The Great Depression. Course, Effects and Consequences


Essay, 2020

12 Pages, Grade: 2,0


Excerpt

Inhalt

List of figures

1. Introduction

2. Meaning and emergence of an economic crisis
2.1 General information about the Great Depression
2.2 The period after the First World War and the golden twenties

3. The beginning and course of the Great Depression

4. Effects and consequences of the Great Depression

5. Countermeasures

6. Conclusion: Effects of the Great Depression on Today's Society

Bibliography

Web sources

List of figures

Figure One: Statisa Research Department, “Historische Arbeitslosenquote in den USA in den Jahren 1919 bis 1980“, https://de.statista.com/statistik/daten/studie/276006/umfrage/historische-arbeitslosenquote-in-den-usa

1. Introduction

This scientific essay deals with the topic “The Great Depression”. The Great Depression represents the economic crisis that began on October 24, 1929 and dominated the 1930s.1 There is no doubt that the interwar economic crisis was the most serious event in the recent economic crisis. The reason for this is its size and the associated consequences. Both historians and economics have worked intensively on the issues surrounding the Great Depression. This is because the Great Depression was a global phenomenon. This globality has determined our thinking since then and justifies its impact.2 But all the facts just mentioned will be shown and explained in more detail in the course of this scientific essay. Furthermore, the current corona crisis, which is also having a very large impact on the global economy, shows why an occupation with this topic is justified right now.3 At the beginning of the scientific essay, the term economic crisis and how an economic crisis arises are to be explained. This is to serve that the further content of this work can be better understood and transferred to the Great Depression. Thereupon will give you some general information about the Great Depression, which should introduce the whole topic. Afterwards, a brief insight into the economic situation in Europe and America after the First World War and in the 1920s is given. This insight is intended to help you understand the causes and triggers for the Great Depression. These two topics are also dealt with in this essay. To round off the entire topic, the countermeasures that were used to overcome the crisis are listed at the end. Ultimately, there is also a conclusion on the entire topic.

2. Meaning and emergence of an economic crisis

A financial crisis often corresponds to a stock market crash. A financial crisis often leads to an economic crisis. If prices on the stock exchanges fall, this complies to a financial crisis. As a result of the price drop, investors sell their shares, which in turn leads to an even greater price loss. As a consequence, companies on the stock exchange also lose their value, which freezes the capital market and limits the economic activity of companies. Banks no longer grant loans to companies that suffer a loss in value that could be used for further investments. As a result, their turnover collapses, resulting in layoffs and an increase in unemployment. Ultimately, the unemployment of citizens leads to less consumption and at the same time to a decline in business sales. A similar process can be seen in the stock market crash in New York on October 24, 1929, which ultimately led to the global economic crisis.4

2.1 General information about the Great Depression

October 24th and 25th, 1929 - two very important days in the history of the world economy. On October 24th, 1929, stock prices on the New York Stock Exchange plummeted. These two important dates are also known as Black Thursday (October 24, 1929) and Black Friday (October 25, 1929). In Europe one speaks of black Friday, because the news of the price drop, due to the time difference, did not come until October 25, 1929.5 This economic crisis lasted from 1929 to 1939.6 The Great Depression cannot be understood without prior knowledge of the period after the First World War and the Twenties. Because both the consequences that Europe, America and the rest of the world experienced through the First World War, as well as the developments in the 1920s in America contributed to the stock market crash in America.7 For this reason, these two historical events are discussed below.

2.2 The period after the First World War and the golden twenties

Since the United States emerged victorious from World War I and was not damaged by the war, the United States had a relatively strong position in the global economy. Thus, the United States was the world's greatest power in agriculture, industry, and the financial sector at that time. Even the three economically strong states France, Germany and Great Britain had to pay war debts to the USA, which weakened them even more economically. Germany was particularly weak economically because the Germans also had to pay reparations to France and Great Britain, in addition to the debt to the United States. In order to find a way out of the debt, the German government took out a loan of 800 million gold marks in the United States. This loan enabled Germany to pay its debts to France and Great Britain, which in turn paid the debt to the United States with this money. As a chain reaction, this allowed the United States to grant further loans to Germany. This all happened between 1924 and 1929. Of course, this "vicious circle" stimulated both the German and the American economy, which is why this period is also referred to as the "Golden Twenties". The golden twenties came mainly from the booming economy in the USA, because suddenly the population there was very willing to consume. Because the money raised through war debts was invested by the United States in the modernization and expansion of production. Thus, new production methods were introduced, which led to new technologies and manufacturing of durable products. The number of employees and their wages rose in parallel with high productivity. This was due to the fact that there was still sufficient purchasing power at the beginning, which was made possible by taking out loans. So even the simple people could afford luxury goods like cars or electrical appliances. Although mechanization also led to increasing yields in the agricultural sector, the demand for wheat on the world market suddenly came to a standstill. At the same time, production continued to be large, which led to an oversupply of agricultural products. A fall in the price of the products was also a consequence of the oversupply, which in turn caused some farmers to be unable to pay their loans to the banks. This insolvency of the loans in turn meant that even banks were destroyed. This vicious cycle affected several industries in the United States, which ultimately led to the mass layoffs and closings of over 100,000 factories. Despite the economic crisis in the United States, speculative fever prevailed among the citizens. This was because the money for the shares was taken on credit and there were no negative fears until then. So far, there was rather euphoria. However, in October 1929 investors became aware that the deflation crisis could also affect the stock market. As investors now feared an enormous loss in the value of their shares and papers, they tried to sell them as quickly as possible. This is how the stock market plunged. The stock market bottomed out within a week. As a result, the stock market on the Stock Exchange collapsed completely on October 24.8

3. The beginning and course of the Great Depression

Triggered by the stock market crash, the American economy was on the decline. In order to save themselves from this economic crisis and to get new capital again, the Americans withdrew all loans from Europe and especially from Germany. In addition, they also demanded repayment of the debts still to be paid. As a result, the economic crisis in America began to affect the entire world.9 Overall economic performance decreased by more than five percent in Germany and the United States. In 1930, countries such as England, France, Japan, Italy and the Soviet Union were hardly affected by the crisis. The global governments therefore reacted to the crisis with a wait- and-see attitude. An aggressive state stance was not possible due to the inert national currency system, which was determined by the gold standard anyway.10 However, in the summer of 1931 the central European banking and financial sector collapsed, as did the gold standard. This was triggered by the system of the international monetary order, which was prone to failure, the problem of reparations and the associated imbalances in global financial and capital flows, and the political mistrust of the former opponents of the war. The agricultural crisis now increasingly affected countries such as Spain, Argentina and Australia. Until the Great Depression reached its lowest point in winter 1931/1932. From 1933 onwards, most European countries saw a slow recovery in the economy. However, full employment was only reached in most countries between 1936 and 1937.11

4. Effects and consequences of the Great Depression

As a result of this economic collapse, companies naturally had to close down and lay off their employees.12 Thus, for example, there were 2.85 million unemployed people in Great Britain and even 12 million unemployed in the United States. Germany has unfortunately also hit very hard with six million unemployed.13 As can be seen from the graph, the highest unemployment rate was 23.6 percent in 1932.14 People who were not affected by unemployment struggled with short-time work and lower wages.15 In addition to the economic problems, governments could no longer keep the political systems under control. Thus in 1932 National Socialism rose in Germany. At the same time, anti-liberal and anti-parliamentary movements rose in other countries.16

[...]


1 Christina D. Romer, Richard H. Pells, Great Depression Economy, July 20, 1998, https://www.britannica.com/event/Great-Depression, [2020-04-10].

2 Jan-Otmar Hesse, Roman Köster and Werner Plumpe, Die Weltwirtschaftskrise 1929-1939: Die Große Depression (Frankfurt/ New York: Campus Verlag GmbH, 2014), PDF e-book, [p.8], https://content- select-com.emedien.ub.uni-muenchen.de/media/moz_viewer/53a2066b-f5f0-4d33-9668- 40b72efc1343/language:de, accessed 2020-04-10.

3 Szu Ping Chan, Coronavirus: „World faces worst recession since Great Depression”, April 14,2020, https://www.bbc.com/news/business-52273988, [2020-04-10].

4 Finanzfluss, Finanzkrise einfach erklärt: „Börsencrash 1929, DotCom Blase, Weltwirtschaftskrise 2008 & Tulpenkrise“, Berlin, https://www.finanzfluss.de/blog/finanzkrisen-einfach-erklaert/, accessed 2020-04- 10.

5 Finanzkun, „Der Schwarze Freitag 1929“, June 23, 2017, https://finanzkun.de/artikel/der-schwarze- freitag-1929-1/, accessed 2020-04-11.

6 HISTORY, “Great Depression History”, HISTORY (blog), A&E Television Networks, October 29, 2009, https://www.history.com/topics/great-depression/great-depression-history, accessed 2020-04-11.

7 HISTORY, “Great Depression History”, HISTORY (blog), A&E Television Networks, October 29, 2009, https://www.history.com/topics/great-depression/great-depression-history#section_1, accessed 2020- 04-11.; Lutz, Julian, “Die Weltwirtschaftskrise 1929 – 1932 – Krisenmanagement in Deutschland und den Vereinigten Staaten”, Geschichte-Wissen (blog), October 27,2009, https://geschichte-wissen.de/blog/die-weltwirtschaftskrise-1929-1932/, accessed 2020-04-11.

8 Lutz, Julian, „Die Weltwirtschaftskrise 1929 – 1932 – Krisenmanagement in Deutschland und den Vereinigten Staaten“, Geschichte – Wissen (blog), Ocotober 27, 2009, https://geschichte-wissen.de/blog/die-weltwirtschaftskrise-1929-1932/, accessed 2020-04-11.

9 Lutz, Julian, „Die Weltwirtschaftskrise 1929 – 1932 – Krisenmanagement in Deutschland und den Vereinigten Staaten“, Geschichte – Wissen (blog), Ocotober 27, 2009, https://geschichte-wissen.de/blog/die-weltwirtschaftskrise-1929-1932/, accessed 2020-04-11.

10 Jan-Otmar Hesse, Roman Köster and Werner Plumpe, Die Weltwirtschaftskrise 1929-1939: Die Große Depression (Frankfurt/ New York: Campus Verlag GmbH, 2014), PDF e-book, [p.12], https://content- select-com.emedien.ub.uni-muenchen.de/media/moz_viewer/53a2066b-f5f0-4d33-9668- 40b72efc1343/language:de, accessed 2020-04-11.

11 Jan-Otmar Hesse, Roman Köster and Werner Plumpe, Die Weltwirtschaftskrise 1929-1939: Die Große Depression (Frankfurt/ New York: Campus Verlag GmbH, 2014), PDF e-book, [p.13], https://content-select-com.emedien.ub.uni-muenchen.de/media/moz_viewer/53a2066b-f5f0-4d33-9668-40b72efc1343/language:de, accessed 2020-04-11.

12 Statisa Research Department, “Historische Arbeitslosenquote in den USA in den Jahren 1919 bis 1980“, https://de.statista.com/statistik/daten/studie/276006/umfrage/historische-arbeitslosenquote- in-den-usa/, accessed April 2020.

13 Jan-Otmar Hesse, Roman Köster and Werner Plumpe, Die Weltwirtschaftskrise 1929-1939: Die Große Depression (Frankfurt/ New York: Campus Verlag GmbH, 2014), PDF e-book, [p.13], https://content- select-com.emedien.ub.uni-muenchen.de/media/moz_viewer/53a2066b-f5f0-4d33-9668- 40b72efc1343/language:de, accessed 2020-04-12.

14 Statisa Research Department, “Historische Arbeitslosenquote in den USA in den Jahren 1919 bis 1980“, https://de.statista.com/statistik/daten/studie/276006/umfrage/historische-arbeitslosenquote- in-den-usa/, accessed April 2020.

15 Jan-Otmar Hesse, Roman Köster and Werner Plumpe, Die Weltwirtschaftskrise 1929-1939: Die Große Depression (Frankfurt/ New York: Campus Verlag GmbH, 2014), PDF e-book, [p.13], https://content- select-com.emedien.ub.uni-muenchen.de/media/moz_viewer/53a2066b-f5f0-4d33-9668- 40b72efc1343/language:de, accessed 2020-04-12.

16 Jan-Otmar Hesse, Roman Köster and Werner Plumpe, Die Weltwirtschaftskrise 1929-1939: Die Große Depression (Frankfurt/ New York: Campus Verlag GmbH, 2014), PDF e-book, [p.14], https://content- select-com.emedien.ub.uni-muenchen.de/media/moz_viewer/53a2066b-f5f0-4d33-9668- 40b72efc1343/language:de, accessed 2020-04-12.

Excerpt out of 12 pages

Details

Title
The Great Depression. Course, Effects and Consequences
College
University of Applied Sciences Essen
Grade
2,0
Author
Year
2020
Pages
12
Catalog Number
V1119062
ISBN (eBook)
9783346484222
ISBN (Book)
9783346484239
Language
English
Keywords
great, depression, course, effects, consequences
Quote paper
Anastazia Spajic (Author), 2020, The Great Depression. Course, Effects and Consequences, Munich, GRIN Verlag, https://www.grin.com/document/1119062

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