Looking Back The Great Depression Of 1929Topics ￫ Economics ￫ Collaspe
They say that hindsight is 20/20, but that’s not true. Many historians are still debating the causes of the Great Depression, and it becomes even more important to take a close look at what really happened back then under our current circumstances.
There is generally two trains of thought of what caused the Great Depression, but I think there is also a third reason. The first train of thought basically boils down to one argument that states that the way governments dealt with the money supply interfered with the self-regulating production and consumption of products and services, (otherwise known as the free market). Some people believe that by that the massive deflation of the dollar was the direct result of an increase in the money supply, others contribute that it was the gold standard itself that caused deflation.
The second train of thought also boils down to a lack of confidence in the market, a public panic that never fully recovered. This was assumed to be caused by under consumption and over investment. Although there are several other theories as to what caused the Great Depression, it is likely that all of them had at least some influence in it.
Regardless of the economic causes, the political causes, and policies of the Federal Reserve no one can argue that there was one thing common to all theories, people were stupid. If you blame the use of certain policies of Fed, you could be like F.A. Hayek can call it “silly”, at ever explanation some one is blaming some one else.
When historians look at the past, even those who write about events while living it, their viewpoint is always warped by their own worldview. Racists blame the Jews, the poor blame the rich, and the union member blames the corporation. This has never changed since the dawn of man, and is likely to never change in the future. People do not take responsibility for their own decisions that place themselves in harm’s way. Anyone who argues against me on this point better check out www.darwinawards.com before sending me an email! The Great Depression was caused by the people who suffered it, it is as simple to understand as asking yourself why a drunk beggar is begging on the street. Would any of you who are reading this move from where ever you are right now, and with out any preparing, education in the language or culture, or even looking the place up on Wikipedia, and go live in Calcutta? By the same token, if you found yourself on a beach on Japan while the tsunami warning alarms were going off, would you stay and pull out your surf board? Then why do so many people depend on a system for their livelihood they don’t understand?
Yet that is exactly what ever person is doing from day to day when they assume that if something like an earthquake ever takes place near their home, some one from the Red Cross will come and rescue them, or if the economic crash ever happens the government welfare system will provide them with enough money for food.
During World War One the federal spending of the United States grew three times faster then the amount of taxes that were collected during the same period, as a result there were massive cuts in the budget in 1920 which triggered a recession. Without the investment into manufacturing sector as a result of the war, which acted like a stimulus, the economy would have nose dive then, as an average of 600 banks failed each year.
While the economy contracted, Unions began to fail and companies began to merge. Between 1920 and 1929 union membership dropped by 50% or more in some sectors, while independent companies got swallowed up by a mere 200 corporations to control half the private sector assets and jobs. The end result by 1930 was that 80% of the people who had paid taxes in 1920, were removed from the taxable status. While the richest 1% of the people became owners of 40% of the wealth, 93% of the people lost over 4% of their income. Women lost minimum wage, child labor laws were struck down, and the stock market began it’s artificial clime rising 40% in the latter two years.
By the beginning of 1930 the average American household was making $750 per year ($9550.00 in today’s dollar). Businesses had three times the amount of inventory then they had the year before, which was directly connected to a 20% decline in production per year which started two months before the crash. During those same 60 days, wholesale drops annually by 7.5% while income drops at a rate of 5% per year.
Black Tuesday, October 29th 1929, became the precipice of a $16 billion dollar loss, $204 billion in today’s dollar. The Federal Reserve reacted by slashing the prime interest rate from 6 to 4 percent. The government of the United States passes the Smoot-Hawley Tariff in June, which results in spreading the recession to Europe, it was a 40% tariff, but only helped out the average American by 2.4%. The GNP falls 9.4 percent from the year before. The unemployment rate climbs from 3.2 to 8.7 percent.