Wednesday, August 11, 2010
The Great Depression is the name given to a worldwide business slump that occurred in the 1930's. The high employment and low business activity of this period of time ranked it as the worst depression in modern times. The Great Depression started on October 29, 1929, when the values of stocks in the United States dropped quickly and thousands of stockholders lost large sums of money. The savings and investments of many stockholders were wiped out completely. Banks, factories, and stores closed their doors and left millions of Americans without jobs or money. Many people had no choice except to rely on the government to provide food for them or to accept charity from other people. President Herbert Hoover was in the White House when the Great Depression started. The voters rejected Hoover in 1932 and elected Franklin D. Roosevelt as President. The reforms of Roosevelt gave more power to the federal government and helped to ease the depression. We now know that those same reforms helped to keep our nation in the depression. Every nation was affected by the Great Depression, which caused a sharp decrease in world trade because every country was trying to strengthen its own industries by raising tariffs on imported goods. Because of the Great Depression, many countries changed leadership and type of government. Examples of how the poor economic conditions of the times caused changes would be the rise of the German dictator Adolf Hitler and the Japanese invasion of China. Adolf Hitler's plans to make Germany a world leader gave hope for improved conditions to the German people. Japan developed industries and mines in Manchuria (a part of China), claiming that this economic growth would relieve the depression in their own country. World War II (1939-1945) was brought about because of the militarism of the Germans and the Japanese. World War II ended the Great Depression because nations increased their production of war materials, which provided many jobs and put large amounts of money back into circulation. The severity of the Great Depression had many causes. The stage for the depression was set in the 1920's when many banks failed and farmers and factory workers had low incomes. The decade of the 1920's was a time of prosperity for businesses, but the prices of farm products fell about 40 percent in 1920 and 1921. With farm income remaining low through the 1920's, farmers lost so much money that they could not pay their mortgages and had to either rent out their farms or move. Bank failures increased during the 1920's with about 550 banks going out of business from July 1, 1928, to June 30, 1929. Most of the bank failures occurred in rural areas because farmers experienced poor conditions. This uneven distribution of money was also a cause of the depression. Farmers and workers in the coal, railroad, and textile industries did not share in the prosperity. There was a 50 percent increase in industrial production, but the wages of industrial workers rose much slower. Goods were produced faster than works could afford to pay for them, and many people started to use credit to buy goods. After a time, workers reduced their spending in order to control their debt, causing a reduction in the amount of money in circulation and business to worsen. The average price of common stocks on the New York Stock Exchange more than doubled from 1925 to 1929. This great rise in stock values encouraged many people to speculate or to buy stocks in hopes of profiting from future price increases. When stock values plunged on Black Thursday (October 24, 1929), most stock prices remained steady on Friday and Saturday before falling again the next Monday. Stockholders panicked on Tuesday, October 29, and sold a record 16,410,030 shares of stock. This giant sale caused thousands of people to lose huge amounts of money because stock values fell far below the prices paid for the stock. Banks and businesses that had purchased stock lost so much that they had to close their doors. Stock values continued to fall steadily for the next three years. The effects of the Great Depression are still felt in our nation today. Before the depression, people considered bankers and business executives to be the nation's leaders. When the stock market crashed and banks and businesses could not relieve the depression, Americans lost faith in them. When the federal government finally succeeded in improving conditions, the people decided that the government should be responsible for maintaining the national economy. Because the federal government increased federal control over banks and the stock market, the government had more power to provide money for the needy. The Social Security program in existence at this time is a result of the Great Depression because the government thought it was better to "retire" older people in order that younger people would have jobs. Since the depression, both Republicans and Democrats have sought to broaden the powers of the federal government. The government now has programs to provides hospital and medical insurance for the aged and to regulate price and wage increases. The Obama Administration has added more regulations to broaden the powers of the federal government. The attitudes of many Americans were changed by the depression. Some people who lived through the Great Depression became very concerned about material possessions and wanted material comforts lost or never previously owned. They wanted appliances, cars, homes, and financial security. Many people, like my own parents, wanted to be better prepared for any future economical down turns and saved literally everything including such things as nails, various types of materials, items of clothing, etc. This importance of material conditions and financial security that developed among many people of the depression era affected relationships between parents and children. People of my generation did not have the experience of losing everything or struggling to find work or not having food to eat and did not understand the behavior and attitudes of their parents. This emphasis on material possessions and financial security, combined with a lack of communication, helped to create the "generation gap" of the 1960's and early 1970's. Our nation and the world are now experiencing an economical downturn similar to the Great Depression. Unemployment stands at 9.5 percent. Work is hard to find. Businesses are downsizing. Homes are being repossessed. The federal government is instituting new programs to "redistribute the wealth" of our nation. It appears that my generation should have learned the lessons of the Great Depression: stay out of debt, prepare for the unexpected, maintain an emergency fund. Can the rising generation learn the lessons without having to experience the hardships? Only time will tell. Facts for this post came from an article by Robert Sobel in The World Book Enyclopedia, Vol. 8, pp 338-343.