The Great Depression (1929 1939) Essay

1471 words - 6 pages

“The only thing we have to fear is fear itself, nameless unreasoning, unjustified terror which paralyses needed efforts to convert retreat into advance” (Parker, p. 236). This quote was made famous by the President of the United States Franklin D. Roosevelt for his campaign at the most difficult time period in the world. This unprecedented event for the world began in the United States on October 29th 1929, also known as “Black Tuesday”, when their economy fell into peril of complete economic collapse. What started out in the United States was soon felt all over the world as a depression began to affect the Western world. Jobs became scarce to the population, and nominal wages were at poverty levels unsupportive of a middle class lifestyle of luxury goods. The gap between the rich and poor were expanding while businesses defaulted and credit contracted as a consequence. The effects of the Great Depression were ubiquitous in terms of economic impact to the global economies. What started in the U.S was soon felt all over the world: deflation and the impact of the Gold Standard, contraction of credit, high unemployment, protectionism and international trade. Overall, these effects of the Great Depression were evidence of the economic impact in the United States that globalized to the rest of the world.
To being with, deflation is an effect of a monetary policy in which the prices of goods and services fall to make it less advantageous for business to continue operation. For example, according to author Charles Kindleberger of The World in Depression, 1929-1939, the annual percentage change in wholesale prices between 1929 and 1930 are as followed: “U.S -12.2%, France -6.7%, Japan -22.3%, Canada -16%, U.K -14.9%, Germany -10.8%, and Italy -14.3%” (Kindlerberger, p. 114). Overall, the U.S economy and the world were going through a time of deflation during the Great Depression. Most of this deflation was attributed to the Gold Standard. The Gold Standard was a backing of currencies to ensure the safety and reliability of fiat money. That being said, this only allowed the production of new currency into the market if more gold was imported into the country. In the theory of monetary policy, a decrease in the money supply in tandem with an increase in interest rates causes inflation to depreciate. That being said, the Gold Standard was not allowing the money supply to fluctuate and keep inflation stagnant to maintain wealth. Therefore, deflation continued further cutting into business profits. The Gold Standard after the First World War was allocating all responsibility to the U.S to keep other economies afloat. For instance, the reparations and war debt coming into the U.S in the form of gold or other monetary payments was actually false profit for government coffers. For example, Elser states “Allies depended on reparations from Germany to pay the U.S for their war loans, and Germany relied on the U.S to pay the Allies” (Esler, p. 613). This circular...

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