Running Head: CAUSE AND EFFECTS OF THE GREAT DEPRESSION

Cause and Effects of the Great Depression Jeanne Garvin HIS 204 Instructor Barker 8/20/11

CAUSE AND EFFECTS OF THE GREAT DEPRESSION 2

Cause and Effects of the Great Depression The Great Depression was the worst economic crisis in U.S. history and affected almost every American and their families to some degree. The rich were the only ones who didnt have to make any lifestyle changes due to the depression. Those who were able to hang onto their jobs took sharp pay cuts with less hours at work. Why did this happen and how did it affect American families? Historians and economists are still debating the causes of the Great Depression, however, many have agreed that it was a combination of events and decisions that led America and other industrialized countries into this sad era. It was the longest and most severe depression ever experienced by the industrialized Western world (Modern American Poetry, n.d.). This paper will share, and analyze these causes and give details of how it effected the economy in the United States. Most believe that The Wall Street Crash of 1929, also referred to as Black Tuesday, was the beginning of the Great Depression. Why? Because during the 1920s a long boom took stock prices to peaks never before seen also known as The Bull Market. Some became rich overnight by buying and selling stocks. Most would buy on installment that only required a 10% down payment. The buyer would hold the stock until the price rose and then sell it for a profit. This was not a problem as long as the stock prices kept going up and this convinced investors that stocks were a sure thing and they borrowed more and more money to invest in the market. Some predicted that the bull market would end soon and started selling their stock. Soon it was a domino affect while others followed and began selling also. This caused stock prices to fall and on October 29,1929, the stockholders lost $10 billion in a single day and it continued to decline for almost four years (Davidson, et al, 2008). Many investors bought their stock on margin, however to do this, they had to lay off more and more workers. These unemployed workers

CAUSE AND EFFECTS OF THE GREAT DEPRESSION 3

didnt have money to buy anthing which led to more lay offs until 25% of the population was out of work. The Banks went chaotic trying to collect loans to stockmarket investors who now were worth little. Furthermore, many banks had invested depositors money in the stockmarket. When the word spread that the bank certicates were useless, despostors rushed to withdraw their savings. Unable to get funds from the Federal Reserve System, banks began closing by the hundreads in 1932 and 1933 (Wattenberg, n.d.). The Great Depression most lasting effect was a transformation of the role of the federal government in the economy. The Wagner Act through the federal government took over the responsibility of the elderly which created Social Security and also gave people who were out of work, from no fault of theirs, unemployment compensation. This drastically changed labor negotiations between employers and employees by promoting unions and acting as an arbiter to ensure fair labor contracts and all of this required an increase in the size of the federal government (Smiley, 2008). In 1933, 25 percent of all American workers and 37 percent of all nonfarm American workers were completely out of work (Smiley, 2008). Often, a wage earner found themselves supporting relatives who had lost their jobs or helping friends who were struggling. Families devised ways to cut corners and make do, by reducing purchases of goods and growing and making daily used items at home. They canned vetgetbles and fruit from their own gardens and made their cloths by hand.

CAUSE AND EFFECTS OF THE GREAT DEPRESSION 4

References Gene Smiley. "Great Depression." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. Retrieved June 19, 2011 from the World Wide Web: http://www.econlib.org/library/Enc/GreatDepression.html