Essay/Term paper: The great depression

Essay, term paper, research paper:  Economics

The Great Depression

All these changes affects the society in different ways .The Great Depression
caused many people to destruct businesses and led the government to regulate the
businesses and economic affairs. All this increased regulation led to the
widespread belief that the government should promise or guarantee citizens a
good life, and high employment. After the depression, many people no longer
trusted employers to protect workers.

As a result labor unions gained more members and grater public acceptance then
ever before. Depression makes some people lose there faith in government which
then brings them to not believe anybody who promises a change.

Can anyone tell me who you think was the two leaders that actually took part
during the depression was? (show overhead of the fifth paragraph) Leaders who
actually took power during the depression were Adolph Hitler and Benito
Mussolini who of which was the dictator of Italy from 1922 to 1943 just like
Hitler was dictator of Germany from 1933 to 1945. Relation between the nations
suffer during a depression. Basically each country tries to protect its own
interests without concerns of other nations.

Depression hurt a lot of people, especially working people who lose there jobs.
Bank failures clean out some depositors savings if funds are not ensured. When
there was the depression, most people can not meet the house or apartment
payments so they lose there homes and become homeless.

During a depression some people must live on charity just to support themselves
and there families. Sometimes the people who get the charity money, clothes, and
food get kind of embarrassed that they need the money and they feel ashamed that
they can't afford to support themselves which is basically not their fault. The
Great Depression caused lots of marriages and birth rates to decline. If you
were a younger person and you didn't have a job you would delay your wedding
until you have enough money to pay for it just because of the depression. Most
of the time when your unemployed for a long time you lose faith in yourself and
in the future. After a depression many people value security more than anything
else.

Some people profit from the depression, like people with enough money can buy
businesses, stocks, or other property for a very low price.

From what I hear economists disagree on what causes depressions and how they
are or can be prevented .Some economists believe that psychological factors such
as peoples optimism or pessimism, determine decisions to save or spend.

Several theories maintain that population changes or inventions cause periods of
expansion and contractions-(depression or recession). When immigration or higher
birth rates cause a population to grow, demands tends to increase.

When population growth slows down, demands drop by huge amounts. Such inventions
as the automobile and color television spur business investments and consumer
spending, causes expansion. After demand for these products has been satisfied,
spending drop offs resulting in contraction. Still other theories suggest that
during expansion, business invest too heavily in buying.

The expanded role of the federal government came to be accepted by most all
Americans by the end of the 1930's. Even republicans who had bitterly opposed
the new deal shifted there stance.

Wendle Wilkie the republican president nominee in 1940 declared that he couldn't
oppose reform such as regulation of the security markets and the utility holding
companies, the legal recognition of unions, or social security and unemployment
allowances. What bothered him so much and not just him but other critics was
extensions of the federal bureaucy. In March of 1933 president Roosevelt
declared "There is nothing to fear but fear itself."

The great depression was the worst economic slump ever in the U.S History, and
one which spread to virtually all of the industrialized world. ( show second
paragraph of overhead) However, the main causes for the depression was the
combination of the greatly unequal distributions of wealth throughout the 1920's,
and the extensive stock market speculation that took place during the latter
part that same decade. The maldistribution of wealth in the 1920's existed on
many levels. Money was distributed disparately between the rich and the middle
- class, between industry and agriculture within the United States, and
between the U.S. and Europe. This imbalance of wealth created an high, but
eventually lead to large market crashes. These market crashes, combined with
the maldistribution of wealth, caused the American economy to capsize.

Another main cause of the great depression happened during the roaring twenties.
The "roaring twenties" was an era when our country prospered tremendously.
The nation's total realized that the income had rose from 74.3 billion dollars
in 1923 to 89 billion dollars in 1929. However, the rewards of the "coolidge
prosperity" of the 1920's were not shared evenly among all Americans. According
to a study done by the Brooking Institute, in 1929 the top .1 percent of
Americans had a combined income equal to the bottom 42 percent. That same top .
1 percent of Americans in 1929 controlled 34 percent of all savings, while 80
percent of Americans had no savings at all. ( show third paragraph of
overhead) This might have sounded very confusing so I made an overhead showing
what I explained.

A major reason for this large and growing gap between the rich and the working -
class people was that the increased manufacturing output throughout this period.
From 1923 - 1929 the average output per worker increased 32 percent in
manufacturing. During that same period of time average wages for manufacturing
jobs increased only 8 percent. Thus, wages increase at a rate as fourth as
fast as productivity increased. As production costs fell quickly, wages rose
slowly, and prices remained constant, the bulk benefit of the increased
productivity went into corporate profits. In fact, from 1923 - 1929 corporate
profits rose 62 percent and dividends rose 65 percents.

The large and growing disparity of wealth between the well - to - do and the
middle - income citizens made the U.S. economy unstable. This made the economy
function poorly which also lead to the great depression. For an economy to
function properly, total demand must equal total supply. In an economy with
such disparate of income it is not assured that demand will always equal supply.
Essentially what happened in the 1920's was there was an oversupply of goods.
It was not that the surplus products of industrialized society were not wanted,
but rather that those whose needs were not satisfied could not afford more,
whereas the wealthy were satisfied by spending only a small portion of their
income. ( show overhead of fourth paragraph) Through such a period of imbalance,
the U.S. came to rely upon two things in order for the economy to remain on an
even keel which helped to decrease the chances of going through the depression:
credit sales, and luxury spending and investment from the rich.

One obvious solution which might have stopped the depression was to let those
who wanted goods to buy the products on credit. The concept of buying now and
paying later caught on quickly. By the end of the 1920's, 60 percent of cars
and 80 percent of radios were bought on installments credit. Between 1925 and
1929 the total amount of outstanding installment credit more than doubled from
1.38 billion dollars to around 3 billion dollars. Installment credit allowed on
to "telescope the future into the present", as the president's committee on
Social Trends noted. This strategy created artificial demand for products which
people could not ordinarily afford. It put off the day of reckoning, but it
made the downfall worse when it came. By telescoping the future into the
present, when the "future" arrived, there was little to buy that hadn't
already been bought. In addition, people could no longer use their regular
wages to purchase whatever items they didn't have yet, because so much of the
wages went to paying back past purchases.

The U.S. economy was also reliant upon luxury spending and investment from the
rich to stay afloat during the 1920's. The significant problem with this
reliance was that luxury spending and investment were based on the wealth's
confidence in the U.S. economy. If conditions were to take a downturn ( as they
did with the market in fall and winter 1929) , this pending and investment
would slow to halt. While savings and investment are important for an economy
to stay balanced, at excessive levels that are not good. Greater investment
usually means greater productivity which were not being distributed equally,
the problems of income distribution were only made worse. Lastly, the search
for ever greater returns on investments lead to wide - spread market
speculations.

So far, all these causes of depression might not be familiar with you but, they
could affect the economy in great ways and that is why the Us. Economy has
studied these causes so that they are prepared for the future. All of the causes
that I have listed above are just the few causes to the Great depression. In
fact, there are lots of other minor or major causes. Can anyone at least name
one cause. (show overhead of main causes).

To understand the Great Depression, it is important to know the theories of
John Maynard Keynes. (show overhead of sixth paragraph) Keynes is known as the
"Father of modern Economics" because he was the first to accurately describe
some of the causes and cures for recessions and depressions.

In a normal economy, Keynes said, there is a circular low of money. MY
spending becomes part of your earnings, and your spending becomes a part of my
earnings. For various reasons. However, this circular flow can falter. People
start hoarding money when times become tough; but times become tougher when
everyone starts hoarding money. This breakdown results in recession.

To get the circular flow of money started again, Keynes suggested that the
central bank—in the U.S., the Federal Reserve System – should expand the money
supply. This would put more money in people's hands, inspire consumer
confidence, and compel them to start spending again.

A depression, Keynes believed, is an especially severe recession in which
people hoard money no matter how much the central bank tries to expand the money
supply.(show overhead of seventh paragraph) In that case, he suggested that
government should do what the people were not: start spending. He called this
"priming the pump" of the economy. Indeed, most economists believe that only
massive U.S. defense spending in preparation for World War II cured the Great
Depression.

(Show overhead of Chart)

3.20 % Hoover era, Great Depression begins
24.9 FDR, New Deal begins; contraction ends, March

19. Recession begins, May

As you can see, Roosevelt began relatively modest deficit spending that
arrested the slide of the economy and resulted in some astonishing growth
numbers. When 1936 saw a phenomenal record of 14 percent growth. Roosevelt
eased back on the deficit spending, overly worried about balancing the budget.
But this only caused the economy to slip back into a recession, as the above
chart shows.

I have been unable to find reliable economic growth figures from World War II,
but as a generalization it is safe to say the economy exploded, experiencing
it's greatest growth in the U.S history. Between 1940 and 1945, the GDP nearly
doubled in size, form 832 billion dollars to 1559 billion dollars in constant
87 dollars. And this occurred as deficit spending soared, to levels Keynes
had earlier and unsuccessfully recommended to Roosevelt.