American History

Following paper aims to discuss the hardships faced by the American economy following the worst economic downturn, known widely as the great depression, to ascertain the basic causes of this disaster and evaluate the relative weight of these causes. The great depression of 1929 brought heavy ordeal to the millions of American who were put out of work. This incident marked the new phenomena of increased government intervention in the working of the economy and structuring of the society as a whole.

The great depression and its consequences
The great depression is widely considered to be the worst economic disaster that world has ever faced. It began in 1929 after the stock market of United States crashed on October 29, widely known as the black Tuesday. The havoc caused by this fiasco was unprecedented. Major industrial sectors were hit hard by this depression and countries experienced the lowest figures of industrial production. Farming industry slowed down as prices of agricultural produce fell by 60 due to lack of demand and the decreased economic activity resulted in disaster for construction industry. This scenario gave way to widespread unemployment in all sectors of the economy and the government found it impossible to create any kind of opportunity to adjust the increasingly unemployed workers. The stock market crash was also one of the results of this debacle although some economists put it in the category of causes.

The consequences, however, were not limited to US but quickly spread to other countries of the world. The basic economic indicators worsened to one of the lowest. The domestic demand decreased due to which the profits of mega corporations and other small to medium businesses eroded. This decreased in profits subsequently affected tax revenues of government and hence deficit increased. The people were laid off and unemployment surged which led to decrease in disposable income and consequently standard of living deteriorated. This created a vicious cycle of decreased income, consumer demand and industrial profits which culminated into huge unemployment rate of 25 and led to further worsening of economic situation. The global effect of great depression can be illustrated by decrease in international trade by 66 rate. Hence the consequences of great depression were profound and widespread.

Causes and their relative value
The great depression is a highly misunderstood event and the causes are still not clearly understood. Several parties are deemed to be culpable for the great depression. The Federal Reserve came short in fulfilling its duty of controlling the interest rate, which triggered the stock market crash resulting in the loss of about 40m in investments. This caused the massive bank failures because of the loss of investments due to the stock market crash. Huge amount of public savings were also lost due to the failure of the banks as the banks had uninsured accounts for the customers. Lack of government spending was the most crucial element as this allowed the industries to fail, as a consequence of which industries closed down causing the unemployment rates to hit record levels. Finally it can also be argued that failure of economy was actually the failure of free market capitalism, as this causes unbalanced accumulation of capital. And thats precisely why President Roosevelt decided to replace the liberal policies with the Keynesian approach.

Conclusion
By going through all the causes, one thing is identified that because of the ineffective policies of the government one problem can lead to another, thus causing a huge dilemma for the economy and the government. Had the Federal Reserve and the government acted in a more responsible manner and devised better policies and a stronger economic system, the scale of this disaster would have been much lower.