College Papers

The good and bad were actually very weak.

The Great Depression
was an international event, contrary to previous economic crises, which were
usually limited to a handful of countries or specific regions. Asia, Africa,
Europe, Australia and North and South America all suffered from the economic depression. Global trade has declined by 30 percent
because countries have tried to protect their industries by increasing tariffs
on imported goods. In 1932, 17.2% of the active population in Germany, 23.5% in
the United States and 13.1% in Britain were unemployed. Around 30 million
people were not employed globally.

1920s were the
years when the world accepted the economic superiority of the US. The US was
making effort to be an element of dominance in both economic and political
sense. The ‘roar’ in those years, also referred to as ” roaring twenties ”,
not only explained the rapidly growing US economy, but also the radically
changing lifestyles. The United States is believed to be the first country to
have “endless” prosperity and wealth, a lifestyle rising up in the strictest
sense of individualism and dominated by consumption frenzy, dominated the
United States. In the 1920s, the economies of many countries, whether good or
bad, were tied to the economy of the United States because of the large amount
of debt but the real problem was that the economies of all the countries that
were distinguished as good and bad were actually very weak.

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The crisis that
started in the United States in 1929 quickly sparked the whole world. From this
point on, this crisis, which caused a significant contraction of international
production and trade from on the on hand and carried a widespread unemployment
problem to the agendas of industrialized countries of Western Europe and Northern
America on the other. With which the confidence to the liberal approach, which
based on the belief that the economy would regulate itself, has been shaken
deeply.

Very poor
interventions of governments led The Great Depression to spread very quickly
across the world. Their export revenues decreased dramatically because of The
Great Depression and they started to apply strong tariffs and reduced trading
with other countries.in addition almost all of the governments started to cut
spending to take measures against it since the economics supported deflation
policy then. Because of that consumer demands dropped dramatically. Governments
held their constant exchange rates unchanged according to Gold Standard that
binds money to the value of gold, because of the deflationary policies were
strictly dependent on exchange rates. But during the depression governments
needed to hold interest rates high to make banks to invest on their currencies.
Borrowing money became expensive and unaffordable for both individuals and
businesses from the bank because the interest rate repayments increased and
prices fell. The First World War led to a big political insecurity and an international
intervention to stop the Depression was impossible.

In 1931, the US
banks began take back their capital from Europe; this led to the sale of
European money and then the fall of many European banks. At this point,
governments either began to control the exchange rate, as in Germany, or began
to lower the value of money as in Great Britain. And that brought the end of
Gold Standard. Even though under the Bretton Woods agreement, a constant currency
exchange rates system has been resumed after World War II, international economies
have not been enthusiastic about this system as they did with the gold
standard.

In US, in the
first five years of depression, the economy contracted by 50 percent. The
economic output measured by the gross domestic product in 1929 was $ 105
billion. Today it is equivalent to 1.057 trillion dollars. The economy began to contract in August.
At year’s end, 650 banks failed. In 1930, the economy contracted by 8.5
percent. Gross domestic product fell by 6.5 % in 1931 and by 12 % in 1932. By
1933, the country had been under economic contraction for five years. It only
produced $ 57 billion, half of what was produced in 1929, partially due to deflation.
Prices fell by 10 % per year.

The US citizens
blamed Hoover administration and inexperience for this crisis. In the face of
the crisis, Hoover management did not make many interventions. This
administration believed that the economy would function in the most correct way
if it were not intervened by the state, and it was a temporary situation for
them. But as time passed, prices continued to fall and trade narrowed. The
Hoover government, when they see what they believe did not have a positive
impact on the crisis, decided to intervene and urged the state and local
governments to increase their spending by taking the necessary precautions. Tax
discounts applied. They demanded industrialists to continue their investments
and that prices should not go down. But it was too late for the decision to
intervene, and the interventions that were made also led to the deepening of
the crisis. On top of that, the people elected Roosevelt from Democratic Party,
States who promised radical changes in the economic system, as the President of
the United States in the elections.

President
Franklin Roosevelt promised to put into effect a “New Deal” that
would re-establish American capitalism and governance on a substantially new
basis. Expenses for New Deal
increased gross domestic product growth by 10.8 % in 1934. The economy grew by
8.9 % in 1935, it reached 12.9 % in 1936. By 1938, the government stopped
expenses on the New Deal and depression revived. Economy contracted by 3.3
percent. Between 1933 and 1940, New Deal eased some of the effects of the Great
Depression, but it did not ceased the crisis. The “New Deal”, which
was interpreted as a short-lived step backward from capitalism’s free-market
economy to state control, was aimed at improving the conditions of the working
class, who were basically oppressed by depression. According to some
economists, the “New Deal” has been a major influence on United
States’ society, even though it did not remove the effects of depression. The
government had re-organized the relationship between businessmen and
industrialists. Until the New Deal, citizens of US saw their future in the private
sector. After depression, they turned their faces to Washington, waiting for
the federal government to intervene in the economy. Industrialists and
businessmen were not the only determining forces in United States anymore, the government
and trade unions stepped on the scene, too. The trade unions and the welfare
state expanded greatly in the 1930s. In the US, trade union membership doubled
between 1930 and 1940. This
tendency was encouraged by the heavy unemployment in the 1930s and by the Wagner
Act (1935), which enabled collective bargaining. The
US accepted the Social Security Act (1935), in response to the challenges of
the 1930s. Which included unemployment compensation and old-age and survivor
insurance.

A number of
economic indexes, when the World War II started in Europe in 1939, indicated
that the United States was still deep in depression. However, arrangements for
World War II increased economic growth by 8 % in 1939 and by 8.8 % in 1940. The
following year, after Japan bombed Pearl Harbor, US joined the World War II.
The New Deal and World War II expenses changed the economy from a pure free market
to a mixed economy. It was more dependent on government spending for success.

With the Second
World War, European countries such as Germany and France lose their economic
infrastructure. In order to rebuild the economies of these countries, Marshall
aids and international economic organizations such as the World Bank, the IMF
and the GATT have been established, which have significant effects on the
economic policies of these countries.

After the Great
Depression, the macroeconomics was born. Although the birth of economics was
identified with the Adam Smith and “The Wealth of Nations”, the birth of the macroeconomics
as another branch of economics was in 1936 with the publication of “The Great
Theory of Employment, Interest and Money” by John Maynard Keynes. Keynes argued
that the impenetrability principle of the markets would not work during times
of crisis. Because once income and employment start to fall, people will look
for ways to save their money, and the banks will raise interest rates to stop
it. As a result, the need for credit for investors who want to expand their
business will increase, which will reduce business volume. This meant that
income growth and employment levels would decrease. This curse could only be
broken by direct government intervention. According to him, in order to revive
the business world, tax and interest rates had to be reduced and fiscal
policies that would encourage employment had to be adopted. Keynes’s approach
received great support from the newly elected US president Franklin Roosevelt.
Roosevelt declared that the interventionist policy should be adopted in order
for the US to emerge from the crisis.

Prior to Keynes,
economists examined economics as a whole and did reviews of money and prices,
but approaches that seeking answers to macroeconomics and questions such as “Why
do economies experience depression?”, “Why do production and employment decline
over time?” began with Keynes.

The handling of
the crisis of 1929 only in the economic context would undoubtedly mislead us
because the collapse of the liberal economic approach meant the collapse of the
liberal political approach, which led to a dictatorial regime in many European
countries. The classes that became unstable with the industrial and
agricultural crisis supported the extremist parties to showed their reaction to
the rather slow functioning of parliamentary democracies; the alienation of the
middle classes from the moderate parties resulted in Adolf Hitler coming to power
in Germany, while the collapsed agricultural interests strengthened the
rightist regimes in the Balkans. So with these issues, the economic crisis of
1929 rose to the top among the causes of the Second World War.

With the war,
overseas countries began demanding ammunition and weapons from American weapon
companies, thus reducing unemployment in the United States. When it came to
1941; The Great Depression influences were completely over.