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What was the main cause of the Great Depression?

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Please log in to add your comment. See more popular or the latest prezis. While not rejecting that it was inadequate demand that sustained the depression, according to Peter Temin , Barry Wigmore, Gauti B. Eggertsson and Christina Romer the key to recovery and the end of the Great Depression was the successful management of public expectations.

This thesis is based on the observation that after years of deflation and a very severe recession, important economic indicators turned positive in March , just as Franklin D. Consumer prices turned from deflation to a mild inflation, industrial production bottomed out in March , investment doubled in with a turnaround in March There were no monetary forces to explain that turnaround.

Money supply was still falling and short term interest rates remained close to zero. Before March , people expected a further deflation and recession so that even interest rates at zero did not stimulate investment.

But when Roosevelt announced major regime changes people began to expect inflation and an economic expansion.

With those expectations, interest rates at zero began to stimulate investment as planned. Roosevelt's fiscal and monetary policy regime change helped to make his policy objectives credible.

The expectation of higher future income and higher future inflation stimulated demand and investments. The analysis suggests that the elimination of the policy dogmas of the gold standard, a balanced budget in times of crises and small government led to a large shift in expectation that accounts for about 70—80 percent of the recovery of output and prices from to If the regime change had not happened and the Hoover policy had continued, the economy would have continued its free fall in , and output would have been 30 percent lower in than in The recession of —38 , which slowed down economic recovery from the great depression, is explained by fears of the population that the moderate tightening of the monetary and fiscal policy in would be first steps to a restoration of the pre March policy regime.

Austrian economists argue that the Great Depression was the inevitable outcome of the monetary policies of the Federal Reserve during the s. In their opinion, the central bank's policy was an "easy credit policy" which led to an unsustainable credit-driven boom. In the Austrian view, the inflation of the money supply during this period led to an unsustainable boom in both asset prices stocks and bonds and capital goods. By the time the Federal Reserve belatedly tightened monetary policy in , it was too late to avoid a significant economic contraction.

Acceptance of the Austrian explanation of what primarily caused the Great Depression is compatible with either acceptance or denial of the Monetarist explanation. The reason for this, he argues, is that the American populace lost faith in the banking system and began hoarding more cash, a factor very much beyond the control of the Central Bank.

The potential for a run on the banks caused local bankers to be more conservative in lending out their reserves, which, according to Rothbard's argument, was the cause of the Federal Reserve's inability to inflate.

Friedrich Hayek had criticised the FED and the Bank of England in the s for not taking a more contractionary stance. Hans Sennholz argued that most boom and busts that plagued the American economy in —20, —43, —60, —78, —97, and —21, were generated by government creating a boom through easy money and credit, which was soon followed by the inevitable bust.

The spectacular crash of followed five years of reckless credit expansion by the Federal Reserve System under the Coolidge Administration. The passing of the Sixteenth Amendment , the passage of The Federal Reserve Act , rising government deficits, the passage of the Hawley-Smoot Tariff Act , and the Revenue Act of , exacerbated the crisis, prolonging it.

Marxists generally argue that the Great Depression was the result of the inherent instability of the capitalist model. In addition to the debt deflation there was a component of productivity deflation that had been occurring since The Great Deflation of the last quarter of the 19th century. Oil prices reached their all-time low in the early s as production began from the East Texas Oil Field , the largest field ever found in the lower 48 states. With the oil market oversupplied prices locally fell to below ten cents per barrel.

In the first three decades of the 20th century productivity and economic output surged due in part to electrification , mass production and the increasing motorization of transportation and farm machinery. Electrification and mass production techniques such as Fordism permanently lowered the demand for labor relative to economic output.

Sometime after the peak of the business cycle in , more workers were displaced by productivity improvements than growth in the employment market could meet, causing unemployment to slowly rise after Henry Ford and Edward A.

Filene were among prominent businessmen who were concerned with overproduction and underconsumption. Ford doubled wages of his workers in The over-production problem was also discussed in Congress, with Senator Reed Smoot proposing an import tariff, which became the Smoot—Hawley Tariff Act. The Smoot—Hawley Tariff was enacted in June, The tariff was misguided because the U.

Another effect of rapid technological change was that after the rate of capital investment slowed, primarily due to reduced investment in business structures.

The depression led to additional large numbers of plant closings. It cannot be emphasized too strongly that the [productivity, output and employment] trends we are describing are long-time trends and were thoroughly evident prior to These trends are in nowise the result of the present depression, nor are they the result of the World War. On the contrary, the present depression is a collapse resulting from these long-term trends.

In the book Mechanization in Industry , whose publication was sponsored by the National Bureau of Economic Research, Jerome noted that whether mechanization tends to increase output or displace labor depends on the elasticity of demand for the product. It was further noted that agriculture was adversely affected by the reduced need for animal feed as horses and mules were displaced by inanimate sources of power following WW I.

As a related point, Jerome also notes that the term " technological unemployment " was being used to describe the labor situation during the depression. Some portion of the increased unemployment which characterized the post-War years in the United States may be attributed to the mechanization of industries producing commodities of inelastic demand.

The dramatic rise in productivity of major industries in the U. Corporations decided to lay off workers and reduced the amount of raw materials they purchased to manufacture their products. This decision was made to cut the production of goods because of the amount of products that were not being sold.

Joseph Stiglitz and Bruce Greenwald suggested that it was a productivity-shock in agriculture, through fertilizers, mechanization and improved seed, that caused the drop in agricultural product prices. Farmers were forced off the land, further adding to the excess labor supply.

The prices of agricultural products began to decline after WW I and eventually many farmers were forced out of business, causing the failure of hundreds of small rural banks. Agricultural productivity resulting from tractors, fertilizers and hybrid corn was only part of the problem; the other problem was the change over from horses and mules to internal combustion transportation.

The horse and mule population began declining after WW 1, freeing up enormous quantities of land previously used for animal feed. The rise of the internal combustion engine and increasing numbers of motorcars and buses also halted the growth of electric street railways.

The years to had the highest total factor productivity growth in the history of the U. Most of the benefit of the increased productivity went into profits, which went into the stock market bubble rather than into consumer purchases.

Thus workers did not have enough income to absorb the large amount of capacity that had been added. According to this view, the root cause of the Great Depression was a global overinvestment while the level of wages and earnings from independent businesses fell short of creating enough purchasing power. It was argued that government should intervene by an increased taxation of the rich to help make income more equal. In the USA the economic policies had been quite the opposite until The Revenue Act of and public works programmes introduced in Hoover's last year as president and taken up by Roosevelt, created some redistribution of purchasing power.

The stock market crash made it evident that banking systems Americans were relying on were not dependable. Americans looked towards insubstantial banking units for their own liquidity supply. As the economy began to fail, these banks were no longer able to support those who depended on their assets — they did not hold as much power as the larger banks. According to the gold standard theory of the Depression, the Depression was largely caused by the decision of most western nations after World War I to return to the gold standard at the pre-war gold price.

Monetary policy, according to this view, was thereby put into a deflationary setting that would over the next decade slowly grind away at the health of many European economies. This post-war policy was preceded by an inflationary policy during World War I, when many European nations abandoned the gold standard, forced [ citation needed ] by the enormous costs of the war.

This resulted in inflation because the supply of new money that was created was spent on war, not on investments in productivity to increase demand that would have neutralized inflation.

The view is that the quantity of new money introduced largely determines the inflation rate, and therefore, the cure to inflation is to reduce the amount of new currency created for purposes that are destructive or wasteful, and do not lead to economic growth. After the war, when America and the nations of Europe went back on the gold standard, most nations decided to return to the gold standard at the pre-war price. When Britain, for example, passed the Gold Standard Act of , thereby returning Britain to the gold standard, the critical decision was made to set the new price of the Pound Sterling at parity with the pre-war price even though the pound was then trading on the foreign exchange market at a much lower price.

At the time, this action was criticized by John Maynard Keynes and others, who argued that in so doing, they were forcing a revaluation of wages without any tendency to equilibrium.

Keynes' criticism of Winston Churchill 's form of the return to the gold standard implicitly compared it to the consequences of the Treaty of Versailles. One of the reasons for setting the currencies at parity with the pre-war price was the prevailing opinion at that time that deflation was not a danger, while inflation, particularly the inflation in the Weimar Republic, was an unbearable danger.

Another reason was that those who had loaned in nominal amounts hoped to recover the same value in gold that they had lent. This arrangement was codified in the Dawes Plan. In some cases, deflation can be hard on sectors of the economy such as agriculture, if they are deeply in debt at high interest rates and are unable to refinance, or that are dependent upon loans to finance capital goods when low interest rates are not available.

Deflation erodes the price of commodities while increasing the real liability of debt. Deflation is beneficial to those with assets in cash, and to those who wish to invest or purchase assets or loan money. More recent research, by economists such as Temin, Ben Bernanke , and Barry Eichengreen , has focused on the constraints policy makers were under at the time of the Depression.

In this view, the constraints of the inter-war gold standard magnified the initial economic shock and were a significant obstacle to any actions that would ameliorate the growing Depression. According to them, the initial destabilizing shock may have originated with the Wall Street Crash of in the U.

The gold standard required countries to maintain high interest rates to attract international investors who bought foreign assets with gold. Fixing the exchange rate of all countries on the gold standard ensured that the market for foreign exchange can only equilibrate through interest rates. As the Depression worsened, many countries started to abandon the gold standard, and those that abandoned it earlier suffered less from deflation and tended to recover more quickly.

Monetary Policy , wherein he argued that the Federal Reserve actually had plenty of lee-way under the gold standard, as had been demonstrated by the price stability policy of New York Fed governor Benjamin Strong , between and But when Strong died in late , the faction that took over dominance of the Fed advocated a real bills doctrine, where all money had to be represented by physical goods. Economic historians especially Friedman and Schwartz emphasize the importance of numerous bank failures.

The failures were mostly in rural America. Structural weaknesses in the rural economy made local banks highly vulnerable. Farmers, already deeply in debt, saw farm prices plummet in the late s and their implicit real interest rates on loans skyrocket. Their land was already over-mortgaged as a result of the bubble in land prices , and crop prices were too low to allow them to pay off what they owed. Small banks, especially those tied to the agricultural economy, were in constant crisis in the s with their customers defaulting on loans because of the sudden rise in real interest rates; there was a steady stream of failures among these smaller banks throughout the decade.

The city banks also suffered from structural weaknesses that made them vulnerable to a shock. Some of the nation's largest banks were failing to maintain adequate reserves and were investing heavily in the stock market or making risky loans.

In other words, the banking system was not well prepared to absorb the shock of a major recession. Economists have argued that a liquidity trap might have contributed to bank failures. Economists and historians debate how much responsibility to assign the Wall Street Crash of The timing was right; the magnitude of the shock to expectations of future prosperity was high.

Most analysts believe the market in —29 was a "bubble" with prices far higher than justified by fundamentals. Economists agree that somehow it shared some blame, but how much no one has estimated.

Milton Friedman concluded, "I don't doubt for a moment that the collapse of the stock market in played a role in the initial recession". The idea of owning government bonds initially became ideal to investors when Liberty Loan drives encouraged this possession in America during World War I. This strive for dominion persisted into the s.

Economist David Hume stated that the economy became imbalanced as the recession spread on an international scale. The cost of goods remained too high for too long during a time where there was less international trade. The debate has three sides: There was a brief recovery in the market into April , but prices then started falling steadily again from there, not reaching a final bottom until July This was the largest long-term U.

To move from a recession in to a deep depression in —32, entirely different factors had to be in play. Protectionism , such as the American Smoot—Hawley Tariff Act , is often indicated as a cause of the Great Depression, with countries enacting protectionist policies yielding a beggar thy neighbor result.

This event may have worsened or even caused the ensuing bank runs in the Midwest and West that caused the collapse of the banking system. A petition signed by over 1, economists was presented to the U. Governments around the world took various steps into spending less money on foreign goods such as: These restrictions formed a lot of tension between trade nations, causing a major deduction during the depression.

Not all countries enforced the same measures of protectionism. In a survey of American economic historians, two-thirds agreed that the Smoot-Hawley tariff act at least worsened the Great Depression. Economist Paul Krugman holds that, "Where protectionism really mattered was in preventing a recovery in trade when production recovered".

He cites a report by Barry Eichengreen and Douglas Irwin: Figure 1 in that report shows trade and production dropping together from to , but production increasing faster than trade from to The authors argue that adherence to the gold standard forced many countries to resort to tariffs, when instead they should have devalued their currencies.

He notes that exports were 7 percent of GNP in , they fell by 1. When the war came to an end in , all European nations that had been allied with the U. This is one reason why the Allies had insisted to the consternation of Woodrow Wilson on reparation payments from Germany and Austria—Hungary. Reparations, they believed, would provide them with a way to pay off their own debts. However, Germany and Austria-Hungary were themselves in deep economic trouble after the war; they were no more able to pay the reparations than the Allies to pay their debts.

The debtor nations put strong pressure on the U. The American government refused. Thus, debts and reparations were being paid only by augmenting old debts and piling up new ones. In the late s, and particularly after the American economy began to weaken after , the European nations found it much more difficult to borrow money from the U. At the same time, high U. The Great Depression was a result of many different factors.

The post-war global economy was weak. Also, agricultural over-production proved to be a nuisance, which was made worse by falling food grain prices. To counter this, farmers began to increase production and bring even more produce to the markets to maintain their annual incomes. This led to such a glut of food grains that prices plummeted further and farm produce was left to rot.

Most countries took loans from the US, but American overseas lenders were wary about the same. When they decreased the amount of loans, the countries economically dependent on US loans faced an acute crisis.

In Europe, this led to the failure of major banks and currencies such as the British pound sterling. In a bid to protect the American economy, USA doubled import duties. This worsened the world trade scenario. All these factors contributed to the Great Depression. It affected USA the worst on account of its being a global loan provider and the biggest industrial nation. How did overproduction cause the Great Depression?

Over production played a role in causing the Great Depression because businesses were not cutting back on making products, however businesses were laying off workers. If a person is unemployed then he or she can not buy the products that are being mass produced.

If the products were not getting bought then the businesses were laying off employee's. A circle or a chain reaction. What three causes of the Great Depression? The biggest single cause was margin buying of stock. Soon there were billions of dollars of unpaid-for stocks in circulation, and investors got nervous, culminating in thousands of margin calls "we want the rest of our money NOW" , and runs on banks to remove cash money "while it was still safe".

Countless numbers of people who were very wealthy - but only on paper - were wiped out overnight. What are the four causes of the Great Depression? Stock Market crash of Businesses needed more money than they made on their products. What was the leading cause of the great depression? What was the key cause of the Great Depression? How long did the Great Depression long? If the question refers to the US, about ten years, for most if not all of the 's.

Even if the Stock Market Crash of could be universally agreed upon as the beginning of the Great Depression in America, its ending is even more difficult to tack down as recovery was very gradual. Some may choose to regard the attack on Pearl Harbor in as the official ending of the Great Depression in the US. The economy was already much improved by then, but it was vastly and immediately pumped up by the shift to wartime production. Does crystal meth cause depression after long term use? Yes, all users feel depression on cessation from severe to manic.

These feelings are however not permenent and will last from 1 week to 9 months depending on length of use and average dosage. After which full repair may take upto 3 years. In fact this has been identified as the single most difficult barrier to removing dependency by far.

Feelings of greyness, restricted emotional response and lack of goals will last for upto 9 months and can be extreme to ultra. People cannot syphathise with you because they haven't experienced desolation, you should not be in contact with people who can sympathise through similar feelings more on this follows.

After which the brain will repair itself provided the post-addict follows a protein based diet with 1 to 2 hours exercise per day, intense exercise to increase sleep and repair functions.

This is effectively a rebuild job of the dopamine neuron receptors. It is recommended that extreme exercise boxing, circuit training, sprint training hrs intense to the point of burn out be used to counter manic phases and pre-lapse moods.

Within 3 years all mental and physical functions can be restored. Do not attempt this unless willing to commit fully for days. Avoid all contact and break ties with all users. Remove all stimulants and depressants alcohol, nicotine these will impair your recovery and increase chance of relapse.

Select 2 or 3 pre-addiction interests to follow non- narcotic related. Your single goal is now recovery, follow this with a WILL with a daily plan and diary if necessary. There is no second chance but there is one and its better than none. The Black Company Croaker. What were the four causes of the Great Depression? Causes of the Great Depression in the United States: The stock market crash, structural weakness of the economy, overproduction, maldistribution of wealth and an international crisis contributed to the Great Depression in the United States..

Hoover was interested in world peace and wanted to advocate cooperative individualism. He said "people should depend on charity and take care of each other, we'll all suffer but we'll make it through". He was against federal aid during the great depression. He was unprepared to deal with this crisis and tried to tell people that laughter was the best medicine.

He lowered taxes and raised the tariff, as a result, international trade died out at this point. He encouraged volunteerism and businesses to tax cut and invest it in the economy. The Reconstruction Finance Corporation gave the government the ability to loan money to major failing banks and big businesses.

This was a very limited measure though. It only bailed out certain people for certain reasons and this angered the people.. Franklin D Roosevel's Response to the Crisis: During FDR's first days he waged war against the economy by attacks the baking crisis.

He also created an emergency banking which would loan money to failing banks from the federal reserve so they don't go totally under. The Glass Steagall Act was another one of his attempts; this was a separation of investment and commercial banking. According to the people, capitalism was save in 8 days. The National Industrial Recovery Act was created to cure over production, boost prices, protect labor, end cut throat competition and created the National Recovery Administration which meant that big businesses should have set standards, codes and wages to eliminate cut throat competition.

This put young men to work in national parks to work in forests preservation. The Public Works Administration was created to build roads, hospitals, bridges etc. He also created the Tennessee Valley Authority which hired unemployed to build dams to prevent floods..

Demands of the Poulists and the Second New Deal. Father Coughlin attacked Wall Street and capitalism. He wanted government ownership of industry and supported fascism. He had complete control over every branch in LA. He also wanted a guaranteed national income an free college. Sinclair ran for gov of CA and experienced the first negative campaign.

He wanted to put the poor people to work on the fallow lands in CA. Townsend as the spokesperson for the elderly in CA. He liked the idea of old age pensions and social security which would stimulate the economy but no one liked it because it w s too expensive.

The second new deal came about as a result of the populists. It also included the Wagner Act which established the workers' rights to collective bargaining. It outlawed firings and blacklistings of union members. It also created the Social Security Act which gave unemployment insurance to disabled and elderly.

He wanted the money to come from taxing the people. The Revenue Act of increased corporate taxes. African American's During the Depression. Eleanor worked for civil and equal rights but FDR never really touch the issue. Social Security was not extended to African Americans. They didn't generally give those jobs to African Americans. The Federal Housing Act also discriminated against blacks and further segregates America.

Fed Employment Practices were discriminatory and projects in the south refused to hire blacks. They were the last hired and the first fired. He encouraged hope for them. The affects of the New Deal on politics.

The new deal was the great debate between R and D. The debate was to either extend the new deal or cut back on it. Before the 's, the R were progressive and they slowly start becoming more conservative. The government expanded as well and it was the first time the government gets involved in the welfare of common people. FDR also increased the power of imperial presidency..

Life During the Great Depression. The people that lived through the Great Depression said "We didn't go hungry but we lived lean. The national income in was People moved to the cities to find jobs but there were no jobs were left. The homeless built shanty-towns around cities and called them Hoovervilles in spite of Hoover's response to the Depression and people began to blame Hoover for the Depression..

People stood in the breadline from charity handouts. People started eating jackrabbits and called them Hooverhogs. What was a significant cause of the Great Depression? What some causes of the Great Depression? What caused the Great Depression?

The Great Depression occurred when the economy failed. Banks were closing, and people were losing their savings, their jobs, and even their homes. The closing of many businesses put an unprecedented number of people out of work. Factors that contributed to the Great Depression include the stock market crash, the over-investment in stocks by the public, the weakness of the agricultural sector, the lack of farmers' and workers' purchasing power, and the ineffective policies of the Hoover administration.

With the stock market crash, the bank failures, and the loss of savings and homes, the entire economic cycle was depressed. Once the reduction in business activity began, it spiraled into a general collapse of the system of industry and finance.

A simple answer is that investors had lost confidence in the system and became fearful of losing their own savings and wealth. Coolidge prosperity did not extend to the masses of the Americans. Disparity of wealth was a major factor in the depression, because eventually people ran out of money to buy goods, produced by the masses.

Buy now-pay later became a dominant part of the s.


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The causes of the Great Depression in the early 20th century have been extensively discussed by economists and remain a matter of active debate. They are part of the larger debate about economic crises.

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long term causes of the great depression study guide by Isaac_Korus includes 7 questions covering vocabulary, terms and more. Quizlet flashcards, activities and games help you improve your grades.

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(see related question) 1. Stock Market Crash of Many believe erroneously that the stock market crash that occurred on Black Tuesday, October 29, is one and the same with the Great Depression. In fact, it was one of the major causes that led to the Great Depression. 5 Causes of The Great Depression What caused the Great Depression, the worst economic depression in US history? 1. According to this author, the causes of The Great Depression a. are agreed upon by all historical scholars. b. are taught only in upper-level history courses in universities. Long-term underlying causes sent the .

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The stock market crash in October is believed to be the immediate cause of the Great Depression, but there were many other factors and long-term causes that developed in the years prior to the depression. Causes and Consequences of the Great Depression America had gone through hard times before: a bank panic and depression in the early s, and other economic hard times in the late s, the mids, and the early and mids.