The great depression was a period that lasted between the year 19296 and 1930. The period was characterized by a great economic downfall across the globe. In most cases, the industrialized western countries were the most affected hence and this means that the effect was felt in most parts of the world because such countries were a key source of resources for other nations. In addition, the great depression in Europe was characterized by different causes and impacts.
Causes of the great depression in Europe
Among the key cause of the great depression was increased drought in the areas that depended on agriculture as their main source of economy. As a result, such areas fell in a situation whereby they lacked raw agricultural materials for processing in their industries. This means that the industries had to be shut down hence leading to the loss of employment for the people who worked in such industries. As well, the farm’s employees were also affected by the loss of employment. Therefore, the level of unemployment increased at a very high rate because a large number of individuals in the rural areas depended on the farms to make a living.
As well, a lot of banks failed during that era. As the banks failed, a lot of people lost their savings hence making it difficult for them to invest in the economy in order to boost their living standards. In addition, the banks had not insured their deposits. Therefore, the banks that did not collapse retreated by reducing the process of credit creation and the allocation of loans. Hence, the economy was having a deficiency of expenditure and it became difficult for individuals to invest in booming business to create new employment. This continued to increase the level of unemployment within the nations hence contributing to the onset of the great depression.
Also, the stock market was failing and thus, this created a lot of fear among investors. It became difficult for individuals to purchase items in the stock market due to the fear of making losses. As a result, this lead to stagnant stocks across the nations. A reduction in demand, led to a reduction in the number of items that were being produced for sale. The corresponding impact of reduced production is the laying off of workers and, in turn, increasing the level of unemployment within a country. The individuals who had purchase inventory through the use of loans had their items repossessed by banks and this made it impossible for themselves to continue making profits that would enable them survive through the daily needs. Inventory kept on accumulating in the market due to low demand so it was not possible for the countries to boost the economy and recover from economic depression that was setting in.
In addition, the Smoot-Hawley tariff that was created in the year 1930 was made to protect the American companies. The impact of its creation led to an increase in the amount of taxes that were being charged on imports. Therefore, this lead to the reduction of trade among such countries. Trade was one of the major economic boosters within the Europe and therefore, its reduction, made that most of the companies had to lay off workers in order to meet the cost of the reduced production. Laying off of workers increased the levels of unemployment hence contributing to the onset of the great depression. The living standards of many people had dropped. There were no longer imported goods available for use, some of which were raw materials being used in the production industries of the destination countries.
Impacts of the great depression in Europe
The main impact of the great depression is that it lowered the living standards of most of the people hence promoting the issue of capitalism. In the situation whereby some of the companies were collapsing and workers being laid off, others still remained in operation to mean the little economic demand. As a result, the companies that remained in operations kept on accumulating wealth hence leading to a noticeable difference between the rich and the people. Social classes were created. Therefore, when the period of depression was coming to an end, the individuals who had lost their business starred to recover slowly but could not reach the status of those that remained in business. This effect is still felt in the current world in the fact that the rich families continue to accumulate a lot of wealth while the middle class individuals continue to struggle in order to afford the daily usages.
The causes and impacts of the great depression period were a lesson to the European nations and other countries across the globe. Therefore, every nation is keen in maintaining its economic status to avoid falling back in the situation of the great depression. However, countries are being affected by the high rates of inflation which are manageable at times.