The meaning, features and effects of Great Economy Depression of 1929 - 1933

 THE GREAT ECONOMIC DEPRESSION (1929-1933)



The economic depression was the great failure of the capitalist economy or total economic slump that occurred firstly in USA and then hit the global capitalist economy. It was characterized by stagnation of the production, unemployment, low purchasing power, inflation and general social miseries to the people. The depression started in USA due to overproduction against under consumption and then spread to Europe and other parts of the capitalist world with exception of Russia.



Background of the Great Depression

The origin of the great depression was situated in the development of capitalism especially in USA and occurrence of the First World War. The First World War ended on 11th November 1920’s and during the next ten years USA became one of the strongest economic powers in the world. The war had a great effect to America, whose economy had improved as they need for food, raw materials and manufactured goods of all kinds increased. The USA made loans of US$ 10.3 billion during the war to its allies and 90% of this money had been used to buy American goods.



Features of the Great Economic Depression

During the decade of depression a large number of people lived in poor conditions, desperately in need of more food, clothing, and shelter. Yet the resources that could produce that food, clothing, shelter and other basic needs were not utilized effectively or rather at all.

Closure of many enterprises in the world

Unemployment, due to many enterprises being closed

Lowering of goods prices, and increase of food prices, running of unprofitable trade

Suspension of many banks and many banks was closed

Reduction of government expenditures and great inflation raised in the world


Causes of the Great Economic Depression

Many factors are regarded to have caused the great economic depression in the USA and the world at large; such factors can be seen in the following aspects;

The improper competition of the US capitalist production which led to overproduction visa versa under consumption.

The effects of the first world war, that the war destructed all economic infrastructure hence stagnation of production and reduced the purchasing power of many capitalist nations in Europe.

Collapse of stock exchange i.e. London stock exchange market, Thus the world became less powerful in purchasing the products from USA due to impacts of the WWI, hence failure of the economy.

US depended mainly on external market, so the world became less powerful to purchase the products form US due to First World War, which caused economic stagnation.

Foreign trade was in decline, other countries reacted to the policies of the USA government by placing high tariffs on USA goods. Therefore business in the USA could not sell effectively abroad.

Industries and business began to run off buyers. They could not export abroad and they could not sell to their people in the USA who were already suffering from economic hardship. As a result business began to cut back such that only few families could afford to buy consumer goods, so very few goods needed to be produced. Industries reacted by making movement back to the workforce. This seems like a vicious circle from which it was impossible to break through.

International trade tariff walls. After the First World War Europeans restructured their economies through USA particularly food were prevented from entering Europe. Due to this lack of external market the first sign of a great depression was seen in USA where they had already cultivated a lot of food crops to feed Europeans during and after the war.

Unequal distribution of national wealth. During the period around 1929, 5% of Americans owned 32% of national wealth. Thus prosperity of Americans depended on this 5% for buying and producing goods. T his group lost its income in the New York stock exchange due to fall in prices of shares. Due to workers who were the majority lacked the purchasing power hence lack of market which resulted to a great depression.



THE CAPITALIST ECONOMIC CYCLE

1. BOOM STAGE (PEAK)

This is a period when the economy is at the highest level. During this period the economy has the following characteristics;

i. High level of investment

ii. Lowest level of unemployment

iii. Income to both individuals and companies are high

iv. Stable prices of commodities

v. High and effective demands

vi. High standard of living

vii. Social and political stability

viii. Expansion of trade



2. RECESSION STAGE (DOWN TURN OR CRISIS)

This is a temporary decline in economic activities and it has the following characteristics;

i. Decrease in investment

ii. Decrease in employment

iii. Decrease in incomes

iv. Decrease in effective demand

v. Decrease of commodity price

vi. Profitless trade


3. SLUMP STAGE (DEPRESSION)

This is the period of total decline in the economy or stagnation of the economy. It has the following characteristics;

i. Lowest level of investment

ii. Highest level of unemployment

iii. Lowest level of income as many investment died

iv. Lowest level of consumption as purchasing power declined

v. Prolonged accumulation of unsellable commodities

vi. People losing confidence of their government

vii. Lowest standard of living

viii. Rising of food prices

ix. Social and political unrest

x. Total closure of enterprises and investment


4. RECOVERY STAGE (EXPANSION)

This is the period when the economy started to improve and expand follows after the Depression or recession. It has the following characteristics;

i. Investment start to expand

ii. Employment start to increase

iii. Income increases

iv. Prices start to rise

v. Effective demand increase

vi. Standard of living starts to rise


Effects of Great Depression in the World

The Great Depression affected almost all the capitalist nations worldwide and the other small states either directly or indirectly;

It led to bankrupt of the capitalists due to failure of business and the closure of enterprises

Social miseries e.g. Famine and shortage of food

Led to the rise of dictatorship regime in Europe i.e. Nazism in Germany, Japan and Spain also Fascism in Italy.

The great depression led to withdraw of Us loans to the European countries

It led to the collapse of League of Nations

It facilitated the exploitation of most African resources

Brought much suffering to normal people due to famine, hunger and general social miseries.