Great depression in USA Essay

Great depression is undoubtedly one of the most significant incidents in the history of world economy. It began in 1929 and stayed till late 1930s. The United States is one of those countries that were badly affected by this severe economic turmoil. This essay points out the main causes of the great depression along with its impact on the American society. Furthermore, it also includes the response of American government to this economic event.

Causes of Great Depression

The most fundamental reason behind the great depression was the massive reduction in spending which ultimately led to rise in inventories and decline in production. There are several factors that resulted in the contraction in spending. Such factors include crash of stock market, monetary and banking failure and ‘Gold Standard’ (Berkley University, “Great Depression”).

By the late 1929, prices of various stocks in US reached levels which were not justified by the rational anticipations regarding future earnings. As a consequence, when news like disappointing results of the organizations came out stock prices started to decline in a gradual manner. This led to reduction in confidence of the investors which in turn caused the burst of the stock market bubble. October 24, 1929 which is famous as ‘Black Thursday’ was the day when ‘panic selling’ actually started. By November, share prices were reduced by almost 33%. Such a stock market crash resulted in significant reduction in aggregate demand. Investment and consumer spending, as a result of these, fell sharply (Berkley University, “Great Depression”).

Another crucial reason that caused great depression was lose of confidence of the depositors in the liquidity of the banks. In the late 1930, several depositors demanded their deposits in the form of cash. Situation created a massive panic in the banking sector. The panic was inexplicable and irrational in nature. However, large number of farmers who were unable to repay their huge loans was a reason behind the decline in the liquidity of the banks. Importantly Federal Reserve did not try its best to stem the panic. Absence of Benjamin Strong who was the governor of Federal Reserve Bank of New York is often considered to be the main reason behind such inaction (Berkley University, “Great Depression”).

There are some experts who believe that the central bank of US allowed the huge reduction the money supply for preserving the gold standard. However, it has been a debatable issue over the years (Berkley University, “Great Depression”).

Impact on Society

Great depression had tremendous effect on the American society. By 1932 almost 25% of the country’s total workforce became unemployed. Furthermore, the unemployment rate remained almost 20% throughout that decade. In 1932 almost 25000 families and 200,000 young people roamed through the nation searching for clothes, shelter, food and more importantly a job (Oracle Thinkquest Education Foundation, “The Great Depression”). People took assistance from private charities and public relief systems although they were not able to meet the demand. Rural, migrant and black families were more accustomed with adverse situations. As a result they could manage circumstances more easily as compared to their urban counterparts (Ingui, p 108-109). Families had to change their lifestyles as their professions were changed. Many people engaged themselves with home businesses. Women played important part in the process of survival. Millions of people suffered from disease that was the result of malnutrition. Farmers irrespective of the color of their skin had to leave their home so that they could sell their crops. Families who used to stay in Dust Bowl turned into migrant farm-workers. American writers and artists portrayed the pain of common people. Photographers like Dorothea Lange and Roy Stryker captured the lives of the farmers. James Agee and Erskine Caldwell described the southern life (Ingui, p 108-109).

Response of US Government

US Government’s response to tackle the great depression has always been a popular subject of debate. The monetary expansion which started in 1933 was largely due to significant inflows of gold to US which was actually the result of increasing political tensions among the European countries. Interest rates were lowered and credit was made more available (Berkley University, “Great Depression”).

Fiscal policy played comparatively less important role in the process of recovery of the US economy. In order to balance the budget, ‘Revenue Act of 1932’ was introduced. It increased the tax rates which actually discouraged spending. In 1933, Franklin Roosevelt brought ‘New Deal’ which included several new programs with the purpose of generating more revenue (Berkley University, “Great Depression”).


“Great Depression”. Christina D. Romer. Berkley University, 2003. Web May 1, 2012.

Ingui, M. J. C. American History, 1877 to the Present. Barron's Educational Series, 2003

“The Great Depression”. Think Quest. Oracle Thinkquest Education Foundation. n.d. Web May 1, 2012.