The Great Depression: It's Causes and Resolve

Many people argue that the Great Depression was caused by a failure of our Free Market system. During the 1920’s the FED began to help England go back to the Gold Standard. The plan was for the US to print bonds for the UK to buy and to drive the prices us on the bonds so the return is less and the US makes more. The problem was that the UK didn’t buy any bonds. They returned to the Gold Standard and the US interest rates are lowered, making it a mal-investment. This open market trade operation led in part to the stock market bubble. In 1930 the American government created the Smoot-Hawley Tariff to protect American companies by charging a high tax on imports and thus almost eliminating trade between the US and Europe. During the time before the Great Depression people were living well and the economy seemed permanently stable, there was an economic boom. There was much economic progress, such as secure private property, international trade and immigration, technological change and development, and labor productivity. People had jobs, money, comfort, all was well. The government was printing excessive amounts of money and there began to be an inflation. People were investing in many things, and relied on banks for loans and securing their money. The real estate boom peaked, then the FED increased interest rates to slow down the stock market, and then industrial production decreased significantly within a few short years. This was a sign of the coming Stock Market crash, which occurred in 1929 and is known as Black Tuesday. The Stock Market bubble was the cause of this. People who invested their money in stock lost their money, many lost their jobs as a result of their boss or company’s money loss. The banks that they invested their money in were cleared out or bankrupt so people’s life savings were diminished. Many banks went out of business, which was more loss of jobs. The few banks left did not want to loan money and made it very difficult to do so for fear of going out of business. This made it hard to attempt to come out of the depression because people couldn’t get loans to start companies and create jobs and generate revenue. It was a downward cycle. Many argue that the cause of the Great Depression was the failure of the Free Market system, when in fact it was caused by the bubble created by too much economic boom and inflation and people investing in doomed stocks and companies. The economy and the stock market fluctuate, that is normal, but many factors built up and led to this fall and depression. I believe that the government policies did help in the short term with the Great Depression, but in the long term the economy would have fixed itself as it always does. It goes through fluctuations and periods and is designed to fix itself eventually. The economy is not perfect and constant and is expected to change and fluctuate to keep it going and people investing and participating. The New Deal policy created heavy regulations on all business in the attempt to stop competition, drive up prices, and drive up wages. This heavy government influence limited the jobs that were still intact and taxes took away from peoples wages to give to those out of work. They thought this, and immense government spending (which would be taken from the people through taxes) would encourage people to spend money and create jobs when in fact people were too fearful of loss to take that chance. People held onto their money. Excessive government control on business did not just spread the wealth to create jobs and encourage spending as they thought, but rather limited the businesses that were still in place.  The New Deal did create some short term jobs but did not permanently fix the situation. The Government’s eventual cut in spending, and therefore taxing, helped to come out of the Depression.  In the case of the Great Depression it may have been to severe to leave it alone and it fix itself, but it the government had waited to take complete control it may have fixed itself. Or, if the government had not taxed and limited but just created jobs and stimulated the economy. I believe that some of the policies did help the situation but that it made the Depression longer and that the economy, if left, would have eventually fixed itself.