THE GREAT DEPRESSION
The Roaring Twenties that begun after WWI and ended before the Great Depression is markedly an exuberant era of endless prosperity and expansion due to a laissez-faire economy. Yet, the Great Depression was a dramatic worldwide economic calamity which started in 1929 by ending the Roaring Twenties and lasted until the late 30s. It is characterized as a disaster because of its severity and its length. The causes of the Great depression were massively discussed by innumerable economists and remain a controversial topic, so are Roosevelt’s reforms to end the Great Depression.
Sundry economists believe that the Stock Market Crash of 1929 is the main root of the Great Depression. Although there is a differentiation between a causation and a correlation. The Stock Market Crash was a facet in deepening and aggravating this economic downturn. The Crash began on October 24, 1929 (Black Thursday); it was a result of assorted economic factors. Ascribable to the optimism felt by every individual during the roaring twenties, investors were over exuberant and made false expectations. People bought shares meanwhile they expect to make more money and become wealthier. Because the prices of shares kept increasing, people kept borrowing money to invest in the stock market. Therefore prices were not being driven by economic fundamentals but by the optimism and exuberance of investors. The average earning per share rose by 400% between 1923 and 1929. By October 1929, shares were markedly overvalued. When corporations published disappointing results on October 24 (Black Thursday), some investors started to feel this would be a good time to cash in on their profits; thus, panic selling caused prices to fall sharply. By 1930 the value of shares had declined by 90%. Following the Stock Market Crash, a series of Bank panics appeared in 1930 introducing the beginning of the Great Depression. Over 10 thousand banks collapsed in the three years following 1929 so people lost their savings which are the perquisites of any investment. By early 1933, almost 13 million were out of work and the unemployment rate rose to an astound 25 percent. Further factors worsened the situation such the Dust Bowl. A severe drought hit the Midwest and Southern Great Plains in 1930. Nearly 2.5 million individuals left their land (Texas, New Mexico, Colorado, Nebraska, Kansas, and Oklahoma) and traveled west looking for work. Moreover, when the Congress finally intervened to regulate the economic downturn, unsuccessful measures were adopted worsening the situation. The tariff passed by the Congress, the Smoot-Hawley Tariff, implements protectionist trade measures. Consequently, world trade fell by two-thirds between 1929 and 1934 making the Great Depression a global event. President Hoover kept believing that the government should never intervene in the economy. Although the year of 1932 was an election year so Hoover aims to keep his office by establishing the Reconstruction Finance Corporation (RFC) which gave financial aids to business corporations and financial institutions (2$ billion). Yet, Hoover’s response was very weak and insufficient to recover the Great Depression. The American public opinion expressed irritation and anger. Thus, 20 000 jobless veterans went to Washington and demand bonus for war in 1932 (Bonus Army). Since the situation gets more and more distorted with Hoover’s administration, Roosevelt won an overwhelming victory in the presidential election vis-a-vis Hoover and established a new plan to recover from the Great Depression.
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Roosevelt had campaigned for the presidency introducing a “New Deal for American people” which is a plan to end the Great Depression, and give Americans boldness to face the distress; thus, in his First Inaugural speech (March 4, 1933) he said that “the only thing we have to fear is fear itself”. As a period of relief, FDR issued Proclamation 2039 imposing a week holiday for all banks in order to suspend all bank transactions: he stated in his Proclamation that “no such banking institution or branch shall pay out, export, earmark, or permit the withdrawal or transfer in any manner or by any device whatsoever, of any gold or silver coin or bullion or currency or take any other action which might facilitate the hoarding thereof; nor shall any such banking institution or branch pay out deposits, make loans or discounts, deal in foreign exchange, transfer credits from the United States to any place abroad, or transact any other banking business whatsoever”. In addition, as a period of recovery, he formed a plenty of new Federal Programs. For example, the AAA (Agricultural Adjustment Administration) which its main purpose is to save farms and farmers; the TVA (Tennessee Valley Authority) which affords work to unemployed Americans and builds dams and cheap electric power; the FERA (Federal Emergency Relief Administration) and the WPA (Works Progress Administration) which also afford work to unemployed, and The NRA (National Recovery Administration) which regulates wages, prices, and working conditions. As a period of reform, FDR formed the Federal Deposit Insurance Corporation (FDIC) which its main role is to stabilize the economy and the failing banking system. Moreover, in 1935, FDR signed into law the Social Security Act that protects workers from “social risks” by for example giving pensions for elders, unemployed, and handicapped. Roosevelt’s reforms were judged effective to recover from the Great Depression; however, they faced controversy for two main reasons. First, the Supreme Court finds many laws unconstitutional such as so the National Recovery Act, and the Agriculture Adjustment Act. Second, meanwhile, a lot of economists believe that Roosevelt’s reforms ended the Great Depression, sundry economists claimed that the New Deal evaluation was markedly an era of relief from the Great Depression but did not really end it. Because “war jobs seemingly took care of the 17 million unemployed in 1939” (Folsom, B. W. (2014, December 26). #37 – If FDR’s New Deal Didn’t End the Depression, Then It Was World War II that Did | Burton W. Folsom) so it provided growth.
In conclusion, the disaster of the Great Depression was explained by a combination of assorted economic factors; into the bargain, Hoover’s administration policies were not valid and effective to cure the Great Depression. Hence, the New President, Roosevelt came up with the New Deal evaluation providing a plenty of reforms to recover from the Great Depression. Yet, it is not crucial to know what specifically ended the Great Depression (The New Deal or WWII), what is so is to know that it would never happen again. The American Economist Ben Bernanke said, in a speech given in 2002, “Regarding the Great Depression, … we did it. We’re very sorry. … We won’t do it again”. By “we,” he meant the leaders of the Federal Reserve System. The Great Depression could never happen again because leaders of all central banks learned how to use their weapons which are the monetary policies but also the government learned how to use the fiscal policies to cure a depression. Monetary policies have failed to cure a depression so the government shall turn to fiscal policies and do something called “deficit financing”. By increasing government expenditure (for example, building new roads and new bridges) unemployment rate would definitely decrease so the crisis could end. Certainly, the rise of government expenditure translates into the rise of budget deficit; although, when people’s income increases, taxes will increase as well and as a result the budget deficit will be balanced.