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A Further Study To Lawrence Stratton's Economics Of The Great Depression

A Further Study to Lawrence Stratton’s “Economics of the Great Depression”
Perhaps the most infamous economic collapse in history, the Great Depression is remembered as one of the most devastating events in American history. The tragedy of Black Tuesday would cascade into global crisis that impoverished the entire world. International trade slowed, crushing all developing nations that relied on imported goods. The Federal Reserve, which was established in 1913 by the Federal Reserve Act, is a shared government and private owned bank which is the central banking system in the United States.   The Federal Reserve regulates the economy to prevent recession; this is done by the amount of money the Federal Reserve Bank loans to private banks, which in turn gives loans to entrepreneurs and individuals. In Lawrence Stratton’s article “The Economics of the Great Depression,” he blames the decline of the American economy and the eventual stock market crash on the Federal Reserve. Stratton states the Federal Reserve “collapsed purchasing power and forced twenty-five percent of the workforce into unemployment.” Although the Federal Reserve was a contributor to the Great Depression, it was not the single cause of the depression as Stratton makes it out to be. Rather than simply being the effect of a single cause, the United States Great Depression was the result of a variety of poor economic decisions, making the matter more complex than Stratton suggests.
One of the points Stratton makes is that the Federal Reserve strained the American economy by withdrawing the money it loaned to banks. When the Federal Reserve limits the money it gives to banks, the banks offer fewer loans and make fewer investments, thus decreasing the amount of currency in the system. Stratton explains that the “massive destruction of liquidity began when the Federal Reserve responded to the 1929 stock market crash by allowing the quantity of money to decline by 2.6 percent” (21). The fact that less...