paraphrase essay

The Great Depression

The Great Depression was one of the worst periods in American History, with millions of Americans becoming prominently poor. It began in 1930, and lasted for about 15 years, making it the longest depression of recent memories. The entire world saw a significant decrease in their economy, and it originated in the United States. This took place once the stock prices fell, which ultimately resulted in the stock market crash of October 29, 1929. This day became known as Black Tuesday for its devastating effects that affected the poor and the rich alike. With the stock market crash, personal income declined significantly, the government was collected significantly less money in taxes, and unemployment rates increased to as high as one third of the population. There are a number of main causes for this incident, and various reasons for why it lasted so long.

One of the causes of the Great Depression is the decline in construction and agriculture. Prior to the stock market crash, there appeared to be a boom in construction that took place in 1918. This large construction boom had been helping the economy significantly, and it would ultimately lead to its downfall. After rising throughout the years, the construction boom would decline in 1928 (Walton 420). Additionally, the agriculture sector had a similar effect. In the 1920’s agriculture was booming, and generating lots of revenue for the economy. It would face a significant decline that would have an impact on the economy.

The Smoot-Hawley Tariff is one of the major causes of the Great Depression as well that drove the economy downward. “The tariff was passed in June 1930. It raised tariffs on a wide array of goods, especially agricultural products” (Walton 426). Thousands protested against the tariff, and many prominent leaders even signed a petition that they gave to President Hoover. The issue with the tariffs is that the high tariffs would reduce imports. This made it more difficult for other countries to profit from U.S. exports, and many believed that other nations would react by doing the same. They were ultimately right, and the other countries did increase their tariffs as a form of retaliation. This would impact trade significantly, causing trades between countries to decline. This feat decreased profits for markets all over the world, and would become one of the major causes of the Great Depression.

The stock market crash was the most prominent cause of the Great Depression, and its effects were more devastating than any other. There was a significant increase for industrial stocks, which is why so many had been entrusted in placing their life savings in there. The shares were 110 in 1924, 338 in January of 1929, and 452 in September of 1929 (Walton 421). This significant rise had led many to believe that they would inevitably attain a return on their investment, which is what caused so many Americans to invest their life savings. Technology was booming in the 1920’s, and the stocks of the companies that produced these innovations were soaring rapidly. These companies included Radio Corporation of America (RCA) and General Motors, whom invented goods such as the radio, automobiles, and telephones (“Wall Street Crash”). “Investors were infatuated with the returns available in the stock market especially with the use of leverage through margin debt” (“Wall Street Crash”). The margin debt is securable through stocks or bonds, and provided them a form of collateral that enables protection to the banks that loan them. Aside from investing with their own money, they had acquired loans to use in the stock market. Investors that were playing in the stock market were making a fortune, which caused other Americans to follow suit. “President Hoover and officials at the Federal Reserve worried about excessive speculation and the danger of a crash” (Walton 421). Sure enough, their worst nightmare would come to life. The 1929 stock market crash “significantly accelerated the mild downturn then under way because of the catastrophic magnitude of the decline and the uncertainty it created about the future course of the economy” (Walton 421). This single crash would have devastating effects that would impact the functionality of the United States economy, which would ultimately impact the world as well. This single incident would spark the Great Depression, and it has become the most evident factor of all.

Another cause of the Great Depression was the banking crisis that took place. “Morale might have improved, and the stock market and the economy might have regained some buoyancy had it not been for the structural weaknesses of the banking system” (Walton 424). This is due to the wave of bank failures that took place in the early 1930’s as a consequence of the crash. “After the crash during the first 10 months of 1930, 744 banks failed – 10 times as many. In all, 9,000 banks failed during the decade of the 30s. It's estimated that 4,000 banks failed during the one year of 1933 alone. By 1933, depositors saw $140 billion disappear through bank failures” (“Bank Failures”). The bank failures had made the economy worse, and were impacting the economy significantly. They are directly linked to the decline of the economy, and they continued to drop throughout the years due to lack of support.

The Great Depression prolonged because nobody helped the banks recover in their time of need. “Although losses were heavy, these failures drew little attention from the Federal Reserve or the national media” (Walton 424). The government ignored the fact that banks were shutting down at a rapid rate, and decided not to take any action. This ultimately turned into the largest bank failure of United States history. Many historians agree that the Federal Reserve should have lent money to the banks, acting as a “lender of last resort” (Walton 424). The banks had become the foundation of which to stabilize the economy, and nobody was acting out to save them. They allowed them to fail throughout the years, and it provoked the economy from mending itself.

The Great Depression was able to last so long because of the fear that plagued the economy. People were worried about their money, and it prevented banks from functioning properly. “At times a rumor that a bank was in trouble would send people running to the bank to try to get their money out before the bank closed its doors, the classic sign of panic” (Walton 425). This ultimately caused people to be scared of giving their money to banks, which caused them to carry cash instead. This further hurt the banks, and deprived them of bank reserves. This had a devastating effect on banks: they refused to hand out loans in order to build their reserves. As a consequence, there were less bank deposits and less loans being given out. The economy was only getting worse through this fear, and it was preventing any possibility of solving the issue.

The Great Depression had such a lasting impact on the economy because the Federal Reserve failed to expand the money supply. “Federal Reserve officials failed to respond appropriately. Most explanations fall into two categories. One holds that Fed officials, though well-intentioned, failed to understand that more aggressive action as needed” (Wheelock). The economy was suffering in front of them, and they did not proceed to make the right moves in order to ensure that the money would flow adequately. This could have occurred due to lack of experience, but it would ultimately be one of the primary factors that prolonged the Great Depression for as long as it did.

The Great Depression was a terrible time period in United States history that has taught us lessons with hopes of never having such a depression again. There was lack of trade between nations; thousands of banks shut down, and millions of Americans found themselves to have a lack of food. The causes of the Great Depression have been analyzed by economists throughout the world in order to understand how it has been caused. They have learned that tariffs should be kept relatively low in order to keep trade markets open between nations, and that the banks should always be helped out if they are struggling. Additionally, they need to monitor the sectors in order to see how well the economy is functioning as a whole. Americans have learned a lot from this experience as well, such as making better choices. Millions rushed after in order to invest their stocks in the market, and all of them would ultimately become devastated by the chance that they took with their life savings. The fear of the banking crisis also taught people that they should not withdraw their money from the banks all at once because it will have a significant effect on the economy. When banks are in a failure crisis, they will not provide out loans in order to meet their reserve. For this reason, it is best to take care of the banks in order to ensure that the economy is functioning better. The Federal Reserve has also learned to improve the money flow throughout the economy in order to ensure that this issue does not happen again. They weren’t as aggressive in their action during the Great Depression, and they have learned that they should be if it ever happens again.

References:

"Bank Failures." N.p.. Web. 11 Dec 2013.

<http://www.livinghistoryfarm.org/farminginthe30s/money_08.html>.

"Wall Street Crash." Wall St Crash News and Stock Market History. N.p.. Web. 11 Dec 2013.

<http://www.wallstcrash.com/wall-street-crash-1929/>.

Walton, Gary M., and Hugh Rockoff. History of the American economy. 11th ed. San Diego

: Harcourt Brace Jovanovich, 2012.

Wheelock, David C.. "Monetary Policy in the Great Depression: What the Fed Did, and

Why." . N.p.. Web. 11 Dec 2013. <http://research.stlouisfed.org/publications/

review/92/03/Depression_Mar_Apr1992.pdf>.