What did the Great Depression reveal about the American economic system?

By | 05/17/2019

What did the Great Depression reveal about the American economic system? How did the New Deal change American society and government?

An economic crisis can either strengthen or crumble a government and its people depending on the sequential steps taken. It can be characterized by a lot of confusion that requires firm leadership to steer through. It often calls for reforms and informed economic decisions need to be injected either directly or indirectly. An analysis of Great Depression reveals significant aspects that led to it and the impacts that the New Deal had on Americans and their style of leadership.

The Great Depression revealed that Americans were saving more money than they should have. When there is a decline in employment, the acutest response for an ordinary person would be to keep the money in their possession for more terrible days ahead. Little money was thus spent to buy essential products manufactured in the industries. Excessive or lack of money supply in the economy has diverse effects on the economy. For instance, too much money circulation results in saturation that deteriorates the value of assets. On the other hand, a deficiency in money supply causes the prices of assets to shoot up. Therefore, the firm saving culture adopted before the depression resulted in the value of stocks in the market to rise. However, the prices of the goods that were not being consumed declined and typically, manufacturers incurred massive losses.

The depression exposed the increased panic that pressured Americans who had invested their savings in the stocks exchange to sell their shares. Whenever there is an increase in the supply of a product that does not measure up to the demand, it loses its value. Before the stocks exchange collapsed, more people wanted to dispose of their stocks, yet few investors were willing to buy. The lack of a balance between demand and supply crumbled the market. Notably, the gold standard that required all countries to utilize a fixed currency exchange helped to ease the pains of the depression by spreading the effects to other nations.

Clearly, the losses from the stocks exchange crisis disabled the people by robbing them of their purchasing powers. That means that the already declining industries cannot make cash sales and farmers lack resources to harvest crops. Therefore, the economy was entirely immobile since money, goods, and services were not being exchanged. The crisis showed that banks thrive where there is a constant exchange of money across all the sectors of the economy. Contrary to that, there was stagnation where businesses were not making sales since most people were unemployed. Due to lack of resources, depositors would demand their money from banks (Bernake pg. 27). Unfortunately, debtors were not able to repay back loans lend to them. Therefore, this lack of money flow crippled banks forcing their closure.

After the New Deal, jobs were created through various projects initiated by the government (Higgs pg. 556). The population’s buying power was restored through employment. When individuals earn an income, they become liberated from poverty and can afford a decent life. A reasonable flow of money from employees to business and banks stabilize an economy. America felt the need to stabilize its military after increased instability in the region. During an economic turmoil, individuals develop differing opinions that group them. For example, an extremist political movement sprouted in Germany and stirred up war. Therefore, it was necessary for America to invest in an active military as it headed towards its potential economic glory.

Unemployment insurance and matters of social security were introduced after the New Deal. The welfare of the people was prioritized and institutionalized. Indeed, lessons were learned during the tough times of depression. The securities exchange matters were regulated by a mandated body to cushion it from possible manipulations in the future. Pension funds would be available for old people and insurance for unemployed individuals. The government protected people’s deposits in banks and farmers received government supports. The federal government cultivated a favorable environment for the people to thrive economically, socially, and politically.

The faith of the American people in the government was restored after the New Deal. The head of state invested in continually speaking to the citizens and reassuring them that their glory would be restored. Indeed, his strategies worked to recover a crashing economy, protect the people’s welfare, and offer them employment opportunities. Unlike previous times, the state became more involved in the affairs of its people.

The role of women after the New Deal was redefined differently from how it had been perceived for decades. In the new age, they accessed equal opportunities as men and were allowed to lead in the society (Ware pg. 65). Discriminative policies were scrapped henceforth. It is significant that this deal brought about empowerment of women because their contribution to society is immense. Women in leadership represent the needs of the family unit, which would suffer in their absence.

The Great Depressions is a source of revelations about the shortcomings of the American economic system at the time. A detailed analysis of the situation reveals that panic caused citizens to make decisions that brought an imbalance in the magnitude of demand and supply of various drivers of the economy. However, the New Deal brought relief to people’s economic, social, and political lives through increased government involvement.