Great Depression

Great Depression

"The Great Depression of the 1930's was
a worldwide phenomenon composed an infinite number of separate but related
events." The Great Depression was a time of poverty and despair caused
by many different events. Its hard to say what caused this worldwide
depression because it's all based on opinion as opposed to factual data.

There are many contributing factors but not one specific event can be pin
pointed for starting the depression. It is believed that some events
contribute more than others-such as the Stock Market Crash of 1929.

The Stock Market Crash of 1929 was in the
majorities opinion, a long and overdue crash that was bound to happen.

Prices sky-rocketed so high that when they reached what was believed to
be it's all time high, most people sold their gaining stocks for a profit.

So many people sold their stocks at a rapid rate that the corporations
were unable to pay the shareholders. Speculation arouse months before
the crash when Roger Babson made his speech at the annual National Business

Conference which he said "..... Sooner or later a crash is coming which
will take the leading stocks and cause a decline from 60 to 90 points in
the Dow Jones Barometer." This and many others speeches like
this scared people into selling there stocks before the inevitable would
happen. This was a leading causes that assisted the Great Depression
become one of the bleakest and most studied events in the history of our
country: yet not the only cause.

Another large contributing factor was Mother

Nature, I say this because in Oklahoma the weather was so dry that the
farmers were unable to harvest their crops: these farmers became known
as Okies. The land was a barren wasteland of dust and dirt in which
it got it's name the Dust Bowl. In other areas, the extreme opposite
took place: farmers overproduced and prices rapidly dropped because the
demand decreased. The drastic result of this oversupply made it hard
for farmers to make money due to the fact that they had so much that they
were forced to sell it at substantial low priced just to remain competitive
enough to make even the small profit they were making. The imbalances were
however, self correcting in which if manufacturers made too much of something,
it's price would fall, profits would disappear, and the producers would
cut back on output. In 1932 the American writer, Stuart Chase described
cycles as "the spree and hangover of an undisciplined economy."

Economists recognized the depression as
a cycle in which there were four cycles; expansion; crisis(or panic); recession
(or contraction); and recovery. The definitive description was made
by Wesley Clair Mitchell of the University of California. A cycle

Mitchell explained in Business Cycles(1913) was "the process of cumulative
change by renewal of [Economic] activity develops into intense prosperity
by which the prosperity engenders a crisis, by which crisis turns into
depression and by which depression finally leads to.... a revival of activity."

Banks played a significant role in the
depression because they were in charge of all the money and interest
rates. For example when banks had large reserves, they lowered interest
rates. Cheaper loans encouraged manufactures to invest in new equipment
and hire additional workers. The resulting expansion of production
caused an upswing of the cycle. The increased borrowing eventually
reduced the bank's reserves, thus resulting in a drastic increase of interest
rates. That discouraged investors and slowed the economy down.

Another good explanation was the bad distribution of wealth for the cycles.

During these challenging and difficult times the rich opted not to spend
there money: they saved in banks, vaults, etc. This resulted in increased
investments, more production, and eventually more goods piled up on shelves
and warehouses. Prices fell, production was cut back and workers
were discharged. As a result, the economy entered the depression phase
of the cycle.

The crisis stage of the cycle was brought
about by bank failures and by irrational selling of stocks ;thus causing
business failures, a slowing in production, a rise in unemployment, and
an overall optimistic view about the future.

Another helpful aide in the depression
was the chief International creditor who was described as "unexperienced
and less careful about it's lendings because it was less dependent on this
business than the chief pre-war tender, Great Britain." He granted
huge short term loans to politically unstable nations.

Lionel Robbins was a professor at the London

School of Economics. He offered what was probably "the most influential
contemporary explanation of the length of the downturn in the Great Depression(1934).

The World War (World War I) had destroyed much property and stimulated
nationalistic sentiments that resulted in