American History

The Great Depression began in 1929 and lasted for over a decade. It is termed as the longest, the worst and the most severe economic slump in the history of the industrialized Western world (Kindleberger 1). Though it started in North America, its effects were also felt in Europe and other industrialized nations of the world due to the relationships that had been forged between the United States and other nations after the first world war. There was no particular origin of the Great depression. However, the major economic causation of the great depression was from monetary contraction - the result of poor-policy making by the government and the continuing crisis in the banking system (Bemanke 7).

The Stock Market Crash of October 1929 is seen as a major factor that precipitated events of the Great Depression. The reason for the crash is attributed to unregulated speculations in the stock market that lured 1.5 million Americans to invest in the stock market through borrowed money in order to invest it back (Rothbard 6). Nonetheless, when the euphoria ended in September 1929, most of the investors could not afford to pay back their loans because their stock had lost value due to a collapse in the share prices by 22 hence the market plummeted. Though the crash that followed did not cause the depression, it however revealed deep weaknesses in the American market economy especially in terms of its policies (Blatt 1).

Additionally, the managers of the Federal Reserve Board which oversees national banks, adopted policies that intentionally aggravated the economic crisis and accelerated the eventual collapse of thousands of banks (Rothbard 7). The board, in an attempt to prevent bank panics and depression inflated the money supply by about 60 during the 1920s which created the artificial stock market boom and its subsequent crash. The Federal Board also raised the interest rates at a time when there was a contraction yet the gold stock was increasing on its own and this would have increased the money supply and help in the recovery (Rothbard 10).

Politically, the depression can be attributed to President Herbert Hoover. The Smoot-Hawley Tariff Act proclaimed in 1988 by the Council of Economic Advisors and approved in 1930 contributed to the intensity of the great depression (Kindleberger 1). Though the act did not cause the depression, it however intensified it by raising tariffs to a tax of 50 on goods imported into the United States. The act was intended to encourage the purchase of products from America which were in surplus by increasing the cost of imported goods, while raising revenue for the federal government and protecting farmers. However, in retaliation, other nations also increased their tariffs on American-made goods hence this substantially reduced international trade and worsened the situation (Blatt 1).  This increase in tariff led to an increase in prices and price rigidity hence restricting trade among major countries. Banks went bankrupt and savers lost their money, bank lending reduced, investment fell and this reduced the consumer spending (Nordeen 1).

All this mistakes were manifestations of the lack of regulatory capacity within the federal government. America lacked any rudimentary economic data hence making informed economic planning virtually impossible. Instead, America economic planners assumed that the nations economy which had long altered between expansion and recessions would correct itself and revive without any government interventions (Kindleberger 1).

Socially, the Great Depression can be attributed to the imbalance and uneven distribution of the unprecedented national prosperity of the 1920s (Gusmorino 1). In the industries, the wages for workers lagged behind in comparison with the increases in productivity while the richest Americans increased their share of the nations wealth to the point where they controlled one fifth of the nations wealth (Foley 1). Wages for workers grew slowly than output per worker which suggested that corporate profits were rising. This extreme concentration of wealth among the rich proved invalid at a time when American production exceeded the capacity of Americans to consume.

By the end of the 1920 Americans especially the poor had over-extended their credit since they had lost most of their savings and could therefore not afford to purchase any of the goods being produced out of Americas factories. This led to a decrease in expenditure (Gusmorino 1). Furthermore, before the 1930s the government provided no medical assistance income for the unemployed, relief from poverty or even old age pension. Therefore, families had to rely on voluntary relief provided by local government and charities. Hence public assistance obligations threatened to bankrupt cities and often were halted when public funds ran out. These deep social structural imbalances therefore worsened the situation in American society (Jones 1).

Due to the great strain that the Great Depression was putting on the American population, President Franklin D. Roosevelt implemented a domestic policy known as the New Deal. The New Deal was an attempt by the federal government to counteract the effects of the Great Depression by extending its reach to the people to solve the economic problems. In an effort to restore prosperity and reduce unemployment Roosevelt and the U.S Congress endorsed a variety of bills which created new agencies and programs. Through these programs and agencies, the New Deal rewrote much of American History to what it is today (Brinkley 1). First and fore most the New Deal increased the presidents power with the White House becoming the center of government. Additionally, the federal government was expanded and became directly responsible for the well-being of people
The various programs and agencies that were proposed and are still in place today include The National Pension Scheme which is a social security system still pays out old age pension and it is funded through taxes on employers and employees. The Agricultural Price Support which pays farmers to raise crops for domestic consumption rather them exporting them. To receive payments farmers are expected to agree to limit the space they dedicate to certain crops (Nordeen 1). The New deal also returned trust in depositing money with the Federal Deposit Insurance Corporation which insures investors deposits and replaces them if banks close. Moreover, the Securities and Exchange Commission (SEC) is now able to set guidelines for the stock market and prevent speculations like those of the 1929 Stock Market Crash (Brinkley 1).

Today it still watches over the stock market making sure that companies follow laid down practices when trading in stocks. The Oversight of Labor Practice, the National Labor Relations Board (NLRB) oversees labor relations in the United States while at the same time investigates any disputes between management and labor unions.

Though this broad based reform did not end the depression, it created the modern American state and transformed the expectations of the government held by many Americans. Henceforth, the federal government has been able to take more responsibility for the nations economic and social well-being of the citizens (Brinkley 1).