The Cause and Effects of the Great Depression

There are many reasons discussed by the economists for the Great Depression in the 1930s. Among them, four factors are the most critical: the failure of the stock market, the wrong bank policies, agricultural failure and the government’s incompetence in crisis. As the stock market flourished, an increasing number of people speculated in the stock market. Unfortunately, the share prices suddenly decreased sharply, which made many people go bankrupt overnight. The banks adopted some wrong policies at that time. They expanded the loans to domestic rural areas and foreign countries, people of which had difficulty in repaying the debts. When the economic situation went worse, the banks had to bear the loss themselves, which led to the shutdown of many banks. What’s worse, the severe drought turned vast cropland into deserts, which made poor farmers’ conditions worse. The number of poor people kept rising, which caused the consuming power declining. When fewer and fewer consumers bought products from factories, the factories had to decrease the number of workers. Then more people became jobless. A vicious circle formed and finally caused the stagnation of the economy. But the Hoover’s administration failed to control and balance the whole economic system.

The Great Depression caused unpredictable economic and political effects. It resulted in tremendous destruction to the life of working class, and farmers, as well as the business for manufacturers and traders. Besides that, it also led to the FDR's New Deal and World War II. The FDR's New Deal was: to recover the banker’s credit by reforming the banking systems and business; to prevent overproduction by regulating and instructing the industrial recovery; to reduce the conflicts between the employers and the employees by creating protection laws for the laborers; to stabilize and promote the prices for agricultural products and restore the production by adjusting the agricultural policies and offering subsidies; to increase jobs and stimulate consumptions in response to the unemployment by launching public programs, such as planting trees, building roads and dams, etc.; to stabilize the society by establishing the social security system. “FDR’s New Deal increased the role of government in people’s lives to unprecedented levels, levels that continued long after America had recovered from the Great Depression.” (Croft Communications, Inc.)