Please Provide A Comprehensive Answer To The Following Two Q

Please Provide A Comprehensive Answer To The Following Two Questions

Please provide a comprehensive answer to the following two questions: 1) Which were the main causes of the Great Depression? 2) Why did the Great Depression last so long? Indications: • To answer these questions, please start with our textbook information and then use at least one more reputable source for your research. the name of the book: Gary M. Walton. Hugh Rockoff, History of the American Economy. 12th Edition, 2014. ISBN-13: • Please use the bibliographic information recommended by the Modern Language Association (MLA). • Length: at least five pages.

Paper For Above instruction

Introduction

The Great Depression, a profound global economic downturn that lasted from 1929 to the late 1930s, remains one of the most compelling episodes in economic history. Analyzing its causes and duration offers crucial insights into economic vulnerabilities and policy failures. This paper systematically examines the primary causes of the Great Depression, based on foundational textbook sources and supplemented by reputable scholarly research. Additionally, it explores why the depression persisted for so many years, despite policy interventions and economic recovery efforts.

Main Causes of the Great Depression

Several interconnected factors contributed to the onset of the Great Depression. According to Walton and Rockoff (2014), the primary causes include stock market speculation, banking panics, monetary policy mistakes, overproduction, and high tariffs.

The speculative bubble that formed in the stock market during the late 1920s played a pivotal role. Excessive speculation led to an unsustainable rise in stock prices, creating an economic bubble that burst in October 1929, known as Black Tuesday. This crash eroded wealth, diminished consumer confidence, and triggered a cascade of financial failures (Walton & Rockoff, 2014).

Banking panics also significantly contributed. As bank failures increased, depositors faced losses, causing a contraction of credit and reducing available funds for investment. The fragile banking system’s collapse was compounded by ineffective regulation, which failed to prevent a wave of bank runs (Calomiris & Gorton, 1991).

Monetary policy mistakes significantly exacerbated the downturn. The Federal Reserve’s refusal to lower interest rates and its decision to tighten monetary policy during the early 1930s led to deflation, further reducing economic activity. Additionally, the gold standard constrained the Fed’s ability to expand the money supply, aggravating the deflationary environment (Friedman & Schwartz, 1963).

Overproduction in agriculture and manufacturing sectors created excess supply that could not be absorbed by consumers, leading to falling prices, declining profits, and layoffs. The high tariffs, notably the Smoot-Hawley Tariff Act of 1930, worsened international trade tensions, leading to a decline in global economic activity and worsening domestic economic conditions (Irwin, 2011).

Why Did the Great Depression Last So Long?

While initial causes set the stage, several factors prolonged the economic downturn. The persistence of deflation and unemployment, coupled with policy responses, hindered recovery. Walton and Rockoff (2014) describe that a critical element was the deflationary spiral, where falling prices reduced corporate profits, leading to layoffs and further declines in demand, creating a vicious cycle.

The monetary policy stance and gold standard commitments further impeded recovery. The Federal Reserve’s reluctance to expand the money supply and its adherence to gold standards constrained liquidity, preventing banking sectors from stabilizing and amplifying the recession's length (Friedman & Schwartz, 1963).

Government policies also played a role. Early efforts, including austerity measures, often contracted the economy. The Hawley-Smoot Tariff, although initially intended to protect American industries, led to retaliatory tariffs by other nations, decreasing international trade by an estimated 50%, which incapacitated economic recovery (Irwin, 2011).

Furthermore, the lack of coordinated policy responses and limited understanding of macroeconomic stabilization at the time meant that policy tools available were insufficient to counteract the downturn effectively. It was not until the New Deal policies implemented by Franklin D. Roosevelt and the eventual abandonment of the gold standard that recovery accelerated (Bernanke, 2000).

Another factor was psychological. Widespread uncertainty and loss of confidence among consumers and investors led to reduced spending and investment, which prolonged the depression’s severity. The decline in household wealth and income resulted in decreased consumption, hampering economic recovery (Shiller, 2000).

Conclusion

The Great Depression’s causes were multifaceted, rooted in speculative excesses, flawed banking and monetary policies, overproduction, and international trade barriers. Its duration was extended by deflationary pressures, policy missteps, and negative psychological effects. Understanding these causes and factors not only elucidates this historic economic event but also offers lessons for contemporary policy responses to economic downturns. The lessons derived stress the importance of financial regulation, responsive monetary policy, international cooperation, and maintaining investor confidence to prevent or mitigate similar future crises.

References

1. Bernanke, Ben S. "Inflation, Unemployment, and Monetary Policy." Journal of Economic Perspectives, vol. 14, no. 2, 2000, pp. 63–83.
2. Calomiris, Charles W., and Gorton, Gary. "Reinterpreting Banking Panics: The Evidence from the Great Depression." American Economic Review, vol. 81, no. 4, 1991, pp. 1094–1113.
3. Friedman, Milton, and Schwartz, Anna J. A Monetary History of the United States, 1867–1960. Princeton University Press, 1963.
4. Irwin, Douglas A. Peddling Protectionism: Smoot-Hawley and the Great Depression. University of Chicago Press, 2011.
5. Shiller, Robert J. Irrational Exuberance. Princeton University Press, 2000.
6. Walton, Gary M., and Hugh Rockoff. History of the American Economy. 12th ed., Cengage Learning, 2014.