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Name: Kaushalendra Basnet Student Number: 500456082 THE GREAT DEPRESSION United States vs. Structural weakness in the international economy Many economists around the world might argue with the different views and ideas about the causes of Great depression with valid arguments and data. It seems unclear of the primary cause and the root of the Great Depression but with factual evidence gathered we can conclude that the primary cause for the Great Depression is through the structural weakness in the international economy.
In this essay, we will look at the European economic structure: the changes in the production market, labor market, operation of international monetary system, and the pattern of international settlements. (Eichengreen, B. ) It was not just in the U. S, the question of consumer durables revolution can be traced to England as the consumption of costly goods were being purchased and the debts that was being accumulated increased after the war ended. Adoptions of household goods amongst families were an increasing trend, which later became a societal norm.
Use of fridge, radios, cars, heaters were highly priced, therefore the people were being forced to get a loan to purchases these items. Poor regulations towards method of purchasing these durables had a direct correlation in the fluctuation in the economy. Losing all previous payments if a installment fee was to be missed presented a great weakness in trust factor of the economy as consumers felt the danger to lose their investments if the job market had even the slightest decrease.
This slowed down the money circulation in the economy, and the pressure on the credit system was rising due the increased loan use by consumers to attain durables. Thus, this created a fear and increased sense of vulnerability in the economy in many industrialized nations, affecting the structural weakness of the international economy. High unemployment in industrialized countries after the war created various problems for the economy. In an era where 2. 5% unemployment rate was defined to be satisfactory, unemployment after the war rose up to 25% in the Great Britain, during the fiscal year of 1935. 1] The money circulation was decreasing and the unionization of labors was increasing drastically. Labor unions in Germany, Britain and the U. S, and other industrialized nations put a pressure on the employers to increase the wages. Due to the high unemployment rate, the global economy was in a pre-position of the downturn before the U. S market crash. Weak economies suffered more who were already facing issues to reduce their unemployment rate felt the structural unbalance in their own individual economies, alternatively on a global scale.
From this one can conclude that, the Great Depression which occurred in the world had the roots from the structural weakness found in the economy, labor market being one of the more important factors. The return to the Gold Standard after the War offered various issues to the already vulnerable global economy. The issues remained mostly to Britain and the U. S of the balance of payments as the confidence in the Sterling pound and the U. S dollars were decreasing. The idea of saving each individual economy didn’t help the individual economy as well as the global economy.
Due to the individual framework of each economy, the international disputes, and constraints in the individual economy itself made it difficult for international cooperation. Countries restricted credits domestically and increased their interest rates in order to obtain gold reserves. Seemingly, other nations were forced to do the same. Like today where various organizations and meetings amongst the political leaders discuss current global problems and issues and collectively work to come up with a solution, this sort of co-operation was rare in the early 1900’s.
In Europe, the issue over war debts and reparation led each nation to understand their own problem but failed to come together and come up with a collective decision to understand the needs of global economy as a whole. The idea of self-interest lead to each nation to work towards its own benefit, ignoring the problems that were occurring globally influenced further weakness in the global economy. Various factors that presented a weakness in the international economy can also be related back to the use of the Gold Standard, before the World War and after.
During the war, the supply of demanded goods to Latin America was taken over by the U. S from the European nations, which lead to a substantial decrease in the European export. Across the globe, Japan was doing the same; creating market infrastructure for long-term export, resulting in more decrease in European goods. The creation of the new financial centers also fashioned a problem in the economy. The new financial center, New York and Paris lead to the increased capital flight in a global scale as countries were implementing new policies and as investors were jumping from one economy to another to save a loss.
This highlighted the poor stability of any economy, and the sustained market trust decreased further more. The dependence of other economies towards the U. S also caused a great weakness in the economies. If economies around the world weren’t tied to the U. S (loans, services, and imports) the crash in the U. S market wouldn’t have had a ripple effect or lesser impact on the world economy. The process of reparation held on German also created a structural weakness in the economy. U.
S found itself to be the world’s creditor. U. S dollars being used my Germany to pay off the debts to the Allied nations, who paid the U. S same dollars Germany had used to pay earlier. Due to this economic flow, New York became the leading international center, leaving London behind. This un-stabilized practice in the global economy presented a great danger in the economy, which resulted in nations depending on the U. S loan; practically clinging on to U. S in both their fall and rise.
In conclusion, the rise in demand of the consumer goods, labor market crisis, causes of gold standard, and the global money flow changed the structure of the economy, creating a great danger. If the world economy was at a stronger stance, the crash in the U. S economy wouldn’t have had such a great impact on the world. For a dynamic global economy, each economy should be progressive and should be able to function freely without depending in another economy. The others economies depending in the U. S economies through various factors was the initial weakness in the structure of global economy.
From this we can conclude that the roots were the leading cause of the great depression if U. S market crash was thus preventable. Bibliography: Eichengreen, B. , The Origins and Nature of the Great Slump Revisited, Economic History Review, XLC (1992) Galbraith, J. K. , The Great Crash, Cambridge, Mass. : Riverside Press, 1961, chapter X. Smiley, G. , Rethinking the Great Depression, Chicago: Ivan R. Dee, 2002, chapter 2. ———————– [1] Information extracted from: http://en. wikipedia. org/wiki/Great_Depression_in_the_United_Kingdom