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We have every reason to believe that fear played an important role in the Great Depression.

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Introduction

We have every reason to believe that fear played an important role in the Great Depression. I would not go as far as to say that it caused it; it is more analogous to the fuel that fed a tiny flame into the conflagration, it exacerbated it, but did not cause it. Nor do I believe that the depression is in any way caused by the stock market crash. The crash was merely a symptom of a failing economy, not the cause. The cause of the Depression should not be treated as an American problem because its origin was global. The Depression was prevalent in Europe years before the Great Depression came to America. Then, you might ask: How did the Depression start? The Depression was mainly caused by the devastation of World War I, factories were in shambles in Europe, and crops failed to grow on war torn ground. However, at this crucial time, US adopted a policy of isolationism. All the presidents of the 20s, Harding, Coolidge and Hoover, combined to raise tariffs to an all time high. Thus, Europe's factories cannot sell their produce, since everywhere else (other than US), people were poverty-stricken and cannot afford luxury products; hence Europe's economic system start to fail. ...read more.

Middle

Irving Fisher, an economist from Yale, noted that "Stock processes have reached what looks like a permanently high plateau"(McElvaline 47). Soon, some people began to sell to take in their profits. (McDuffie 168) In September, prices began to fall. At this time, fear came into play. The continuous falling prices shook even the confidence of many financial professionals, who joined in the ranks of the panicking sellers. The loss of confidence was the key to exacerbating the Depression. "Among other things, the fragile economy was heavily dependent upon confidence and the spending and investment of the well to do. These were precisely the things that the Crash most effectively undercut." (McElvaline 49) Adding to this crisis, Herbert Hoover insisted, "prosperity was just around the corner"(McDuffie 169), that there's no need for direct aid. At the same time, hundreds of thousands of people became homeless and lived in shacks called Hoovervilles. (McDuffie 170) Although Hoover's confidence seemed undiminished, those of typical Americans were just the opposite. After the crash, millions of Americans rushed to their banks, demanding money back. Many banks had to call back their loans and caused many businesses to fail; and in the end, the bank themselves failed, leaving many others losing their savings. ...read more.

Conclusion

Americans were afraid of losing their jobs, their livelihood. They lost confidence in their economy, namely in the banks and the stock market that they foolishly withdraw their money and tried to sell their stocks. The stock prices were low, they should have been buying, not selling. The banks needed money; they shouldn't withdraw money but should save more. But they were too afraid. During the Hoover administration, the government believed that all this is just a natural cycle of the economy, that everything will be okay and "prosperity is just around the corner"(McDuffie 169). Roosevelt administration took more drastic measures; although many still argue that it did not end the Great Depression, we can at least be sure that it did provide relief to hundreds of thousands of suffering people. Americans today do not have to worry as much about the economy because now everything is more regulated. With the FDIC, we can now be sure that our money in the banks is safe. We can no longer buy stocks on margin, thus we would not have such dramatic crashes as those in 1929. Finally, we understand the economy a lot more than we do in the 30s, with the passing of the Employment Act of 196, the president now have the expertise of the Council of Economic Advisors to instruct him. If anything similar to the Great Depression occurs in the future, we would know how to deal with it. ...read more.

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