History of the American Economy (Article Sample)

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Professor
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History of American Economy
Question 1: Main Causes of the Great Depression
The Great Depression refers to a grave global economic depression that was experienced in many nations in the decade that preceded the Second World War. It is recorded that the Great Depression traces its origin back in the United States, and this started at around 1930, following the fall in stock prices that occurred in late 1929 (Gray and Hugh 418). Indeed, it is acknowledged to being the deepest, lengthiest, and most severe global economic depression that ever occurred in the 20th century. The primary cause of this depression, which remains to be the most significant event in the American economic history, is believed to be the fall or crash of the stock market that commenced in the October of 1929.
Sarah (par 3) asserts to this by stating that the October 1929 stock market crash is believed to be the immediate origin of the Great Depression, but there were numerous different elements and long haul-causes that emerged in the years before the Depression. The Great Depression has mistakenly been held by many scholars to be the same as the stock exchange failure or crash that took place on what is commonly referred to as the Black Tuesday (October 29, 1929). Actually, it was one of the real causes that prompted the Great Depression, according to Gray and Hugh (420). Eight weeks after the initial crash or failure in October, stockholders complained of having experienced a loss of over forty billion US dollars. Despite the fact that the share trading system started to recapture some of its misfortunes before the end of 1930, it simply was insufficient, and America positively entered what is known as the Great Depression. In the 1920's more individuals put resources into money markets than at any other time, and it was between May 1928 and September 1929 that the normal stock prices rose by 40% (Sarah par 5). Stock prices escalated so rapidly that at the end of the decade, some individuals got rich overnight from the purchases and sales of stocks. Individuals could purchase stocks for just a 10% initial installment, and this culminated to an upsurge of the number of shareowners from 4 million to 20 million between 1920 and 1929. With these artificially low rates of interests together with a thriving economy, organizations and individuals put resources into over-priced stocks. Throughout 1928-1929 periods, the prices of numerous stocks escalated quicker than the organizations’ value presented by the stocks. Indeed, this was similar to pouring fuel onto a fire, whereby the blazes ascended, but no enduring fuel was added; even so, the economy looked incredible beyond any reasonable doubt.
The other causal factor that contributed to the occurrence of the Great Depression is the reduction in purchasing across the board. Sarah (par 6) mentions that people may have quit making new purchases with the intention to lessen the danger of losing things they recently had purchased on credit terms. All the same, there was a huge decline in consumer spending that brought down prices, and this implied that commercial organizations, farmers as well as commonwealths could not reimburse their financial obligations or debts. With the share market failure, coupled with the apprehensions of further fiscal misfortunes, people from all social classes ceased executing item purchases. This then prompted a diminishment in the amount of things manufactured, which consequently led to a decrease in the industrial workforce. Many individuals continued to suffer job loss, meaning that keeping up with the paying for things they had purchased on installment basis became difficult. This unfortunately led to repossession of their things, even as more inventories began to accrue. The rate of unemployment rose over 25%, a phenomenon that automatically implied less spending to aid in assuaging this economic condition.
The Great Depression was also caused by bank failures that were experienced throughout the 1930s, where thousands of banks were shut down. Sarah (par 7) asserts to this by stating that the stock values fell, banks and industrial plants closed down, stockholders were wiped out, and a large number of Americans were left poor and jobless. Moreover, bank deposits were left uninsured, and this led to intensified bank failures; something that essentially subjected many individuals to loss of savings. To exacerbate the situation, the surviving banks that were uncertain of the budgetary circumstance and concerned about their survival in the crisis became unwilling to process new loans; something that worsened the fiscal situation prompting lessened expenditures.
The tax and tariff policies adopted by the American economy during the 1930s are also thought to have contributed to the Great Depression. An example is the Smoot-Hawley Tariff developed by the American federal government aiming at protecting the American corporations as businesses started to suffer failure. With such policies, there were high charges for imports, which accordingly prompted less trading transactions between America and overseas nations alongside some budgetary reprisal. Sarah (par 4) specifies that America entered the 1920s with Warren Harding as president; a Republican president and a laissez-faire entrepreneur who supported policies that permitted monopoly formation, minimized trade regulations and taxes, and permitted income and wealth inequality to achieve record levels. Calvin perpetuated Harding’s strategies of marginal intervention by the federal government in business and economic matters after the latter’s death. Under Coolidge, the share trading system, started experiencing some improvement, and after five years, there had been a 25% reduction of the top tax rate. It is worth noting that it is during Coolidge’s time that the Supreme Court made a vital ruling, which further restricted the amount of control that the government exercised over monopolies.
The last factor believed to have caused the Great Depression, though in an indirect manner, is the agriculture-related failure due to artificial as well as natural factors. The artificial factors that led to agricultural failure, and hence economic Depression as Sarah (par 8) notes, is the bank failures in the areas of agriculture. This is to state that there was much money lost by various agriculturists and farmers during this time, meaning that they were rendered unable to pay for theirs farm mortgages. Those who could not manage to pay for their land were indeed compelled to move, and this explains why the late 1920s and early 1930s were characterized by prospering businesses and less prosperous farmers. To worsen the situation, natural forces hit the nations and the natural factor realized during the Great Depression period is the drought that occurred in the Mississippi Valley in 1930. This is thought to have contributed to the Great Depression in the sense that numerous individuals could not even pay their duties or alone other debts, meaning that they had to sell these mortgages and farms at a loss.
Question 2: Reasons as to Why the Great Depression Lasted Long
The Great Depression, established to have started in 1930 the United States and other nations, is believed to have lasted for over a decade, that is, until the late-1930s or mid-1940s. Lee (par3-4) says that the Depression lasted longer than it ought to have taken, and this is because of manufacturing output failur...