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This free sample of custom written essay is about The Great Depression, which was an economic disaster for the United States and the World. The essay discloses the causes for the Great Depression and their impact on the U. S. The measures taken by U.S. government are being discussed. Particular attention is paid to Keynesian tools for influencing the aggregate demand by the government.

The Great Depression

In the October of 1929^th the economics of the US experienced a deep economic crisis, lately it was recognized as the deepest in the history. This crisis was named “the Great Depression” and quickly expanded on most of the world’s industrial countries (especially on European countries, which were involved in the financial liabilities with the US).

The origin of the crisis was the complete and unexpected ruin of the stock quotation on New York Stock Exchange on “Black Thursday”, October 24, 1929. “Interest rates were increasing and monetary policy was adrift, but the real problem seems to have been that the market was simply overheated, and the bubble burst … some $10 billion in stock values disappeared as the market plunged” (Markham, 2002, p.153-154). The worth of stock reduced up to ninety percent and most of depositors became bankrupts. This period is characterized by the great rate of the suicides – many people did not want to accept their losses. Among well-known self-murderers there were the president of Union Cigar and the president of New Your County Trust Company. The panic on the stock exchange was caused by the crisis of the overproduction. “Stock losses for just the month of October 1929 totalled some $50 billion, an amount exceeding that spent by the United States in waging World War I” (Markham, 2002, p.155). Due to the overproduction there were lots of the commodities in the turnover and there were not enough customers to purchase these commodities. Banks restrained the crediting and thus economy lost the opportunities to develop and functionate in the usual order. More than 80,000 of commercial and governmental organizations, corporations and banks bankrupted within 1929-32. The overall economy level was thrown away on the decades. All these resulted in the crisis of the transport, building, energy, trading, agriculture and other main branches of the economy. The number of unemployed replenished with millions of people and mounted to the fourth part of the overall US population (about 24.9 percent). People, who lost their houses, settled on the outskirts, constructing dwellings from the boxes. The warehouses were overcrowded, the prices infinitely decreased and manufacturers were forced to burn and destroy excess of their supply.

Despite of that most companies bankrupted many large corporations and monopolies survived, merged smaller ones and multiplied their capital by the end of the period of the Great Depression. Some businesses had also found their niche, cut costs and successfully operated. “The Great Depression of the 1930s and the accompanying economic hardships set the stage for another retailing change … Supermarkets were comprehensive grocery stores that were designed for self-service and consumer accessibility. Their size and low-cost facilities enabled them to operate on low margins and sell below the competition” (Meyer, Green, p. 241).

In 1932 President Hoover had established a Reconstruction Finance Corporation so as to supply organizations with funds required for survival. Organization injected billions into financial support of banks and small businesses, but its activities were inefficient. In 1933 the banking system of the United States collapsed. The government could not cope with the crisis and the new president, Franklin Roosevelt, decided to use several Keynesian tools – governmental regulation of the economics – in order to do cope with The Great Depression. John Maynard Keynes analyzed how aggregate demand for goods and services can cause recessions and depressions. “Keynes advocated policies to increase aggregate demand, including government spending on public works” (Mankiw, 2003, p.441) and emphasizes the role of governmental regulation in the economy. He supposes the major factors that drive aggregate demand curve are wealth effect, interest-rate effect and exchange-rate effect. Interest rate and exchange rate should be exactly at the equilibrium level, where supply meets demand. Federal Reserve can affect interest rate by buying or selling government bonds, and, correspondingly, increase or decrease money supply. Other influential tools for affecting the economy via aggregate demand available to the government include government purchases and tax rates.

Roosevelt’s “New Deal” emphasized the importance of regulation of the spheres of crediting, making banks safe and trading. In 1933 Emergency Banking Act enforced licensing of banks to assure their solvency. Roosevelt insisted that proper crediting stimulates the development of small and medium businesses, households and farming. Properly regulated trading will help to relieve from production surplus, load productive capacities and decrease unemployment rates. Both regulated crediting and trading will bring economy to the equilibrium. Keeping in mind Keynesian principles he started the “New Deal”. Roosevelt decided to devalue the dollar with the help of price of gold so as to increase prices for goods and services. The president established the National Recovery Administration, authorized to develop rules for businesses and create a preconditions for fair competition. There were accepted many significant laws and regulation acts in the United States of America in the following fields: banking and financial systems, rejection of the gold standard, insurance (endowment and social), manufacturing sphere (especially labour code, code of honest competition, wages etc), unemployment, agriculture, trade unions, provision of pensions, taxation, courts etc. Banking, trading and speculation in stocks were taken under governmental control. Roosevelt actively used interest rate, government purchases and tax rates to influence the economy, unemployment and inflation of the United States during crisis. Indeed, the “New Deal” snatched out the US economy from the Great Depression for a certain period of time, but it could not save the economy from the next crisis in the 1937.

United States of America became able to completely overcome the Great Depression by the beginning of the World War II (1941), while other countries were still affected by its consequences.

Finally, I want to draw out the conclusion: during the period of the Great Depression (1929 – 1941) the world’s economy was thrown away on the decades. It was characterized by the crisis of the stock exchange panic, low purchasing capacity, bankruptcy, complete malfunction of banking and financial systems, unemployment and hunger. But monopolies and some organizations learned to survive and grew during this period – it even can be said that US line of policy supported their survival and development. The United States of America overcame this period and despite of all negative effects gained much positive (especially rejection of the gold standard, development of social insurance, code of labour, reforms, fair competition code etc). The main reasons of the Great Depression were: overproduction, unbalanced distribution of the capital in the country, panic on the stock exchange etc. Roosevelt’s “New Deal” in alliance with the Keynesian economy regulation tools as interest and exchange rates, government purchases and tax rates played the major role in the overcoming of the crisis – economy was regulated by the government but not to the prejudice of the private property, and this, in turn, allowed the economy to achieve equilibrium in short run.

References

Earl C. Meyer, Winifred L. Green. (2001). Discount stores. In Encyclopedia of Business and Finance. (Vol. 1, pp.241-245). New York: Macmillan Reference.

Jerry Markham. (2002). A financial history of the United States. Vol. 2. New York: M. E. Sharpe.

Gregory Mankiw. (2003). Principles of Macroeconomics (3^rd edition). South-Western College. 

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