This article will discuss if overproduction was the cause of The Great Depression. For that, the article explained what The Great Depression was, and what were the other causes of it.
What was The Great Depression?
The Great Depression was a financial crisis that affected the whole world. It went on between 1929 and 1939. And although it affected most of the countries, it started in the United States. The most affected places were America and European countries, as for Asia and Latin America, they experienced mild effects of the crisis.
The Great Depression caused a high rate of unemployment, huge deflation, an increase of poverty worldwide, and a change in the production system. It was caused by many factors, and after it, there were many laws created to protect the banking system and even the workforce.
Did overproduction cause The Great Depression?
Yes, overproduction is one of The Great Depression. Back then overproduction wasn’t only a problem with the industries, farmers were also producing too much. In the 1920s everyone was producing a lot more than people were able to consume.
All of this came as a result of World War I, which caused people to produce more to aid in the war effort. It also changed the farmers’ production techniques to a more mechanized way, which cost a lot more, causing farmers to be in debt.
Aside from that, they saw the price of the landfall around 40%, which caused the farm production system to start to fail around the 1920s, by the end of the decade many farms had gone into foreclosure, and the unemployment rate became high among them.
During this decade, the industry, especially the automobile industry, was soaring. People were buying cars, house goods, and consumer products. But those purchases were not made with cash, instead, everyone was buying things with the credit they got from the bank.
Because of this high search for the products, their price went up, and with time, people weren’t able to afford them anymore. For example, a person that worked in one of the factories would hardly have the condition to buy what they were making.
And because Europe was also going through an economic crisis caused by the reconstruction of the region after World War I, made it was impossible to sell those products overseas. Causing the American industries to have a huge surplus of products.
And because American society was divided into very wealthy people, that was 1% of the population, and the other 99% were people that were dealing with unemployment and low income, they couldn’t buy the products that were in the industries. Those people were needing aid to survive.
But even though the overproduction had a huge impact in causing The Great Depression, it wasn’t the only cause of it. Let’s discuss what were the other causes of The Great Depression.
What were the other causes of The Great Depression?
Although overproduction had a determinant role in The Great Depression, many other factors caused it or even made it last as long as it did. Here they are.
The market crash
October 29 of 1929 has come to be known as the Black Thursday. It was the day of the market crash. This brought a lot of trouble to America and all over the world. In the 1920s many people started to invest in the stock market. It became a highly speculative activity.
People would buy stock they thought was going to rise, and as soon as it got more expansive, they would sell it. But not everyone was buying stock with their own money, some people were buying using credit they got from the bank.
All of this caused the market to be built on speculation. And after a series of lows, on the 24th of October, there was a mass panic, in which the market lost 11% of its value. And this loss continued for the coming days, until Black Thursday, in which the market lost 30 billion dollars in value, making it collapse.
Weak baking system
Another reason why The Great Depression turned the size it did was because of the weak baking system. In America, there were too many banks, but they weren’t regulated. They also weren’t prepared to deal with people withdrawing their money because they were scared.
This caused many banks to close, leading to a lack of credit in the market. Without credit, people weren’t able to buy things, which also led to the closing of many industries.
Recession in Europe
Europe was dealing with the economic pitfall of World War I. And since they had borrowed a lot of money from the United States to help go through that when the market crashed, they were requested to pay up, and also couldn’t find any more credit.
They went through a recession that also caused high unemployment, and products were overproduced since there were fewer people to buy them. This pattern that started in America, was rapidly seen all over Europe.
The Gold Standard
The Gold Standard, which was a system in which money is fixed against an amount of gold, was also a reason why The Great Depression spread across the globe. Since it was connecting the entire planet, once the deflation started, it also affected the price of gold, affecting all countries.
The president of the United States at the beginning of The Great Depression was Hebert Hoover. He didn’t know how to deal with the problem head-on and found it difficult to create programs to improve the economy of the country.
But with the election of Franklin D Roosevelt, that came after him, things began to change. He created a few programs that help with unemployment rates, and other negative effects of The Great Depression.
Frequently Asked Questions (FAQ): Was overproduction a cause of The Great Depression?
How were the classes divided during The Great Depression?
During The Great Depression, American society was divided into 3. There were the lower class, the middle class, and the upper class.
The lower class was made up of mostly African American families that were laborers and were the ones that suffered the most with The Great Depression.
The lower class was the biggest one during the 1930s, and they were having a hard time even trying to survive. Those people usually had to wait in bread lines or soup kitchens to have some food and would be living in shelters.
Many farmers that lived a more comfortable life before The Great Depression descended to the lower class when the crisis hit because they were unable to sell their products. This means that many people from the middle-class went to the lower class, leaving a gap between the rich and the poor.
The middle class had to keep an eye on the money they had, and it was hard to maintain the little fortune they had accumulated during their lives. As for the wealthier class, pretty much all of them were able to maintain a certain level of comfort.
Some even managed to maintain their lavish lifestyle, being that some even got richer through The Great Depression.
Why is overproduction a problem?
Overproduction was a problem that led to The Great Depression and it would be a problem at any given time. When you produce too much of something, you usually make a lot more of it than the market needs.
Since the market is always balancing the price on offer and demand, once you have too much of something, more than people are willing to buy, the price of your product will go down. If you have durable goods, such as a TV to sell, you might be able to store them and wait for a better time to put them on the market.
But if we are talking about farm goods, such as fruits and vegetables, if you produce too much of it, you have very little time to go and sell it before it goes bad. So you will probably make a lot less money from it. That is why people should always be aware and careful with overproduction.
What ended The Great Depression?
The Great Depression ended due to some reasons. The first thing that significantly improved the lives of people in America was the New Deal program. This program that was created by President Roosevelt managed to give people back some job opportunities.
It allowed workers to go back to work sites, especially in the construction of many public buildings, such as libraries, airports, and even new cities. But not only did this governmental package solved the crisis created by The Great Depression.
Another factor that had a key role in it was the beginning of World War II. The start of it created a huge demand for weapons, and war materials, which made industry need more and more workers, leading to the improvement of the economical crisis.
Was The Great Depression all bad?
No, The Great Depression wasn’t all bad. Although the suffering it created was measurable, and some people lost all of their life’s work, some beneficial things happened during that period that is still part of people’s lives.
The first benefit from it was the change in work relationships. Due to The Great Depression, many labor laws were created. Through it, employees were hired for a determined time, since the 40-hour week was set.
They also began to receive some benefits, such as the paid vacation, and security package when they got fired. Not only that, because of The Great Depression, kids were n longer allowed to work, and the social security program was created.
How did The Great Depression influence the economy nowadays?
The Great Depression, although it caused many banks to go bankrupt, had a positive outcome on the financial systems.
It set some standards for banks to work with, making them have insurance to guarantee they would have all of their client’s money in case everyone wanted to take it out of the bank.
Along with that, The Great Depression changed how people see the stock market, and credit lines. Back then, people were buying the stock without any consideration of what the company was, which led to the break of 1929.
In the same way, people were getting as many loans as they could, without considering how they would pay for it.
The changes in this process made credit harder to get since it will always consider how people will pay for it. As for stocks, nowadays investing in them has a lot more bureaucracy to it.
This article discussed how overproduction caused The Great Depression. To explain that in-depth, the article explained what was The Great Depression, and what other factors contributed to it happening.
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