Great Depression Essay

2011 words - 8 pages

6What were the causes of the Great Depression?Can you imagine waking up one morning and suddenly realizing that all your investments and savings have disappeared? Keep in mind that at that time there was no federal deposit insurance system, which means that if your bank fail, you lose all your savings and there was no possible way to ever get your money back. However, this is not just a bad scenario, but the reality for millions of Americans during the 1930's. This nightmare has a name in the World history - it is called the Great Depression.The Great Depression was worldly economic downturn that started in 1929 and it lasted nearly a decade till 1939. The timing and severity of the Great Depression varied substantially across the countries. In the United States, it began in the summer of 1929. As a matter of fact, the longest and most severe depression ever experienced originated in the United States and spread across the countries. It characterized with sharp decline in output, severe unemployment rates and acute deflation in almost every country of the globe. It was triggered by the sudden crash of the stock market. This day, October 29, 1929 is known as "Black Tuesday".The time of the financial collapse is seen by many economists and historians as one of the unsolved mysteries of the previous century.There were many probable causes of this devastating time such as unequal distribution of wealth, the massive bank failures, the stock market crash, reduction in a purchasing across the board, buying on credit known in 1920s as installment buying, etc. However, it seems that the heart of the Great Depression is the monetary contractions and wrong government policies. The prominent writer, John Garraty, wrote in his book on the topic that Great Depression "was a worldwide phenomenon composed of an infinite number of separate but related events."Despite the different opinions between economists, the recent findings show a relative consensus between them for the causes of the crisis. "The literature focuses on gold standard as a mechanism that turned an ordinary business downturn into the Great depression" (Eichengreen). According to Temin's book (1989), "structural flaws of the interwar gold standard, in conjunction with policy responses dictated by the gold standard 'rules of the game', made an international monetary contraction and deflation almost inevitable." Furthermore, Eichengreen and Sachs (1985) presented evidence that those countries that left gold standard and its monetary contractions policies earlier recovered faster than those that remained on gold longer. In addition, they stated that "the misguided actions of the federal reserve and the unfortunate commercial initiatives of the Executive and the Legislative Branches are blamed for transforming the American recession into a unprecedented depression"(Exchange Rates and Economic Recovery in 1930s).The Gold Standard is a monetary system in which the standard unit of currency is a fixed...

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