Regulatory Review After the Credit Term Paper

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292).

The Depression of 1893

Following hard on the heels of the depression that had taken place just two decades previously, the precise causes for this economic downturn remain unclear. In this regard, Steeples and Whitten (1998) advise, "There is no adequate account of the causes of the depression of 1893 -- 1897 or, by implication, of the crisis itself" (p. 6). These authors, though, cite fundamental shifts in demographics in the U.S., as well as innovations in technology and manufacturing that caused a reevaluation of traditional institutions and the role that the U.S. was going to play in the economic affairs of the world in the 20th century as contributing to this depression (Steeples & Whitten, 1998).

The "Great Depression" of 1929-1939

The stock market crash in 1929 is frequently cited as the precipitating factor for the Great Depression, but Rothermund (1996) emphasizes that there were other economic forces at play that fueled the fires as well. According to Rothermund, "This depression upset many assumptions concerning the working of market forces in the 'real economy.' Credit was suddenly contracted, prices fell to such an extent that the law of supply and demand seemed to be irrelevant the international exchange of goods dwindled and many nations returned to the policy prescriptions of the mercantilists who had interpreted trade as a zero sum game in which gains in one place must invariably lead to losses elsewhere" (p. 2). Citing the global implications of the Great Depression, Rothermund nevertheless places the blame for this economic downturn squarely on the United States: "All major factors contributing to the depression can be traced back to the United States of America: the handling of war debts, the sterilisation of gold, a deflationary monetary policy after an expansionist period, protectionism and the overproduction of wheat.

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All these factors were due to long-term developments, but they were accentuated by the sudden crash of the stock market in October 1929 which undermined the world credit system and thus was the proximate cause of the depression" (p. 48). The external causes of the Great Depression were amplified by various internal factors as well, including an economic situation that was marked by a highly disparate distribution of income, a concentration of capital and a paucity of further prospects for productive investments; in their place, there was an increase in speculation in the stock market that placed enormous strains on the system of financial intermediation that remained relatively disorganised and unregulated (Rothermund, 1996)......

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