Devin Vasquez Mr.

Hedgepeth Honors English 27 February 2012 The Great Depression The Great Depression began in October 1929, when the stock market in the United States dropped rapidly. Thousands of investors lost all of their money and were forced to live on the streets often going without food. This crash led into the Great Depression. The ensuing period of 10 years ranked as the worst period of high unemployment and low business activity in modern times. Banks, stores, and factories were closed and left millions of Americans jobless, homeless, and without food. Many people came to depend on the government or charity to provide them with food. The Depression became a worldwide business slump of the 1930's that affected almost all nations. It led to a sharp decline in world trade as each country tried to protect their industries. The Depression led to political turmoil in many countries such as Germany where poor economic conditions helped lead to the rise of Hitler. Franklin D. Roosevelt was elected President in 1932 and his 'new deal' reforms gave the government more power and helped slow the depression. The Great Depression ended as nations increased their production of war materials at the start of World War II. This increased production provided jobs and put large amounts of money back into circulation. Several factors led to the great depression, one being the lack of diversification in the American economy. The prosperity of America had been basically dependant on a few industries like construction and the automobile and in the late 20's these industries started to fall. When those two industries began to decline there was not enough strength in the other sectors to keep the economy strong. Another major factor in the depression was the poor distribution of wealth throughout the

20's companies were doing very well and making loads of money; however, there workers wages were not increasing nearly as fast as the companys profits. As industrial and agricultural production increased, the amount of the profits going to farmers, factory workers, and other potential consumers was far too small to create a market for goods that they were producing. Even in 1929 when the economy was flourishing after 10 years of growth almost half of the families in America where living below the poverty line and could not afford the goods the industrial economy was producing. As long as factories continued to expand their factories the economy remained strong. However they soon had created more plant space that could be profitably used. Factories were putting out more goods than consumers could buy. The poor credit structure of most banks in the 20's also helped lead to the depression. Farmers who were already in debt saw crop prices drop sharply in the late 20's. This greatly hurt the banks, especially those involved with the agricultural economy because the farmers crops prices were too low for them to pay off their debt. This led to many failures among smaller banks. The banking system was not ready to handle the depression. Some the countrys largest banks put far too much money into the stock market and did not save enough. A major factor in the great depression was the breakdown of international trade. Nations began to protect domestic production from foreign imports by raising the tariffs to unprecedented levels. President Herbert Hoover raised the tariffs to level which practically closed the United States borders when he enacted the Hawley-Smoot Tariff act in June 1930. This caused devastating collapse of American agriculture, the most important export industry. American foreign trade greatly slowed as did world trade. The European industry and agriculture grew in the 20's and European countries were growing too poor and could not afford to buy goods overseas. This led to a decline for the need of U.S. goods in Europe. After WW1 allied nations of the United States all were in debt to them. This is why the allied nations insisted that Germany and Austria pay the reparation payments. They thought this

would give them away to pay off their own debts. However Germany and Austria were also struggling and could not afford to pay the reparation payments. The allies of the U.S. began getting large loans from US banks to repay their debt to America. So they only repaid one debt by building up a new one. As the US economy began to weaken it made it harder for European nations to borrow money from the US. The high tariffs made it very difficult for them to sell their goods. They now had no way to repay their debts or build up money. The Great depression in Canada did not start for all the same reasons as the Depression in America. Canada prospered in the 20's. It was the worlds largest export of wheat and it helped make Canada one of the worlds leading traders. However this was only because of problems in other places of the world. The Russian revolution stopped Russia from trading their wheat, and WW1 had devastated other countries throughout Europe. However the European countries recovered and Russia came out of their revolution and again started to produce Wheat. And although the demand for Canadian wheat was not as high anymore they still produced just as much. Instead of cutting back on production farmers kept their excess wheat in wheat stacks and much of it went to waste. By 1929 there was a complete collapse of the economy in the Prairie Provinces. Although Canada did not have as much money involved in the stock market as America, the two countries were so close economically; the drop in the states soon had just as big an impact in Canada. Investment during the 1920's was based on the unstable basis of margin buying. Investors bought borrowed money from their brokers, who went to banks for that money. When stocks failed and investors needed to default, the money was permanently lost .The crash of 1929 ended the seemingly infinite prosperity of the 1920s. Millionaires had become paupers overnight. Those who believe in the strength of the economy invested everything they had and then lost everything they had. Of course, the economy weakened and the unemployment skyrocketed from 3% to 25%. The Great Depression had begun.

The Great Depression affected practically every nation in the world. In Germany, the poor economy and high unemployment rate helped lead to the overthrow of the Weimar republic and the rise of Hitler. The American president greatly underestimated the effect of the stock market crash and made very weak efforts to control the situation. He eventually went to congress to ask for a 150 million dollar public work program to help the economy and to create more jobs. There was no Federal overseeing of the stock market and after the crash many stock and investments were found to be frauds. Many banks had invested in these frauds and lost tons of money which led to a collapse of the banking system. So therefore the public work program could never happen and there was just not enough money to fund any sort of program. The American government did little to help the situation, if anything they made it worse by raising interest rates believing inflation was the problem. Canada had some advantages over other countries; it had a very stable banking system, during the entire depression 9000 banks collapsed in the U.S., only one bank collapsed in Canada. However no other country was hurt worse when the U.S. raised their tariffs because it relied so heavily on trade with America. Every class was hit hard by the depression. For farmers, there crop prices were so low they did have enough money to pay off loans and many lost their farms and homes. For the working class, 1 in 4 lost their jobs; with no source many lost their homes and had to struggle to get food to feed their families. The upper class was badly hit; some went from having millions of dollars in stocks and living in huge homes to having nothing and living on the streets. The Great depression never truly ended in America until the start of World War; however the New Deal also helped slow the depression. When the war started it immediately created jobs. Many men were sent over to the war and those who were not got jobs building war materials. President Roosevelt's "new deals" also helped bring an end to the depression. The

plan for the New Deal programs was to provide work and relief for the population living below poverty and to increase government spending. The theory of the New Deal was backed up British economists John Keynes. Between 1933 and 1939 government spending tripled. The New Deal worked out just as Keynes and the Roosevelt administration had predicted. America slowly crawled its way out of the depression and again became a productive nation partly by the New Deal, but most of all by the start of the Second World War. In Canada, Richard Bennett was elected Prime minister in 1930. He, like the U.S. immediately raised the tariffs. Many make-work programs were started welfare support quickly grew. However this led to a large federal deficit and Bennett cut back on government spending. A great burden on the country was Canadian National Railway, the government had to take over many railways and from that took in a debt of over two billion dollars. After seeing President Roosevelt's New Deal policy having good results in the U.S. Bennett introduced policies based on the New Deal. Bennett started up minimum wage and unemployment insurance. However Bennetts attempts to revive the economy were not nearly as successful as Roosevelt's. As a result the depression was worse in Canada than in the U.S., and this led to the defeat of Bennett in the 1935 election to liberal Mackenzie King. Like in the U.S. the Great Depression did not end until the outbreak of the Second World War. A boost in the economy was created by a strong demand of Canadian goods in Europe and an increase of government spending.