Dow did not return to its pre-crash heights until November 1954.

  These provisions reflected the theory of real bills, which had many adherents among the authors of the Federal Reserve Act in 1913 and leaders of the Federal Reserve System in 1929. This theory indicated that the central bank should issue money when production and commerce expanded, and contract the supply of currency and credit when economic activity contracted.

  The Federal Reserve decided to act. The question was how. The Federal Reserve Board and the leaders of the reserve banks debated this question. To rein in the tide of call loans, which fueled the financial euphoria, the Board favored a policy of direct action. The Board asked reserve banks to deny requests for credit from member banks that loaned funds to stock speculators.5 The Board also warned the public of the dangers of speculation.