Great Depression

From Wikinvestor

The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as an example of how far the world's economy can fall.^[1] The Great Depression originated in the United States; historians most often use as a starting date the stock market crash on October 29, 1929, known as Black Tuesday. The end of the depression in the U.S is associated with the onset of the war economy of World War II, beginning around 1939.^[2]

The depression had devastating effects in virtually every country, rich or poor. International trade plunged by half to two-thirds, as did personal incomes, tax revenues, prices, and profits. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by roughly 60 percent.^[3][4][5] Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as farming, mining and logging suffered the most.^[6] However, even shortly after the Wall Street Crash of 1929, optimism persisted; John D. Rockefeller said that "These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again."

The Great Depression ended at different times in different countries; for subsequent history see Home front during World War II. The majority of countries set up relief programs, and most underwent some sort of political upheaval, pushing them to the left or right. In some states, the desperate citizens turned toward nationalist demagogues - the most infamous being Adolf Hitler - setting the stage for World War II in 1939.

Contents 1 The deflation spiral 2 Effects 3 Political consequences 4 Facts and figures 5 Further reading 6 External links

The deflation spiral

The Great Depression was triggered by a sudden, total collapse in the stock market. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929.^[7] Together, government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the previous year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.

In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop 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 US 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 in 1930, a steady decline set in which reached bottom by March 1933.

Effects

Secretary of the Treasury Andrew Mellon advised President Hoover that shock treatment would be the best response: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.... That will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people."^[8] Hoover rejected this advice, and started numerous programs, all of which failed to reverse the downturn.^[9]

Hoover launched a series of programs to increase farm prices, which failed, expanded federal spending in public works such as dams, and launched the Reconstruction Finance Corporation (RFC) which aided cities, banks and railroads, and continued as a major agency under the New Deal. To provide unemployment relief he set up the Emergency Relief Agency (ERA) that operated until 1935 as the Federal Emergency Relief Agency. Quarter by quarter the economy went downhill, as prices, profits and employment fell, leading to the political realignment in 1932 that brought to power the New Deal.

Political consequences

The crisis had many political consequences, among which was the abandonment of classic economic liberal approaches, which Roosevelt replaced in the United States with Keynesian policies. It was a main factor in the implementation of social democracy and planned economies in European countries after World War II. (see Marshall Plan). Although Austrian economists had challenged Keynesianism since the 1920s, it was not until the 1970s, with the influence of Milton Friedman that the Keynesian approach was politically questioned, leading the way to neoliberalism.^[10]

Facts and figures

Effects of depression in the United States^[11]:

• 13 million people became unemployed.
• Industrial production fell by nearly 45% between the years 1929 and 1932.
• Home-building dropped by 80% between the years 1929 and 1932.
• From the years 1929 to 1932, about 5,000 banks went out of business.
• By 1933, 11,000 of the US' 25,000 banks had failed.^[12]
• In 1933, 25% of all workers and 37% of all nonfarm workers were unemployed.^[13]
• Between 1929 and 1932 the income of the average American family was reduced by 40%.^[14]

Further reading

• Ambrosius, G. and W. Hibbard, A Social and Economic History of Twentieth-Century Europe (1989)
• Bernanke, Ben S. "The Macroeconomics of the Great Depression: A Comparative Approach" Journal of Money, Credit & Banking, Vol. 27, 1995 online at JSTOR
• Brown, Ian. The Economies of Africa and Asia in the inter-war depression (1989)
• Davis, Joseph S., The World Between the Wars, 1919-39: An Economist's View (1974)
• Eichengreen, Barry. Golden fetters: The gold standard and the Great Depression, 1919-1939. 1992.
• Eichengreen, Barry, and Marc Flandreau; The Gold Standard in Theory and History 1997 online version
• Feinstein. Charles H. The European economy between the wars (1997)
• Friedman, Milton and Anna Jacobson Schwartz. A Monetary History of the United States, 1867-1960 (1963), monetarist interpretation (heavily statistical)
• Galbraith, John Kenneth, The Great Crash, 1929 (1954)
• Garraty, John A., The Great Depression: An Inquiry into the causes, course, and Consequences of the Worldwide Depression of the Nineteen-Thirties, as Seen by Contemporaries and in Light of History (1986)
• Garraty John A. Unemployment in History (1978)
• Garside, William R. Capitalism in crisis: international responses to the Great Depression (1993)
• Haberler, Gottfried. The world economy, money, and the great depression 1919-1939 (1976)
• Hall Thomas E. and J. David Ferguson. The Great Depression: An International Disaster of Perverse Economic Policies (1998)
• Kaiser, David E. Economic diplomacy and the origins of the Second World War: Germany, Britain, France and Eastern Europe, 1930-1939 (1980)
• Keynes, John Maynard. "The World's Economic Outlook," Atlantic (May 1932), online edition
• Kindleberger, Charles P. The World in Depression, 1929-1939 (1983)
• League of Nations, World Economic Survey 1932-33 (1934)
• Madsen, Jakob B. "Trade Barriers and the Collapse of World Trade during the Great Depression", Southern Economic Journal, Southern Economic Journal 2001, 67(4), 848-868 online at JSTOR
• Mitchell, Broadus. Depression Decade: From New Era through New Deal, 1929-1941 (1947), 462pp; thorough coverage of the U.S.. economy
• Mundell, R. A. "A Reconsideration of the Twentieth Century," The American Economic Review Vol. 90, No. 3 (Jun., 2000), pp. 327–340 online version
• Rothermund, Dietmar. The Global Impact of the Great Depression (1996)
• Tausch, Arno, with Christian Ghymers. "From the “Washington” towards a “Vienna Consensus”? A quantitative analysis on globalization, development and global governance". Hauppauge, N.Y.: Nova Science Publishers, 2007 (for info: https://www.novapublishers.com/catalog/).
• Tausch, Arno and Almas Heshmati (Eds.) "Roadmap to Bangalore? Globalization, the EU’s Lisbon Process and the Structures of Global Inequality" Hauppauge, N.Y.: Nova Science Publishers, 2008, with contributions by Franco Modigliani et al. (for info: https://www.novapublishers.com/catalog/).
• Tipton, F. and R. Aldrich, An Economic and Social History of Europe, 1890–1939 (1987)

External links

• Great Depressions of the Twentieth Century, edited by T. J. Kehoe and E. C. Prescott
• Theories of the Great Depression, R. L. Norman, Jr.
• America in the 1930s. Very large multi-mediated project on America in the Great Depression
• Recession? Depression? What's the difference? (About.com)
• An Overview of the Great Depression from EH.NET by Randall Parker.
• Great Myths of the Great Depression by Lawrence Reed
• Franklin D. Roosevelt Library & Museum for copyright-free photos of the period
• Economic Depressions: Their Cause and Cure by Murray Rothbard (1969)
• Great Depression in the Deep South