The country to have “endless” prosperity and wealth,

Topic: FinanceBank
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Last updated: June 8, 2019

The Great Depressionwas an international event, contrary to previous economic crises, which wereusually limited to a handful of countries or specific regions. Asia, Africa,Europe, Australia and North and South America all suffered from the economic depression. Global trade has declined by 30 percentbecause countries have tried to protect their industries by increasing tariffson imported goods.

In 1932, 17.2% of the active population in Germany, 23.5% inthe United States and 13.

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1% in Britain were unemployed. Around 30 millionpeople were not employed globally.1920s were theyears when the world accepted the economic superiority of the US. The US wasmaking effort to be an element of dominance in both economic and politicalsense. The ‘roar’ in those years, also referred to as ” roaring twenties ”,not only explained the rapidly growing US economy, but also the radicallychanging lifestyles.

The United States is believed to be the first country tohave “endless” prosperity and wealth, a lifestyle rising up in the strictestsense of individualism and dominated by consumption frenzy, dominated theUnited States. In the 1920s, the economies of many countries, whether good orbad, were tied to the economy of the United States because of the large amountof debt but the real problem was that the economies of all the countries thatwere distinguished as good and bad were actually very weak.The crisis thatstarted in the United States in 1929 quickly sparked the whole world. From thispoint on, this crisis, which caused a significant contraction of internationalproduction and trade from on the on hand and carried a widespread unemploymentproblem to the agendas of industrialized countries of Western Europe and NorthernAmerica on the other. With which the confidence to the liberal approach, whichbased on the belief that the economy would regulate itself, has been shakendeeply.Very poorinterventions of governments led The Great Depression to spread very quicklyacross the world. Their export revenues decreased dramatically because of TheGreat Depression and they started to apply strong tariffs and reduced tradingwith other addition almost all of the governments started to cutspending to take measures against it since the economics supported deflationpolicy then.

Because of that consumer demands dropped dramatically. Governmentsheld their constant exchange rates unchanged according to Gold Standard thatbinds money to the value of gold, because of the deflationary policies werestrictly dependent on exchange rates. But during the depression governmentsneeded to hold interest rates high to make banks to invest on their currencies.

Borrowing money became expensive and unaffordable for both individuals andbusinesses from the bank because the interest rate repayments increased andprices fell. The First World War led to a big political insecurity and an internationalintervention to stop the Depression was impossible.In 1931, the USbanks began take back their capital from Europe; this led to the sale ofEuropean money and then the fall of many European banks. At this point,governments either began to control the exchange rate, as in Germany, or beganto lower the value of money as in Great Britain. And that brought the end ofGold Standard. Even though under the Bretton Woods agreement, a constant currencyexchange rates system has been resumed after World War II, international economieshave not been enthusiastic about this system as they did with the goldstandard.In US, in thefirst five years of depression, the economy contracted by 50 percent. Theeconomic output measured by the gross domestic product in 1929 was $ 105billion.

Today it is equivalent to 1.057 trillion dollars. The economy began to contract in August.

At year’s end, 650 banks failed. In 1930, the economy contracted by 8.5percent. Gross domestic product fell by 6.5 % in 1931 and by 12 % in 1932. By1933, the country had been under economic contraction for five years. It onlyproduced $ 57 billion, half of what was produced in 1929, partially due to deflation.

Prices fell by 10 % per year.The US citizensblamed Hoover administration and inexperience for this crisis. In the face ofthe crisis, Hoover management did not make many interventions. Thisadministration believed that the economy would function in the most correct wayif it were not intervened by the state, and it was a temporary situation forthem. But as time passed, prices continued to fall and trade narrowed. TheHoover government, when they see what they believe did not have a positiveimpact on the crisis, decided to intervene and urged the state and localgovernments to increase their spending by taking the necessary precautions. Taxdiscounts applied.

They demanded industrialists to continue their investmentsand that prices should not go down. But it was too late for the decision tointervene, and the interventions that were made also led to the deepening ofthe crisis. On top of that, the people elected Roosevelt from Democratic Party,States who promised radical changes in the economic system, as the President ofthe United States in the elections.PresidentFranklin Roosevelt promised to put into effect a “New Deal” thatwould re-establish American capitalism and governance on a substantially newbasis. Expenses for New Dealincreased gross domestic product growth by 10.8 % in 1934.

The economy grew by8.9 % in 1935, it reached 12.9 % in 1936. By 1938, the government stoppedexpenses on the New Deal and depression revived. Economy contracted by 3.3percent. Between 1933 and 1940, New Deal eased some of the effects of the GreatDepression, but it did not ceased the crisis.

The “New Deal”, whichwas interpreted as a short-lived step backward from capitalism’s free-marketeconomy to state control, was aimed at improving the conditions of the workingclass, who were basically oppressed by depression. According to someeconomists, the “New Deal” has been a major influence on UnitedStates’ society, even though it did not remove the effects of depression. Thegovernment had re-organized the relationship between businessmen andindustrialists. Until the New Deal, citizens of US saw their future in the privatesector.

After depression, they turned their faces to Washington, waiting forthe federal government to intervene in the economy. Industrialists andbusinessmen were not the only determining forces in United States anymore, the governmentand trade unions stepped on the scene, too. The trade unions and the welfarestate expanded greatly in the 1930s. In the US, trade union membership doubledbetween 1930 and 1940. Thistendency was encouraged by the heavy unemployment in the 1930s and by the WagnerAct (1935), which enabled collective bargaining. TheUS accepted the Social Security Act (1935), in response to the challenges ofthe 1930s.

Which included unemployment compensation and old-age and survivorinsurance.A number ofeconomic indexes, when the World War II started in Europe in 1939, indicatedthat the United States was still deep in depression. However, arrangements forWorld War II increased economic growth by 8 % in 1939 and by 8.8 % in 1940.

Thefollowing year, after Japan bombed Pearl Harbor, US joined the World War II.The New Deal and World War II expenses changed the economy from a pure free marketto a mixed economy. It was more dependent on government spending for success.

With the SecondWorld War, European countries such as Germany and France lose their economicinfrastructure. In order to rebuild the economies of these countries, Marshallaids and international economic organizations such as the World Bank, the IMFand the GATT have been established, which have significant effects on theeconomic policies of these countries.After the GreatDepression, the macroeconomics was born.

Although the birth of economics wasidentified with the Adam Smith and “The Wealth of Nations”, the birth of the macroeconomicsas another branch of economics was in 1936 with the publication of “The GreatTheory of Employment, Interest and Money” by John Maynard Keynes. Keynes arguedthat the impenetrability principle of the markets would not work during timesof crisis. Because once income and employment start to fall, people will lookfor ways to save their money, and the banks will raise interest rates to stopit.

As a result, the need for credit for investors who want to expand theirbusiness will increase, which will reduce business volume. This meant thatincome growth and employment levels would decrease. This curse could only bebroken by direct government intervention. According to him, in order to revivethe business world, tax and interest rates had to be reduced and fiscalpolicies that would encourage employment had to be adopted. Keynes’s approachreceived great support from the newly elected US president Franklin Roosevelt.Roosevelt declared that the interventionist policy should be adopted in orderfor the US to emerge from the crisis. Prior to Keynes,economists examined economics as a whole and did reviews of money and prices,but approaches that seeking answers to macroeconomics and questions such as “Whydo economies experience depression?”, “Why do production and employment declineover time?” began with Keynes.The handling ofthe crisis of 1929 only in the economic context would undoubtedly mislead usbecause the collapse of the liberal economic approach meant the collapse of theliberal political approach, which led to a dictatorial regime in many Europeancountries.

The classes that became unstable with the industrial andagricultural crisis supported the extremist parties to showed their reaction tothe rather slow functioning of parliamentary democracies; the alienation of themiddle classes from the moderate parties resulted in Adolf Hitler coming to powerin Germany, while the collapsed agricultural interests strengthened therightist regimes in the Balkans. So with these issues, the economic crisis of1929 rose to the top among the causes of the Second World War. With the war,overseas countries began demanding ammunition and weapons from American weaponcompanies, thus reducing unemployment in the United States.

When it came to1941; The Great Depression influences were completely over. 


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