The popular belief is that the Great Depression was caused by the 1929 crash of the stock market. The specific economic events that took place during the Great Depression are a deflation n asset and commodity prices, dramatic drops in demand and credit, and disruption of trade, ultimately resulting in widespread unemployment and hence poverty. Known will see the macroeconomics involved in this event.
Macroeconomics and the Great Depression The causes which led to great depression can be related to macroeconomics Stock market crash and financial panic The Wall Street Crash of 1 929, also known as Black Tuesday and the Stock Market Crash of 1 929, began in late October 1929 and was the most devastating stock market crash in the history of the United States, when aging into consideration the full extent and duration of its fallout.
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The crash signaled the beginning of the ID-year Great Depression that affected all Western industrialized countries and did not end in the United States until the onset of American manipulation for World War II at the end of 1941. The market had been on a nine-year run that saw the DOD Jones Industrial Average increase in value tenfold, peaking at 381. 17 on September 3, 1929. Shortly before the crash, economist Irving Fisher famously proclaimed, “Stock prices have reached what looks like a permanently high plateau.
The optimism and financial gains of the great bull market were shaken on September 18, 1 929, when share prices on the New York Stock Exchange (NYSE) abruptly fell. On September 20, the London Stock Exchange (ELSE) officially crashed . The Else’s crash greatly weakened the optimism of American investment in markets overseas. In the days leading up to the crash, the market was severely unstable. Periods of selling and high volumes of trading were interspersed with brief periods of rising prices and recovery.
On October 24 (“Black Thursday”), the market lost 1 1% of its value at the peeing bell on very heavy trading. On October 28, “Black Monday”, more investors decided to get out of the market, and the slide continued with a record loss in the DOD for the day Of 38. 33 points, or 13%. The next day, “Black Tuesday”, October 29, 1929, about 16 million shares were traded, and the DOD lost an additional 30 points, or 12%. The volume of stocks traded on October 29, 1 929 was a record that was not broken for nearly 40 years. After a one-day recovery on October 30, where the DOD regained an additional 28. 0 points, or 1 to close at 258. 47, the market continued to fall, arriving t an interim bottom on November 13, 1929, with the DOD closing at 198. 60. The market then recovered for several months, starting on November 14, with the DOD gaining 18. 59 points to close at 217. 28, and reaching a secondary closing peak of 294. 07 on April 17, 1930. Overproduction in Industry The first three decades of the 20th century saw capital investment and economic output surge with electrification, mass production and the increasing modernization of transportation and farm machinery.
The resultant rapid growth in productivity meant there was a lot of excess production opacity, with falling prices and numerous manufacturing plant closures. As a consequence, the work week fell slightly in the decade prior to the depression. The depression led to additional large numbers of plant closings. Overproduction in Agriculture There was a drop in agricultural product prices through fertilizers, mechanization and improved seed. Farmers were forced off the land, further adding to the excess labor supply.
The prices of agricultural products began to decline after WWW I and eventually many farmers were forced out of business, causing the failure of hundreds of small rural banks. Agricultural productivity resulting from tractors, fertilizers and hybrid corn was only part of the problem; the other problem was the change over from horses and mules to internal combustion transportation. The horse and mule population began declining after WWW 1, freeing up enormous quantities of land previously used for animal feed. Unequal distribution of wealth Purchasing power was extremely unevenly distributed.
This can be observed from the fact that only 1 family in 6 owned a car, or that only 1 in 5 had a bath, less than 1 in 4 families had electricity and only 1 in 10 had a telephone. The fact that the proportion of national income going to rural and industrial workers was so low resulted in there being not enough demand for goods produced by American businesses. With the help of capital investment factories expanded their production capacities but there were no buyers left in the market. Americans looked towards insubstantial banking units for their own liquidity supply.
As the economy began to fail, these banks were no longer able to support those who depended on their assets. Federal reserve monetary policy The disproportionate tax system further widened the disparity in incomes tenet various economic classes. The US F-deader Reserve started tightening in 1 928 in an attempt to halt runaway stock markets, and this lowered investment and aggregate demand. Also and lax regulation imposed by the policy makers resulted in all kinds of irresponsible behavior on the part of American banks which were not able to sustain operations during the financial crisis.
Why market forces failed to create its equilibrium in the great depression of 1929 ? Arrow supply failed to create its own demand in great depression? I The Great Depression: Economic Collapse In the 1 9305, American capitalism practically stopped working. For more than a decade, from 1929 to 1940, America’s free-market economy failed to operate at a level that allowed most Americans to attain economic success. By 1933, the country’s GNP had fallen to barely half its 1 929 level.
Industrial production fell by more than half, and construction of new industrial plants fell by more than 90%. Production of automobiles dropped by two-thirds; steel plants operated at 12% of capacity. During Herbert Hover’s presidency, more than 13 million Americans lost their jobs. Of those, 62% found themselves out of work for longer than a year; 44% longer than two years; 4% longer than three years; and 1 1 % longer than four years. Unemployment peaked at a staggering 24. 1% in 1933, and never dropped below 14. 3% until World War II.
The financial meltdown initiated by Wall Street’s Great Crash of 1929 caused billions of dollars in assets to vanish into thin air. Wealthy Americans-??who owned almost all the nation’s stocks at the time-??were walloped by an 80% decline in the value of the stock market. Even more troubling to the entire population were rampant bank failures-??between 1 929 and 1 933, two out of every five banks in America collapsed, causing more than $7 billion of their customers’ hard-earned money to evaporate. From 1921 to 1 929 the US money supply increased by 61 percent.
The reduction of top tax rates particularly motivated the entrepreneurs to engage in the risky business of innovation with an unprecedented series of great discoveries and inventions as the logical consequence. Why Supply could not create a demand ? * Problem inherent in the US economy even before the Great Depression. * What made the miseries of the Great Depression so incomprehensible to those who endured them was the evident fact that the economic collapse had been caused not by want but by material abundance.
Falling export demand and commodity prices placed massive downward pressures on wages. Further, unemployment reached a record high of 29% in 1 932, with incidents of civil unrest becoming common. After 1 932, an increase in wool and meat prices led to a gradual recovery. Canada Harshly affected by both the global economic downturn and the Dust Bowl, Canadian industrial production had fallen to only 58% of the 1 929 level by 1932, the second lowest level in the world after the Lignite States, and well behind nations such as Britain, which saw it fall only to 83% of the 1929 level. Germany
Germany’s Whimper Republic was hit hard by the depression, as American loans to help rebuild the German economy now stopped. The unemployment rate reached nearly 30% in 1 932, bolstering support for the Nazi (NSAP) and Communist (KIP) parties, which both rose in the years following the crash to altogether possess a Reichstag majority following the general election in July 1932 Japan The Great Depression did not strongly affect Japan. The Japanese economy shrank by 8% during 1929-31. Japan’s Finance Minister Dashiki Kookier used the Bank of Japan to sterilize the deficit spending and minimize resulting inflationary’ pressures.
Econometric studies have identified the fiscal stimulus united Kingdom The effects on the northern industrial areas of Britain were immediate and devastating, as demand for traditional industrial products collapsed. By the end of 1930 unemployment had more than doubled from 1 million to 2. 5 million (20% of the insured workforce), and exports had fallen in value by 50%. In 1933, 30% of Glaswegian were unemployed due to the severe decline in heavy industry. In some towns and cities in the north east, unemployment reached as high as 70% as shipbuilding fell 90%. Why can’t an agriculture based economy be an economic superpower?