What Causes the Great Depression? – How International Trade and Money Management Fixed the Problem
Causes of the Great Depression can be traced to many different forces which combined to cause it. In fact, the Great Depression was far more severe than the normal economic downturns that occurred around the world. Causes of the Great Depression have been linked to the onset of World War II, the end of the gold standard and new technology which made the lives of ordinary people much easier. In all of these areas, the main driving force was the need for an alternative to the gold standard, which had been the main cause of previous economic problems. In America, the unemployment rates reached as high as 27%.
As mentioned, causes of the Great Depression are in a sense infinite, but there are certain aspects that stand out. This depression was the first time in history that the scale of global financial institutions was so large. It was also the first time in history that the scale of worldwide communication was so large. All of this combined with the breakdown of the previous Bretton Woods system, which attempted to regulate currencies and interest rates around the globe. All of this combined with the breakdown of the previous order of events which brought forth the current economic system.
As previously mentioned, the Great Depression lasted a very long period of time, from the end of World War I until the start of World War II. During this period, the world had entered a period of global confusion. This period also saw the formation of political and social coalitions that were totally unprecedented in the past. At this point, the Great Depression also became the era of massive international organizations. This included the United States, which started opening its doors to trade with other countries after the end of the World War I.
Causes of the Great Depression have been linked to the fact that the Bretton Woods system did not work. This resulted in the formation of political institutions around the globe and allowed for international trade to increase during this period. Furthermore, it allowed for the introduction of the gold standard in the hopes of stabilizing the value of currencies against each other. These two factors had the combined effect of increasing the prices of commodities all over the world and creating the perfect environment for hyperinflation.
What makes the case of the Great Depression even more complex is the fact that there was a worldwide trend of reducing the size of the money supply. As a result, there was a shortage of money all over the world. People who owned shares in the international organizations found it difficult to pay their mortgages. In general, the Bretton Woods system allowed for various trade unions to fix the level of the international money supply. These trade unions tried to fix the value of the dollar by purchasing a specific amount of gold. Unfortunately, the attempt to fix the value of the dollar failed and was eventually replaced by the Volcker Plan.
As you can see, the causes of the Great Depression are connected to several factors and conditions. However, it must also be said that the Great Depression was not an isolated event. It was a part of a worldwide process that ultimately affected the whole of the world. For this reason, we can conclude that the causes of the depression were interconnected with many other factors.
Let’s take a look at how the Bretton Woods system helped to fix the monetary situation in the global market. First of all, it prevented a massive rise in world currencies, which was harmful for the trading world. Secondly, the Bretton Woods system gave birth to the idea of floating currencies. floating currency is a kind of currency that can be traded easily. With this, the world was able to reduce the level of the trade deficit, which led to an increase in world trade.
Finally, the Bretton Woods system allowed the world to build its own money supply. This was extremely important for the trading world, because money is the root of all evil. Without money, there will be no exchange of goods and services. With the advent of floating currencies, the entire world was able to function without the presence of a central bank.