⌚ The Great Depression In The 1930s

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The Great Depression In The 1930s



In Decemberafter the beginning phases The Great Depression In The 1930s the depression had begun, President Hoover continued to promote high wages. Unemployment jumped from Its The Great Depression In The 1930s was not tied to the rest of the world and was mostly OLTP Technology: Data Warehousing by the Great Depression. During forty years of hegemony, The Great Depression In The 1930s was the most The Great Depression In The 1930s political party in the history of Western liberal The Great Depression In The 1930s. Wikimedia Commons.

📽 The Great Depression - What Caused It?

Irving Fisher argued that the predominant factor leading to the Great Depression was a vicious circle of deflation and growing over-indebtedness. The chain of events proceeded as follows:. When the market fell, brokers called in these loans , which could not be paid back. 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. After the panic of and during the first 10 months of , U. In all, 9, banks failed during the s. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. A vicious cycle developed and the downward spiral accelerated. The liquidation of debt could not keep up with the fall of prices that 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. Fisher's debt-deflation theory initially lacked mainstream influence because of the counter-argument that debt-deflation represented no more than a redistribution from one group debtors to another creditors. Pure re-distributions should have no significant macroeconomic effects. Building on both the monetary hypothesis of Milton Friedman and Anna Schwartz and the debt deflation hypothesis of Irving Fisher, Ben Bernanke developed an alternative way in which the financial crisis affected output.

He builds on Fisher's argument that dramatic declines in the price level and nominal incomes lead to increasing real debt burdens, which in turn leads to debtor insolvency and consequently lowers aggregate demand ; a further price level decline would then result in a debt deflationary spiral. According to Bernanke, a small decline in the price level simply reallocates wealth from debtors to creditors without doing damage to the economy.

But when the deflation is severe, falling asset prices along with debtor bankruptcies lead to a decline in the nominal value of assets on bank balance sheets. Banks will react by tightening their credit conditions, which in turn leads to a credit crunch that seriously harms the economy. A credit crunch lowers investment and consumption, which results in declining aggregate demand and additionally contributes to the deflationary spiral. Since economic mainstream turned to the new neoclassical synthesis , expectations are a central element of macroeconomic models. Eggertsson and Christina Romer , the key to recovery and to ending the Great Depression was brought about by a successful management of public expectations.

The thesis is based on the observation that after years of deflation and a very severe recession important economic indicators turned positive in March when Franklin D. Roosevelt took office. Consumer prices turned from deflation to a mild inflation, industrial production bottomed out in March , and investment doubled in with a turnaround in March There were no monetary forces to explain that turnaround. Money supply was still falling and short-term interest rates remained close to zero.

Before March , people expected further deflation and a recession so that even interest rates at zero did not stimulate investment. But when Roosevelt announced major regime changes, people began to expect inflation and an economic expansion. With these positive expectations, interest rates at zero began to stimulate investment just as they were expected to do. Roosevelt's fiscal and monetary policy regime change helped make his policy objectives credible. The expectation of higher future income and higher future inflation stimulated demand and investment.

The recession of —38 , which slowed down economic recovery from the Great Depression, is explained by fears of the population that the moderate tightening of the monetary and fiscal policy in were first steps to a restoration of the pre policy regime. There is common consensus among economists today that the government and the central bank should work to keep the interconnected macroeconomic aggregates of gross domestic product and money supply on a stable growth path.

When threatened by expectations of a depression, central banks should expand liquidity in the banking system and the government should cut taxes and accelerate spending in order to prevent a collapse in money supply and aggregate demand. At the beginning of the Great Depression, most economists believed in Say's law and the equilibrating powers of the market, and failed to understand the severity of the Depression. Outright leave-it-alone liquidationism was a common position, and was universally held by Austrian School economists. They argued that even if self-adjustment of the economy caused mass bankruptcies, it was still the best course.

Economists like Barry Eichengreen and J. Bradford DeLong note that President Herbert Hoover tried to keep the federal budget balanced until , when he lost confidence in his Secretary of the Treasury Andrew Mellon and replaced him. According to a study by Olivier Blanchard and Lawrence Summers , the recession caused a drop of net capital accumulation to pre levels by I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world.

You've just got to let it cure itself. You can't do anything about it. You will only make it worse. I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm. In their view, much like the monetarists, the Federal Reserve created in shoulders much of the blame; however, unlike the Monetarists , they argue that the key cause of the Depression was the expansion of the money supply in the s which 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.

Therefore, by the time the Federal Reserve tightened in it was far too late to prevent an economic contraction. According to Rothbard, the government support for failed enterprises and efforts to keep wages above their market values actually prolonged the Depression. Hans Sennholz argued that most boom and busts that plagued the American economy, such as those in —20 , — , — , — , — , and —21 , were generated by government creating a boom through easy money and credit, which was soon followed by the inevitable bust. The spectacular crash of followed five years of reckless credit expansion by the Federal Reserve System under the Coolidge Administration. The passing of the Sixteenth Amendment , the passage of The Federal Reserve Act , rising government deficits, the passage of the Hawley-Smoot Tariff Act , and the Revenue Act of , exacerbated and prolonged the crisis.

Ludwig von Mises wrote in the s: "Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity.

It is illusory prosperity. It did not develop from an increase in economic wealth, i. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later, it must become apparent that this economic situation is built on sand. Wallace , Paul Douglas , 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 throughout the s caused the Great Depression. According to this view, the root cause 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 proposed solution was for the government to pump money into the consumers' pockets. That is, it must redistribute purchasing power, maintaining the industrial base, and re-inflating prices and wages to force as much of the inflationary increase in purchasing power into consumer spending. The economy was overbuilt, and new factories were not needed. Foster and Catchings recommended [63] federal and state governments to start large construction projects, a program followed by Hoover and Roosevelt. It cannot be emphasized too strongly that the [productivity, output, and employment] trends we are describing are long-time trends and were thoroughly evident before 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. The first three decades of the 20th century saw economic output surge with electrification , mass production , and motorized farm machinery, and because of the rapid growth in productivity there was a lot of excess production capacity and the work week was being reduced. The dramatic rise in productivity of major industries in the U. The gold standard was the primary transmission mechanism of the Great Depression. Even countries that did not face bank failures and a monetary contraction first hand were forced to join the deflationary policy since higher interest rates in countries that performed a deflationary policy led to a gold outflow in countries with lower interest rates.

Under the gold standard's price—specie flow mechanism , countries that lost gold but nevertheless wanted to maintain the gold standard had to permit their money supply to decrease and the domestic price level to decline deflation. There is also consensus that protectionist policies such as the Smoot—Hawley Tariff Act helped to worsen the depression. Some economic studies have indicated that just as the downturn was spread worldwide by the rigidities of the gold standard , it was suspending gold convertibility or devaluing the currency in gold terms that did the most to make recovery possible. Every major currency left the gold standard during the Great Depression.

The UK was the first to do so. Facing speculative attacks on the pound and depleting gold reserves , in September the Bank of England ceased exchanging pound notes for gold and the pound was floated on foreign exchange markets. Japan and the Scandinavian countries joined the UK in leaving the gold standard in Other countries, such as Italy and the US, remained on the gold standard into or , while a few countries in the so-called "gold bloc", led by France and including Poland, Belgium and Switzerland, stayed on the standard until — According to later analysis, the earliness with which a country left the gold standard reliably predicted its economic recovery. For example, The UK and Scandinavia, which left the gold standard in , recovered much earlier than France and Belgium, which remained on gold much longer.

Countries such as China, which had a silver standard , almost avoided the depression entirely. The connection between leaving the gold standard as a strong predictor of that country's severity of its depression and the length of time of its recovery has been shown to be consistent for dozens of countries, including developing countries. This partly explains why the experience and length of the depression differed between regions and states across the world. Many economists have argued that the sharp decline in international trade after helped to worsen the depression, especially for countries significantly dependent on foreign trade.

In a survey of American economic historians, two-thirds agreed that the Smoot—Hawley Tariff Act enacted June 17, at least worsened the Great Depression. While foreign trade was a small part of overall economic activity in the U. Hardest hit were farm commodities such as wheat, cotton, tobacco, and lumber. Governments around the world took various steps into spending less money on foreign goods such as: "imposing tariffs, import quotas, and exchange controls".

These restrictions triggered much tension among countries that had large amounts of bilateral trade, causing major export-import reductions during the depression. Not all governments enforced the same measures of protectionism. Some countries raised tariffs drastically and enforced severe restrictions on foreign exchange transactions, while other countries reduced "trade and exchange restrictions only marginally": [73]. The consensus view among economists and economic historians including Keynesians, Monetarists and Austrian economists is that the passage of the Smoot-Hawley Tariff exacerbated the Great Depression, [74] although there is disagreement as to how much.

In the popular view, the Smoot-Hawley Tariff was a leading cause of the depression. Senate website the Smoot—Hawley Tariff Act is among the most catastrophic acts in congressional history [77]. The financial crisis escalated out of control in mid, starting with the collapse of the Credit Anstalt in Vienna in May. With the rise in violence of Nazi and communist movements, as well as investor nervousness at harsh government financial policies. The Reichsbank lost million marks in the first week of June, million in the second, and million in two days, June 19— Collapse was at hand.

President Herbert Hoover called for a moratorium on Payment of war reparations. This angered Paris, which depended on a steady flow of German payments, but it slowed the crisis down, and the moratorium was agreed to in July An International conference in London later in July produced no agreements but on August 19 a standstill agreement froze Germany's foreign liabilities for six months.

Germany received emergency funding from private banks in New York as well as the Bank of International Settlements and the Bank of England. The funding only slowed the process. Industrial failures began in Germany, a major bank closed in July and a two-day holiday for all German banks was declared. Business failures were more frequent in July, and spread to Romania and Hungary. The crisis continued to get worse in Germany, bringing political upheaval that finally led to the coming to power of Hitler's Nazi regime in January The financial crisis now caused a major political crisis in Britain in August The attack on welfare was unacceptable to the Labour movement.

MacDonald wanted to resign, but King George V insisted he remain and form an all-party coalition " National Government ". The Conservative and Liberals parties signed on, along with a small cadre of Labour, but the vast majority of Labour leaders denounced MacDonald as a traitor for leading the new government. Britain went off the gold standard , and suffered relatively less than other major countries in the Great Depression. In most countries of the world, recovery from the Great Depression began in There is no consensus among economists regarding the motive force for the U. The common view among most economists is that Roosevelt's New Deal policies either caused or accelerated the recovery, although his policies were never aggressive enough to bring the economy completely out of recession.

Some economists have also called attention to the positive effects from expectations of reflation and rising nominal interest rates that Roosevelt's words and actions portended. According to Christina Romer , the money supply growth caused by huge international gold inflows was a crucial source of the recovery of the United States economy, and that the economy showed little sign of self-correction. The gold inflows were partly due to devaluation of the U.

Schwartz also attributed the recovery to monetary factors, and contended that it was much slowed by poor management of money by the Federal Reserve System. Former — Chairman of the Federal Reserve Ben Bernanke agreed that monetary factors played important roles both in the worldwide economic decline and eventual recovery. Women's primary role was as housewives; without a steady flow of family income, their work became much harder in dealing with food and clothing and medical care. Birthrates fell everywhere, as children were postponed until families could financially support them. Among the few women in the labor force, layoffs were less common in the white-collar jobs and they were typically found in light manufacturing work.

However, there was a widespread demand to limit families to one paid job, so that wives might lose employment if their husband was employed. In France, very slow population growth, especially in comparison to Germany continued to be a serious issue in the s. Support for increasing welfare programs during the depression included a focus on women in the family. In rural and small-town areas, women expanded their operation of vegetable gardens to include as much food production as possible.

In the United States, agricultural organizations sponsored programs to teach housewives how to optimize their gardens and to raise poultry for meat and eggs. Quilts were created for practical use from various inexpensive materials and increased social interaction for women and promoted camaraderie and personal fulfillment. Oral history provides evidence for how housewives in a modern industrial city handled shortages of money and resources.

Often they updated strategies their mothers used when they were growing up in poor families. Cheap foods were used, such as soups, beans and noodles. They purchased the cheapest cuts of meat—sometimes even horse meat—and recycled the Sunday roast into sandwiches and soups. They sewed and patched clothing, traded with their neighbors for outgrown items, and made do with colder homes. New furniture and appliances were postponed until better days. Many women also worked outside the home, or took boarders, did laundry for trade or cash, and did sewing for neighbors in exchange for something they could offer. Extended families used mutual aid—extra food, spare rooms, repair-work, cash loans—to help cousins and in-laws.

In Japan, official government policy was deflationary and the opposite of Keynesian spending. Consequently, the government launched a campaign across the country to induce households to reduce their consumption, focusing attention on spending by housewives. In Germany, the government tried to reshape private household consumption under the Four-Year Plan of to achieve German economic self-sufficiency. The Nazi women's organizations, other propaganda agencies and the authorities all attempted to shape such consumption as economic self-sufficiency was needed to prepare for and to sustain the coming war. The organizations, propaganda agencies and authorities employed slogans that called up traditional values of thrift and healthy living.

However, these efforts were only partly successful in changing the behavior of housewives. 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, though it did help in reducing unemployment. The rearmament policies leading up to World War II helped stimulate the economies of Europe in — By , unemployment in Britain had fallen to 1. The mobilization of manpower following the outbreak of war in ended unemployment.

When the United States entered the war in , it finally eliminated the last effects from the Great Depression and brought the U. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output to take advantage of generous government contracts. The majority of countries set up relief programs and most underwent some sort of political upheaval, pushing them to the right. Many of the countries in Europe and Latin America that were democracies saw them overthrown by some form of dictatorship or authoritarian rule, most famously in Germany in The Dominion of Newfoundland gave up democracy voluntarily. Australia's dependence on agricultural and industrial exports meant it was one of the hardest-hit developed countries.

By , GDP had shrunk to less than half of what it had been in , exacting a terrible toll in unemployment and business failures. Influenced profoundly by the Great Depression, many government leaders promoted the development of local industry in an effort to insulate the economy from future external shocks. After six years of government austerity measures , which succeeded in reestablishing Chile's creditworthiness, Chileans elected to office during the —58 period a succession of center and left-of-center governments interested in promoting economic growth through government intervention. Consequently, as in other Latin American countries, protectionism became an entrenched aspect of the Chilean economy.

China was largely unaffected by the Depression, mainly by having stuck to the Silver standard. However, the U. China and the British colony of Hong Kong , which followed suit in this regard in September , would be the last to abandon the silver standard. In addition, the Nationalist Government also acted energetically to modernize the legal and penal systems, stabilize prices, amortize debts, reform the banking and currency systems, build railroads and highways, improve public health facilities, legislate against traffic in narcotics and augment industrial and agricultural production. On November 3, , the government instituted the fiat currency fapi reform, immediately stabilizing prices and also raising revenues for the government. The sharp fall in commodity prices, and the steep decline in exports, hurt the economies of the European colonies in Africa and Asia.

For example, sisal had recently become a major export crop in Kenya and Tanganyika. During the depression, it suffered severely from low prices and marketing problems that affected all colonial commodities in Africa. Sisal producers established centralized controls for the export of their fibre. The depression severely hurt the export-based Belgian Congo economy because of the drop in international demand for raw materials and for agricultural products.

For example, the price of peanuts fell from to 25 centimes. In the country as a whole, the wage labour force decreased by Political protests were not common. However, there was a growing demand that the paternalistic claims be honored by colonial governments to respond vigorously. The theme was that economic reforms were more urgently needed than political reforms. Students were trained in traditional arts, crafts, and farming techniques and were then expected to return to their own villages and towns. The crisis affected France a bit later than other countries, hitting hard around Ultra-nationalist groups also saw increased popularity, although democracy prevailed into World War II. France's relatively high degree of self-sufficiency meant the damage was considerably less than in neighbouring states like Germany.

The Great Depression hit Germany hard. The impact of the Wall Street Crash forced American banks to end the new loans that had been funding the repayments under the Dawes Plan and the Young Plan. An international conference in London later in July produced no agreements but on August 19 a standstill agreement froze Germany's foreign liabilities for six months. Business failures became more frequent in July, and spread to Romania and Hungary. The government did not increase government spending to deal with Germany's growing crisis, as they were afraid that a high-spending policy could lead to a return of the hyperinflation that had affected Germany in Germany's Weimar Republic was hit hard by the depression, as American loans to help rebuild the German economy now stopped.

Hitler ran for the Presidency in , and while he lost to the incumbent Hindenburg in the election, it marked a point during which both Nazi Party and the Communist parties rose in the years following the crash to altogether possess a Reichstag majority following the general election in July Hitler followed an autarky economic policy, creating a network of client states and economic allies in central Europe and Latin America. By cutting wages and taking control of labor unions, plus public works spending, unemployment fell significantly by Large-scale military spending played a major role in the recovery. The reverberations of the Great Depression hit Greece in The Bank of Greece tried to adopt deflationary policies to stave off the crises that were going on in other countries, but these largely failed.

For a brief period, the drachma was pegged to the U. Remittances from abroad declined sharply and the value of the drachma began to plummet from 77 drachmas to the dollar in March to drachmas to the dollar in April This was especially harmful to Greece as the country relied on imports from the UK, France, and the Middle East for many necessities. Greece went off the gold standard in April and declared a moratorium on all interest payments. The country also adopted protectionist policies such as import quotas, which several European countries did during the period. Protectionist policies coupled with a weak drachma, stifling imports, allowed the Greek industry to expand during the Great Depression.

These industries were for the most part "built on sand" as one report of the Bank of Greece put it, as without massive protection they would not have been able to survive. Despite the global depression, Greece managed to suffer comparatively little, averaging an average growth rate of 3. The dictatorial regime of Ioannis Metaxas took over the Greek government in , and economic growth was strong in the years leading up to the Second World War. The Depression hit Iceland hard as the value of exports plummeted. The total value of Icelandic exports fell from 74 million kronur in to 48 million in , and was not to rise again to the pre level until after How much India was affected has been hotly debated.

Historians have argued that the Great Depression slowed long-term industrial development. However, there were major negative impacts on the jute industry, as world demand fell and prices plunged. Local markets in agriculture and small-scale industry showed modest gains. Frank Barry and Mary E. Daly have argued that:. The Great Depression hit Italy very hard. This led to a financial crisis peaking in and major government intervention. IRI did rather well with its new responsibilities—restructuring, modernising and rationalising as much as it could. It was a significant factor in post development. The Great Depression did not strongly affect Japan.

They believed that he cared deeply for the common person and that he was doing his best to end the Great Depression. Looking back, however, it is uncertain as to how much Roosevelt's New Deal programs helped to end the Great Depression. The major turn-around for the U. Once the U. Weapons, artillery, ships, and airplanes were needed quickly. Men were trained to become soldiers and the women were kept on the home front to keep the factories going. Food needed to be grown for both the homefront and to send overseas. It was ultimately the entrance of the U. Share Flipboard Email. Table of Contents Expand. The Stock Market Crash. The Dust Bowl. Riding the Rails. Roosevelt and the New Deal. The End of the Great Depression. Jennifer Rosenberg.

History Expert. Jennifer Rosenberg is a historian and writer who specializes in 20th-century history. Updated January 17, Cite this Article Format. Rosenberg, Jennifer. A Short History of the Great Depression. The Story of the Great Depression in Photos. Top 10 New Deal Programs of the s. The March of the Veterans Bonus Army. Hoovervilles: Homeless Camps of the Great Depression. Men were left unable to provide for their families and many resorted to queuing at soup kitchens. This was recorded by a government report, highlighting that around a quarter of the British population were barely existing on a poor subsistence diet.

The result was increased cases of child malnutrition resulting in scurvy, rickets and tuberculosis. The economic crisis had turned into a social one. The government needed to act fast. In a small ministerial team was formed to tackle the most pressing issue, that of unemployment. This was led by J. In this period, government spending had gone through the roof; for Mosley, the policy-making was too slow and he presented his own plan called the Mosley Memorandum. This was subsequently rejected.

Moderates, including MacDonald and Snowden had enormous conflict with the more radical proposals put forward, and eventually a fifteen member Economic Advisory Council was introduced. This was formed of industrialists and economists such as the famous Keynes, who would collectively come up with more creative solutions to the current crisis. In the meantime, the government was failing to win support and seemed doomed to fail at the next General Election. Meanwhile, in Europe the banks began to collapse under the economic strain, leading to further British losses. A political solution for some but for those living below the poverty line, hunger and penury beckoned. The situation looked more ominous with the Cabinet still split on issues relating to public spending.

By 23rd August, despite his success in winning the vote to cut back on public spending, MacDonald resigned and the following day a National Government was formed. Ramsay MacDonald. A month later elections were held, resulting in a Conservative landslide victory. The Labour Party, with forty-six seats, was badly damaged by the mismanagement of the crisis and despite MacDonald continuing as Prime Minister in , the era was now politically dominated by the Conservatives. Britain in late began a slow recovery from the crisis, partly prompted by its withdrawal from the Gold Standard and devaluation of the pound.

Interest rates were also reduced and British exports were starting to appear more competitive on the global market.

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