The Great Depression is one of the most devastating events that has rocked our country. It ’s scarcely imaginable that countries and dynasties have managed to last through the ages when our country nearly toppled after only about 150 years of existence. The effects of the Depression were many and widespread, as were the causes–but what ’s most frightening is the striking resemblance that we can see to present circumstances.
Factor One: Failure of many banks
Among the various causes of the Great Depression was the failure of nearly ten thousand banks. Many workers were now out of jobs, but the problem extended so much further even than that. Back then, deposits were not insured. That means that everyone who had money in these banks just lost it all–it all just disappeared. These people were now financially devastated and had very little money to spend. Of course, the economy suffered. The problem was worsened because, understandably, people became afraid of the economy and inflation to the point that they began to hoard their money. Banks were also now more than a little hesitant to give out loans. This financial crisis (and the fear of its repetition) removed a large amount of money from circulation, which greatly exacerbated problems in America ’s economy.
But wait, why did all of the banks fail in the first place? The decade preceding the crash was even know as the Roaring Twenties in part because of how prosperous it was. In 1929, however, the stock market crashed. This happened for multiple reasons. Credit became widely used by not only companies and businesses, but also individuals. This was such an easy financial solution that soon it seemed everyone was borrowing money for things. This led to a major use of brokers to fund stock purchasing. An individual could pay for a percentage of stock, and borrow money from a broker for the rest of it. Credit became so heavily used that there was more money out in loans or on credit than there was in the entire circulation of US currency. The stock market was also subject to a mini-crash earlier in the year, so when values began dropping more people rushed to sell and brokers rushed to claim the money borrowed from them.
The stock market crash of 1929 had many ripple effects. Even just a rumor of the stock value dropping for a certain company can easily cause people to sell, which will cause more people to sell, etc. So that company will likely be less easily able to fill the same production, and potentially have fewer people buying from them anyway; that leads to layoffs, which devastates families. To take it further, let ’s say that company produces goods or material to be made into something different at a new business, or typically heavily buys from certain companies. Now those other companies are suffering as well, and likely experience their own layoffs. Perhaps this could lead people to believe the entire industry of that company is unstable, so the problem is even more far-reaching. The stock market crash is a major factor in the exceptionally high unemployment rates seen in the Great Depression.
Factor Four: The Smoot-Hawley Tariff
In 1930, a measure was taken to protect American companies. The Smoot-Hawley Tariff placed high taxes on imported goods–so people had to buy from American companies or be subject to these taxes. The companies were suffering already, and so many prices went up in an attempt to cover the fall in business (because people were fearful both of spending money and also certain companies ’ reliability). Many American companies were falling apart and this was an effort to salvage them, but it meant individuals and families were subject to much more highly priced goods than they were accustomed to. This placed atop all of the other problems was very difficult for people to manage.
Factor Five: The Dust Bowl
It seemed all forces were against America during this time, including the environment. The Mississippi Valley experienced a disastrous drought, known as the “Dust Bowl.” It was so extreme that many people lost their farms, and therefore their livelihood. Even more people were now out of work, but there was also less food to be had (especially considering the tariff on imported goods) and so prices rose. It ’s not a choice one can make to simply do without food, so people who were already suffering now had to pay much higher for items they simply had to have.
Global Effects
It ’s clear that the Depression affected our nation in the most extreme way, but it also affected the rest of the world. As was previously mentioned, trade with other countries was now taxed, and so it naturally declined. In like manner to the ripple effect we experienced, foreign companies who either supplied us goods or purchased goods from us were now experiencing something similar, albeit on a smaller scale. Those companies now had to pay higher prices or turn elsewhere for goods that they would have been purchasing from us. America had also loaned money to Germany, which was now desperately needed. When we called for it, their own economy plunged.
People in so many areas of the world were experiencing extreme unrest, and they were very fearful of the bleak outlook. This helped lead to the rise of key figures, such as Adolf Hitler, who promised people that they could and would restore order. Desperately clinging to any hope, many people put their trust in unwise places. Militaries around the world were gaining control.
At first, things were getting better–even, and perhaps most especially, under Adolf Hitler ’s rule. Germany ’s economy was improving, which led to increasing support for him. It began to take a turn, however. This turn went unremarked at first, because of all of the good that had been done; surely he was a good man and leader, right? As things kept getting worse, still no intervention came. Other countries already had plenty to worry about, with their own failing economies and attempts to salvage them.
Failure of the League of Nations
The League of Nations was designed to prevent this very sort of conflict. Some argue that the war may have been prevented (or at least lessened in severity) had the U.S. been involved with the League (Office of the Historian, US Department of State). Governments also would likely have been able to step in sooner if they had not been focusing on domestic problems. Hitler had such a strong and sinister hold on Germany by the time intervention did come; it may be that it could have been cut off more easily and quickly if other nations had stepped in sooner.
Doomed for Great Depression Repetition?
The most frightening thing is that there are stark resemblances between circumstances then and now, particularly with regard to credit. Our nation ’s debt is over $17 trillion, but our consumer debt is very high as well–$11 trillion (Fay). This coupled with current wars and other volitile factors could contribute to a disaster of 1930s proportions.
Sources:
Fay, Bill. “Americans in Debt.” Debtorg News. Debt.org, 1 Jan. 2014. Web. 6 July 2014. <http://www.debt.org/faqs/americans-in-debt/>.
Office of the Historian. “The League of Nations, 1914–1920 .” The League of Nations, 1914–1920 – Milestones. US Department of State, n.d. Web. 4 July 2014. <https://history.state.gov/milestones/1914-1920/league>.
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