Cause Of The Great Depression

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The Great Depression has been viewed as the most important economic event of the twentieth century; it caused catastrophic effects on the American economy and ruined the lives of many Americans. Not only did the multiple causes contribute to it being the worst economic decline in history, it’s length helped attribute the misery Americans endured. There are many factors that come into play with what caused the Great Depression and why it lasted so long.
Among those that caused the Great Depression are the Stock Market crash, the banking crises, the growing inequality of income, the economic distortion and the government’s involvement, and the Smoot-Hawley tariff.
The catalyst that started the Great Depression began when the Stock Market crashed.
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That being said, there is not enough information to truly tell whether or not the growing inequality of income was a true cause to the Great Depression.
Another look into the causes of the Great Depression is found in the often overlooked Depression of 1920-21. It is generally believed that there cannot be economic recovery in a short time without government countercyclical policy during a depression. However, in the Depression of 1920-21, Harding did the opposite of what is generally believed. He cut the government’s budget in half from 1920-1922, slashed tax rates, and reduced the debt by one-third with his laissez-faire approach. By 1921, recovery was already visible.
This method to allow distortions to correct themselves - based on the idea that depressions are inevitable once the economy has become distorted - had worked until 1929, when both Hoover and Roosevelt took actions to fix depressions with government intervention. The theory here stands that Hoover and Roosevelt’s government intervention helped cause the Great Depression with the artificial booms and imbalances it
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The most controversial topic of the Great Depression is why it lasted so long. However, most historians can agree that the New Deal and fiscal and monetary policy played a role in prolonging the Great Depression. The New Deal, although crafted to help boost the American economy, had perverse effects as well. For one, the New Deal created many tax legislations during 1935 and 1936 which left private investment spending to remain depressed. This is because businesses no longer wanted to undertake long-term investments when profits would be taken away from the new taxes. The political climate created by the New Deal discouraged investment and prevented Gross Domestic Product from increasing to its potential. The New Deal also created policies - such as the National Industrial Recovery Act and National Labor Relations Act -intended to restore full employment. However, these policies allowed firms to collude to keep prices high and the price floor the government created to keep wage rates from falling caused the supply of labor to exceed the demand for labor, and thus, relatively high unemployment

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