The Government and Economic Role Within the Times of the Great Depression, Essay Example

Introduction

In the history of the United State of America, the Great depression was the worst ever economic slump which also extended to almost all the other industrialized countries. The great depression occurred between the year 1929 to late 1930’s and early 1940’s taking almost a decade. There were many factor lead to the great depression, however, the main reason of its occurrence was a combination of widespread stock market speculation that caused the crash of the stock market in 29^th October 1929 as well as the critically unequal wealth distribution all through the 1920’s (Bernanke 37).

The unequal distribution was disparately among the rich and those in the middle class, between agriculture and industry in the US, as well as between Europe and U.S. This made it hard for those in the lower class to gain access to the money making activities as the economy was being run by the rich. This unequal wealth creation and distribution lead to unstable economy, which lead to the larger market crash.

The crash of the economy during the Great depression period was made worse by mistakes in momentary policies, as well as gold standard adherence by the government. This led to reduced level of demand and production that resulted to high unemployment rate in the history of America. The Great depression led to isolationism between different countries because each country wanted to protect their domestic production, making them to impose quotas and tariffs on foreign imports that reduced the need of international trade. These led to political upheaval and the election of Franklin Roosevelt as the president of U.S, who came up with major changes in the economy structure of U.S.

The banking system was also massively affected by the Great depression as depositors went to the banks to take the money they deposited on the bank. This led to the falling of many banks with up to 35 percent of the banks falling between 1929 and 1933. This also led to the merger of most of the banks so as to try an up the pressure of the Great depression.

While the Great Depression had an effect on some segment of the economy more than others, all regions and sectors went through a serious fall in output and an acute rise in unemployment. The unemployment hardship, although was more in the working class, it affected many people in the middle class also. Farmers also suffered, as the average output price fell by half while the cumulative price level only fell a third (Bordo, Claudia and Eugene 120).

The Great Depression was also seen as caused by principal imbalances and weaknesses within the United State economy that had been covered by the rumble psychology and speculative exhilaration of the 1920s. Before the Great Depression, the federal governments usually took little or no action in business downturn times, relying instead on market impersonal forces to attain the essential economic correction. But the force from the market only proved unable to achieve the wanted recovery in the Great Depression early year, and this painful finding finally stimulated some essential changes in the U.Ss’ structure of the economic.

After the Great Depression, the federal government’s action, whether in the form of industrial regulation, taxation, social insurance, public works,  deficit spending  or social welfare services, that come to assume the main role in ensuring economic stability.

During this period, the federal government also contributed to the increasing gap between the rich and those in the middle class. For instance the administration of Coolidge Calvin always favored only business and this lead to the rich investing on this business. This made it hard for those people in the middle class to invest in this business as the legislation did not favor them in any way. From the depths of the great depression in around 1933, the economy was able to recover up to 1937. This growth was followed by a short but severe recession, after which there was another economic growth period occurred. But it was until the 1940s that the earlier levels of output were exceeded and the advents of World War II lead to the end of the depression.

During the Great depression, economists informed the federal government to increase the spending, so as to offer employment. The Economists also looked for theoretical rationalization for the policies that will enable or make possible the government to increase its spending. Some of the economics had a notion that the depression was caused by overproduction.  Their analysts often endorsed overproduction to the increased differences in income that made in the 1920s. Others economists were concerned with the drop of the number of investment opportunities that were profitable and thought that the great depression was the capitalism final crisis, a crisis that wanted main institutional restructuring.

By the year 1936 when the depression, all the main indicators of economic growth had recovered compared to the start of the depression, except for unemployment, which was still high. In 1937, the U.S economy all of a sudden fell, lasting which lasted through the most of 1938. The Production profits and employment declined sharply with unemployment jumping to 14.3 percent in 1938 from 19.0 percent in 1937.

The Franklin Roosevelt administration reacted on the depression by launching a symbolic campaign against monopoly power, which was said to cause of the depression. By 1939, the cause of the 1937 recession had ended (McElvaine 164). The employment levels in private sector and factories recovered but did not increase much bigger until the World War II that came and the employment in manufacturing sector increased. Roosevelt also embarked on a remedy to the Great depression, reluctantly removing his efforts of balancing the budget into introducing a five billion U.S dollar spending program in 1938. This was in an attempt to increase the purchasing power in mass form. This was referred to as the New deal that made it possible to end the Great depression in Franklin Roosevelt administration.

The great depression had an impact on the international community. Many countries like Germany and Canada had the same hardship economically the same way US suffered. In Europe, the treaties that ended the World War I which required large compensation that started the war and lost it, created much weakness in the economy of Europe, particularly the financial system. Thus the economic meltdown of the US caused an economic downturn throughout European countries. The effect of the Great depression also caused economic strains in the third world countries as they depended heavily on the exports from US and other European countries.

At the same time, the third world countries were hit by a decline in foreign flow of investment especially from the U S, which was an indication of the monetary reduction in the United States. The Third World countries, like the countries in Latin America, acted upon this recession by introducing tariffs that are high tariffs and determined to become self-sufficient.

Conclusion

The Great depression which occurred in the late 1920’s had a great impact on economies of different nations both in Europe and outside. There were many factors that lead to the cause of the depression but the main one was the occurrence of widespread stock market speculation that caused the crash of the stock market in 1929 as well as the critically unequal wealth distribution all through the 1920’s. The unequal distribution was disparately among the rich and those in the middle class, between agriculture and industry in the US, as well as between Europe and U.S. This unequal wealth creation and distribution lead to unstable economy, which lead to the larger market crash. Also the government relied too much on the market force that was impersonal so as to achieve the correction of the economy, but this changed after the depression where the government assumed a role that was principal in ensuring economic stability.

President Franklin Roosevelt who was elected the president of US during the Great depression helped to end the depression through the new deal. This was enabled by pumping more money in the system so as to try and end the recession being experienced. He used methods like provision of federal jobs, handouts, subsidizing loans, projects in public work as well as demonizing businesses in order to try and bring to an end the Great depression. After World War II, the depression can to an end and there was an increase in employment opportunities especially in private manufacturing factories thus helping to stabilize the economy. Therefore different federal government roles both economically and socially enable the end of the longest and severe economic recession in US and the rest of the world.

Work Cited

Bernanke, Ben S. Essays on the Great Depression. Princeton: Princeton University Press, 2000.

Bordo, Michael D., Claudia, Goldin and White, Eugene N, eds. The Defining Moment: The Great Depression and the American Economy in the Twentieth Century. Chicago: University of Chicago Press, 1998.

McElvaine, Robert S. The Great Depression. New York: New York Times Books, 1984.