Great Depression

• New Deal
• Dust Bowl

SSUSH17 The student will analyze the causes and consequences of the Great Depression. Economy appeared to be prosperous during the 1920s, the conditions that led to the Great Depression were created during that decade.

• Economic history
  • Causes of the decline
• Culture and society in the Great Depression
  • New forms of cultural expression

1. Great Depression The Great Depression began with the stock market crash of 1929 and was made worse by the 1930s Dust Bowl. President Franklin D. Roosevelt responded to the economic calamity with.
2. SSUSH17 The student will analyze the causes and consequences of the Great Depression. Economy appeared to be prosperous during the 1920s, the conditions that led to the Great Depression were created during that decade.
3. SSUSH17 The student will analyze the causes and consequences of the Great Depression. Describe the causes, including overproduction, underconsumption, and stock market speculation that led to the stock market crash of 1929 and the Great Depression. Explain factors (include over-farming and climate) that led to the Dust.
4. SSUSH17 Analyze the causes and consequences of the Great Depression. Explain factors (include over-farming and climate) that led to the Dust Bowl and the resulting movement and migration west. The Dust Bowl is a symbol of overproduction and was a contributing factor to.

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Great Depression, worldwide economic downturn that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world, sparking fundamental changes in economic institutions, macroeconomic policy, and economic theory. Although it originated in the United States, the Great Depression caused drastic declines in output, severe unemployment, and acute deflation in almost every country of the world. Its social and cultural effects were no less staggering, especially in the United States, where the Great Depression represented the harshest adversity faced by Americans since the Civil War.

What was the Great Depression?

The Great Depression, which began in the United States in 1929 and spread worldwide, was the longest and most severe economic downturn in modern history. It was marked by steep declines in industrial production and in prices (deflation), mass unemployment, banking panics, and sharp increases in rates of poverty and homelessness.

What were the causes of the Great Depression?

Four factors played roles of varying importance. (1) The stock market crash of 1929 shattered confidence in the American economy, resulting in sharp reductions in spending and investment. (2) Banking panics in the early 1930s caused many banks to fail, decreasing the pool of money available for loans. (3) The gold standard required foreign central banks to raise interest rates to counteract trade imbalances with the United States, depressing spending and investment in those countries. (4) The Smoot-Hawley Tariff Act (1930) imposed steep tariffs on many industrial and agricultural goods, inviting retaliatory measures that ultimately reduced output and caused global trade to contract.

How did the Great Depression affect the American economy?

In the United States, where the Depression was generally worst, industrial production between 1929 and 1933 fell by nearly 47 percent, gross domestic product (GDP) declined by 30 percent, and unemployment reached more than 20 percent. Because of banking panics, 20 percent of banks in existence in 1930 had failed by 1933.

How did the United States and other countries recover from the Great Depression?

Three factors played roles of varying importance. (1) Abandonment of the gold standard and currency devaluation enabled some countries to increase their money supplies, which spurred spending, lending, and investment. (2) Fiscal expansion in the form of increased government spending on jobs and other social welfare programs, notably the New Deal in the United States, arguably stimulated production by increasing aggregate demand. (3) In the United States, greatly increased military spending in the years before the country’s entry into World War II helped to reduce unemployment to below its pre-Depression level by 1942, again increasing aggregate demand.

When did the Great Depression end?

In most affected countries, the Great Depression was technically over by 1933, meaning that by then their economies had started to recover. Most did not experience full recovery until the late 1930s or early 1940s, however. The United States is generally thought to have fully recovered from the Great Depression by about 1939.

Economic history

The timing and severity of the Great Depression varied substantially across countries. The Depression was particularly long and severe in the United States and Europe; it was milder in Japan and much of Latin America. Perhaps not surprisingly, the worst depression ever experienced by the world economy stemmed from a multitude of causes. Declines in consumer demand, financial panics, and misguided government policies caused economic output to fall in the United States, while the gold standard, which linked nearly all the countries of the world in a network of fixed currencyexchange rates, played a key role in transmitting the American downturn to other countries. The recovery from the Great Depression was spurred largely by the abandonment of the gold standard and the ensuing monetary expansion. The economic impact of the Great Depression was enormous, including both extreme human suffering and profound changes in economic policy.

Timing and severity

The Great Depression began in the United States as an ordinary recession in the summer of 1929. The downturn became markedly worse, however, in late 1929 and continued until early 1933. Real output and prices fell precipitously. Between the peak and the trough of the downturn, industrial production in the United States declined 47 percent and real gross domestic product (GDP) fell 30 percent. The wholesale price index declined 33 percent (such declines in the price level are referred to as deflation). Although there is some debate about the reliability of the statistics, it is widely agreed that the unemployment rate exceeded 20 percent at its highest point. The severity of the Great Depression in the United States becomes especially clear when it is compared with America’s next worst recession, the Great Recession of 2007–09, during which the country’s real GDP declined just 4.3 percent and the unemployment rate peaked at less than 10 percent.

The Depression affected virtually every country of the world. However, the dates and magnitude of the downturn varied substantially across countries. Great Britain struggled with low growth and recession during most of the second half of the 1920s. The country did not slip into severe depression, however, until early 1930, and its peak-to-trough decline in industrial production was roughly one-third that of the United States. France also experienced a relatively short downturn in the early 1930s. The French recovery in 1932 and 1933, however, was short-lived. French industrial production and prices both fell substantially between 1933 and 1936. Germany’s economy slipped into a downturn early in 1928 and then stabilized before turning down again in the third quarter of 1929. The decline in German industrial production was roughly equal to that in the United States. A number of countries in Latin America fell into depression in late 1928 and early 1929, slightly before the U.S. decline in output. While some less-developed countries experienced severe depressions, others, such as Argentina and Brazil, experienced comparatively mild downturns. Japan also experienced a mild depression, which began relatively late and ended relatively early.

The general price deflation evident in the United States was also present in other countries. Virtually every industrialized country endured declines in wholesale prices of 30 percent or more between 1929 and 1933. Because of the greater flexibility of the Japanese price structure, deflation in Japan was unusually rapid in 1930 and 1931. This rapid deflation may have helped to keep the decline in Japanese production relatively mild. The prices of primary commodities traded in world markets declined even more dramatically during this period. For example, the prices of coffee, cotton, silk, and rubber were reduced by roughly half just between September 1929 and December 1930. As a result, the terms of trade declined precipitously for producers of primary commodities.

The U.S. recovery began in the spring of 1933. Output grew rapidly in the mid-1930s: real GDP rose at an average rate of 9 percent per year between 1933 and 1937. Output had fallen so deeply in the early years of the 1930s, however, that it remained substantially below its long-run trend path throughout this period. In 1937–38 the United States suffered another severe downturn, but after mid-1938 the American economy grew even more rapidly than in the mid-1930s. The country’s output finally returned to its long-run trend path in 1942.

Recovery in the rest of the world varied greatly. The British economy stopped declining soon after Great Britain abandoned the gold standard in September 1931, although genuine recovery did not begin until the end of 1932. The economies of a number of Latin American countries began to strengthen in late 1931 and early 1932. Germany and Japan both began to recover in the fall of 1932. Canada and many smaller European countries started to revive at about the same time as the United States, early in 1933. On the other hand, France, which experienced severe depression later than most countries, did not firmly enter the recovery phase until 1938.

• 1929 - c. 1939
  

location

• Banking panics and bank failures in the U.S. and elsewhere in 1930-33
  
• A monumental decline in spending that generated a decline in production
  
• Decision-making by the U.S. Federal Reserve that caused declines in the money supply
  
• Excessive stock-market speculation in the U.S. that resulted in the Great Crash of 1929
  
• Maintenance of the international gold standard
  
• The Smoot-Hawley Tariff Act and other protectionist trade policies
  

• Development of Keynesian economics
  
• End of the international gold standard by the late 1930s
  
• Expanded influence of labour unions and organized labour through legislation such as the Wagner Act in the U.S.
  
• Implementation of the New Deal in the U.S. and welfare-state policies internationally
  
• Increased government oversight of financial markets by the U.S. Securities and Exchange Commission and other new regulatory agencies
  
• Precipitous decline in standards of living around the world
  
• Up to 25% unemployment in industrialized countries in the early 1930s
  

context

key people

related topics

• About 15 million Americans were jobless and almost half the United States' banks had failed by 1933.
  
• Americans did not imagine that The Great Depression would happen after the market crashed since 90% of American households owned no stocks in 1929.
  
• Even those in the United States who kept their jobs watched their incomes shrink by a third.
  

On October 29^th 1929, the US Stock Market crashed and before anyone could take effective action, the country had reached its melting point. The US was heading into what would eventually become known as the Great Depression. A several successive event across the globe set off a chain reaction, impacting numerous countries around the world, as well as America.

The authorities didn’t know what to do in the face of such a catastrophe of this scale. Many subsequent years were spent dealing with the fallout from this chaotic fiasco, with millions suffering due to its far-reaching effects. With that being said, it was also the longest & most widespread economic decline of the entire 20^th century and truly showed the extent and speed to which an economy could decline.

1. The Roaring 20’s

Before the world entered into an economic decline, the performance of the stock market was well above par, and the industrial output more profitable than it had ever been. This situation was quite evident during the 1920’s – was also known as “The Roaring 20’s” – in the US. At this time the US was overdependent on its production industries, including automobiles and ship building docks.

Income inequality was increasing, and during this decade more than 60% of the population were living below the poverty line. Just 5% of the wealthiest classes received 33% of the nation’s income. This false sense of prosperity led to flooding of products in the markets that weren’t affordable to the masses, setting off a chain reaction that started with the closing of factories and sudden withdrawal of investments. The middle class tried to save its money by reducing spending. When spending was reduced, even more goods on the market went unsold. With profits falling, work forces had to be cut, increasing poverty and fueling a negative economic cycle.

2. Ensuing Global Crisis

Europe hadn’t exactly come to terms to the effects of World War I. There were horrible consequences of the Great War; the surviving population had lost their jobs and there was no way the Government could provide unlimited catalysts for reconstruction.

The US was the prime exporter at the time and was supplying Europe with almost all commodities, basic and advanced. The European Governments that had taken loans from American banks couldn’t pay them back and one after the other started defaulting on them. The American banks had no option but to stop giving out loans. This brought Europe’s purchasing power even further down, setting the scene for the Great Depression.

3. The Stock Market Crash

The Roaring Twenties gave almost all US bankers and investors a false sense of pride, especially those dealing in stocks. The price of stocks had begun to decline since September and on October 18^th they were in free-fall. Panic set in and almost all investors wanted real money in their hands. On October 24^th over 12 million shares were traded! The panic was mounted and investment companies rushed in to stabilize the situation. However, it was too late. On the coming Monday, the market was in complete free-fall.

The stock prices had collapsed. Successful recovery after October 29^th forced the stock prices up but it was too late. Investors had lost confidence in the stock exchange and globally prices were dropping. The US was now slumping into economic collapse and by 1932 the stocks were worth only 20 percent of their 1929 value! By 1933 the domino effect forced the banking system to fail. On top of this, people were migrating from farms to cities in search of jobs. All this was too hard on the economic structure in place and now, more than 15 million people were unemployed.

New Deal

4. The Dust Bowl

Severe drought hit the US and Canadian prairies during the 1930’s, which also fueled the Great Depression. US agricultural output was heavily affected by this drought and failure to apply dry-land farming methods forced the US market to look for other sources. At the same time, the farmers in the effected region had no idea what to make of their predicament. The situation worsened to such a level that that majority of the population of the Great Plains couldn’t pay their taxes.

These taxes, even though they made up only a nominal part of the Government’s Revenue, accounted for too much when the drought hit in three successive waves. The nickname “Dust Bowl” has been given to the damaged ecology and landscape.

5. The Smoot-Hawley Tariff Act

The situation was only getting worse, and the Smoot-Hawley Tariff Act didn’t help. Introduced on March 13^th, 1930 initially with the intention of protecting American companies, the maneuver quickly backfired on the US itself. When it was obvious that a steep economic decline was coming, the US government hurriedly started introducing measures that could slow down its arrival.

One such measure was this Smoot-Hawley Tariff which put on a special tax over 20,000 types of imported goods. This was done so that American companies wouldn’t lose to competition to foreign companies but the nature of the tax was such that it forced several companies to stop exporting goods to the US. This move came in the form of a double edge sword as it reduced production & revenue of all such companies. Workforce had to be laid off, fueling the economic crisis in their parent country.

Food for thought: US imports decreased 66% from 4.4 Billion (1929) to 1.5 Billion (1933)

Dust Bowl

There are whole books, theories and papers on the subject as to why the world plunged into Great Depression. All we can hope for is better economic structures and mechanism to catch such situations before the water’s over the bridge!