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THE GREAT DEPRESSION OF 1930.
Term Paper ID:30571
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Essay Subject:
Causes of the Great Depression.... More...
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6 Pages / 1350 Words
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Paper Abstract:
Causes of the Great Depression. Examines initial events leading to high unemployment and bank failures. Timetable of major events. Effects of the New Deal and World War II. President Franklin D. Roosevelt's policies. Broad range of government policies to help unemployed Americans. Economic theories of John M. Keynes.
Paper Introduction:
The Great Depression of the 1930s
Although the Great Depression is largely acknowledged to have begun in 1929 and ended with the onset of World War II, there were events before 1929 that affected the economy during the 1930s. The timeline present below highlights some of the major events of the Great Depression ("The Great," 2000).
Year
Event
1919
The Economic Consequences of the Peace published by John Maynard Keynes
1920
Protectionist Jones Act passed, requiring that vessels used to ship merchandise between US ports be owned and documented by the US
1923
Federally mandated minimum wage is declared unconstitutional by the Supreme Court in a District of Columbia case
1928
Herbert Hoover elected president
1929
October 24, stock market crashes ("Black Thursday"
1930
Treatise on Money published by John Maynard Keynes
Smoot-Hawley Tariff Act passed in June
1931
September 21, Britain goes off the gold standard
December 11, New York Bank of the United States fails
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Keynessupported large public works projects, financed through governmentborrowing, to stimulate employment. The CCC was designed to provide employment to young (aged 18 to25) men. Even the AAA offered increased incomes tostruggling farmers. The young men worked in rural areas maintaining forests andpublic parks, stocking rivers, and working on flood control projects. (2 1). His greatest acceptance came not inhis own country (England), but in the United States, where public works anddeficit spending were already underway in Roosevelt's New Deal. (2 ). (1999). The Great depression versus themillenial slowdown. The theory was that income, spendingand employment would all expand as a result. (2 1, August 2 ). As with other New Dealprograms, the TVA largely employed young men engaged in large constructionprojects. Internet address: http://www.korpios.org/resurgent/Timeline.htm. Stone, A. Whether these three programs were successes or not depends on theanalysis performed. Morethan three million men served in the CCC between 1933 and 1941, earning $3 per month, $22 of which was sent home to dependents by federal mandate("Civilian Conservation Corps," 2 1). Issues to consider. Internet address:http://newdeal.feri.org/tva/tva 1.htm. For example, the GNP fell from $1 4billion to $59 billion between 1929 and 1932. John Maynard Keynes. References Agricultural Adjustment Administration. Keynes further argued that the level of investment isdependent on the expected rate of return on investment and the current rateof interest (gain versus cost). Keynes recognized that the depression required extraordinary measures,and so endorsed policies that were not strictly monetary in nature. By comparison, the unemployment rate in 2 1is below five percent (Stone, 2 1). (2 1). (2 ). In addition, theCCC and TVA also helped to build the infrastructure that was necessary topromote interstate commerce. These men worked away from home for months at a time and much oftheir pay was sent home to support families and dependents ("TVA," 2 1). With the depression of the 193 s came unemployment rates as highas 25 percent, and economists were forced to reconsider traditional wisdom. Tounderstand Keynes, it is necessary to understand the economic environmentof his time. The New Deal The New Deal encompassed a broad range of various government programsdesigned to give unemployed Americans a "new deal" in the workplace. Internet address: http://minneapolisfed.org/econed/essay/back 1.html. Internet address:http://www.tsha.utexas.edu/handbook/online/articles/print/AA/nba2.html. If there is no change in the rate ofreturn, and the interest rate drops, then investment can be expected torise ("John Maynard Keynes," 2 ). The emphasis of the classical and neoclassical economists wason the production side of large industries: railroads, machinery andsteel, for example. The Agricultural Adjustment Act of 1933 created theAgricultural Adjustment Administration that adjusted production of dairyproducts, wheat, corn, cotton, hogs, and rice. The TVA alsoassisted in industrial and agricultural development, including buildingpower plants to bring electricity to this largely rural region whereelectricity was rare even during the early 193 s. All three survived well past the Great Depression, andcontinue in some form even today. How did Americans deal with the GreatDepression? Thedebate focuses both on the initial causes of the depression (the eventsleading to the high unemployment and bank failures of 1933) as well as theeffects of the New Deal and whether Roosevelt's policies would havesucceeded had World War II not occurred. J. In addition, six thousandbanks closed, and one-quarter of the population was unemployed by 1933.The 44 percent three-year decline in GNP has not been repeated since theGreat Depression and indicates how precipitous the fall was. (2 1). Internet address: http://www.businessweek.com/bwdaily/dnflash/aug2 1/nf2 1 82 _857.htm. Internet address: http://www.alaedw.clara.net/howdid.htm. John Maynard Keynes, whose radical economic theories would shape theUnited States during the Great Depression, was a product of his Englishbirth and schooling. Internet address:http://www.spartacus.schoolnet.co.uk/USARccc.htm. Who was John Maynard Keynes? But healso suggested that there could be market equilibrium at less than fullemployment. What Caused the Great Depression?|Source |Causes |Point of View ||Federal Reserve |Stock market crash |Liberal point of view focused ||Bank of |Declining prices |primarily on monetary policies ||Minneapolis |Declining money supply |and favoring government ||("Issues," 2 1) |Bank failures |intervention in the economy || |Slowing international | || |trade | ||Venture |Overly optimistic |Pro-business conservative ||Capitalist Robert|consumers at the |favoring private market ||Smith (Stone, |beginning of the |solutions rather than ||2 1) |depression, then overly |government intervention || |conservative (unwilling | || |to spend) | || |Lack of experience among| || |Federal Reserve members | ||World Socialist |Increased and inevitable|Socialist ||Movement |(according to the | || |economic and financial | || |environment and policies| || |of the time) | || |concentration of wealth | || |in fewer and fewer | || |individuals caused the | || |initial slump which was | || |exacerbated by Keynesian| || |policies | | Conclusion Economists, politicians and academics continue to debate the causes ofthe Great Depression even today, although many are quick to assert thatsuch a deep economic slowdown could not happen in today's economy. The timeline presentbelow highlights some of the major events of the Great Depression ("TheGreat," 2 ).|Year |Event ||1919 |The Economic Consequences of the Peace published by John Maynard || |Keynes ||192 |Protectionist Jones Act passed, requiring that vessels used to ship|| |merchandise between US ports be owned and documented by the US ||1923 |Federally mandated minimum wage is declared unconstitutional by the|| |Supreme Court in a District of Columbia case ||1928 |Herbert Hoover elected president ||1929 |October 24, stock market crashes ("Black Thursday" ||193 |Treatise on Money published by John Maynard Keynes || |Smoot-Hawley Tariff Act passed in June ||1931 |September 21, Britain goes off the gold standard || |December 11, New York Bank of the United States fails ||1932 |Reconstruction Finance Corporation created, Emergency Relief Act || |passed, Glass-Steagall Act passed (changing banks' relationship || |with the central bank), Revenue Act of 1932 increases top income || |tax rate from 25 percent to 63 percent, Franklin Roosevelt elected || |president ||1933 |Roosevelt declares bank holiday on Inauguration Day, Emergency || |Banking Relief Act requires mandatory bank inspections, the US goes|| |off the gold standard || |Civilian Conservation Corps created, Agricultural Adjustment Act is|| |passed (paying farmers not to grow crops), Tennessee Valley || |Authority created (all part of the New Deal) || |Glass-Steagall creates Federal Deposit Insurance Corporation, || |eliminates interest on checking accounts, prohibits commercial || |banks from participating in investment banking || |National Industrial Recovery Act (NRA) passed ||1934 |Gold Reserve Act is passed and Roosevelt increases price of gold || |from $2 per ounce to $35 per ounce, Securities and Exchange || |Commission created ||1935 |Works Progress Administration created, Social Security Act passed, || |NRA ruled unconstitutional by Supreme Court ||1936 |General Theory of Employment, Interest and Money published by John || |Maynard Keynes, Rural Electrification Act passed, Roosevelt || |re-elected, TVA ruled constitutional ||1937 |Key provisions of the Social Security Act (unemployment || |compensation and old age compensation) are ruled constitutional ||1938 |Fair Labor Standards Act establishes first minimum wage ||194 |Selective Training and Service Act (military draft) passed; men || |between the ages of 21 and 35 must register || |How to Pay for the War published by John Maynard Keynes || |Roosevelt elected to third term as president ||1941 |December, US enters World War II ||1944 |Bretton Woods Conference creates the International Monetary Fund | The early 193 s are considered by some to be the worst years of theGreat Depression (Edwards, 1999). Although Keynes wrote many different works during the 193 s, herevolutionized economic theory with the publication of, The General Theoryof Employment, Interest, and Money during the height of the Depression,1936 and was embraced by Roosevelt and his New Deal supporters. Internet address: http://cepa.newschool.edu/het/profiles/keynes.htm. Keynes suggested that savings have to be funneled back into totalspending, thus reinforcing the idea of a consumer-driven economy. Drought caused productivity to fall precipitously, a conditionthat was aggravated in some regions by overplanting and poor cropmanagement. Civilian Conservation Corps. Edwards, A. In this way, the programs might have alleviatedextreme poverty and reduced reliance on relief programs; such programs werelargely run by private charities at the beginning of the Depression.However, the government took on significant amounts of debt to pay forthese programs, and there remains the question of whether this debtexacerbated the Depression rather than helped end it. Keynes was educated at Eton and King's College Cambridge, andserved in the British Civil Service for a few years in the early 19 s.His criticism of the Treaty of Versailles thrust him into the publicspotlight after World War I, and he would remain in the public eye, andoften in the midst of public controversy, until the end of his life, in1946 ("John Maynard Keynes," 2 ). However, the three are also noteworthybecause collectively, the represent the entrance of the government into theeconomy as a major employer and also represent the first significantefforts by the government to manipulate the economy on a national level.Certainly the CCC and TVA programs provided employment and wages for thoseindividuals that joined them; wages could be particularly important toyoung men who were struggling to support young families. The failureof thousands of banks meant that many Americans at nearly all economiclevels lost their savings and were completely reliant on their paychecks.However, the unemployment rate of 25 percent meant that for many Americans,there simply was no income. During the early 193 s, the nation's farmers--who were typically smallfamily farmers rather than the agribusinesses that characterize today'sagricultural industry--suffered from low crop prices as well as low cropyields. Savings were diverted to pay mortgagesand insurance policies, and the entire economy became more consumer-oriented. TVA: Electricity for all. Born in 1883, Keynes' father was an economist andlogician. It can be difficult to separatecauses of the Depression from its effects (did bank failures cause theDepression or were they an effect of it?) and policy makers continue tostruggle with those issues, as well as the remedies for recessions anddepressions, even today. Markets in general had become farmore global than in previous recessions due to advances in transportationand communications, and the depression that enveloped Europe after theFirst World War meant that the United States could not depend on theinternational market to boost demand for goods (Edwards, 1999). As industrialization continued, spending and savinghabits became especially important. The Great Depression of the 193 s Although the Great Depression is largely acknowledged to have begun in1929 and ended with the onset of World War II, there were events before1929 that affected the economy during the 193 s. However, the United StatesSupreme Court declared the Act unconstitutional in January 1936. Oneof the key features of the New Deal was the creation of the Works ProjectsAdministration (WPA), of which the Civilian Conservation Corps (CCC) wasone part. The Tennessee Valley Authority (TVA) was created in 1933 to developthe Tennessee River Valley. The valley ran through seven states, includingsome of the most poverty-stricken states in the South. In addition toproviding flood control, the TVA was also mandated to reforest the valleyand improve marginal farmlands by making irrigation possible. (2 1). A newAgricultural Adjustment Act was passed in 1938 providing compensation toproducers who adjusted the acreage of their soil-depleting crops, parity ofprice adjustments to those who did not overplant, federal crop insurance,and other benefits ("Agricultural Adjustment Administration," 2 1). The Great depression. Hislegacy, beyond the introduction of a joint monetary and fiscal policy tomanage the economy, included the formation of the International MonetaryFund, designed to help stabilize the world economy ("John Maynard Keynes,"2 ). Keynes' views were widely accepted by younger economists and rejectedby more traditional, older thinkers.
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