Developments of the modern day
Developments of the modern dayOUTLINE THE MOST IMPORTANT CAUSES OF THE GREAT DEPRESSION. PROVIDE APPROPRIATE EVIDENCE TO ILLUSTRATE THE SCALE OF THE GREAT DEPRESSION IN ADVANCED NATIONS
The Great Depression was the largest economical disaster ever to have happened. Unlike World War One, fifteen years earlier, the great depression had an astronomical effect world wide. The economist Hobsbawm (1995) describes the depression as �the world�s largest earthquake� in economical terms. Indeed the effect of this global economical demise was immense. There are numerous reasons that led to and caused the Great Depression, but undoubtedly the biggest contributor of the slump came in 1929 when the American stock market crashed. The Wall Street Crash of 1929 sent shock waves through all the economies of industrialised nations, and plunged the Capitalist system into the worst economic slump in history. This essay will attempt to consider the effect of the Wall Street Crash in causing the Great Depression, but also consider other causes such as the massive unequal distribution in income that existed and the lasting effects of the war in the form of debts owed to the US.
To understand the sheer consequence of the Great Depression we can consider a normal economy. Most economies experience a �Boom and Bust� cycle, where economies fluctuate between times of prosperity and times of recession. The economist Maynard Keynes believed these cycles would occur roughly every seven years (1). However, the Great Depression was more than a normal recession and nearly saw the end of the Capitalist system, as we know it. None of the capitalist economies had predicted it, and none of their businessmen were prepared for it. Karl Marx had believed that these cycles were a pattern leading to the ultimate destruction of Capitalism. It was infact a Russian economist, N.D.Kondratiev who predicted a large economic downturn, by looking at economies over a larger time scale or �Wave� (A). However the capitalist economists dismissed his claims.
On the 28th of October 1929, a day now known as Black Tuesday, the American stock market collapsed
A) N.A.Kondratiev had studied economic cycles over larger periods of time. He measured cycles over fifty and sixty years, and predicted a downturn in the economy. However, with many sceptics, and an incapability to explain the waves, his prediction was ignored.
The collapse had initially been caused by mass speculation on the stock market. When this happens, it causes share prices to rise in times of confidence and prosperity, and fall during slumps and lack of confidence in the market. Between 1928 and September 1929, the Dow Jones rose at a staggering rate from 191 to 381 (2). This meant that any investors with shares in the market were making very large amounts of profits. This profit incentive was too large for many companies, and this caused company profits to be ignored. At the time they seemed to be unimportant, especially when huge profits were being made...
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