The Effects of the Great Depression on the Modern World

What were the Effects of the Great Depression on the modern world? We all have a general idea of what the causes of the great depression were and how it affected life in the 30s, but its influence is still felt today.

The world would be a very different, both economically and politically if it were not for the great depression.

Government Involvement

In the 1920s Canada and the US along with many other countries around the world played little or no role in their economy. The idea was that everything would work itself out.

One of the most ever lasting effects of the great depression was that the governments of the world were forced to play a more active role in the economy.

This lead to things such as Medicare, Unemployment, and Minimum Wage. Without the 1929 stock market crash, these programs would not be around today.

Bye Bye Gold Standard

The Gold Standard is a simple system, where every dollar is backed by gold. Each country has a certain amount of gold stored up and it is directly linked to their money. Under the gold standard citizens can exchange gold for money and money for gold because it is considered to be the same thing.

It is a simple strategy which seems to make sense and I have even read a few articles stating that we should switch back to it and it will save our economy because our money will be backed by something solid rather than by nothing.

But in practice the gold standard ONLY works in a thriving economy. In a time of economic hardship it greatly affects a government’s ability to pull itself out. The reason being, you can’t print more money.

With the Gold Standard even if you print more money your money just adjusts its value to match the amount of gold you have stored up. If you have $700 billion dollars and it is backed by $700 billion dollars worth of gold you may choose to print an extra $700 billion dollars, giving you more money, but the value of each dollar would simply be cut in half to make up for the amount of gold you have.

In other words you cannot make more money by printing it. The government’s only income would have to come from money they earn through taxes. In an economy where nobody is making money the government is left with no money to put into the economy to make it better, which in turn leads to nobody having any money. It is a slow downward cycle.

Without the gold standard however, a government can print more money and as long as demand is still there, it can keep its value. Therefore, creating more money which you can then use to create jobs, put into the stock market to boost the economy, and slowly fix the economy.

Even though there are a lot of people who believe the Gold Standard will fix the economy, the facts are that the countries that left it sooner, recovered faster. The countries that held on to this system longer were in the Depression for a longer.Sooner or later one of the Effects of the great depression was that every country left the Gold Standard in order to recover.

Deficit Spending

Another one of the effects of the great depression was the deficit spending that the government has done in 2008 to save the economy. There is a lot of ranting going on and on about how we don’t need to be spending hundreds of billions of dollars to bail out the economy and that the government should stop spending money and growing the deficit.

But in many ways the deficit spending that the government did between 2008-2010 was simple from lessons learned about the economy in the 1930s.

Countries like the U.S. who wanted to let the economy fix itself and refused to go over their budget fixing it were in the depression for the long haul, while countries like Sweden who started spending unrealistically to help their economy out as soon as the depression hit actually had a short minor depression of only a couple years.

There is a correlation between deficit spending and recovery from economic crisis. In fact when the U.S. finally did start spending money it all turning around. FDR decided 1937 was the year that the economy was under control and it was time to start focusing on the budget, so he stopped deficit spending.

In 1937 as a result the economy collapsed again. It was not until the U.S. government decided to disregard their debt and fix the economy at all cost did we ever fully recover.

The governments learned that sometimes deficit spending is necessary. That is one of the effects of the great depression. This depression was not only felt as an economic disaster. The effects of the great depression were also political.

WWII

One of the Effects of the Great Depression was WWII. As a result of the depression in Europe the German people were looking for someone to save them. Hitler played on this by blaming the Jews and promising change.

The Nazi raceme boosted economic recovery by creating more jobs in the military and eventually lead to WWII, a deadly war.

American as Sole Superpower?

WWII left most of Europe destroyed. England, France, Germany, Italy, and Japan were unable to fix their economy and slowly drifted away into the background. As a result their colonies around the world slowly gained independence and the U.S. and U.S.S.R. were left as the only two world powers.

Because WWII was a direct result of the Great Depression, one of the effects of the great depression is that the U.S. becomes the world’s strongest country. It’s ironic how a disaster that started in the U.S. would leave the U.S. as the dominate world power but it appears to be true.

Of course European countries were greatly weakened by WWI and by an aging population, so it may have been inevitable, but the Great Depression defiantly speeded up the process.It also ended a series of world wars caused by the European superpowers spanning over centuries. (Seven Years war, Napoleonic Wars, WWI, WWII)

Ironically by that logic one of the effects the great depression which is seen as one of the worst economic disasters of all time may have been to save the world from nuclear genocide as it helped to destroy competition and rival superpowers just before the age of the Atomic Bomb.

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