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The Great Depression Essay, Research Paper
Avoiding Another Depression: The Most Important Challenge For Any Government
The Great Depression of the 1930’s was a worldwide phenomenon composed of an infinite
number of separate but related events. The Great Depression was a time of poverty and despair caused by
many different events. It is hard to say what caused this worldwide depression because it is all based on
opinion as opposed to factual data. There are many contributing factors but not one specific event can be
pin pointed for starting the depression. It is believed that some events contribute more than others, such as
the Stock Market Crash of 1929. The depression also effected both Canada and the United States and
their people. The countries have made fiscal and monetary policies to ensure another depression does not
This all began with a stock market crash in October 1929; slowly and steadily deepening over the
next three years until the nation’s economy, social and political systems approached a total collapse.
Resulting in the demoralization of the people. It continued in one form or another for a full decade, not
only in Canada and the United States but also throughout much of the rest of the world, until war finally
restored prosperity (Wecter 2).
On October 21, 1929, stock prices dipped sharply, alarming those who had become accustomed to
an uninterrupted upward progression. Two days later, after a brief recovery, an even more alarming
decline began. J. P. Morgan and Company and other big bankers managed to stave off disaster for a while
by conspicuously buying up stocks to restore public confidence but on October 29, all the efforts to save
the market failed. “Black Tuesday,” as it became known, was complete devastation as widespread panic
caused the market to crash. Sixteen million shares of stock were traded, the industrial index dropped 43
points, and stocks in many companies became virtually worthless. In the weeks that followed, the market
continued to decline, with losses in October totaling $16 billion. Despite occasional hopeful signs of a
turnaround, the market remained deeply depressed for more than four years and did not fully recover for
more than a decade (Wecter 8).
The sudden financial collapse in 1929 came as an especially severe shock because it followed so
closely a period in which the New Era seemed to be performing another series of economic miracles. In
particular, the nation was experiencing in 1929 a spectacular boom in the stock market (Wecter 6). In
February 1928, stock prices began a steady ascent that continued, with only a few temporary lapses, for a
year and a half. By the autumn of that year, the market had become a national obsession, attracting the
attention not only of the wealthy but also of millions of people of modest means. Many brokerage firms
gave added encouragement to the speculative mania by offering absurdly easy credit to purchasers of
stocks. It was not hard to understand why so many citizens flocked to invest in the market. Stocks
seemed to provide a certain avenue to quick and easy wealth.
Between May 1928 and September 1929, the average price of stocks rose more than 40 percent.
The stocks of the major industrials, those used to determine the Dow Jones Industrial Average, doubled in
value in that same period. Trading mushroomed from two or three million shares a day to more than five
million and at times 10 to 12 million. There was, in short, a widespread speculative fever that grew
steadily more intense. A few economists warned that the boom could not continue, that the prices of
stocks had ceased to bear any relation to the earning power of the corporations that were issuing them, but
most investors refused to listen (Wecter 7).
Due to irrational psychological reasoning the stock market depression caused the general public to
believe that it would depress general business and it did, but it should not have. There were 120,000,000
persons in the countries and at the maximum not more than 10,000,000 were involved in stock market
transactions, the remaining 110,000,000 persons suffered no loss. The bulk of the population did not
suffer the loss of stock investments, yet due to this economic calamity it made the public leery of
investing. By the end of 1929, unemployment was rising, shops and factories were ornamented by closed
and out of business signs, and, perhaps most terrifying of all, the nations banks closed taking with them
millions of dollars in deposits (Watkins 54). More than 9,000 American banks either went bankrupt or
closed their doors to avoid bankruptcy between 1930 and 1933 making depositors loose more than $2.5
billion in deposits (Watkins 54). Two hundred and fifty six banks failed in the single month and on
December 11 the United States Bank, with deposits of more than $200 million, went under causing the
largest single bank failure in America history up to that time. This contributed a large portion to the
economic hangover which, in the words of banker J. M. Barker was, “stupidity, turned into unreasoning,
emotional, universal fear (Watkins 55).
Unemployment increased steadily from the fall of 1929 to the spring of 1933 with such affect on
the economy that relief was virtually impossible to obtain. Even a cursory reference to the several existing
estimates of unemployment will amply show the rapidity with which unemployment established itself as
an economic factor of the first order of importance (Shannon 6). By 1932 a quarter of the civilian labor
force was unemployed and the number was still rising. State and local relief agencies lacked sufficient
funds to meet the demands of families for bare sustenance. While some families managed to stay in their
homes and apartments, even though they failed to pay the rent or mortgage interest, others were evicted.
To keep some semblance of a home, families built shelters from discarded crates and boxes on vacant land
or in the larger parks and as time passed the structures became more elaborate and habitable. Municipal
authorities, unable to provide adequate help, were forced to adopt a tolerant attitude against these
The economic hardships of the Depression years placed great strains on American families,
particularly on the families of middle-class people who had become accustomed in the 1920s to a steadily
rising standard of living and now found themselves plunged suddenly into uncertainty. It was not only
unemployment that shook the confidence of middle-class families, although that was of course the worst
blow. It was also the reduction of incomes among those who remained employed. Economic
circumstances forced many families, therefore, to retreat from the consumer patterns they had developed
in the 1920s. Women often returned to sewing clothes for themselves and their families and to preserving
their own food rather than buying such products in stores. Others engaged in home businesses taking in
laundry, selling baked goods, accepting boarders. Many households expanded to include more distant
relatives. Parents often moved in with their children and grandparents with their grandchildren, or vice
versa (Current 22). Older children were inclined to wander away and look for opportunities elsewhere
Another large contributing factor was Mother Nature, because in most of the prairie land
in the U.S. and Canada the weather was so dry that the farmers were unable to harvest their crops. The
land was a barren wasteland of dust and dirt in which it got it’s name the Dust Bowl. In other areas, the
extreme opposite took place: farmers overproduced and prices rapidly dropped because the demand
decreased. The drastic result of this oversupply made it hard for farmers to make money due to the fact
that they had so much that they were forced to sell it at substantial low priced just to remain competitive
enough to make even the small profit they were making. The imbalances were however, self correcting in
which if manufacturers made too much of something, it’s price would fall, profits would disappear, and
the producers would cut back on output. In 1932 the American writer, Stuart Chase described cycles as
“the spree and hangover of an undisciplined economy.”
During the 1932-33 term the deflation gathered momentum so rapidly that many communities had
to close their schools. By March nearly a third of a million children were out of school for that reason.
The number of children affected, shocking as it is, does not tell the story so vividly as does the distribution
of the schools. Georgia had 1,318 closed schools with an enrollment of 170,790, and in Alabama 81
percent of all the children enrolled in white rural schools were on an enforced vacation. In Arkansas, to
site the case of another sorely pressed state, over 300 schools were open for sixty days or less during the
entire year. By the last of February more than 8,000 school children were running loose in a sparsely
settled New Mexico. And over a thousand West Virginia schools had quietly given up the struggle
(Shannon 94). The downswing, which began in 1929, lasted for 43 months. The Great Depression’ has
the dubious distinction of being the second longest economic contraction since the Civil War, second only
to that which began in 1873 and continued for 65 months. The length of a depression, however, can only
give a limited indication of its impact; the amplitude and national ramifications of 1929-33 give those
years a special importance (Fearon 89).
The depression seemed to carry on forever. At times, the effects eased, but they never halted,
until the recovery. The recovery began around 1937 or 1938, but it was a long, tough struggle. The rains
came to the prairies and that helped to produce bountiful harvests. More and more men went back to
work. In Europe, Hitler’s troops were marching into Austria and then into Czechoslovakia. Wise men
knew it would only be a matter of time before Germany would invade Poland. On September 10, 1939
war broke out and Canada did not hesitate to jump in. A vast military effort got under way. The war
machine required the services of every available man and woman for the next six years. Any willing
worker could find work in the armed forces, in defense plants, in factories and on farms across the nation.
By 1942 everyone was at work.
The recovery from the Great Depression was one that took a long time coming. In order to
prepare for another possible occurrence of such events, the American and Canadian governments
implemented four monetary and fiscal changes in the economy that would protect themselves if another
great depression occurred or to attempt to stop one from starting (see Appendix A). These four changes
were: bank deposit insurance,, taxes and government spending, multi-income families, and also lender of
last resort .
In 1967, the government of Canada established the Canada Deposit Insurance Corporation
(CDIC). The United States also established an institution identical to this. These institutions were to
insure bank deposits up to $60 000 per deposit so that depositors would not need to fear bank failure.
Also by doing this in result of a enormous depression it would decrease dramatically the size and number
of bank runs (Parkin 837).
The government sector in 1929 was much smaller than what it is today. Government purchases
went from 11% of GDP to 20% of GDP today. Transfer payments also increased from 5% to 20% of
GDP throughout the years. If the government has high levels of purchases of goods and services, when
recession hits a large part of aggregate demand will not fall. The large size of the government causes it to
act as an automatic stabler that decreases the size of the expenditure multiplier (Parkin 837).
Another change in the economy that occurred that also will decrease the effect of another great
depression is the fact that more and more families now have multi-incomes. In 1929, the labour force
participation rate was 55%. Today it has increased to 67%. If unemployment increased to 20%, close to
54% of the adult population would have jobs, while during the Great Depression only 44% had work.
This in turn causes a minimal fall in consumption when aggregate income falls, resulting in a small
recession instead of a Great Depression.
Due to the fact, that there are government-insured bank deposits, the Bank of Canada has to
become the lender of last resort in the Canadian economy. This means that if a single bank s reserve runs
low, it will have to borrow from other banks. If the entire banking system s reserve is low, it will then and
only then be able to borrow money from the Bank of Canada. The Federal Reserve Board in the U.S.
plays a similar role. The Bank of Canada and the Federal Reserve reminded the world of their ability and
readiness to supply sufficient reserves in order to prevent a great depression from developing in the stock
market crash of October 1987.
So are we safe from another Black Tuesday? We can never be sure when the next fall
will occur, we can be sure however that it will happen, thus our concern should be to minimize the damage
caused by the market fluctuations. There is a feeling among investors that the wisdom learned from past
market troubles is protecting us now, whether in the form of changes to the Federal Monetary policy or the
installation of circuit breakers. This all leads to the optimism of the boom we have experienced since the
mid 90’s, the booming stock market is a natural result of profound economic changes both here and
abroad. For starters, the end of the cold war not only has allowed governments to stop spending capital on
the arms race and freed up money for more productive uses but it has opened up huge new markets like
Russia and Eastern Europe. Companies are focusing on making money by producing goods more
efficiently rather than by raising prices, thus inflation should stay low. And there is more capital in the
market, coming from baby boomers saving up for retirement. In conclusion the solid footing the current
market has should keep from falling like the 1987 and1929 markets when the current boom comes to an
Chart of Regulatory Agencies and Major Economic Laws per decade.
DECADES No. of Regulatory Agencies
per Decade No. of Major Economic Laws
1830-40 1 9
1840-50 0 5
1850-60 0 5
1860-70 2 18
1870-80 1 10
1880-90 1 10
1890-1900 1 14
1900-10 1 14
1910-20 14 57
1920-30 3 31
1930-40 11 48
1940-50 24 80
1950-60 4 41
1960-70 12 73
1970-80 20 1
Batra, Ravi. The Great Depression of1990. New York, NY: Simon and Schuster Inc., 1987
Cochran, Thomas C. The Great Depression and World War II 1929-1945. Glenview, IL: Scott
Foresman and Co., 1968.
Current, Richard N. The Great American History (CD-ROM) The Civil War to WWII.
Carlsbad, CA: Compton’s New Media Inc. & McGraw-Hill, 1995.
Fearon, Peter. War, Prosperity, and Depression: The U.S. Economy 1917-45. Lawrence,
KA: University Press, 1987.
Parkin, Michael. Economics: Canada in the Global Environment. New York, NY: Addison-
Wesley Publishers Ltd., 1997
Shannon, David A. The Great Depression. Englewood Cliffs, NJ: Prentice Hall, 1960.
Watkins, T. H. The Great Depression America in The 1930’s. Boston MA: Little Brown and
Wector, Dixon. A History of America: The Great Depression. New York, NY: The Macmillan
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