Causes of the Great Depression

Subject: History
Pages: 1
Words: 295
Reading time:
2 min
Study level: School

The problem of the Great Depression occupies a prominent place in American history. The crisis that resulted in massive unemployment, the collapse of the financial sector, and other severe problems left an imprint on the United States, and today, its study is still relevant. Numerous reasons that led to the Great Depression are discussed, for instance, the ineffective management of the currency market, the lack of measures to counteract deflation, and some other causes (Amadeo, 2020). However, when analyzing the events of the 1930s in the United States, one can note that the most responsible reason for the start of the Great Depression was the decrease in the level of investment activity. To overcome the main weakness of the capitalist economy, particularly the lack of propensity to invest, the state was obliged to create favorable conditions for entrepreneurs’ investment activity. Among these solutions, Field (2020) mentions interest rate reductions, the deficit financing of inflationary price increases, and other initiatives. Nevertheless, the authorities did not assume the functions of a direct investor, which, in turn, resulted in critical financial barriers and attendant challenges, including unemployment and stock market crash.

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If implemented properly, support from the government could have helped transform savings into investment. As Amadeo (2020) notes, in the absence of state assistance, “monetary policy can’t offset fiscal policy” (para. 14). In other words, the inability of businesses to bring funds to the treasury was not addressed competently, which led to the crisis in the financial industry. As a result, the lack of investment was the main cause of the Great Depression and a factor that put the US economy in a severe threat of collapse. Roosevelt’s policy saved the country and improved the situation, but that crisis was an important lesson for the American government.

References

Amadeo, K. (2020). The Great Depression, what happened, what caused it, how it ended. The Balance.

Field, A. (2020). The main causes of the Great Depression, and how the road to recovery transformed the US economy. Business Insider.