Wednesday, September 24, 2008

Causes of the Great Depression

NOTE: Check out the new series of articles on the recent economic downturn located on the homepage of this blog. Don't forget to e-mail me at for any questions, concerns or information!

To become street smart and learn more about the fundamentals of money, it is important to analyze one of the worst disasters in the history of world economy and the reasons for it.

"The Great Depression"

The Great Depression was a very depressing economical period of time for the whole world, and the worst economic disaster in the history of the world. The millionaires went broke within a few days, business tycoons were on the streets left with nothing and many companies went bankrupt. But what exactly caused this event?

Any event like "The Great Depression" does not happen over night and requires time to take place. The Depression had started to take place as World War 1 had ended, a lot of wealth from the Axis came to Allies, and the economies flourished. But during this stage the equality of wealth became worse. The rich people could afford all the luxuries, mansions, cars, etc but the poor couldn't find enough food to survive.

The industrial revolution brought a lot money to the industry owners which left agricultural farmers with very little. And remember we are talking about 1920's when there were a significant number of farmers.

The stock market was climbing and attracted many investors, who only found themselves lose all that money to a major stock market crash. When the stock market goes incredibly high, a crash is inevitable. This event caused many people to commit suicide, and was a major step towards the great depression. It happened on October 29th, 1929 and it is still known as "Black Tuesday" because black color signifies evil and depression.

With machinery, workers were able to work longer and more productively without getting injured which caused a lot of worker strikes for higher wages and better health plans for them, since they deserved it with all the hard work. With wages, increased the price of goods, but the salaries of others remained the same.

Recently the gasoline prices have risen; imagine if all items were inflated like gasoline, today we would be in another depression. This is what happened during the great depression. The prices became high but the salaries didn't.

Then people who did not have enough salary started buying on credit. Which meant that they would pay within a year or pay in installments, but with the stock market crash they were in debt forever. The depression hit America the hardest, followed by Canada, countries in Europe, and some other major parts of the world.

Matters became worse as people were fired from work due to fewer profits in sales, and farmers leaving their farms in hope to do better in the industrial revolution. This was also the start of a new era, where industry, trade and business was quickly taking over and agriculture, logging and mining were becoming things of the past.

Since the industries were already in a poor economical shape, the newcomers, farmers and other uneducated people remained unemployed and had nowhere to go. They couldn't sell the crops for low price, and they couldn't get a job in the city. The unemployment rates increased to as much as 50% which means that half the people legally able to work did not have work.

The inequality of wealth was taking its toll, but prosperity came again. As demand for warfare items such as guns, bullets and bombs increased, the industries flourished again. Countries were preparing for another war which is known as the World War 2. The great depression was completely gone after the World War 2, but resulted in the lives of millions of people.

The Great Depression has taught to the future generations like ours, that the effects of spending too much, buying too much, living in a dream world with a few people with all the luxuries can cause a downfall in the economy. We together have to learn from this economic disaster and try out best to avid one in the future by only buying what we need, donating and spreading money across the world to people who need it.

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