The Great Depression by D Shannon
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Steinbeck was a non-fiction writer who wrote and expressed his opinion about the world and society he lived. He was a keen observer of the everyday life activities, and as a writer he criticized a number of business trends during his time, and wrote on a number of social, economic and political occurrences, which affected the lives of the people. His many writings touched on the great depression of 1929, that caused Americans a lot of pain. The great depression originated in the U.S., and then spread to the industrialized western world. He wrote about the great depression with attention to the conditions that led to it, those who were to blame and the many ugly consequences that it brought. He also wrote about the capitalistic approach of doing business in a way that highlighted its weaknesses and how it created social inequalities that made workers and immigrants miserable. His opinion has a bearing on the American economy and helps in understanding the great recession which the contemporary world is grappling with (Steinbeck, 1996).
According to Steinbeck, the great depression was as a result of several factors relating to capitalism and the inequality which persisted in the American society. He believed that the great depression occurred at a time when America was emerging as the most powerful nation on earth, and a period when the belief that America was exceptional was taking root. The business people believed that they could achieve anything, and this made them become too extravagant, wasteful and greedy. They perfected inequality, which made the rich capitalists richer but the poor people poorer. The rich capitalists believed in making a fortune from the market, they invested and the market boomed at the expense of the poor. The capitalism permitted the owner of capital to reap from their investments, while paying workers peanut wages determined by the investors. This resulted into exploitation of the poor who could no longer afford to purchase goods, and eventually led to the sudden decline in production and severe unemployment. It had serious social consequences which could only be compared to the civil war which America was emerging from at the time (Steinbeck, 1938).
How the Great Depression Began
According to Steinbeck & Rose, (1941), the great depression was caused by the greed of the capitalists who continued to accumulate profits and wealth, but failed to increase the wages of workers. The majority in the society were unable to buy goods that were produced in firms. This caused decline in consumer demand as a result of the decline in spending ability by the majority in the society. As demand for all types of goods fell drastically, firms also began to decrease their production rate because manufactures realized that their stocks were just accumulating. The firms began to reduce the number of employees, thus rendered many people jobless and consequently worsened the already low demand for goods (Shannon, 1960). The loss of wealth and the fear of spending made consumers to stop buying any produce, people felt poorer causing consumer and firm spending to fall considerably. The atmosphere of uncertainty made businesses to become unstable.
The stock market also crashed because of government policies that aimed at limiting the speculation of the market. The initial boom in the housing market also led to oversupply of houses. This was a period when majority of people had put their investment in homes and other consumer durables, since people wanted to have two cars in every home garage. Investors lost confidence in the stock market and decided to sell their shares at the same time, making the shares to be sold at the lowest prices, despite the fact that they had been purchased at high prices and at times through bank loans. The sudden decline led to the great crash of 1929 (Shannon, 1960). This made consumer demand for all categories of goods to fall drastically. Businesses also became unstable due lack of market for the goods which they had produced in large-scale. The uncertainty about the future made consumers and businesses to stop purchasing any durable consumer goods, making all firms to lose market while their resources were tied in stock (Steinbeck, 1938).
Banking panic also arose when many depositors began to fear that banks could collapse with their money. They demanded their saving in cash and banks could not manage to pay all in cash since they kept only a fraction of reverses and could not sell their assets to pay the depositors, considering that there were no more deposits into the banks. This made many banks to close down, and many became bankrupt overnight. The heavy debts that farmers owed banks were another factor that led to the depression, because farmers had borrowed heavily to purchase farm machinery and to improve their land for increased production. The degeneration in farm produce prices made it impossible for them to repay their loans, prompting banks to repossess the farms to recover their money and to throw them out of their homes (Steinbeck, 1996).
The Great Recession
It began from the United States in 2007 and spread to the whole world leading to global financial crisis. The economic institutions underestimated the risks in the financial institutions which went unchecked. The collapse of some major institutions made investors to develop fear. Those who owed mortgages became unable to service them as a result of loss of employment and ended up losing their homes, which were repossessed by the lending institutions. The unemployment threatened to move many people to poverty. It was caused partly by poor government policies, the food and oil crisis due to price upsurge and low growth-rate in many countries. The poorly integrated low-income countries also add to the widening gap between the rich and the poor. Inflation and low wages that could not contain the cost of goods for the majority of people made many goods unaffordable. In the developing countries, the tendency to prefer casual workers and the informal economies led to the inequality and economic insecurity (Steinbeck, 1996).
The great recession in the United States was caused by poor government policies which failed to cushion the public from the financial institutions that lack transparency in their dealings. The trend of borrowing beyond their means by individuals and households is also a major cause of recession, which led to defaulting of the mortgages. The defaulters ended up losing their property and homes which were repossessed by the lending institutions. This move left many families vulnerable financially. Currently, intra-global financial system which is controlled by a few major financial players has made it impossible to curb the effects caused by problems in one part of the globe (Steinbeck, 1996). The world has become more connected, making the ripple effects to spread across the globe. The financial and the housing market, which did poor risk analysis and poor credit rating systems was the cause of financial problems to families and individuals, since the lent money to individuals and household that could not afford to serve them as a result of their quest for profit maximization. The money they lend to such households was quickly spent in consumer goods that did not add value financially. The upsurge of oil and food prices world-wide was another factor that made the economy to become unstable (Steinbeck, 1989).
When the cost of energy and food increased suddenly, people were still forced to spend almost all their money. This left people with nothing as savings and to meet other needs. The individuals and households were therefore plunged into economic insecurity and uncertainty. This also reduced their purchasing power which also affected the businesses that depended on such people as customers. Such businesses also resorted to reducing their labor in order to cut their cost of doing business. This led to reduced income for many families that consequently defaulted payment of their credit facilities, and eventually lost their homes and assets to creditors.
Generally the great depression and the great recession are world economic conditions which could have been avoided if governments and financial institutions acted more responsibly. The major feeling shared by all in the modern world is that capitalism and unregulated financial sector will not make the world better economically, going by the past records. The current global trend in which a section of the society is too rich and extravagant and consumes the best of everything at the expense of the majority in society will always make the world economy to collapse from these conditions. The world economic systems if not corrected will lead to a more serious crisis which may have dire consequences since the world population is on the increase (Steinbeck, 1989).
According to (Steinbeck, 1938) money is acceptable as a medium of exchange and serves the society by providing a number of solutions to many problems, but there is need for equality so that the current condition in which only the wealthy get the best of everything such as land and technology amongst others is unhealthy. All sections of the society should be empowered to have the means to afford all types of goods. This will keep the demand of good and services high at all times and it will keep firms in operation, hence increasing employment opportunities. As a result, market for the industrial goods will rise and growth in economy. This would lead to a stronger economy in which majority participate actively in the entire United States Economy (Steinbeck &Rose, 1941). The financial institutions should balance their primary goal of profit making with the ethical approaches that seek to protect the social needs of the society. The lack of transparency in the financial sectors gives investors a false impression about the condition of the market. The government should therefore be watchful on behalf of the public to regulate the financial sector. The investment opportunities offered by corporations and other decisions should be based on sound financial information. The lending institutions should also consider the suitability of the customers. This will eliminate the defaulting rate on the credit facilities, which lead to repossession of property by the lenders. The market for farmers produce should be guaranteed so that they do not incur losses that would lead them into crisis. Government should as well protect the interest of farmers (Steinbeck, 1948).
Individuals and households should be advised to avoid the lifestyle they cannot afford in order to avoid such financial crisis. The illusion and false self-perception, which makes individuals unable to adjust to the life in the countryside is another cause of financial instability. The people in the Forgotten Valley are portrayed by Steinbeck to have decided to live away from the complex city life, but at the same time want to live as if in the city, while they lack the means to have the standards of living that they desire (Steinbeck &Rose, 1941).This unrealistic desire is the main source of problems in the society. This is seen when a group of inhabitants of the valley who had taken refuge from the complex urban life are unable to adapt to the simple life as a result of self-deception and illusions. They are dreamers with fantasies and cannot appreciate reality. This has been a common feature for many individuals and household who live beyond their means and end up in debt (Steinbeck &Rose, 1941).
Capitalism in the world has caused great injustices to laborers and immigrant who are searching for a better life. Banks have been described by Steinbeck as monsters that none is happy with their activities, including their employees. This is because they have in many occasions chased people from their homes after failing to service the high interest. Capitalism is therefore, the source of the economic crisis in every situation. The great recession was also the making of capitalist who took advantage of the public, by concealing information so that they sell their shares to unsuspecting investors at high market prices. After getting the capital they needed, they began to withdraw their shares following the insecurity of their institutions (Steinbeck, 1996).
The capitalist even use their riches to manipulate the justice system in order to get away with their corporate scandals. They are the people who make the laborers to lose their purchasing power because of the exploitation, and when the majority is unable to purchase goods, firms begin to lay off employees from employment, causing the depression within an economy. The unfair wages and the mistreatment by the capitalists is the direct cause of the global economic problem. The inequality has reached the highest level in which a few rich individuals have assets that control nations and they manipulate every condition to suit what they desire for their own interests. The big financial institutions are the one causing the financial instability problems to suit what they want. The same approach is used by firms that create systems of taking from their workers whatever they are paid as wages. They decide to sell a number of items at the work place to the employees at exorbitant prices. This makes the workers to remain poor and to have no alternative, but to stick with the employer for their continued survival (Steinbeck, 1889).
The owners of capital also uses the police to crush any resistance that workers may organize as a way of demanding rectification of the injustices to the employees. The government is often seen as distant in any situation and they leave the workers to solve their problems with the capitalist, while it is obvious that the two parties do not have equal bargaining powers. The police are motivated by the need to serve the owners of capital who pay them to thwart any protests by the poor workers. This makes the conditions of the workers even worse. The capitalists also use intimidation strategy as a way of instilling fear on workers so that no one can attempt to change the working conditions, and this serves the owners of capital while leaving the workers poorer and heavily dependent on the capitalists (Steinbeck, 1914). Decisions are therefore imposed on workers and their feelings are not considered. All these approaches create economic conditions which favor the rich only. The global economic problems of recession and depression are therefore, caused by the capitalists who control the economy. However, such economic problems affect the poor more and leave them with social economic and psychological problems amongst others (Steinbeck &Rose, 1941).
The Effects on Society
The great depression and the great recession caused human suffering in many ways. During the great depression, many families became unstable and social problems occurred. Many people deliberately lost their lives because they could not withstand their losses. Many families were broken down through divorce and social support was lacking for many vulnerable members of the American society. The standards of living also dropped drastically and many people suddenly became poor, because they had lost their investments and life savings. The psychological suffering made some to become sick and many people died as a result (Steinbeck, 1989).
The great depression also affected several enterprises and people who lost their homes, life savings and jobs. It was caused by low wages to workers, who could not afford most of the goods that were being manufactured from the industries. This led to accumulation of finished goods in the firms, and eventually forced the firms to stop production. Many jobs were lost as a result, leading to deeper financial crisis in households. On the other hand, farmers produced more, but the profits were too small because of poor prices, some produce were even wasted as a result of lack of consumers.
The banks which had lent money decided to repossess the farms from the farmers because they were not able to serve the loans. As a result, all categories of people in society were affected, with farmers hurt most. Many lives were distressed; the ambition of the immigrants and their hopes to rebuild their lives in America was shattered, with the spread financial panic around the world. This was blamed on poor government policies to cushion the producers. Productivity and prices fell drastically, with the number of economic activities falling sharply. The financial market and the stock market also collapsed, loses became huge for manufacturing firms and corporations and serious unemployment hit American economy. The banks repossessed people’s assets that were on loan to recover their money. These assets were also valued at the low prices since none had the ability to purchase them and the banks could not recover all their money (Steinbeck, 1996).
Steinbeck was a non-fiction writer who wrote more on a number of social, economic and political occurrences that affected the lives of the American people. He wrote about the great depression that led to loss of jobs, property and even lives of the Americans. His writings are still applicable in explaining the economic conditions that have made the capitalistic economy of the United States to currently experience financial crisis. It is clear that the causes of the great depression are still related to those that caused the great recession, which is still experienced today. Despite the government intervention, a lot still remains to be seen by the public. There is need for government to protect the interests of all socio-economic classes to stabilize the economy.
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