The GREAT DEPRESSION was a severe worldwide economic depression that
took place mostly during the 1930s, originating in the
United States .
The timing of the
The depression started in the
United States after a major fall in
stock prices that began around September 4, 1929, and became worldwide
news with the stock market crash of October 29, 1929 (known as Black
Tuesday ). Between 1929 and 1932, worldwide gross domestic product
(GDP) fell by an estimated 15%. By comparison, worldwide GDP fell by
less than 1% from 2008 to 2009 during the
Great Recession . Some
economies started to recover by the mid-1930s. However, in many
countries, the negative effects of the
Cities all around the world were hit hard, especially those dependent on heavy industry . Construction was virtually halted in many countries. Farming communities and rural areas suffered as crop prices fell by about 60%. Facing plummeting demand with few alternative sources of jobs, areas dependent on primary sector industries such as mining and logging suffered the most.
* 1 Start
* 1.1 Economic indicators
* 2 Causes
* 2.1 Mainstream explanations
* 2.1.1 Keynesian * 2.1.2 Monetarist * 2.1.3 Common position
* 2.1.4 Additional modern nonmonetary explanations
* 18.104.22.168 DEBT DEFLATION * 22.214.171.124 Expectations hypothesis
* 2.2 Heterodox theories
* 2.2.1 Austrian School
* 2.2.2 Marxist
* 2.2.3 Inequality
* 3 Worsening of global depression
* 3.1 Gold standard
* 3.2 Breakdown of international trade
* 3.2.1 Effect of tariffs
* 3.3 German banking crisis of 1931 and British crisis
* 4 Turning point and recovery
* 4.1 Role of women and household economics
World War II
* 5 Effects
* 5.1 Australia
* 5.2 Canada
* 6 Literature
* 7 Naming
* 7.1 Other "great depressions"
* 8 Comparison with the Great Recession * 9 See also * 10 References
* 11 Further reading
* 11.1 Contemporary
* 12 External links
See also: Timeline of the Great Depression The Dow Jones Industrial , 1928–30
Economic historians usually attribute the start of the Great Depression to the sudden devastating collapse of U.S. stock market prices on October 29, 1929, known as Black Tuesday . However, some dispute this conclusion and see the stock crash as a symptom, rather than a cause, of the Great Depression.
Even after the
Wall Street Crash of 1929 optimism persisted for some
John D. Rockefeller
Together, government and business spent more in the first half of
1930 than in the corresponding period of the previous year. On the
other hand, consumers, many of whom had suffered severe losses in the
stock market the previous year, cut back their expenditures by 10%. In
addition, beginning in the mid-1930s, a severe drought ravaged the
agricultural heartland of the U.S. Unemployed men outside a soup
kitchen opened by
By mid-1930, interest rates had dropped to low levels, but expected deflation and the continuing reluctance of people to borrow meant that consumer spending and investment were depressed. By May 1930, automobile sales had declined to below the levels of 1928. Prices in general began to decline, although wages held steady in 1930. Then a deflationary spiral started in 1931. Conditions were worse in farming areas, where commodity prices plunged and in mining and logging areas, where unemployment was high and there were few other jobs.
The decline in the U.S. economy was the factor that pulled down most other countries at first; then, internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts to shore up the economies of individual nations through protectionist policies, such as the 1930 U.S. Smoot–Hawley Tariff Act and retaliatory tariffs in other countries, exacerbated the collapse in global trade. By late 1930, a steady decline in the world economy had set in, which did not reach bottom until 1933.
CHANGE IN ECONOMIC INDICATORS 1929–32
UNITED STATES GREAT BRITAIN FRANCE GERMANY
Industrial production −46% −23% −24% −41%
Wholesale prices −32% −33% −34% −29%
Foreign trade −70% −60% −54% −61%
Unemployment +607% +129% +214% +232%
Causes of the Great Depression
decreased considerably between
Black Tuesday and the Bank Holiday in
March 1933 when there were massive bank runs across the United States.
Crowd gathering at the intersection of
The two classical competing theories of the
Economists and economic historians are almost evenly split as to
whether the traditional monetary explanation that monetary forces were
the primary cause of the
There is consensus that the Federal Reserve System should have cut short the process of monetary deflation and banking collapse. If they had done this, the economic downturn would have been far less severe and much shorter.
British economist John Maynard Keynes argued in The General Theory of Employment, Interest and Money that lower aggregate expenditures in the economy contributed to a massive decline in income and to employment that was well below the average. In such a situation, the economy reached equilibrium at low levels of economic activity and high unemployment.
Keynes' basic idea was simple: to keep people fully employed, governments have to run deficits when the economy is slowing, as the private sector would not invest enough to keep production at the normal level and bring the economy out of recession. Keynesian economists called on governments during times of economic crisis to pick up the slack by increasing government spending and/or cutting taxes.
As the Depression wore on, Franklin D. Roosevelt tried public works , farm subsidies , and other devices to restart the U.S. economy, but never completely gave up trying to balance the budget. According to the Keynesians, this improved the economy, but Roosevelt never spent enough to bring the economy out of recession until the start of World War II .
Monetarists follow the explanation given by
Milton Friedman and Anna
J. Schwartz . They argue that the
The Federal Reserve allowed some large public bank failures – particularly that of the New York Bank of United States – which produced panic and widespread runs on local banks, and the Federal Reserve sat idly by while banks collapsed. He claimed that, if the Fed had provided emergency lending to these key banks, or simply bought government bonds on the open market to provide liquidity and increase the quantity of money after the key banks fell, all the rest of the banks would not have fallen after the large ones did, and the money supply would not have fallen as far and as fast as it did.
With significantly less money to go around, businessmen could not get new loans and could not even get their old loans renewed, forcing many to stop investing. This interpretation blames the Federal Reserve for inaction, especially the New York Branch.
One reason why the Federal Reserve did not act to limit the decline of the money supply was the gold standard . At that time, the amount of credit the Federal Reserve could issue was limited by the Federal Reserve Act , which required 40% gold backing of Federal Reserve Notes issued. By the late 1920s, the Federal Reserve had almost hit the limit of allowable credit that could be backed by the gold in its possession. This credit was in the form of Federal Reserve demand notes. A "promise of gold" is not as good as "gold in the hand", particularly when they only had enough gold to cover 40% of the Federal Reserve Notes outstanding. During the bank panics a portion of those demand notes were redeemed for Federal Reserve gold. Since the Federal Reserve had hit its limit on allowable credit, any reduction in gold in its vaults had to be accompanied by a greater reduction in credit. On April 5, 1933, President Roosevelt signed Executive Order 6102 making the private ownership of gold certificates , coins and bullion illegal, reducing the pressure on Federal Reserve gold.
From the point of view of today's mainstream schools of economic
thought, government should strive to keep the interconnected
macroeconomic aggregates money supply and/or aggregate demand on a
stable growth path. When threatened by the forecast of a depression
central banks should pour liquidity into the banking system and the
government should cut taxes and accelerate spending in order to keep
the nominal money stock and total nominal demand from collapsing. At
the beginning of the
“ I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You've just got to let it cure itself. You can't do anything about it. You will only make it worse. … I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm. ”
Additional Modern Nonmonetary Explanations
The monetary explanation has two weaknesses. First it is not able to explain why the demand for money was falling more rapidly than the supply during the initial downturn in 1930–31. Second it is not able to explain why in March 1933 a recovery took place although short term interest rates remained close to zero and the Money supply was still falling. These questions are addressed by modern explanations that build on the monetary explanation of Milton Friedman and Anna Schwartz but add non-monetary explanations.
Crowds outside the Bank of United States in New York after its failure in 1931
* Debt liquidation and distress selling * Contraction of the money supply as bank loans are paid off * A fall in the level of asset prices * A still greater fall in the net worth of businesses, precipitating bankruptcies * A fall in profits * A reduction in output, in trade and in employment * Pessimism and loss of confidence * Hoarding of money * A fall in nominal interest rates and a rise in deflation adjusted interest rates
During the Crash of 1929 preceding the Great Depression, margin requirements were only 10%. Brokerage firms, in other words, would lend $9 for every $1 an investor had deposited. When the market fell, brokers called in these loans , which could not be paid back. Banks began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en masse, triggering multiple bank runs . Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used. Bank failures led to the loss of billions of dollars in assets.
Outstanding debts became heavier, because prices and incomes fell by 20–50% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 U.S. banks failed. (In all, 9,000 banks failed during the 1930s). By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday . Bank failures snowballed as desperate bankers called in loans which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A vicious cycle developed and the downward spiral accelerated.
The liquidation of debt could not keep up with the fall of prices which it caused. The mass effect of the stampede to liquidate increased the value of each dollar owed, relative to the value of declining asset holdings. The very effort of individuals to lessen their burden of debt effectively increased it. Paradoxically, the more the debtors paid, the more they owed. This self-aggravating process turned a 1930 recession into a 1933 great depression.
Fisher's debt-deflation theory initially lacked mainstream influence because of the counter-argument that debt-deflation represented no more than a redistribution from one group (debtors) to another (creditors). Pure re-distributions should have no significant macroeconomic effects.
Building on both the monetary hypothesis of Milton Friedman and Anna Schwartz as well as the debt deflation hypothesis of Irving Fisher, Ben Bernanke developed an alternative way in which the financial crisis affected output. He builds on Fisher's argument that dramatic declines in the price level and nominal incomes lead to increasing real debt burdens which in turn leads to debtor insolvency and consequently leads to lowered aggregate demand , a further decline in the price level then results in a debt deflationary spiral. According to Bernanke, a small decline in the price level simply reallocates wealth from debtors to creditors without doing damage to the economy. But when the deflation is severe falling asset prices along with debtor bankruptcies lead to a decline in the nominal value of assets on bank balance sheets. Banks will react by tightening their credit conditions, that in turn leads to a credit crunch which does serious harm to the economy. A credit crunch lowers investment and consumption and results in declining aggregate demand which additionally contributes to the deflationary spiral.
Since economic mainstream turned to the new neoclassical synthesis ,
expectations are a central element of macroeconomic models. According
Peter Temin , Barry Wigmore, Gauti B. Eggertsson and Christina
Romer , the key to recovery and to ending the
The recession of 1937–38 , which slowed down economic recovery from the Great Depression, is explained by fears of the population that the moderate tightening of the monetary and fiscal policy in 1937 would be first steps to a restoration of the pre-March 1933 policy regime.
Theorists of the "Austrian School" who wrote about the Depression
include Austrian economist
Friedrich Hayek and American economist
In the Austrian view it was this inflation of the money supply that led to an unsustainable boom in both asset prices (stocks and bonds) and capital goods . By the time the Fed belatedly tightened in 1928, it was far too late and, in the Austrian view, a significant economic contraction was inevitable. In February 1929 Hayek published a paper predicting the Federal Reserve's actions would lead to a crisis starting in the stock and credit markets.
According to Rothbard, government support for failed enterprises and
keeping wages above their market values actually prolonged the
Depression. Hayek, unlike Rothbard, believed since the 1970s, along
with the monetarists, that the
Federal Reserve further contributed to
the problems of the Depression by permitting the money supply to
shrink during the earliest years of the Depression. However, in 1932
and 1934 Hayek had criticised the FED and the
Bank of England
Hans Sennholz argued that most boom and busts that plagued the
American economy in 1819–20, 1839–43, 1857–60, 1873–78,
1893–97, and 1920–21, were generated by government creating a boom
through easy money and credit, which was soon followed by the
inevitable bust. The spectacular crash of 1929 followed five years of
reckless credit expansion by the
Federal Reserve System under the
Coolidge Administration . The passing of the Sixteenth Amendment , the
passage of The
Federal Reserve Act
Ludwig von Mises
Power farming displaces tenants from the land in the western dry cotton area. Childress County, Texas , 1938
Two economists of the 1920s,
Waddill Catchings and William Trufant
Foster , popularized a theory that influenced many policy makers,
including Herbert Hoover,
Henry A. Wallace ,
Paul Douglas , and
According to this view, the root cause of the
It cannot be emphasized too strongly that the trends we are describing are long-time trends and were thoroughly evident prior to 1929. These trends are in nowise the result of the present depression, nor are they the result of the World War. On the contrary, the present depression is a collapse resulting from these long-term trends. — M. King Hubbert
The first three decades of the 20th century saw economic output surge with electrification , mass production and motorized farm machinery, and because of the rapid growth in productivity there was a lot of excess production capacity and the work week was being reduced.
The dramatic rise in productivity of major industries in the U.S. and the effects of productivity on output, wages and the work week are discussed by Spurgeon Bell in his book Productivity, Wages, and National Income (1940).
WORSENING OF GLOBAL DEPRESSION
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The gold standard was the primary transmission mechanism of the Great Depression. Even countries that did not face bank failures and a monetary contraction first hand were forced to join the deflationary policy since higher interest rates in countries that performed a deflationary policy led to a gold outflow in countries with lower interest rates. Under the gold standard's price–specie flow mechanism , countries that lost gold but nevertheless wanted to maintain the gold standard had to permit their money supply to decrease and the domestic price level to decline (deflation ).
There is also consensus that protectionist policies such as the Smoot–Hawley Tariff Act helped to worsen the depression.
The Depression in international perspective
Some economic studies have indicated that just as the downturn was spread worldwide by the rigidities of the Gold Standard , it was suspending gold convertibility (or devaluing the currency in gold terms) that did the most to make recovery possible.
Every major currency left the gold standard during the Great
Depression. Great Britain was the first to do so. Facing speculative
attacks on the pound and depleting gold reserves , in September 1931
Bank of England
Great Britain, Japan, and the Scandinavian countries left the gold standard in 1931. Other countries, such as Italy and the U.S., remained on the gold standard into 1932 or 1933, while a few countries in the so-called "gold bloc", led by France and including Poland, Belgium and Switzerland, stayed on the standard until 1935–36.
According to later analysis, the earliness with which a country left the gold standard reliably predicted its economic recovery. For example, Great Britain and Scandinavia, which left the gold standard in 1931, recovered much earlier than France and Belgium, which remained on gold much longer. Countries such as China, which had a silver standard , almost avoided the depression entirely. The connection between leaving the gold standard as a strong predictor of that country's severity of its depression and the length of time of its recovery has been shown to be consistent for dozens of countries, including developing countries . This partly explains why the experience and length of the depression differed between national economies.
BREAKDOWN OF INTERNATIONAL TRADE
Many economists have argued that the sharp decline in international trade after 1930 helped to worsen the depression, especially for countries significantly dependent on foreign trade. In a 1995 survey of American economic historians, two-thirds agreed that the Smoot–Hawley Tariff Act at least worsened the Great Depression. Most historians and economists partly blame the American Smoot–Hawley Tariff Act (enacted June 17, 1930) for worsening the depression by seriously reducing international trade and causing retaliatory tariffs in other countries. While foreign trade was a small part of overall economic activity in the U.S. and was concentrated in a few businesses like farming, it was a much larger factor in many other countries. The average ad valorem rate of duties on dutiable imports for 1921–25 was 25.9% but under the new tariff it jumped to 50% during 1931–35. In dollar terms, American exports declined over the next four (4) years from about $5.2 billion in 1929 to $1.7 billion in 1933; so, not only did the physical volume of exports fall, but also the prices fell by about 1/3 as written. Hardest hit were farm commodities such as wheat, cotton, tobacco, and lumber.
Governments around the world took various steps into spending less money on foreign goods such as: "imposing tariffs, import quotas, and exchange controls". These restrictions formed a lot of tension between trade nations, causing a major deduction during the depression. Not all countries enforced the same measures of protectionism. Some countries raised tariffs drastically and enforced severe restrictions on foreign exchange transactions, while other countries condensed "trade and exchange restrictions only marginally":
* "Countries that remained on the gold standard, keeping currencies fixed, were more likely to restrict foreign trade." These countries "resorted to protectionist policies to strengthen the balance of payments and limit gold losses." They hoped that these restrictions and depletions would hold the economic decline. * Countries that abandoned the gold standard, allowed their currencies to depreciate which caused their balance of payments to strengthen. It also freed up monetary policy so that central banks could lower interest rates and act as lenders of last resort. They possessed the best policy instruments to fight the Depression and did not need protectionism. * "The length and depth of a country’s economic downturn and the timing and vigor of its recovery is related to how long it remained on the gold standard . Countries abandoning the gold standard relatively early experienced relatively mild recessions and early recoveries. In contrast, countries remaining on the gold standard experienced prolonged slumps."
Effect Of Tariffs
See also: Smoot–Hawley Tariff Act
The consensus view among economists and economic historians is that the passage of the Smoot-Hawley Tariff exacerbated the Great Depression, although there is disagreement as to how much. In the popular view, the Smoot-Hawley Tariff was a leading cause of the depression. However, many economists hold the opinion that the tariff act did not greatly worsen the depression.
GERMAN BANKING CRISIS OF 1931 AND BRITISH CRISIS
It has been suggested that this section be split out into another article titled European banking crisis of 1931 . (Discuss ) (September 2017)
The financial crisis escalated out of control in mid-1931, starting with the collapse of the Credit Anstalt in Vienna in May. This put heavy pressure on Germany, which was already in political turmoil. With the rise in violence of Nazi and communist movements, as well as investor nervousness at harsh government financial policies. Investors withdrew their short-term money from Germany, as confidence spiraled downward. The Reichsbank lost 150 million marks in the first week of June, 540 million in the second, and 150 million in two days, June 19–20. Collapse was at hand. U.S. President Herbert Hoover called for a moratorium on Payment of war reparations . This angered Paris, which depended on a steady flow of German payments, but it slowed the crisis down and the moratorium, was agreed to in July 1931. International conference in London later in July produced no agreements but on August 19 a standstill agreement froze Germany's foreign liabilities for six months. Germany received emergency funding from private banks in New York as well as the Bank of International Settlements and the Bank of England. The funding only slowed the process; it's nothing. Industrial failures began in Germany, a major bank closed in July and a two-day holiday for all German banks was declared. Business failures more frequent in July, and spread to Romania and Hungary. The crisis continued to get worse in Germany, bringing political upheaval that finally led to the coming to power of Hitler\'s Nazi regime in January 1933.
The world financial crisis now began to overwhelm Britain; investors across the world started withdrawing their gold from London at the rate of £2½ millions a day. Credits of £25 millions each from the Bank of France and the Federal Reserve Bank of New York and an issue of £15 millions fiduciary note slowed, but did not reverse the British crisis. The financial crisis now caused a major political crisis in Britain in August 1931. With deficits mounting, the bankers demanded a balanced budget; the divided cabinet of Prime Minister Ramsay MacDonald's Labour government agreed; it proposed to raise taxes, cut spending and most controversially, to cut unemployment benefits 20%. The attack on welfare was totally unacceptable to the Labour movement. MacDonald wanted to resign, but King George V insisted he remain and form an all-party coalition "National government ." The Conservative and Liberals parties signed on, along with a small cadre of Labour, but the vast majority of Labour leaders denounced MacDonald as a traitor for leading the new government. Britain went off the gold standard , and suffered relatively less than other major countries in the Great Depression. In the 1931 British election the Labour Party was virtually destroyed, leaving MacDonald as Prime Minister for a largely Conservative coalition.
TURNING POINT AND RECOVERY
The overall course of the Depression in the United States, as reflected in per-capita GDP (average income per person) shown in constant year 2000 dollars, plus some of the key events of the period. Dotted red line = long term trend 1920–1970.
In most countries of the world, recovery from the Great Depression began in 1933. In the U.S., recovery began in early 1933, but the U.S. did not return to 1929 GNP for over a decade and still had an unemployment rate of about 15% in 1940, albeit down from the high of 25% in 1933. The measurement of the unemployment rate in this time period was unsophisticated and complicated by the presence of massive underemployment , in which employers and workers engaged in rationing of jobs.
There is no consensus among economists regarding the motive force for the U.S. economic expansion that continued through most of the Roosevelt years (and the 1937 recession that interrupted it). The common view among most economists is that Roosevelt's New Deal policies either caused or accelerated the recovery, although his policies were never aggressive enough to bring the economy completely out of recession. Some economists have also called attention to the positive effects from expectations of reflation and rising nominal interest rates that Roosevelt's words and actions portended. It was the rollback of those same reflationary policies that led to the interruption of a recession beginning in late 1937. One contributing policy that reversed reflation was the Banking Act of 1935, which effectively raised reserve requirements, causing a monetary contraction that helped to thwart the recovery. GDP returned to its upward trend in 1938.
According to Christina Romer , the money supply growth caused by huge international gold inflows was a crucial source of the recovery of the United States economy, and that the economy showed little sign of self-correction. The gold inflows were partly due to devaluation of the U.S. dollar and partly due to deterioration of the political situation in Europe. In their book, A Monetary History of the United States , Milton Friedman and Anna J. Schwartz also attributed the recovery to monetary factors, and contended that it was much slowed by poor management of money by the Federal Reserve System . Former Chairman of the Federal Reserve Ben Bernanke agreed that monetary factors played important roles both in the worldwide economic decline and eventual recovery. Bernanke also saw a strong role for institutional factors, particularly the rebuilding and restructuring of the financial system, and pointed out that the Depression should be examined in an international perspective.
ROLE OF WOMEN AND HOUSEHOLD ECONOMICS
Women's primary role were as housewives; without a steady flow of family income, their work became much harder in dealing with food and clothing and medical care. Birthrates fell everywhere, as children were postponed until families could financially support them. The average birthrate for 14 major countries fell 12% from 19.3 births per thousand population in 1930, to 17.0 in 1935. In Canada, half of Roman Catholic women defied Church teachings and used contraception to postpone births.
Among the few women in the labor force, layoffs were less common in the white-collar jobs and they were typically found in light manufacturing work. However, there was a widespread demand to limit families to one paid job, so that wives might lose employment if their husband was employed. Across Britain, there was a tendency for married women to join the labor force, competing for part-time jobs especially.
In rural and small-town areas, women expanded their operation of vegetable gardens to include as much food production as possible. In the United States, agricultural organizations sponsored programs to teach housewives how to optimize their gardens and to raise poultry for meat and eggs. In American cities, African American women quiltmakers enlarged their activities, promoted collaboration, and trained neophytes. Quilts were created for practical use from various inexpensive materials and increased social interaction for women and promoted camaraderie and personal fulfillment.
Oral history provides evidence for how housewives in a modern
industrial city handled shortages of money and resources. Often they
updated strategies their mothers used when they were growing up in
poor families. Cheap foods were used, such as soups, beans and
noodles. They purchased the cheapest cuts of meat—sometimes even
horse meat—and recycled the
In Japan, official government policy was deflationary and the opposite of Keynesian spending. Consequently, the government launched a nationwide campaign to induce households to reduce their consumption, focusing attention on spending by housewives.
In Germany, the government tried to reshape private household consumption under the Four-Year Plan of 1936 to achieve German economic self-sufficiency. The Nazi women's organizations, other propaganda agencies and the authorities all attempted to shape such consumption as economic self-sufficiency was needed to prepare for and to sustain the coming war. The organizations, propaganda agencies and authorities employed slogans that called up traditional values of thrift and healthy living. However, these efforts were only partly successful in changing the behavior of housewives.
WORLD WAR II AND RECOVERY
A female factory worker in 1942, Fort Worth, Texas . Women entered the workforce as men were drafted into the armed forces
The common view among economic historians is that the Great Depression ended with the advent of World War II. Many economists believe that government spending on the war caused or at least accelerated recovery from the Great Depression, though some consider that it did not play a very large role in the recovery. It did help in reducing unemployment.
The rearmament policies leading up to
World War II
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An impoverished American family living in a shanty, 1936
The majority of countries set up relief programs and most underwent some sort of political upheaval, pushing them to the right. Many of the countries in Europe and Latin America that were democracies saw them overthrown by some form of dictatorship or authoritarian rule, most famously in Germany in 1933. The Dominion of Newfoundland gave up democracy voluntarily.
Main article: Great Depression in Australia
Australia's dependence on agricultural and industrial exports meant
it was one of the hardest-hit developed countries. Falling export
demand and commodity prices placed massive downward pressures on
Harshly affected by both the global economic downturn and the Dust
Bowl , Canadian industrial production had fallen to only 58% of the
1929 level by 1932, the second lowest level in the world after the
United States, and well behind nations such as Britain, which fell to
only 83% of the 1929 level. Total national income fell to 56% of the
1929 level, again worse than any nation apart from the United States.
Main article: Great Depression in Chile
League of Nations labeled
Influenced profoundly by the Great Depression, many national leaders promoted the development of local industry in an effort to insulate the economy from future external shocks. After six years of government austerity measures , which succeeded in reestablishing Chile's creditworthiness, Chileans elected to office during the 1938–58 period a succession of center and left-of-center governments interested in promoting economic growth by means of government intervention.
Prompted in part by the devastating 1939 Chillán earthquake , the Popular Front government of Pedro Aguirre Cerda created the Production Development Corporation (Corporación de Fomento de la Producción, CORFO ) to encourage with subsidies and direct investments an ambitious program of import substitution industrialization . Consequently, as in other Latin American countries, protectionism became an entrenched aspect of the Chilean economy.
Main article: Nanjing Decade
China was largely unaffected by the Depression, mainly by having stuck to the Silver standard . However, the U.S. silver purchase act of 1934 created an intolerable demand on China's silver coins, and so in the end the silver standard was officially abandoned in 1935 in favor of the four Chinese national banks' "legal note" issues. China and the British colony of Hong Kong, which followed suit in this regard in September 1935, would be the last to abandon the silver standard. In addition, the Nationalist Government also acted energetically to modernize the legal and penal systems, stabilize prices, amortize debts, reform the banking and currency systems, build railroads and highways, improve public health facilities, legislate against traffic in narcotics and augment industrial and agricultural production. On November 3, 1935, the government instituted the fiat currency (fapi) reform, immediately stabilizing prices and also raising revenues for the government.
Main article: Great Depression in France
The crisis affected France a bit later than other countries, hitting around 1931. While the 1920s grew at the very strong rate of 4.43% per year, the 1930s rate fell to only 0.63%.
The depression was relatively mild: unemployment peaked under 5%, the fall in production was at most 20% below the 1929 output; there was no banking crisis.
However, the depression had drastic effects on the local economy, and
partly explains the
February 6, 1934 riots and even more the formation
of the Popular Front , led by SFIO socialist leader
Léon Blum , which
won the elections in 1936. Ultra-nationalist groups also saw increased
popularity, although democracy prevailed into
World War II
France's relatively high degree of self-sufficiency meant the damage was considerably less than in nations like Germany.
In 1932, 90% of German reparation payments were cancelled. (In the 1950s, Germany repaid all its missed reparations debts.) Widespread unemployment reached 25% as every sector was hurt. The government did not increase government spending to deal with Germany's growing crisis, as they were afraid that a high-spending policy could lead to a return of the hyperinflation that had affected Germany in 1923. Germany's Weimar Republic was hit hard by the depression, as American loans to help rebuild the German economy now stopped. The unemployment rate reached nearly 30% in 1932, bolstering support for the Nazi (NSDAP) and Communist (KPD) parties, causing the collapse of the politically centrist Social Democratic Party. Hitler ran for the Presidency in 1932, and while he lost to the incumbent Hindenburg in the election, it marked a point during which both Nazi Party and the Communist parties rose in the years following the crash to altogether possess a Reichstag majority following the general election in July 1932 .
Hitler followed an autarky economic policy, creating a network of client states and economic allies in central Europe and Latin America. By cutting wages and taking control of labor unions, plus public works spending, unemployment fell significantly by 1935. Large scale military spending played a major role in the recovery.
Main article: Economic history of Greece and the Greek world
The reverberations of the
Protectionist policies coupled with a weak drachma, stifling imports,
allowed Greek industry to expand during the Great Depression. In 1939
Greek Industrial output was 179% that of 1928. These industries were
for the most part "built on sand" as one report of the Bank of Greece
put it, as without massive protection they would not have been able to
survive. Despite the global depression, Greece managed to suffer
comparatively little, averaging an average growth rate of 3.5% from
1932 to 1939. The dictatorial regime of
World War I
Main article: Economic history of the Republic of Ireland
Frank Barry and Mary E. Daly have argued that : Ireland was a largely agrarian economy, trading almost exclusively with the UK, at the time of the Great Depression. Beef and dairy products comprised the bulk of exports, and Ireland fared well relative to many other commodity producers, particularly in the early years of the depression.
Main article: Economic history of Italy
The devaluation of the currency had an immediate effect. Japanese textiles began to displace British textiles in export markets. The deficit spending proved to be most profound and went into the purchase of munitions for the armed forces. By 1933, Japan was already out of the depression. By 1934, Takahashi realized that the economy was in danger of overheating, and to avoid inflation, moved to reduce the deficit spending that went towards armaments and munitions.
This resulted in a strong and swift negative reaction from nationalists, especially those in the army, culminating in his assassination in the course of the February 26 Incident . This had a chilling effect on all civilian bureaucrats in the Japanese government. From 1934, the military's dominance of the government continued to grow. Instead of reducing deficit spending, the government introduced price controls and rationing schemes that reduced, but did not eliminate inflation, which remained a problem until the end of World War II.
The deficit spending had a transformative effect on Japan. Japan's
industrial production doubled during the 1930s. Further, in 1929 the
list of the largest firms in Japan was dominated by light industries,
especially textile companies (many of Japan's automakers, such as
Main article: Great Depression in Latin America
Because of high levels of U.S. investment in Latin American
economies, they were severely damaged by the Depression. Within the
Before the 1929 crisis, links between the world economy and Latin
American economies had been established through American and British
investment in Latin American exports to the world. As a result, Latin
But on the other hand, the depression led the area governments to develop new local industries and expand consumption and production. Following the example of the New Deal, governments in the area approved regulations and created or improved welfare institutions that helped millions of new industrial workers to achieve a better standard of living.
Main article: Great Depression in the Netherlands
From roughly 1931 to 1937, the Netherlands suffered a deep and
exceptionally long depression. This depression was partly caused by
the after-effects of the Stock Market Crash of 1929 in the U.S., and
partly by internal factors in the Netherlands. Government policy,
especially the very late dropping of the Gold Standard, played a role
in prolonging the depression. The
Main article: Economic history of Portugal
Already under the rule of a dictatorial junta, the Ditadura Nacional , Portugal suffered no turbulent political effects of the Depression, although António de Oliveira Salazar , already appointed Minister of Finance in 1928 greatly expanded his powers and in 1932 rose to Prime Minister of Portugal to found the Estado Novo , an authoritarian corporatist dictatorship. With the budget balanced in 1929, the effects of the depression were relaxed through harsh measures towards budget balance and autarky , causing social discontent but stability and, eventually, an impressive economic growth.
In the years immediately preceding the depression, negative developments in the island and world economies perpetuated an unsustainable cycle of subsistence for many Puerto Rican workers. The 1920s brought a dramatic drop in Puerto Rico’s two primary exports, raw sugar and coffee, due to a devastating hurricane in 1928 and the plummeting demand from global markets in the latter half of the decade. 1930 unemployment on the island was roughly 36% and by 1933 Puerto Rico’s per capita income dropped 30% (by comparison, unemployment in the United States in 1930 was approximately 8% reaching a height of 25% in 1933). To provide relief and economic reform, the United States government and Puerto Rican politicians such as Carlos Chardon and Luis Munoz Marin created and administered first the Puerto Rico Emergency Relief Administration (PRERA) 1933 and then in 1935, the Puerto Rico Reconstruction Administration (PRRA).
Main article: Great Depression in South Africa
As world trade slumped, demand for South African agricultural and mineral exports fell drastically. The Carnegie Commission on Poor Whites had concluded in 1931 that nearly one third of Afrikaners lived as paupers. The social discomfort caused by the depression was a contributing factor in the 1933 split between the "gesuiwerde" (purified) and "smelter" (fusionist) factions within the National Party and the National Party's subsequent fusion with the South African Party .
The Soviet Union was the world's sole communist state with very little international trade. Its economy was not tied to the rest of the world and was only slightly affected by the Great Depression. Its forced transformation from a rural to an industrial society succeeded in building up heavy industry, at the cost of millions of lives in rural Russia and Ukraine.
At the time of the Depression, the Soviet economy was growing steadily, fuelled by intensive investment in heavy industry. The apparent economic success of the Soviet Union at a time when the capitalist world was in crisis led many Western intellectuals to view the Soviet system favorably. Jennifer Burns wrote:
Despite all of this, The
Main article: Economic history of Spain
Spain had a relatively isolated economy, with high protective tariffs and was not one of the main countries affected by the Depression. The banking system held up well, as did agriculture.
By far the most serious negative impact came after 1936 from the heavy destruction of infrastructure and manpower by the civil war, 1936–39 . Many talented workers were forced into permanent exile. By staying neutral in the Second World War, and selling to both sides, the economy avoided further disasters.
Main article: Economy of Sweden
By the 1930s, Sweden had what America's Life magazine called in 1938 the "world's highest standard of living". Sweden was also the first country worldwide to recover completely from the Great Depression. Taking place in the midst of a short-lived government and a less-than-a-decade old Swedish democracy, events such as those surrounding Ivar Kreuger (who eventually committed suicide) remain infamous in Swedish history. The Social Democrats under Per Albin Hansson formed their first long-lived government in 1932 based on strong interventionist and welfare state policies, monopolizing the office of Prime Minister until 1976 with the sole and short-lived exception of Axel Pehrsson-Bramstorp 's "summer cabinet" in 1936. During forty years of hegemony, it was the most successful political party in the history of Western liberal democracy.
In Thailand, then known as the Kingdom of Siam , the Great Depression contributed to the end of the absolute monarchy of King Rama VII in the Siamese revolution of 1932 .
Main articles: Great Depression in the United Kingdom and Interwar Britain Unemployed people in front of a workhouse in London, 1930
The World Depression broke at a time when the
The world financial crisis began to overwhelm Britain in 1931; investors across the world started withdrawing their gold from London at the rate of £2½ millions a day. Credits of £25 millions each from the Bank of France and the Federal Reserve Bank of New York and an issue of £15 millions fiduciary note slowed, but did not reverse the British crisis. The financial crisis now caused a major political crisis in Britain in August 1931. With deficits mounting, the bankers demanded a balanced budget; the divided cabinet of Prime Minister Ramsay MacDonald's Labour government agreed; it proposed to raise taxes, cut spending and most controversially, to cut unemployment benefits 20%. The attack on welfare was totally unacceptable to the Labour movement. MacDonald wanted to resign, but King George V insisted he remain and form an all-party coalition "National Government ". The Conservative and Liberals parties signed on, along with a small cadre of Labour, but the vast majority of Labour leaders denounced MacDonald as a traitor for leading the new government. Britain went off the gold standard, and suffered relatively less than other major countries in the Grade Depression. In the 1931 British election, the Labour Party was virtually destroyed, leaving MacDonald as Prime Minister for a largely Conservative coalition.
The effects on the northern industrial areas of Britain were immediate and devastating, as demand for traditional industrial products collapsed. By the end of 1930 unemployment had more than doubled from 1 million to 2.5 million (20% of the insured workforce), and exports had fallen in value by 50%. In 1933, 30% of Glaswegians were unemployed due to the severe decline in heavy industry. In some towns and cities in the north east, unemployment reached as high as 70% as shipbuilding fell 90%. The National Hunger March of September–October 1932 was the largest of a series of hunger marches in Britain in the 1920s and 1930s. About 200,000 unemployed men were sent to the work camps, which continued in operation until 1939.
In the less industrial Midlands and
Southern England , the effects
were short-lived and the later 1930s were a prosperous time. Growth in
modern manufacture of electrical goods and a boom in the motor car
industry was helped by a growing southern population and an expanding
middle class .
Hoover's first measures to combat the depression were based on voluntarism by businesses not to reduce their workforce or cut wages. But businesses had little choice and wages were reduced, workers were laid off, and investments postponed.
In June 1930 Congress approved the Smoot–Hawley Tariff Act which raised tariffs on thousands of imported items. The intent of the Act was to encourage the purchase of American-made products by increasing the cost of imported goods, while raising revenue for the federal government and protecting farmers. Other nations increased tariffs on American-made goods in retaliation, reducing international trade, and worsening the Depression.
In 1931 Hoover urged bankers to set up the National Credit
Corporation so that big banks could help failing banks survive. But
bankers were reluctant to invest in failing banks, and the National
Credit Corporation did almost nothing to address the problem.
Shacks on the Anacostia flats,
Washington, D.C. put up by the Bonus
World War I
By 1932, unemployment had reached 23.6%, peaking in early 1933 at
25%. Drought persisted in the agricultural heartland, businesses and
families defaulted on record numbers of loans, and more than 5,000
banks had failed. Hundreds of thousands of
Shortly after President
Franklin Delano Roosevelt
During a "bank holiday" that lasted five days, the Emergency Banking Act was signed into law. It provided for a system of reopening sound banks under Treasury supervision, with federal loans available if needed. The Securities Act of 1933 comprehensively regulated the securities industry. This was followed by the Securities Exchange Act of 1934 which created the Securities and Exchange Commission . Though amended, key provisions of both Acts are still in force. Federal insurance of bank deposits was provided by the FDIC , and the Glass–Steagall Act .
Agricultural Adjustment Act
These reforms, together with several other relief and recovery measures, are called the First New Deal . Economic stimulus was attempted through a new alphabet soup of agencies set up in 1933 and 1934 and previously extant agencies such as the Reconstruction Finance Corporation . By 1935, the "Second New Deal " added Social Security (which was later considerably extended through the Fair Deal ), a jobs program for the unemployed (the Works Progress Administration , WPA) and, through the National Labor Relations Board , a strong stimulus to the growth of labor unions. In 1929, federal expenditures constituted only 3% of the GDP . The national debt as a proportion of GNP rose under Hoover from 20% to 40%. Roosevelt kept it at 40% until the war began, when it soared to 128%.
By 1936, the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high at 11%, although this was considerably lower than the 25% unemployment rate seen in 1933. In the spring of 1937, American industrial production exceeded that of 1929 and remained level until June 1937. In June 1937, the Roosevelt administration cut spending and increased taxation in an attempt to balance the federal budget. The American economy then took a sharp downturn, lasting for 13 months through most of 1938. Industrial production fell almost 30 per cent within a few months and production of durable goods fell even faster. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising from 5 million to more than 12 million in early 1938. Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels. WPA employed 2–3 million at unskilled labor
Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. As unemployment rose, consumers' expenditures declined, leading to further cutbacks in production. By May 1938 retail sales began to increase, employment improved, and industrial production turned up after June 1938. After the recovery from the Recession of 1937–38, conservatives were able to form a bipartisan conservative coalition to stop further expansion of the New Deal and, when unemployment dropped to 2% in the early 1940s, they abolished WPA, CCC and the PWA relief programs. Social Security remained in place.
Between 1933 and 1939, federal expenditure tripled, and Roosevelt's
critics charged that he was turning America into a socialist state.
And the great owners, who must lose their land in an upheaval, the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed. – John Steinbeck , The Grapes of Wrath
A number of works for younger audiences are also set during the Great
Depression, among them the
Kit Kittredge series of
American Girl books
Valerie Tripp and illustrated by
Walter Rane , released to
tie in with the dolls and playsets sold by the company. The stories,
which take place during the early to mid 1930s in
Further information: Depression (economics)
The term "The Great Depression" is most frequently attributed to British economist Lionel Robbins , whose 1934 book The Great Depression is credited with formalizing the phrase, though Hoover is widely credited with popularizing the term, informally referring to the downturn as a depression, with such uses as "Economic depression cannot be cured by legislative action or executive pronouncement" (December 1930, Message to Congress), and "I need not recount to you that the world is passing through a great depression" (1931). Black Friday, 9 May 1873, Vienna Stock Exchange. The Panic of 1873 and Long Depression followed.
The term "depression " to refer to an economic downturn dates to the
19th century, when it was used by varied
Financial crises were traditionally referred to as "panics", most recently the major Panic of 1907 , and the minor Panic of 1910–11 , though the 1929 crisis was called "The Crash", and the term "panic" has since fallen out of use. At the time of the Great Depression, the term "The Great Depression" was already used to referred to the period 1873–96 (in the United Kingdom), or more narrowly 1873–79 (in the United States), which has retroactively been renamed the Long Depression .
OTHER "GREAT DEPRESSIONS"
Other economic downturns have been called a "great depression", but none had been as widespread, or lasted for so long. Various nations have experienced brief or extended periods of economic downturns, which were referred to as "depressions", but none have had such a widespread global impact.
The collapse of the Soviet Union , and the breakdown of economic ties
which followed, led to a severe economic crisis and catastrophic fall
in the standards of living in the 1990s in post-Soviet states and the
Eastern Bloc , which was even worse than the Great Depression.
Even before Russia's financial crisis of 1998, Russia's GDP was half
of what it had been in the early 1990s, and some populations are
still poorer as of 2009 than they were in 1989, including Moldova ,
Central Asia , and the
COMPARISON WITH THE GREAT RECESSION
This section NEEDS ADDITIONAL CITATIONS FOR VERIFICATION . Please help improve this article by adding citations to reliable sources . Unsourced material may be challenged and removed. (May 2016) (Learn how and when to remove this template message )
Main article: Comparisons between the Great Recession and the Great Depression
Some journalists and economists have taken to calling the late-2000s recession the " Great Recession " in allusion to the Great Depression.
The causes of the
Great Recession seem similar to the Great
Depression, but significant differences exist. The previous chairman
Federal Reserve ,
Ben Bernanke , had extensively studied the
If we contrast the 1930s with the Crash of 2008 where gold went through the roof, it is clear that the U.S. dollar on the gold standard was a completely different animal in comparison to the fiat free-floating U.S. dollar currency we have today. Both currencies in 1929 and 2008 were the U.S. dollar, but in an analogous way it is as if one was a Saber-toothed tiger and the other is a Bengal tiger; they are two completely different animals. Where we have experienced inflation since the Crash of 2008, the situation was much different in the 1930s when deflation set in. Unlike the deflation of the early 1930s, the U.S. economy currently appears to be in a "liquidity trap," or a situation where monetary policy is unable to stimulate an economy back to health.
In terms of the stock market, nearly three years after the 1929 crash, the DJIA dropped 8.4% on August 12, 1932. Where we have experienced great volatility with large intraday swings in the past two months, in 2011, we have not experienced any record-shattering daily percentage drops to the tune of the 1930s. Where many of us may have that '30s feeling, in light of the DJIA, the CPI, and the national unemployment rate, we are simply not living in the '30s. Some individuals may feel as if we are living in a depression, but for many others the current global financial crisis simply does not feel like a depression akin to the 1930s.
1928 and 1929 were the times in the 20th century that the wealth gap reached such skewed extremes; half the unemployed had been out of work for over six months, something that was not repeated until the late-2000s recession. 2007 and 2008 eventually saw the world reach new levels of wealth gap inequality that rivalled the years of 1928 and 1929.
* 1930s portal
Causes of the Great Depression
Cities in the Great Depression
* ^ John A. Garraty, The
* ^ A B C "Bank Failures". Living History Farm. Retrieved
* ^ "Friedman and Schwartz, Monetary History of the United States",
* ^ Randall E. Parker, Reflections on the Great Depression, Edward
Elgar Publishing, 2003, ISBN 9781843765509 , p. 14-15
* ^ Bernanke, Ben S (June 1983). "Non-Monetary Effects of the
Financial Crisis in the Propagation of the Great Depression" (PDF).
The American Economic Review. The American Economic Association. 73
* Ambrosius, G., and W. Hibbard, A Social and Economic History of
Twentieth-Century Europe (1989)
* Bernanke, Ben (1995). "The
Macroeconomics of the Great Depression:
A Comparative Approach" (PDF). Journal of Money, Credit, and Banking.
Blackwell Publishing. 27 (1): 1–28. doi :10.2307/2077848 . JSTOR
* Brown, Ian. The Economies of Africa and Asia in the Iinter-war
* Davis, Joseph S. The World Between the Wars, 1919–39: An
Economist's View (1974)
* Drinot, Paulo, and Alan Knight, eds. The
For U.S. SPECIFIC REFERENCES, please see the listing in Great Depression in the United States .
* Keynes, John Maynard. "The World's Economic Outlook", Atlantic (May 1932), online edition. * Schumpeter, Joseph (1930). "The Present World Depression: A Tentative Diagnosis". Available on JSTOR. * League of Nations, World Economic Survey 1932–33 (1934).
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* Rare Color Photos from the