The Great Depression
Ideas and Theories Abound
The Great Depression that started in 1929 with the crash of the American Stock Market is one of the most discussed financial phenomenon of the twentieth century. This event, or events impacted nearly every single American and was also felt all around the globe. Any attempt to figure out the exact cause of this depression typically ends in confusion and more than one explanation. The reason for this is, there is not one single thing or event that caused the Stock Market crash or the resulting depression. Looking back, historians can see that like other major events in history, there were many factors that created the issues and resulting in the extreme changes of the Great Depression. I will take a look at several theories and changes that had an impact on the Depression. These are the major financial changes of the 1920’s, the gold standard and the lack of federal stability. These three causes, for lack of a better word, all impacted the Great Depression in some way.
Americans think of the 1920’s as a time of affluence and splendor. What they do not understand though, is that the 20’s were indeed a time of affluence, but it was not that way for every person in the country. Only those who had already had money and affluence prior to the war were continuing in their spending and extravagance. The average individual was, while not completely struggling, not as well off as it would seem. Thrift and savings were not popular or widespread during this decade. Individuals as well as corporations were borrowing money that they could not afford to pay back and the banks did not do a great job in limiting the amount of borrowing by individuals or corporations.
America, along with many other countries was on what was called the gold standard. This basically meant that printed money was “backed” by gold. The reserves of gold served as a safety net of sorts for the printed money that circulated. The federal government was of course in charge of the gold reserves and the printing of money. When the government failed to maintain the reserve and did nothing to restrain the printing of money currency faltered. This caused a panic in the population and in return was the cause of the runs on banks. This in turn caused a further decrease in the reserve of gold and led to a distrust in the federal government and banks.
The federal government at the time of the Stock Market crash that many call the start of the Great Depression was ill equipped to deal with such an event. As mentioned above, the gold standard faltered. Because the population did not trust in their money, they in turn sold their stocks and caused the crash. This was in part due to the instability in the government. Stocks were not protected investments and many lost their savings during the crash. This population had no diversity in their savings and would be unable to pay borrowed money back to banks. The gold standard could be said to be responsible for deflation and therefore a rise in unemployment.
The Great Depression was a major financial change to the country and to the people. Wages were decreased which resulted in a default in loans. Because of the large number of defaulted loans it became increasingly difficult to obtain a loan for anything. Mortgages as well as business loans dried up resulting in a decrease in home ownership as well as business expansion. Because of the decrease in business, wages were decreased to improve the financial output of businesses. The decreased wages resulted in more families not being able to pay bills and defaulting on loans. In turn, the decrease in spending impacted the production of goods.
As the country continued through the depression and the “remedies” for the economic crisis, another crisis was on the horizon. World War II would change the world not only politically, but financially as well. As the American government worked towards ultimate success in the war, the economy of the country changed. An entire generation that had been used to thrift and savings continued this pattern throughout the war. An increase in war time jobs meant that families would be able to save more money throughout the war years. When the war finally ended and the troops came home the atmosphere was jubilant and the economy was recovering. Americans had saved their money and were ready to celebrate and buy consumer goods again. Because of the Great Depression the gold standard has been completely abandoned by all countries, the federal government has found ways to become more stable and the American economy has not fallen into a large depression again. While the Great Depression changed the financial face of the world, the causes have been evaluated and studied to prevent another such collapse from occurring again.
Bibliography
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Bernstein, Michael A. “The Great Depression as Historical Problem.” OAH Magazine of History 16, no. 1 (Fall 2001): 3–10.
James, Harold. “1929: The New York Stock Market Crash.” Representations 110, no. 1 (2010): 129–44. Accessed June 14, 2021. doi:10.1525/rep.2010.110.1.129.
