How did Black Thursday create the Great Depression?
what caused the "Great Depression"?
what was the public's reaction?
what solutions were put in place as a result?
Answer:
It didn't. Black Thursday was more of an event like an economic version of 9/11 or Pearl Harbor, they were all caused by circumstances.
In the case of the depression it was caused primarily by three factors.
1. Overspeculation on the part of investors coupled with poor/no oversight of market trading practices on the part of the US Government/SEC.
2. Failure of both "liberal" and "conservative" representatives to properly address the fiscal irresponsibilities and their consequences of the day. For example, the Government, EVENTUALLY "spent" us out of the great depression by virtue of deficit spending on massive internal public works projects and social programs designed to prevent mass-poverty, the most successful of these programs is still with us today, (social security).
A fringe group of wealth and radical conservatives have spent the last 60 years trying to undo this safety mechanism of relatively very modest wealth redistribution, the elimination of which would open the US up to experiencing a similar (and probably much worse) event in the future.
3. Massive crop failures in the midwest United States, caused food shortages and economic devistation to the central states and empoverished millions of people overnight.
4. The dollar - due to the economic collapse of nearly 40% of all personal wealth and an overall loss of about 10-15% of GDP, year over year for 3-4 years caused a near total collapse of our great capitalist system of economics.
3. The solution to the Great Depression was - disturbingly , the start of world war 2, Adolph Hitler had re-armed Germany and had occupied parts of Europe and had started to institute policies of ethnic cleansing etc, the great depression was "over" in Germany by about 1937-8.
Japan had been militarily involved in post-Imperial China for nearly 15 years by the outbreak of general world war, and finally the US became involved and this sent our economy into overdrive.
Solutions included putting Social Security in place to prevent/ensure that people have savings manditorily accured.
SEC regulations were implemented to ensure that traders had significant rules regarding trading.
Various forms of land reform and environmental (called conservation movements) reforms, allowed farmers to reclaim the land through various improvements in land-use.
The stock market crashed, causing a national deficit- which led to national poverty
The stock market crash created a depression, but not by itself could it have caused the Great Depression.
The stock market only influences new issues of stock. If I am running business and suddenly the stock is valueless, it doesn't mean I need to fire everyone and pack up and go home. It just means I can't get more financing or new investment.
That is why current stock panics have had virtually no effect on the economy, even though on paper billions have been wiped out. Of course, modern stock falls have been relatively small by comparison and today we have the FED, but you get the idea.
Another link between the stock market and the economy is that people who make their living on trading stocks no longer spend their and consume. This is a relatively small but nonetheless significant downturn.
Perhaps most important was that people grew afraid of the stock market crash and made a run on the banks, which reduced liquidity and aggregate demand. As Mark T notes below there was huge devastation in the midwest which I think fueled this.
Although many people blame the FED for reducing the money supply, the real money supply didn't change much over the period.
Many people blame the high tariffs: but tariffs were historically high by today's standards since the beginning of the country.
In once sense, the Great Depression can be seen as an extension of other Depressions of the period - cause by over investment and inequality of income (in my opinion which few share). Without enough consumption spending no reduction in the interest rate or increase in the money supply will kick the economy out of the depression. So the economy gets stuck in a low level equilibrium. Note that it wasn't until war spending during world war two that the economy got out of it.
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what was the public's reaction?
what solutions were put in place as a result?
Answer:
It didn't. Black Thursday was more of an event like an economic version of 9/11 or Pearl Harbor, they were all caused by circumstances.
In the case of the depression it was caused primarily by three factors.
1. Overspeculation on the part of investors coupled with poor/no oversight of market trading practices on the part of the US Government/SEC.
2. Failure of both "liberal" and "conservative" representatives to properly address the fiscal irresponsibilities and their consequences of the day. For example, the Government, EVENTUALLY "spent" us out of the great depression by virtue of deficit spending on massive internal public works projects and social programs designed to prevent mass-poverty, the most successful of these programs is still with us today, (social security).
A fringe group of wealth and radical conservatives have spent the last 60 years trying to undo this safety mechanism of relatively very modest wealth redistribution, the elimination of which would open the US up to experiencing a similar (and probably much worse) event in the future.
3. Massive crop failures in the midwest United States, caused food shortages and economic devistation to the central states and empoverished millions of people overnight.
4. The dollar - due to the economic collapse of nearly 40% of all personal wealth and an overall loss of about 10-15% of GDP, year over year for 3-4 years caused a near total collapse of our great capitalist system of economics.
3. The solution to the Great Depression was - disturbingly , the start of world war 2, Adolph Hitler had re-armed Germany and had occupied parts of Europe and had started to institute policies of ethnic cleansing etc, the great depression was "over" in Germany by about 1937-8.
Japan had been militarily involved in post-Imperial China for nearly 15 years by the outbreak of general world war, and finally the US became involved and this sent our economy into overdrive.
Solutions included putting Social Security in place to prevent/ensure that people have savings manditorily accured.
SEC regulations were implemented to ensure that traders had significant rules regarding trading.
Various forms of land reform and environmental (called conservation movements) reforms, allowed farmers to reclaim the land through various improvements in land-use.
The stock market crashed, causing a national deficit- which led to national poverty
The stock market crash created a depression, but not by itself could it have caused the Great Depression.
The stock market only influences new issues of stock. If I am running business and suddenly the stock is valueless, it doesn't mean I need to fire everyone and pack up and go home. It just means I can't get more financing or new investment.
That is why current stock panics have had virtually no effect on the economy, even though on paper billions have been wiped out. Of course, modern stock falls have been relatively small by comparison and today we have the FED, but you get the idea.
Another link between the stock market and the economy is that people who make their living on trading stocks no longer spend their and consume. This is a relatively small but nonetheless significant downturn.
Perhaps most important was that people grew afraid of the stock market crash and made a run on the banks, which reduced liquidity and aggregate demand. As Mark T notes below there was huge devastation in the midwest which I think fueled this.
Although many people blame the FED for reducing the money supply, the real money supply didn't change much over the period.
Many people blame the high tariffs: but tariffs were historically high by today's standards since the beginning of the country.
In once sense, the Great Depression can be seen as an extension of other Depressions of the period - cause by over investment and inequality of income (in my opinion which few share). Without enough consumption spending no reduction in the interest rate or increase in the money supply will kick the economy out of the depression. So the economy gets stuck in a low level equilibrium. Note that it wasn't until war spending during world war two that the economy got out of it.
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