Great Depression

Great Depression

Overview


The Great Depression was a severe worldwide economic depression
Depression (economics)
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle....

 in the decade preceding World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s. It was the longest, most widespread, and deepest depression of the 20th century.

In the 21st century, the Great Depression is commonly used as an example of how far the world's economy can decline.
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The Great Depression was a severe worldwide economic depression
Depression (economics)
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle....

 in the decade preceding World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s. It was the longest, most widespread, and deepest depression of the 20th century.

In the 21st century, the Great Depression is commonly used as an example of how far the world's economy can decline. The depression originated in the U.S., starting with the fall in stock prices that began around September 4, 1929 and became worldwide news with the stock market crash
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...

 of October 29, 1929 (known as Black Tuesday). From there, it quickly spread to almost every country in the world.

The Great Depression had devastating effects in virtually every country, rich and poor. Personal income
Personal Income
In economics, personal income refers to an individual's total earnings from wages, investment enterprises, and other ventures....

, tax revenue, profits and prices dropped, while international trade plunged by more than 50%. Unemployment in the U.S. rose to 25%, and in some countries rose as high as 33%.

Cities all around the world
Cities in the Great Depression
Throughout the industrial world, cities in the Great Depression were hit hard, beginning in 1929 and lasting through most of the 1930s. Worst hit were ports and cities dependent on heavy industry, such as steel and automobiles. Service-oriented cities were less hurt...

 were hit hard, especially those dependent on heavy industry
Heavy industry
Heavy industry does not have a single fixed meaning as compared to light industry. It can mean production of products which are either heavy in weight or in the processes leading to their production. In general, it is a popular term used within the name of many Japanese and Korean firms, meaning...

. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by approximately 60%. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as cash crop
Cash crop
In agriculture, a cash crop is a crop which is grown for profit.The term is used to differentiate from subsistence crops, which are those fed to the producer's own livestock or grown as food for the producer's family...

ping, mining
Mining
Mining is the extraction of valuable minerals or other geological materials from the earth, from an ore body, vein or seam. The term also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock...

 and logging
Logging
Logging is the cutting, skidding, on-site processing, and loading of trees or logs onto trucks.In forestry, the term logging is sometimes used in a narrow sense concerning the logistics of moving wood from the stump to somewhere outside the forest, usually a sawmill or a lumber yard...

 suffered the most.

Some economies started to recover by the mid-1930s; in many countries the negative effects of the Great Depression lasted until the start of World War II.

Start of the Great Depression



Economic historians usually attribute the start of the Great Depression to the sudden devastating collapse of US stock market prices on October 29, 1929, known as Black Tuesday; 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 time; John D. Rockefeller
John D. Rockefeller
John Davison Rockefeller was an American oil industrialist, investor, and philanthropist. He was the founder of the Standard Oil Company, which dominated the oil industry and was the first great U.S. business trust. Rockefeller revolutionized the petroleum industry and defined the structure of...

 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 stock market turned upward in early 1930, returning to early 1929 levels by April. This was still almost 30% below the peak of September 1929.

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 ten percent. Likewise, beginning in mid-1930, a severe drought ravaged the agricultural heartland of the USA.

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; but 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 US economy
Economy of the United States
The economy of the United States is the world's largest national economy. Its nominal GDP was estimated to be nearly $14.5 trillion in 2010, approximately a quarter of nominal global GDP. The European Union has a larger collective economy, but is not a single nation...

 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
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...

 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.

Economic indicators


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



There were multiple causes for the first downturn in 1929. These include the structural weaknesses and specific events that turned it into a major depression and the manner in which the downturn spread from country to country. In relation to the 1929 downturn, historians emphasize structural factors like major bank failures and the stock market crash. In contrast, economists (such as Barry Eichengreen
Barry Eichengreen
Barry Eichengreen is an American economist who holds the title of George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley, where he has taught since 1987...

, Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

 and Peter Temin
Peter Temin
Dr. Peter Temin is a widely cited economist and economic historian, currently Gray Professor Emeritus of Economics, MIT and former head of the Economics Department....

) point to monetary factors such as actions by the US Federal Reserve that contracted the money supply, as well as Britain's decision to return to the Gold Standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...

 at pre–World War I parities (US$4.86:£1).

Recessions and business cycle
Business cycle
The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...

s are thought to be a normal part of living in a world of inexact balances between supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...

. What turns a normal recession or 'ordinary' business cycle into a depression is a subject of much debate and concern. Scholars have not agreed on the exact causes and their relative importance. The search for causes is closely connected to the issue of avoiding future depressions.

Thus, the personal political and policy viewpoints of scholars greatly color their analysis of historic events occurring eight decades ago. An even larger question is whether the Great Depression was primarily a failure on the part of free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...

s or a failure of government efforts to regulate interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...

s, curtail widespread bank failures, and control the money supply. Those who believe in a larger economic role for the state believe that it was primarily a failure of free markets, while those who believe in a smaller role for the state believe that it was primarily a failure of government that compounded the problem.

Current theories may be broadly classified into two main points of view and several heterodox points of view. First, there are demand-driven theories, most importantly Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

, but also including those who point to the breakdown of international trade, and Institutional economists
Institutional economics
Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in Thorstein Veblen's instinct-oriented dichotomy between technology on the one side and the "ceremonial" sphere of society on the...

 who point to underconsumption
Underconsumption
In underconsumption theory in economics, recessions and stagnation arise due to inadequate consumer demand relative to the amount produced. The theory has been replaced since the 1930s by Keynesian economics and the theory of aggregate demand, both of which were influenced by...

 and over-investment (causing an economic bubble
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...

), malfeasance
Malfeasance
The expressions misfeasance and nonfeasance, and occasionally malfeasance, are used in English law with reference to the discharge of public obligations existing by common law, custom or statute.-Definition and relevant rules of law:...

 by bankers and industrialists, or incompetence by government officials. The consensus among demand-driven theories is that a large-scale loss of confidence led to a sudden reduction in consumption and investment spending. Once panic and deflation set in, many people believed they could avoid further losses by keeping clear of the markets. Holding money became profitable as prices dropped lower and a given amount of money bought ever more goods, exacerbating the drop in demand.

Secondly, there are the monetarists
Monetarism
Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...

, who believe that the Great Depression started as an ordinary recession, but that significant policy mistakes by monetary authorities (especially the Federal Reserve), caused a shrinking of the money supply which greatly exacerbated the economic situation, causing a recession to descend into the Great Depression. Related to this explanation are those who point to debt deflation
Debt deflation
Debt deflation is a theory of economic cycles, which holds that recessions and depressions are due to the overall level of debt shrinking : the credit cycle is the cause of the economic cycle....

 causing those who borrow to owe ever more in real terms.

Lastly, there are various heterodox theories
Heterodox economics
"Heterodox economics" refers to approaches or to schools of economic thought that are considered outside of "mainstream economics". Mainstream economists sometimes assert that it has little or no influence on the vast majority of academic economists in the English speaking world. "Mainstream...

 that downplay or reject the explanations of the Keynesians and monetarists. For example, some new classical macroeconomists
New classical macroeconomics
New classical macroeconomics, sometimes simply called new classical economics, is a school of thought in macroeconomics that builds its analysis entirely on a neoclassical framework. Specifically, it emphasizes the importance of rigorous foundations based on microeconomics...

 have argued that various labor market policies imposed at the start caused the length and severity of the Great Depression. The Austrian school of economics
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

 focuses on the macroeconomic effects of money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...

, and how central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

ing decisions can lead to over-investment (economic bubble
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...

).

Demand-driven


Keynesian


British economist John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...

 argued in General Theory of Employment Interest and Money
General Theory of Employment Interest and Money
The General Theory of Employment, Interest and Money was written by the English economist John Maynard Keynes. The book, generally considered to be his magnum opus, is largely credited with creating the terminology and shape of modern macroeconomics...

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
Government spending
Government spending includes all government consumption, investment but excludes transfer payments made by a state. Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is classed as government final...

 and/or cutting taxes.

As the Depression wore on, Franklin D. Roosevelt
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...

 tried public works, farm subsidies
Agricultural subsidy
An agricultural subsidy is a governmental subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities...

, and other devices to restart the US 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.

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. Most historians and economists partly blame the American Smoot-Hawley Tariff Act
Smoot-Hawley Tariff Act
The Tariff Act of 1930, otherwise known as the Smoot–Hawley Tariff was an act, sponsored by United States Senator Reed Smoot and Representative Willis C. Hawley, and signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.The overall level tariffs...

 (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 1921–1925 was 25.9% but under the new tariff it jumped to 50% in 1931–1935.

In dollar terms, American exports declined from about $5.2 billion in 1929 to $1.7 billion in 1933; but prices also fell, so the physical volume of exports only fell by half. Hardest hit were farm commodities such as wheat, cotton, tobacco, and lumber. According to this theory, the collapse of farm exports caused many American farmers to default on their loans, leading to the bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...

s on small rural banks that characterized the early years of the Great Depression.

Debt deflation


Irving Fisher
Irving Fisher
Irving Fisher was an American economist, inventor, and health campaigner, and one of the earliest American neoclassical economists, though his later work on debt deflation often regarded as belonging instead to the Post-Keynesian school.Fisher made important contributions to utility theory and...

 argued that the predominant factor leading to the Great Depression was over-indebtedness and deflation. Fisher tied loose credit to over-indebtedness, which fueled speculation and asset bubbles. He then outlined 9 factors interacting with one another under conditions of debt and deflation to create the mechanics of boom to bust. The chain of events proceeded as follows:
  1. Debt liquidation and distress selling
  2. Contraction of the money supply as bank loans are paid off
  3. A fall in the level of asset prices
  4. A still greater fall in the net worths of business, precipitating bankruptcies
  5. A fall in profits
  6. A reduction in output, in trade and in employment.
  7. Pessimism
    Pessimism
    Pessimism, from the Latin word pessimus , is a state of mind in which one perceives life negatively. Value judgments may vary dramatically between individuals, even when judgments of fact are undisputed. The most common example of this phenomenon is the "Is the glass half empty or half full?"...

     and loss of confidence
  8. Hoarding of money
  9. 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 run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...

s. 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 US 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
Emergency Banking Act
The Emergency Banking Act was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933...

.

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
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

 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
Virtuous circle and vicious circle
A virtuous circle and a vicious circle are economic terms. They refer to a complex of events that reinforces itself through a feedback loop. A virtuous circle has favorable results, while a vicious circle has detrimental results...

 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.

Macroeconomists including Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....

, the current chairman of the U.S. Federal Reserve Bank, have revived the debt-deflation view of the Great Depression originated by Fisher.

Monetarist


Monetarists, including Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

 and current Federal Reserve System
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...

 chairman Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....

, argue that the Great Depression was mainly caused by monetary contraction
Contractionary monetary policy
Contractionary monetary policy is monetary policy that seeks to reduce the size of the money supply. In most nations, monetary policy is controlled by either a central bank or a finance ministry....

, the consequence of poor policy-making by the American Federal Reserve System and continued crisis in the banking system. In this view, the Federal Reserve, by not acting, allowed the money supply as measured by the M2 to shrink by one-third from 1929–1933, thereby transforming a normal recession into the Great Depression. Friedman argued that the downward turn in the economy, starting with the stock market crash, would have been just another recession.

The Federal Reserve allowed some large public bank failures – particularly that of the New York Bank of the United States
New York Bank of the United States
The Bank of United States, founded by Joseph S. Marcus in 1913 at 77 Delancey Street in New York, was a New York City bank that failed in 1931. The bank run on its Bronx branch is said to have started the collapse of banking during the Great Depression....

 – 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 bond
Government bond
A government bond is a bond issued by a national government denominated in the country's own currency. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country...

s on the open market
Open market
The term open market is used generally to refer to a situation close to free trade and in a more specific technical sense to interbank trade in securities.-Use of the term in economic theory:...

 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 regulation. At that time, the amount of credit the Federal Reserve could issue was limited by the Federal Reserve Act
Federal Reserve Act
The Federal Reserve Act is an Act of Congress that created and set up the Federal Reserve System, the central banking system of the United States of America, and granted it the legal authority to issue Federal Reserve Notes and Federal Reserve Bank Notes as legal tender...

, 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
Executive Order 6102
Executive Order 6102 is an Executive Order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States"...

 making the private ownership of gold certificate
Gold certificate
A gold certificate in general is a certificate of ownership that gold owners hold instead of storing the actual gold. It has both a historic meaning as a US paper currency and a current meaning as a way to invest in gold....

s, coins and bullion illegal, reducing the pressure on Federal Reserve gold.

New classical approach


Recent work from a neoclassical perspective focuses on the decline in productivity that caused the initial decline in output and a prolonged recovery due to policies that affected the labor market. This work, collected by Kehoe
Timothy J. Kehoe
Timothy Jerome "Tim" Kehoe is a renowned American economist and professor at the University of Minnesota. His area of specialty is macroeconomics and international economics....

 and Prescott, decomposes the economic decline into a decline in the labor force
Labor force
In economics, a labor force or labour force is a region's combined civilian workforce, including both the employed and unemployed.Normally, the labor force of a country consists of everyone of working age In economics, a labor force or labour force is a region's combined civilian workforce,...

, capital stock, and the productivity with which these inputs are used.

This study suggests that theories of the Great Depression have to explain an initial severe decline but rapid recovery in productivity, relatively little change in the capital stock, and a prolonged depression in the labor force. This analysis rejects theories that focus on the role of savings and posit a decline in the capital stock.

Austrian School


Another explanation comes from the Austrian School
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

 of economics. Theorists of the "Austrian School" who wrote about the Depression include Austrian economist Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...

 and American economist Murray Rothbard
Murray Rothbard
Murray Newton Rothbard was an American author and economist of the Austrian School who helped define capitalist libertarianism and popularized a form of free-market anarchism he termed "anarcho-capitalism." Rothbard wrote over twenty books and is considered a centrally important figure in the...

, who wrote America's Great Depression
America's Great Depression
America's Great Depression is a 1963 treatise on the 1930s Great Depression and its root causes, written by Austrian School economist and author Murray Rothbard. The fifth edition was released in 2000.-Brief summary:...

(1963). In their view and like the monetarists, the Federal Reserve, which was created in 1913, shoulders much of the blame; but in opposition to the monetarists, they argue that the key cause of the Depression was the expansion of the money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...

 in the 1920s that led to an unsustainable credit-driven boom.

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. According to the Austrians, the artificial interference in the economy was a disaster prior to the Depression, and government efforts to prop up the economy after the crash of 1929 only made things worse.

According to Rothbard, government intervention delayed the market's adjustment and made the road to complete recovery more difficult. However, Hayek, unlike Rothbard, also believed, 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.

Marxist


Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...

 saw recession and depression as unavoidable under free-market capitalism as there are no restrictions on accumulations of capital other than the market itself. In the Marxist
Marxism
Marxism is an economic and sociopolitical worldview and method of socioeconomic inquiry that centers upon a materialist interpretation of history, a dialectical view of social change, and an analysis and critique of the development of capitalism. Marxism was pioneered in the early to mid 19th...

 view, capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...

 tends to create unbalanced accumulations of wealth, leading to over-accumulations of capital which inevitably lead to a crisis. This especially sharp bust is a regular feature of the boom and bust pattern of what Marxists term "chaotic" capitalist development. It is a tenet of many Marxists groupings that such crises are inevitable and will be increasingly severe until the contradictions inherent in the mismatch between the mode of production and the development of productive forces
Social progress
Social progress is the idea that societies can or do improve in terms of their social, political, and economic structures. This may happen as a result of direct human action, as in social enterprise or through social activism, or as a natural part of sociocultural evolution...

 reach the final point of failure. At which point, the crisis period encourages intensified class conflict and forces societal change.

Inequality


Two economists of the 1920s, Waddill Catchings and William Trufant Foster
William Trufant Foster
William Trufant Foster , was an American educator and economist, whose theories were especially influential in the 1920s. He was the first president of Reed College.- Career :...

, popularized a theory that influenced many policy makers, including Herbert Hoover, Henry A. Wallace
Henry A. Wallace
Henry Agard Wallace was the 33rd Vice President of the United States , the Secretary of Agriculture , and the Secretary of Commerce . In the 1948 presidential election, Wallace was the nominee of the Progressive Party.-Early life:Henry A...

, Paul Douglas
Paul Douglas
Paul Howard Douglas was an liberal American politician and University of Chicago economist. A war hero, he was elected as a Democratic U.S. Senator from Illinois from in the 1948 landslide, serving until his defeat in 1966...

, and Marriner Eccles. It held the economy produced more than it consumed, because the consumers did not have enough income. Thus the unequal distribution of wealth
Distribution of wealth
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It differs from the distribution of income in that it looks at the distribution of ownership of the assets in a society, rather than the current income of members of that society.-Definition of...

 throughout the 1920s caused the Great Depression.

According to this view, the root cause
Root cause
A root cause is rarely an initiating cause of a causal chain which leads to an outcome or effect of interest. Commonly, root cause is misused to describe the depth in the causal chain where an intervention could reasonably be implemented to change performance and prevent an undesirable outcome.In...

 of the Great Depression was a global over-investment in heavy industry capacity compared to wages and earnings from independent businesses, such as farms. The solution was the government must pump money into consumers' pockets. That is, it must redistribute purchasing power, maintain the industrial base, but re-inflate prices and wages to force as much of the inflationary increase in purchasing power into consumer spending
Consumer spending
Consumer spending or consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level...

. The economy was overbuilt, and new factories were not needed. Foster and Catchings recommended federal and state governments start large construction projects, a program followed by Hoover and Roosevelt.

Productivity shock


“It cannot be emphasized too strongly that the [productivity, output and employment] 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
Electrification
Electrification originally referred to the build out of the electrical generating and distribution systems which occurred in the United States, England and other countries from the mid 1880's until around 1940 and is in progress in developing countries. This also included the change over from line...

, mass production
Mass production
Mass production is the production of large amounts of standardized products, including and especially on assembly lines...

 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).

Turning point and recovery


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.

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 mainstream economists is that Roosevelt's New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...

 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
Reflation
Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy back up to the long-term trend, following a dip in the business cycle...

 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 interrupting recession of 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 slope in 1938.

According to Christina Romer
Christina Romer
Christina D. Romer is the Class of 1957 Garff B. Wilson Professor of Economics at the University of California, Berkeley and a former Chair of the Council of Economic Advisers in the Obama administration...

, 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
Executive Order 6102
Executive Order 6102 is an Executive Order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States"...

 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
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...

. Current Chairman of the Federal Reserve
Chairman of the Federal Reserve
The Chairman of the Board of Governors of the Federal Reserve System is the head of the central banking system of the United States. Known colloquially as "Chairman of the Fed," or in market circles "Fed Chairman" or "Fed Chief"...

 Ben Bernanke agrees that monetary factors played important roles both in the worldwide economic decline and eventual recovery. Bernanke, also sees a strong role for institutional factors, particularly the rebuilding and restructuring of the financial system, and points out that the Depression needs to be examined in international perspective. Economists Harold L. Cole and Lee E. Ohanian, believe that the economy should have returned to normal after four years of depression except for continued depressing influences, and point the finger to the lack of downward flexibility in prices and wages, encouraged by Roosevelt Administration policies such as the National Industrial Recovery Act
National Industrial Recovery Act
The National Industrial Recovery Act , officially known as the Act of June 16, 1933 The National Industrial Recovery Act (NIRA), officially known as the Act of June 16, 1933 The National Industrial Recovery Act (NIRA), officially known as the Act of June 16, 1933 (Ch. 90, 48 Stat. 195, formerly...

.

Gold standard


Economic studies have indicated that just as the downturn was spread worldwide by the rigidities of the Gold Standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...

, it was suspending gold convertibility (or devaluing the currency in gold terms) that did most to make recovery possible. What policies countries followed after casting off the gold standard, and what results followed varied widely.

Every major currency left the gold standard during the Great Depression. Great Britain was the first to do so. Facing speculative attack
Speculative attack
A speculative attack is a term used by economists to denote a precipitous acquisition of something by previously inactive speculators. The first model of a speculative attack was contained in a 1975 discussion paper on the gold market by Stephen Salant and Dale Henderson at the Federal Reserve Board...

s on the pound
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...

 and depleting gold reserves
Official gold reserves
A gold reserve is the gold held by a central bank or nation intended as a store of value and as a guarantee to redeem promises to pay depositors, note holders , or trading peers, or to secure a currency....

, in September 1931 the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...

 ceased exchanging pound notes for gold and the pound was floated on foreign exchange markets.

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 1935–1936.

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
Silver standard
The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver. The silver specie standard was widespread from the fall of the Byzantine Empire until the 19th century...

, 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
Developing country
A developing country, also known as a less-developed country, is a nation with a low level of material well-being. Since no single definition of the term developing country is recognized internationally, the levels of development may vary widely within so-called developing countries...

. This partly explains why the experience and length of the depression differed between national economies.


World War II and recovery


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 helped stimulate the economies of Europe in 1937–39. By 1937, unemployment in Britain had fallen to 1.5 million. The mobilization of manpower following the outbreak of war in 1939 ended unemployment.

America's entry into the war in 1941 finally eliminated the last effects from the Great Depression and brought the U.S. unemployment rate down below 10%. In the U.S., massive war spending doubled economic growth rates, either masking the effects of the Depression or essentially ending the Depression. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output to take advantage of generous government contracts.

Effects



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 demagoguery
Demagogy
Demagogy or demagoguery is a strategy for gaining political power by appealing to the prejudices, emotions, fears, vanities and expectations of the public—typically via impassioned rhetoric and propaganda, and often using nationalist, populist or religious themes...

 — the most infamous example being Adolf Hitler
Adolf Hitler
Adolf Hitler was an Austrian-born German politician and the leader of the National Socialist German Workers Party , commonly referred to as the Nazi Party). He was Chancellor of Germany from 1933 to 1945, and head of state from 1934 to 1945...

 — setting the stage for World War II in 1939.

Australia


Australia's extreme dependence on agricultural and industrial export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...

s meant it was one of the hardest-hit countries in the Western world
Western world
The Western world, also known as the West and the Occident , is a term referring to the countries of Western Europe , the countries of the Americas, as well all countries of Northern and Central Europe, Australia and New Zealand...

. Falling export demand and commodity prices placed massive downward pressures on wages. Further, unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

 reached a record high of 29% in 1932, with incidents of civil unrest becoming common. After 1932, an increase in wool and meat prices led to a gradual recovery.

Canada


Harshly affected by both the global economic downturn and the Dust Bowl
Dust Bowl
The Dust Bowl, or the Dirty Thirties, was a period of severe dust storms causing major ecological and agricultural damage to American and Canadian prairie lands from 1930 to 1936...

, 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 saw it fall only to 83% of the 1929 level. Total national income
Measures of national income and output
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product , gross national product , and net national income . All are specially concerned with counting the total amount of goods and...

 fell to 56% of the 1929 level, again worse than any nation apart from the United States. Unemployment reached 27% at the depth of the Depression in 1933. During the 1930s, Canada employed a highly restrictive immigration policy
Immigration policy
An immigration policy is any policy of a state that deals with the transit of persons across its borders into the country, but especially those that intend to work and to remain in the country. Immigration policies can range from allowing no migration at all to allowing most types of migration,...

.

Chile


The League of Nations
League of Nations
The League of Nations was an intergovernmental organization founded as a result of the Paris Peace Conference that ended the First World War. It was the first permanent international organization whose principal mission was to maintain world peace...

 labeled Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...

 the country hardest hit by the Great Depression because 80% of government revenue came from exports of copper and nitrates, which were in low demand.
Chile initially felt the impact of the Great Depression in 1930, when GDP dropped 14%, mining income declined 27%, and export earnings fell 28%. By 1932, GDP had shrunk to less than half of what it had been in 1929, exacting a terrible toll in unemployment and business failures.

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
Austerity
In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to...

, 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 earthquake of 1939, the Popular Front
Popular Front (Chile)
The Popular Front in Chile was an electoral and political left-wing coalition from 1937 to February 1941, during the Presidential Republic Era...

 government of Pedro Aguirre Cerda
Pedro Aguirre Cerda
Pedro Aguirre Cerda was a Chilean political figure. A member of the Radical Party, he was chosen as the Popular Front's candidate for the 1938 presidential election, and was triumphally elected. He governed Chile until his death in 1941...

 created the Production Development Corporation (Corporación de Fomento de la Producción, CORFO
CORFO
Production Development Corporation is a Chilean governmental organization that was founded in 1939, by President Pedro Aguirre Cerda, to promote economic growth in Chile...

) to encourage with subsidies and direct investments an ambitious program of import substitution industrialization
Import substitution
Import substitution industrialization or "Import-substituting Industrialization" is a trade and economic policy that advocates replacing imports with domestic production. It is based on the premise that a country should attempt to reduce its foreign dependency through the local production of...

. Consequently, as in other Latin American countries, protectionism
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...

 became an entrenched aspect of the Chilean economy.

France


The Depression began to affect France around 1931. France's relatively high degree of self-sufficiency meant the damage was considerably less than in nations like Germany. Hardship and unemployment were high enough to lead to rioting and the rise of the socialist Popular Front
Popular Front (France)
The Popular Front was an alliance of left-wing movements, including the French Communist Party , the French Section of the Workers' International and the Radical and Socialist Party, during the interwar period...

. Ultra-nationalist groups also saw increased popularity, although democracy prevailed into World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

.

Germany


Germany's Weimar Republic
Weimar Republic
The Weimar Republic is the name given by historians to the parliamentary republic established in 1919 in Germany to replace the imperial form of government...

 was hit hard by the depression, as American loans to help rebuild the German economy now stopped. Unemployment soared, especially in larger cities, and the political system
Political system
A political system is a system of politics and government. It is usually compared to the legal system, economic system, cultural system, and other social systems...

 veered toward extremism
Extremism
Extremism is any ideology or political act far outside the perceived political center of a society; or otherwise claimed to violate common moral standards...

. The unemployment rate reached nearly 30% in 1932, bolstering support for the anti-capitalist Nazi (NSDAP) and Communist (KPD) parties, which both rose in the years following the crash to altogether possess a Reichstag majority following the general election in July 1932
German election, July 1932
The German parliamentary election of 31 July 1932, held after the premature dissolution of the Reichstag, saw great gains by the Nazi Party, which for the first time became the largest party in parliament, though without winning a majority...

. Repayment of the war reparations due by Germany were suspended in 1932 following the Lausanne Conference of 1932
Lausanne Conference of 1932
The Lausanne Conference was a 1932 meeting of representatives from Great Britain, Germany, and France that resulted in an agreement to suspend World War I reparations payments imposed on the defeated countries by the Treaty of Versailles...

. By that time, Germany had repaid one eighth of the reparations. Hitler
Adolf Hitler
Adolf Hitler was an Austrian-born German politician and the leader of the National Socialist German Workers Party , commonly referred to as the Nazi Party). He was Chancellor of Germany from 1933 to 1945, and head of state from 1934 to 1945...

 and the Nazi Party
National Socialist German Workers Party
The National Socialist German Workers' Party , commonly known in English as the Nazi Party, was a political party in Germany between 1920 and 1945. Its predecessor, the German Workers' Party , existed from 1919 to 1920...

 came to power in January 1933, establishing a totalitarian single-party state
Nazi Germany
Nazi Germany , also known as the Third Reich , but officially called German Reich from 1933 to 1943 and Greater German Reich from 26 June 1943 onward, is the name commonly used to refer to the state of Germany from 1933 to 1945, when it was a totalitarian dictatorship ruled by...

 within months and initiating the path towards World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

, the most devastating conflict in world history.

Japan


The Great Depression did not strongly affect Japan. The Japanese economy shrank by 8% during 1929–31. Japan's Finance Minister Takahashi Korekiyo
Takahashi Korekiyo
Viscount was a Japanese politician and the 20th Prime Minister of Japan from 13 November 1921 to 12 June 1922. He was known as an expert on finance during his political career.-Early life :...

 was the first to implement what have come to be identified as Keynesian economic
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

 policies: first, by large fiscal stimulus involving deficit spending
Deficit spending
Deficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus....

; and second, by devaluing the currency. Takahashi used the Bank of Japan to sterilize the deficit spending and minimize resulting inflationary pressures. Econometric studies have identified the fiscal stimulus as especially effective.

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. The deficit spending 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
February 26 Incident
The was an attempted coup d'état in Japan, from February 26 to 29, 1936 carried out by 1,483 troops of the Imperial Japanese Army. Several leading politicians were killed and the center of Tokyo was briefly occupied by the rebelling troops...

. 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 would remain 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, like Toyota, have their roots in the textile industry). By 1940 light industry
Light industry
Light industry is usually less capital intensive than heavy industry, and is more consumer-oriented than business-oriented...

 had been displaced by heavy industry as the largest firms inside the Japanese economy.

Latin America



Because of high levels of U.S. investment in Latin American economies, they were severely damaged by the Depression. Within the region, Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...

, Bolivia
Bolivia
Bolivia officially known as Plurinational State of Bolivia , is a landlocked country in central South America. It is the poorest country in South America...

 and Peru
Peru
Peru , officially the Republic of Peru , is a country in western South America. It is bordered on the north by Ecuador and Colombia, on the east by Brazil, on the southeast by Bolivia, on the south by Chile, and on the west by the Pacific Ocean....

 were particularly badly affected.

Netherlands


From roughly 1931–1937, 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 Great Depression in the Netherlands led to some political instability and riots, and can be linked to the rise of the Dutch national-socialist party NSB. The depression in the Netherlands eased off somewhat at the end of 1936, when the government finally dropped the Gold Standard, but real economic stability did not return until after World War II.

Portugal


Already under the rule of a dictatorial junta, the Ditadura Nacional
Ditadura Nacional
The Ditadura Nacional was the name of the Portuguese regime initiated by the election of President Óscar Carmona in 1928 that lasted until the adoption of the new constitution in 1933, when the régime changed its name to Estado Novo...

, Portugal suffered no turbulent political effects of the Depression, although Antonio de Oliveira Salazar
António de Oliveira Salazar
António de Oliveira Salazar, GColIH, GCTE, GCSE served as the Prime Minister of Portugal from 1932 to 1968. He also served as acting President of the Republic briefly in 1951. He founded and led the Estado Novo , the authoritarian, right-wing government that presided over and controlled Portugal...

, already appointed Minister of Finance in 1928 greatly expanded his powers and in 1932 rose to Prime Minister of Portugal
Prime Minister of Portugal
Prime Minister is the current title of the chief of the Portuguese Government. As chief executive, the Prime Minister coordinates the action of ministers, representing the Government from the other organs of state, accountable to Parliament and keeps the President informed...

 to found the Estado Novo
Estado Novo
There have been two regimes known as Estado Novo :*Estado Novo , the period from 1937 to 1945, under the leadership of Getúlio Vargas...

, an authoritarian corporatist dictatorship. With the budget balanced in 1929, the effects of the depression were relaxed through harsh measures towards budget balance and autarchy, causing social discontent but stability and, eventually, an impressive economic growth. The regime outlived Salazar himself before overthrown in the Carnation Revolution
Carnation Revolution
The Carnation Revolution , also referred to as the 25 de Abril , was a military coup started on 25 April 1974, in Lisbon, Portugal, coupled with an unanticipated and extensive campaign of civil resistance...

 in 1974, initiating a road towards the restoration of democracy.

South Africa


As world trade slumped, demand for South African agricultural and mineral exports fell drastically. The Carnegie Commission on Poor Whites
Carnegie Commission of Investigation on the Poor White Question in South Africa
"The Poor White Problem in South Africa: Report of the Carnegie Commission" was a study of poverty among white South Africans that made recommendations about segregation that some have argued would later serve as a blueprint for Apartheid...

 had concluded in 1931 that nearly one third of Afrikaner
Afrikaner
Afrikaners are an ethnic group in Southern Africa descended from almost equal numbers of Dutch, French and German settlers whose native tongue is Afrikaans: a Germanic language which derives primarily from 17th century Dutch, and a variety of other languages.-Related ethno-linguistic groups:The...

s lived as paupers. It is believed that 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
National Party (South Africa)
The National Party is a former political party in South Africa. Founded in 1914, it was the governing party of the country from 4 June 1948 until 9 May 1994. Members of the National Party were sometimes known as Nationalists or Nats. Its policies included apartheid, the establishment of a...

 and the National Party's subsequent fusion with the South African Party
South African Party
The South African Party was a political party that existed in the Union of South Africa from 1911 to 1934.-History:The outline and foundation for the party was realized after the election of a 'South African party' in the 1910 South African general election under the leadership of Louis Botha...

. Eventually, the gesuiwerde faction of Daniel Malan would go on to form its own party and take over the government after the 1948 election
South African general election, 1948
The parliamentary election in South Africa on 26 May 1948 represented a turning point in the country's history. The United Party, which had led the government since its foundation in 1933 and its leader, incumbent Prime Minister Jan Smuts was ousted by the Reunited National Party , led by Daniel...

, bringing about the doctrine of apartheid, instituting and extending racial segregation, which would see an end only in 1994.

Spain


Greatly due to impopular economic policies, Prime Minister Jose Primo de Rivera resigned in 1930, followed by the ousting of King Alfonso XIII
Alfonso XIII of Spain
Alfonso XIII was King of Spain from 1886 until 1931. His mother, Maria Christina of Austria, was appointed regent during his minority...

 in the following year. A fragile democracy was established, torn at by economic problems and social discontent, culminating in the divisive general election of 1936
Spanish general election, 1936
Legislative elections were held in Spain on February 16, 1936. At stake were all 473 seats in the unicameral Cortes Generales. The winners of the 1936 elections were the Popular Front, a left-wing coalition of the Spanish Socialist Workers' Party , Republican Left , Esquerra Republicana de...

 and the subsequent Spanish Civil War
Spanish Civil War
The Spanish Civil WarAlso known as The Crusade among Nationalists, the Fourth Carlist War among Carlists, and The Rebellion or Uprising among Republicans. was a major conflict fought in Spain from 17 July 1936 to 1 April 1939...

, culminating in an authoritarian regime under general Francisco Franco which was gradually disestablished following his death in 1975, with the first elections since Depression
Spanish general election, 1977
The Spanish general election of 1977 took place on 15 June 1977. It was the first election since the death of Francisco Franco.Voting was on the basis of universal suffrage in a secret ballot. The elections were held using closed list proportional representation in 52 electoral districts...

 held in 1977.

Sweden


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
Ivar Kreuger
Ivar Kreuger was a Swedish civil engineer, financier, entrepreneur and industrialist. In 1908 Kreuger co-founded the construction company Kreuger & Toll Byggnads AB which specialized in new building techniques. By aggressive investments and innovative financial instruments he built a global match...

 (who eventually committed suicide) remain infamous in Swedish history. Eventually, the Social Democrats under Per Albin Hansson
Per Albin Hansson
Per Albin Hansson , was a Swedish politician, chairman of the Social Democrats from 1925 and two-time Prime Minister in four governments between 1932 and 1946, governing all that period save for a short-lived crisis in the summer of 1936, which he ended by forming a coalition government with his...

 would form their first long-lived government in 1932 based on strong interventionist and welfare state
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...

 policies, monopolizing the office of Prime Minister
Prime Minister of Sweden
The Prime Minister is the head of government in the Kingdom of Sweden. Before the creation of the office of a Prime Minister in 1876, Sweden did not have a head of government separate from its head of state, namely the King, in whom the executive authority was vested...

 until 1976 with the sole and short-lived exception of Axel Pehrsson-Bramstorp
Axel Pehrsson-Bramstorp
Axel Alarik Pehrsson-Bramstorp was a Swedish politician and was Prime Minister of Sweden for a few months during 1936. As a parliamentarian he was known as "Axel Pehrsson in Bramstorp" or just "Bramstorp" for short...

's "summer cabinet" in 1936. During forty years of hegemony, it was the most successful political party in the history of Western liberal democracy.

Thailand


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
Siamese Revolution of 1932
The Siamese Revolution of 1932 or the Siamese Coup d'état of 1932 was a crucial turning point in Thai history in the 20th century...

.

United Kingdom


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
Glasgow
Glasgow is the largest city in Scotland and third most populous in the United Kingdom. The city is situated on the River Clyde in the country's west central lowlands...

 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 ship production fell 90%. The National Hunger March
National Hunger March, 1932
The National Hunger March of September–October 1932 was the largest of a series of hunger marches in Britain in the 1920s and 1930s.-Background:...

 of September–October 1932 was the largest of a series of hunger marches
Hunger marches
The Hunger marches were a series of marches held in the 1930s during The Great Depression in the United Kingdom to protest against hunger and unemployment in the United Kingdom....

 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
English Midlands
The Midlands, or the English Midlands, is the traditional name for the area comprising central England that broadly corresponds to the early medieval Kingdom of Mercia. It borders Southern England, Northern England, East Anglia and Wales. Its largest city is Birmingham, and it was an important...

 and South of 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
Middle class
The middle class is any class of people in the middle of a societal hierarchy. In Weberian socio-economic terms, the middle class is the broad group of people in contemporary society who fall socio-economically between the working class and upper class....

. Agriculture also saw a boom during this period.

United States



President Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...

 started numerous programs, all of which failed to reverse the downturn. 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 the major banks in the country to form a consortium known as the National Credit Corporation (NCC).
By 1932, unemployment had reached 23.6%, and it peaked 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 Americans found themselves homeless, and began congregating in shanty town
Shanty town
A shanty town is a slum settlement of impoverished people who live in improvised dwellings made from scrap materials: often plywood, corrugated metal and sheets of plastic...

s - dubbed "Hooverville
Hooverville
A 'Hooverville' was the popular name for shanty towns built by homeless people during the Great Depression. They were named after the President of the United States at the time, Herbert Hoover, because he allegedly let the nation slide into depression...

s" - that began to appear across the country. In response, President Hoover and Congress approved the Federal Home Loan Bank Act
Federal Home Loan Bank Act
The Federal Home Loan Bank Act, , is a United States federal law passed under President Herbert Hoover in order to lower the cost of home ownership.It established the Federal Home Loan Bank Board to charter and supervise federal savings and loan institutions...

, to spur new home construction, and reduce foreclosures. The final attempt of the Hoover Administration to stimulate the economy was the passage of the Emergency Relief and Construction Act
Emergency Relief and Construction Act
The Emergency Relief and Construction Act , was the United States's first major-relief legislation, enabled under Herbert Hoover and later adopted and expanded by Franklin D. Roosevelt as part of his New Deal....

 (ERA) which included funds for public works programs such as dams and the creation of the Reconstruction Finance Corporation
Reconstruction Finance Corporation
The Reconstruction Finance Corporation was an independent agency of the United States government, established and chartered by the US Congress in 1932, Act of January 22, 1932, c. 8, 47 Stat. 5, during the administration of President Herbert Hoover. It was modeled after the War Finance Corporation...

 (RFC) in 1932. The RFC's initial goal was to provide government-secured loans to financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...

s, railroads and farmers. Quarter by quarter the economy went downhill, as prices, profits and employment fell, leading to the political realignment
Realigning election
Realigning election are terms from political science and political history describing a dramatic change in the political system. Scholars frequently apply the term to American elections and occasionally to other countries...

 in 1932 that brought to power Franklin Delano Roosevelt.

Shortly after President Roosevelt was inaugurated in 1933, drought and erosion combined to cause the Dust Bowl, shifting hundreds of thousands of displaced persons off their farms in the Midwest. From his inauguration onward, Roosevelt argued that restructuring of the economy would be needed to prevent another depression or avoid prolonging the current one. New Deal programs sought to stimulate demand
Demand
- Economics :*Demand , the desire to own something and the ability to pay for it*Demand curve, a graphic representation of a demand schedule*Demand deposit, the money in checking accounts...

 and provide work and relief for the impoverished through increased government spending and the institution of financial reforms. The Securities Act of 1933
Securities Act of 1933
Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...

 comprehensively regulated the securities industry. This was followed by the Securities Exchange Act of 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...

 which created the Securities and Exchange Commission. Though amended, key provisions of both Acts are still in force. Federal insurance of bank deposits
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...

 was provided by the FDIC
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

, and the Glass–Steagall Act. The institution of the National Recovery Administration
National Recovery Administration
The National Recovery Administration was the primary New Deal agency established by U.S. president Franklin D. Roosevelt in 1933. The goal was to eliminate "cut-throat competition" by bringing industry, labor and government together to create codes of "fair practices" and set prices...

 (NRA) remains a controversial act to this day. The NRA made a number of sweeping changes to the American economy until it was deemed unconstitutional by the Supreme Court of the United States
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...

 in 1935.
Early changes by the Roosevelt administration included:
  • Instituting regulations to fight deflationary "cut-throat competition" through the NRA
    National Recovery Administration
    The National Recovery Administration was the primary New Deal agency established by U.S. president Franklin D. Roosevelt in 1933. The goal was to eliminate "cut-throat competition" by bringing industry, labor and government together to create codes of "fair practices" and set prices...

    .
  • Setting minimum prices and wages
    Minimum wage
    A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...

    , labor standards, and competitive conditions in all industries through the NRA.
  • Encouraging unions that would raise wages, to increase the purchasing power
    Purchasing power
    Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...

     of the working class
    Working class
    Working class is a term used in the social sciences and in ordinary conversation to describe those employed in lower tier jobs , often extending to those in unemployment or otherwise possessing below-average incomes...

    .
  • Cutting farm production to raise prices through the Agricultural Adjustment Act
    Agricultural Adjustment Act
    The Agricultural Adjustment Act was a United States federal law of the New Deal era which restricted agricultural production by paying farmers subsidies not to plant part of their land and to kill off excess livestock...

     and its successors.
  • Forcing businesses to work with government to set price codes through the NRA.


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
Alphabet agencies
In total, at least 100 offices were created during Roosevelt's terms of office as part of the New Deal, and "even the Comptroller-General of the United States, who audits the government's accounts, declared he had never heard of some of them." While previously all monetary appropriations had been...

 set up in 1933 and 1934 and previously extant agencies such as the Reconstruction Finance Corporation
Reconstruction Finance Corporation
The Reconstruction Finance Corporation was an independent agency of the United States government, established and chartered by the US Congress in 1932, Act of January 22, 1932, c. 8, 47 Stat. 5, during the administration of President Herbert Hoover. It was modeled after the War Finance Corporation...

. By 1935, the "Second New Deal
Second New Deal
The Second New Deal is the term used by commentators at the time and historians ever since to characterize the second stage of the New Deal programs of President Franklin D. Roosevelt...

" added Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...

 (which did not start making large payouts until much later), a jobs program for the unemployed (the Works Progress Administration
Works Progress Administration
The Works Progress Administration was the largest and most ambitious New Deal agency, employing millions of unskilled workers to carry out public works projects, including the construction of public buildings and roads, and operated large arts, drama, media, and literacy projects...

, WPA) and, through the National Labor Relations Board
National Labor Relations Board
The National Labor Relations Board is an independent agency of the United States government charged with conducting elections for labor union representation and with investigating and remedying unfair labor practices. Unfair labor practices may involve union-related situations or instances of...

, a strong stimulus to the growth of labor unions. In 1929, federal expenditures constituted only 3% of the GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

. 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 indicator
Economic indicator
An economic indicator is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles....

s 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 good
Durable good
In economics, a durable good or a hard good is a good that does not quickly wear out, or more specifically, one that yields utility over time rather than being completely consumed in one use. Items like bricks or jewellery could be considered perfectly durable goods, because they should...

s 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. 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 1937–1938, conservatives were able to form a bipartisan conservative coalition
Conservative coalition
In the United States, the conservative coalition was an unofficial Congressional coalition bringing together the conservative majority of the Republican Party and the conservative, mostly Southern, wing of the Democratic Party...

 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.

Political consequences


The crisis had many political consequences, among which was the abandonment of classic economic liberal
Economic liberalism
Economic liberalism is the ideological belief in giving all people economic freedom, and as such granting people with more basis to control their own lives and make their own mistakes. It is an economic philosophy that supports and promotes individual liberty and choice in economic matters and...

 approaches, which Roosevelt replaced in the U.S. with Keynesian policies. These policies magnified the role of the federal government in the national economy. Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics charged that he was turning America into a socialist
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...

 state. The Great Depression was a main factor in the implementation of social democracy
Social democracy
Social democracy is a political ideology of the center-left on the political spectrum. Social democracy is officially a form of evolutionary reformist socialism. It supports class collaboration as the course to achieve socialism...

 and planned economies
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...

 in European countries after World War II (see Marshall Plan
Marshall Plan
The Marshall Plan was the large-scale American program to aid Europe where the United States gave monetary support to help rebuild European economies after the end of World War II in order to combat the spread of Soviet communism. The plan was in operation for four years beginning in April 1948...

). 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.

Literature


The Great Depression has been the subject of much writing, as authors have sought to evaluate an era that caused financial as well as emotional trauma. Perhaps the most noteworthy and famous novel written on the subject is The Grapes of Wrath
The Grapes of Wrath
The Grapes of Wrath is a novel published in 1939 and written by John Steinbeck, who was awarded the Pulitzer Prize in 1940 and the Nobel Prize for Literature in 1962....

, published in 1939 and written by John Steinbeck
John Steinbeck
John Ernst Steinbeck, Jr. was an American writer. He is widely known for the Pulitzer Prize-winning novel The Grapes of Wrath and East of Eden and the novella Of Mice and Men...

, who was awarded both the Nobel Prize
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...

 for literature and the Pulitzer Prize
Pulitzer Prize
The Pulitzer Prize is a U.S. award for achievements in newspaper and online journalism, literature and musical composition. It was established by American publisher Joseph Pulitzer and is administered by Columbia University in New York City...

 for the work. The novel focuses on a poor family of sharecroppers who are forced from their home as drought, economic hardship, and changes in the agricultural industry
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...

 occur during the Great Depression. Steinbeck's Of Mice and Men
Of Mice and Men
Of Mice and Men is a novella written by Nobel Prize-winning author John Steinbeck. Published in 1937, it tells the tragic story of George Milton and Lennie Small, two displaced migrant ranch workers during the Great Depression in California, USA....

is another important novel about a journey during the Great Depression. Additionally, Harper Lee's To Kill a Mockingbird
To Kill a Mockingbird
To Kill a Mockingbird is a novel by Harper Lee published in 1960. It was instantly successful, winning the Pulitzer Prize, and has become a classic of modern American literature...

is set during the Great Depression. Margaret Atwood's Booker prize-winning The Blind Assassin
The Blind Assassin
The Blind Assassin is an award-winning, bestselling novel by the Canadian author Margaret Atwood. It was first published by McClelland and Stewart in 2000. Set in Canada, it is narrated from the present day, referring back to events that span the twentieth century.The work was awarded the Man...

is likewise set in the Great Depression, centering on a privileged socialite's love affair with a Marxist revolutionary. The era spurred the resurgence of social realism, practiced by many who started their writing careers on relief programs, especially the Federal Writers' Project
Federal Writers' Project
The Federal Writers' Project was a United States federal government project to fund written work and support writers during the Great Depression. It was part of the Works Progress Administration, a New Deal program...

 in the U.S.

Naming


The term "The Great Depression" is most frequently attributed to British economist Lionel Robbins
Lionel Robbins
Lionel Charles Robbins, Baron Robbins, FBA was a British economist and head of the economics department at the London School of Economics...

, 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).

The term "depression
Depression (economics)
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle....

" to refer to an economic downturn dates to the 19th century, when it was used by varied Americans and British politicians and economists. Indeed, the first major American economic crisis, the Panic of 1819
Panic of 1819
The Panic of 1819 was the first major financial crisis in the United States, and had occurred during the political calm of the Era of Good Feelings. The new nation previously had faced a depression following the war of independence in the late 1780s and led directly to the establishment of the...

, was described by then-president James Monroe
James Monroe
James Monroe was the fifth President of the United States . Monroe was the last president who was a Founding Father of the United States, and the last president from the Virginia dynasty and the Republican Generation...

 as "a depression", and the most recent economic crisis, the Depression of 1920–21, had been referred to as a "depression" by then president Calvin Coolidge
Calvin Coolidge
John Calvin Coolidge, Jr. was the 30th President of the United States . A Republican lawyer from Vermont, Coolidge worked his way up the ladder of Massachusetts state politics, eventually becoming governor of that state...

. Financial crises were traditionally referred to as "panics", most recently the major Panic of 1907
Panic of 1907
The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on...

, and the minor Panic of 1910–1911, 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
Long Depression
The Long Depression was a worldwide economic crisis, felt most heavily in Europe and the United States, which had been experiencing strong economic growth fueled by the Second Industrial Revolution in the decade following the American Civil War. At the time, the episode was labeled the Great...

.

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.

British economic historians used the term "great depression" to describe British conditions in the late 19th century, especially in agriculture, 1873–1896, a period now referred to as the Long Depression
Long Depression
The Long Depression was a worldwide economic crisis, felt most heavily in Europe and the United States, which had been experiencing strong economic growth fueled by the Second Industrial Revolution in the decade following the American Civil War. At the time, the episode was labeled the Great...

.

The fall of communism in the Soviet Union led to a severe economic crisis and catastrophic fall in the standards of living
Standard of living
Standard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods , or measures of health such as...

 in the 1990s in the former Eastern Bloc
Eastern bloc
The term Eastern Bloc or Communist Bloc refers to the former communist states of Eastern and Central Europe, generally the Soviet Union and the countries of the Warsaw Pact...

, most notably, in post-Soviet states
Post-Soviet states
The post-Soviet states, also commonly known as the Former Soviet Union or former Soviet republics, are the 15 independent states that split off from the Union of Soviet Socialist Republics in its dissolution in December 1991...

, that was almost twice as intense as the Great Depression had been in the countries of Western Europe
Western Europe
Western Europe is a loose term for the collection of countries in the western most region of the European continents, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity—the region lying in the...

 and the U.S. in the 1930s. 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 than they were in 1989, including Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...

, Moldova
Moldova
Moldova , officially the Republic of Moldova is a landlocked state in Eastern Europe, located between Romania to the West and Ukraine to the North, East and South. It declared itself an independent state with the same boundaries as the preceding Moldavian Soviet Socialist Republic in 1991, as part...

, Serbia
Serbia
Serbia , officially the Republic of Serbia , is a landlocked country located at the crossroads of Central and Southeast Europe, covering the southern part of the Carpathian basin and the central part of the Balkans...

, Central Asia
Soviet Central Asia
Soviet Central Asia refers to the section of Central Asia formerly controlled by the Soviet Union, as well as the time period of Soviet administration . In terms of area, it is nearly synonymous with Russian Turkestan, the name for the region during the Russian Empire...

, and the Caucasus
Caucasus
The Caucasus, also Caucas or Caucasia , is a geopolitical region at the border of Europe and Asia, and situated between the Black and the Caspian sea...

.

Some journalists and economists have taken to calling the late-2000s recession the "Great Recession" in allusion to the Great Depression.

See also



  • Aftermath of World War I
    Aftermath of World War I
    The fighting in World War I ended in western Europe when the Armistice took effect at 11:00 am GMT on November 11, 1918, and in eastern Europe by the early 1920s. During and in the aftermath of the war the political, cultural, and social order was drastically changed in Europe, Asia and Africa,...

  • Cities in the Great Depression
    Cities in the Great Depression
    Throughout the industrial world, cities in the Great Depression were hit hard, beginning in 1929 and lasting through most of the 1930s. Worst hit were ports and cities dependent on heavy industry, such as steel and automobiles. Service-oriented cities were less hurt...

  • Economic collapse
    Economic collapse
    There is no precise definition of an economic collapse. While some might consider a a severe, prolonged depression with high bankruptcy rates and high unemployment an economic collapse, others would additionally look for a breakdown in normal commerce, such as hyperinfalation, or even a sharp...

  • Entertainment during the Great Depression
  • Great Contraction
    Great Contraction
    The Great Contraction is Milton Friedman's term for the recession which led to the Great Depression.The term served as the title for the relevant chapter in Friedman and Schwartz's 1963 work A Monetary History of the United States...

  • The Dust Bowl


Further reading


  • Ambrosius, G. and W. Hibbard, A Social and Economic History of Twentieth-Century Europe (1989)
  • 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
    John Kenneth Galbraith
    John Kenneth "Ken" Galbraith , OC was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism...

    , 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)
  • Goldston, Robert, The Great Depression: The United States in the Thirties (1968)
  • 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)
  • Gernot Kohler and Emilio José Chaves (Editors) "Globalization: Critical Perspectives" Hauppauge, New York: Nova Science Publishers ISBN 1-59033-346-2. With contributions by Samir Amin
    Samir Amin
    Samir Amin is an Egyptian economist. He currently lives in Dakar, Senegal.- Biography :Samir Amin was born in Cairo, the son of an Egyptian father and a French mother . He spent his childhood and youth in Port Said; there he attended a French High School, leaving in 1947 with a Baccalauréat...

    , Christopher Chase Dunn, Andre Gunder Frank
    Andre Gunder Frank
    Andre Gunder Frank was a German-American economic historian and sociologist who promoted "dependency theory" after 1970 and "World Systems Theory" after 1984...

    , Immanuel Wallerstein
    Immanuel Wallerstein
    Immanuel Maurice Wallerstein is a US sociologist, historical social scientist, and world-systems analyst...

  • 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.
  • Donald Markwell
    Donald Markwell
    For the Montgomery, Alabama, talk radio personality, Don Markwell, see Don Markwell Professor Donald John 'Don' Markwell is an Australian social scientist and college president...

    , John Maynard Keynes and International Relations: Economic Paths to War and Peace, Oxford University Press (2006).
  • 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.
  • Tausch, Arno and Almas Heshmati (Eds.) "Roadmap to Bangalore? Globalization, the EU's Lisbon Process
    Lisbon Strategy
    The Lisbon Strategy, also known as the Lisbon Agenda or Lisbon Process, was an action and development plan devised in 2000, for the economy of the European Union between 2000 and 2010....

     and the Structures of Global Inequality" Hauppauge, N.Y.: Nova Science Publishers, 2008, with contributions by Franco Modigliani et al..
  • Taylor, David A. Soul of a People: The WPA Writers' Project Uncovers Depression America. Hoboken, N.J.: Wiley & Sons, 2009.
  • Tipton, F. and R. Aldrich, An Economic and Social History of Europe, 1890–1939 (1987)

For US specific references, please see complete listing in the Great Depression in the United States
Great Depression in the United States
The Great Depression began with the Wall Street Crash of October, 1929 and rapidly spread worldwide. The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement...

 article.

External links