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The Great Depression was a severe worldwide
economic depression An economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a economic recession, recession, which is a slowdown in economic activity over the course of a norma ...
that took place mostly during the 1930s, beginning in the United States. The timing of the Great Depression varied around the world; in most countries, it started in 1929 and lasted until the late 1930s. It was the longest, deepest, and most widespread depression of the 20th century. The Great Depression is commonly used as an example of how intensely the global economy can decline. The Great Depression started in the United States after a major fall in stock prices that began around September 4, 1929, and became worldwide news with the
stock market crash A stock market crash is a sudden dramatic decline of stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and deri ...
of October 29, 1929, which was known as
Black Tuesday The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash that occurred in the autumn of 1929. It started in September and ended late in October, when share prices on the New York Stock Exchange colla ...
. Between 1929 and 1932, worldwide gross domestic product (GDP) fell by an estimated 15%. By comparison, worldwide GDP fell by less than 1% from 2008 to 2009 during the
Great Recession The Great Recession was a period of marked general decline (recession In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution ( ...
. Some economies started to recover by the mid-1930s. However, in many countries, the negative effects of the Great Depression lasted until the beginning of
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a global war A world war is "a war War is an intense armed conflict between states State may refer to: Arts, entertainment, and media Literatur ...
. The Great Depression had devastating effects in both rich and poor countries.
Personal income In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods an ...

Personal income
, tax revenue, profits and prices dropped, while international trade fell by more than 50%. Unemployment in the U.S. rose to 23% and in some countries rose as high as 33%. Cities around the world were hit hard, especially those dependent on
heavy industry Heavy industry is an industry Industry may refer to: Economics * Industry (economics) In macroeconomics, an industry is a branch of an economy that produces a closely related set of raw materials, goods, or services. For example, one ...
. Construction was virtually halted in many countries. Farming communities and rural areas suffered as crop prices fell by about 60%. Facing plummeting demand with few alternative sources of jobs, areas dependent on primary sector industries such as mining and logging suffered the most. Economic historians usually consider the catalyst of the Great Depression to be the sudden devastating collapse of U.S. stock market prices, starting on October 24, 1929. However, some dispute this conclusion and see the stock crash as a symptom, rather than a cause, of the Great Depression."Great Depression"
''Encyclopædia Britannica''
Even after the
Wall Street Crash of 1929 The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash A stock market crash is a sudden dramatic decline of stock In finance, stock (also capital stock) consists of all of the shares In ...
, where the
Dow Jones Industrial Average The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow (), is a price-weighted measurement stock market index In finance, a stock index, or stock market index, is an Index (economics), index that measures a stock market, or ...

Dow Jones Industrial Average
dropped from 381 to 198 over the course of two months, optimism persisted for some time. The stock market turned upward in early 1930, with the Dow returning to 294 (pre-depression levels) in April 1930, before steadily declining for years, to a low of 41 in 1932. At the beginning, governments and businesses 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 suffered severe losses in the stock market the previous year, cut their expenditures by 10%. In addition, beginning in the mid-1930s, a severe drought ravaged the agricultural heartland of the U.S. Interest rates dropped to low levels by mid-1930, but expected
deflation In , deflation is a decrease in the general of goods and services. Deflation occurs when the rate falls below 0% (a negative ). Inflation reduces the value of over time, but sudden deflation increases it. This allows more goods and services t ...

deflation
and the continuing reluctance of people to borrow meant that consumer spending and investment remained low. By May 1930, automobile sales declined to below the levels of 1928. Prices, in general, began to decline, although wages held steady in 1930. Then a
deflationary spiral In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflation i ...
started in 1931. Farmers faced a worse outlook; declining crop prices and a Great Plains drought crippled their economic outlook. At its peak, the Great Depression saw nearly 10% of all Great Plains farms change hands despite federal assistance. The decline in the U.S. economy was the factor that pulled down most other countries at first; then, internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts by individual countries to shore up their economies through
protectionist Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. Proponents argue that protectionist policies sh ...
policies – such as the 1930 U.S.
Smoot–Hawley Tariff Act The Tariff Act of 1930 (codified at ), commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, was a law that implemented protectionist Protectionism is the economic policy of restricting imports from other countries throug ...
and retaliatory tariffs in other countries – exacerbated the collapse in global trade, contributing to the depression. By 1933, the economic decline pushed world trade to one third of its level compared to four years earlier.


Economic indicators


Causes

The two classic competing economic theories of the Great Depression are the Keynesian (demand-driven) and the
Monetarist Monetarism is a school of thought in monetary economics Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions (such as medium ...
explanation. There are also various heterodox theories that downplay or reject the explanations of the Keynesians and monetarists. 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. Monetarists believe that the Great Depression started as an ordinary recession, but the shrinking of the
money supply In macroeconomics, the money supply (or money stock) refers to the total volume of money held by the public at a particular point in time in an economy. There are several ways to define "money", but standard measures usually include Circulati ...
greatly exacerbated the economic situation, causing a recession to descend into the Great Depression. Economists and economic historians are almost evenly split as to whether the traditional monetary explanation that monetary forces were the primary cause of the Great Depression is right, or the traditional Keynesian explanation that a fall in autonomous spending, particularly investment, is the primary explanation for the onset of the Great Depression. Today there is also significant academic support for the
debt deflationDebt deflation is a theory that recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand sho ...
theory and the
expectations hypothesisThe expectations hypothesis of the term structure of interest rates In finance, the yield curve is a curve showing several Yield to maturity, yields to maturity or interest rates across different contract lengths (2 month, 2 year, 20 year, etc. ...
that — building on the monetary explanation of
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and c ...

Milton Friedman
and
Anna Schwartz Anna Jacobson Schwartz (pronounced ; November 11, 1915 – June 21, 2012) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and app ...
— add non-monetary explanations. There is a consensus that the
Federal Reserve System The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a State (polity ...
should have cut short the process of monetary deflation and banking collapse, by expanding the money supply and acting as
lender of last resort headquarters in Washington, D.C. ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument and Lincoln Memorial on the National Mall The National Mall is a Landscape ar ...
. If they had done this, the economic downturn would have been far less severe and much shorter.


Mainstream explanations

Modern mainstream economists see the reasons in * A money supply reduction (
Monetarists Monetarism is a school of thought A school of thought, or intellectual tradition, is the perspective of a group of people who share common characteristics of opinion or outlook of a philosophy Philosophy (from , ) is the study of gen ...
) and therefore a banking crisis, reduction of credit and bankruptcies. * Insufficient demand from the private sector and insufficient fiscal spending ( Keynesians). * Passage of the
Smoot–Hawley Tariff Act The Tariff Act of 1930 (codified at ), commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, was a law that implemented protectionist Protectionism is the economic policy of restricting imports from other countries throug ...
exacerbated what otherwise might have been a more "standard"
recession In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
(Both
Monetarists Monetarism is a school of thought A school of thought, or intellectual tradition, is the perspective of a group of people who share common characteristics of opinion or outlook of a philosophy Philosophy (from , ) is the study of gen ...
and Keynesians). Insufficient spending, the money supply reduction, and debt on margin led to falling prices and further bankruptcies (
Irving Fisher Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concep ...

Irving Fisher
's debt deflation).


Monetarist view

The monetarist explanation was given by American economists
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and c ...

Milton Friedman
and Anna J. Schwartz. They argued that the Great Depression was caused by the banking crisis that caused one-third of all banks to vanish, a reduction of bank shareholder wealth and more importantly monetary contraction of 35%, which they called "The
Great ContractionThe Great Contraction is economist Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual ...
". This caused a price drop of 33% (
deflation In , deflation is a decrease in the general of goods and services. Deflation occurs when the rate falls below 0% (a negative ). Inflation reduces the value of over time, but sudden deflation increases it. This allows more goods and services t ...

deflation
). By not lowering interest rates, by not increasing the monetary base and by not injecting liquidity into the banking system to prevent it from crumbling, the Federal Reserve passively watched the transformation of a normal recession into the Great Depression. Friedman and Schwartz argued that the downward turn in the economy, starting with the stock market crash, would merely have been an ordinary recession if the Federal Reserve had taken aggressive action. This view was endorsed by Federal Reserve Governor
Ben Bernanke Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist at the Brookings Institution The Brookings Institution, often referred to simply as Brookings, is an American American(s) may refer to: * American, something of, from, ...

Ben Bernanke
in a speech honoring Friedman and Schwartz with this statement: The Federal Reserve allowed some large public bank failures – particularly that of the
New York Bank of United States The Bank of United States, founded by Joseph S. Marcus in 1913 at 77 Delancey StreetDelancey may refer to: *Delancey (property firm), British property firm Delancey (also De Lancey and de Lancey) is a surname. Notable people with the surname incl ...
– which produced panic and widespread runs on local banks, and the Federal Reserve sat idly by while banks collapsed. Friedman and Schwartz argued that, if the Fed had provided emergency lending to these key banks, or simply bought
government bond A government bond or sovereign bond is an debt obligation issued by a national government to support government spending. It generally includes a commitment to pay periodic interest, called ''coupon payments,'' and to repay the face value on t ...
s on the
open market The term open market is used generally to refer to an economic situation close to free trade Free trade is a trade policy A commercial policy (also referred to as a trade policy or international trade policy) is a government's policy governin ...

open market
to provide liquidity and increase the quantity of money after the key banks fell, all the rest of the banks would not have fallen after the large ones did, and the money supply would not have fallen as far and as fast as it did. With significantly less money to go around, businesses 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 The New York Branch or the Bound Brook Route was a railway line in Pennsylvania and New Jersey. It was operated by the Reading Company and owned by two of its subsidiaries, the North Pennsylvania Railroad and the Delaware and Bound Brook Railroad. I ...
. One reason why the Federal Reserve did not act to limit the decline of the money supply was the
gold standard Gold certificates were used as paper currency in the United States">paper_currency.html" ;"title="Gold certificates were used as paper currency">Gold certificates were used as paper currency in the United States from 1882 to 1933. These certifi ...
. At that time, the amount of credit the Federal Reserve could issue was limited by the
Federal Reserve Act The Federal Reserve Act was passed by the 63rd United States Congress and signed into law by President Woodrow Wilson Thomas Woodrow Wilson (December 28, 1856February 3, 1924) was an American politician and academic who served as the 28t ...
, 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.Frank Freidel (1973), ''Franklin D. Roosevelt: Launching the New Deal'', ch. 19, Little, Brown & Co. 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 was 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 is an executive order signed on April 5, 1933, by US President Franklin D. Roosevelt "forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States." The executive order wa ...

Executive Order 6102
making the private ownership of
gold certificate A gold certificate in general is a certificate of ownership that gold Gold is a chemical element with the Symbol (chemistry), symbol Au (from la, aurum) and atomic number 79, making it one of the higher atomic number elements that occur na ...
s, coins and bullion illegal, reducing the pressure on Federal Reserve gold.


Keynesian view

British economist
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English economist An economist is a professional and practitioner in the social science Social science is the branch The branches and leaves of a ...

John Maynard Keynes
argued in ''
The General Theory of Employment, Interest and Money ''The General Theory of Employment, Interest and Money'' of 1936 is a book by English economist John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English economist, whose ideas fundamenta ...
'' that lower
aggregate expenditureIn economics, aggregate expenditure (AE) is a measure of national income. Aggregate expenditure is defined as the current value of all the finished goods and services in the economy. The aggregate expenditure is thus the sum total of all the expendi ...
s 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's 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 An economy (from Greek οίκος – "household" and νέμoμαι – "manage") is an area of the production, distribution and trade Trade involves the transfer of goods or services from one person or entity to another, often in exc ...
to pick up the slack by increasing
government spending Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting A variety of measures of national income and output are used in economics to estimate total economic activit ...
or cutting taxes. As the Depression wore on,
Franklin D. Roosevelt Franklin Delano Roosevelt (, ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American politician who served as the 32nd president of the United States from 1933 until his death in 1945. A member of the De ...

Franklin D. Roosevelt
tried
public works Public works are a broad category of projects, financed and constructed by the , for recreational, employment, and health and safety uses in the greater . They include public buildings (, s, s), (s, s, s, , s, s, s), (s, s, es), public servi ...

public works
, farm subsidies, and other devices to restart the U.S. economy, but never completely gave up trying to balance the budget. According to the Keynesians, this improved the economy, but Roosevelt never spent enough to bring the economy out of recession until the start of
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a global war A world war is "a war War is an intense armed conflict between states State may refer to: Arts, entertainment, and media Literatur ...
.


=Debt deflation

=
Irving Fisher Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concep ...

Irving Fisher
argued that the predominant factor leading to the Great Depression was a vicious circle of deflation and growing over-indebtedness. He outlined nine 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: # Debt liquidation and distress selling # Contraction of the money supply as bank loans are paid off # A fall in the level of asset prices # A still greater fall in the net worth of businesses, precipitating bankruptcies # A fall in profits # A reduction in output, in trade and in employment #
Pessimism Pessimism is a negative mental attitude in which an undesirable outcome is anticipated from a given situation. Pessimists tend to focus on the negatives of life in general. A common question asked to test for pessimism is "Is the glass half empty or ...

Pessimism
and loss of confidence # Hoarding of money # A fall in nominal interest rates and a rise in deflation adjusted interest rates During the Crash of 1929 preceding the Great Depression, margin requirements were only 10%. Brokerage firms, in other words, would lend $9 for every $1 an investor had deposited. When the market fell, brokers called in these loans, which could not be paid back. Banks began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits , triggering multiple
bank run A bank run (also known as a run on the bank) occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system ( ...
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 U.S. banks failed. (In all, 9,000 banks failed during the 1930s.) By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday. Bank failures snowballed as desperate bankers called in loans that borrowers did not have time or money to repay. With future profits looking poor,
capital investment To invest is to allocate money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner, 17 ...

capital investment
and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A
vicious cycle The terms virtuous circle and vicious circle, also known respectively as virtuous cycle and vicious cycle, refer to complex chains of events that reinforce themselves through a feedback loop Feedback occurs when outputs of a system are rout ...
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. This self-aggravating process turned a 1930 recession into a 1933 great depression. Fisher's debt-deflation theory initially lacked mainstream influence because of the counter-argument that debt-deflation represented no more than a redistribution from one group (debtors) to another (creditors). Pure re-distributions should have no significant macroeconomic effects. Building on both the monetary hypothesis of Milton Friedman and Anna Schwartz and the debt deflation hypothesis of Irving Fisher,
Ben Bernanke Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist at the Brookings Institution The Brookings Institution, often referred to simply as Brookings, is an American American(s) may refer to: * American, something of, from, ...

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 In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This i ...
; 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 A credit crunch (also known as a credit squeeze, credit tightening or credit crisis) is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from banks. A credit cru ...
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.


=Expectations hypothesis

= Since economic mainstream turned to the
new neoclassical synthesis The new neoclassical synthesis (NNS) or new synthesis is the fusion of the major, modern macroeconomic schools of thought, new classical and New-Keynesianism, into a consensus on the best way to explain short-run fluctuations in the economy. Thi ...
, expectations are a central element of macroeconomic models. According to
Peter Temin Peter Temin (; born 17 December 1937) is an economist and economic historian, currently Gray Professor Emeritus of Economics, MIT and former head of the Economics Department. Education Temin graduated from Swarthmore College in 1959 before earning ...
, Barry Wigmore, Gauti B. Eggertsson and
Christina Romer Christina Duckworth Romer (née Duckworth; born December 25, 1958) 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 administr ...

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 1933 when
Franklin D. Roosevelt Franklin Delano Roosevelt (, ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American politician who served as the 32nd president of the United States from 1933 until his death in 1945. A member of the De ...

Franklin D. Roosevelt
took office. Consumer prices turned from deflation to a mild inflation, industrial production bottomed out in March 1933, and investment doubled in 1933 with a turnaround in March 1933. 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 1933, 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 analysis suggests that the elimination of the policy dogmas of the gold standard, a balanced budget in times of crisis and small government led endogenously to a large shift in expectation that accounts for about 70–80% of the recovery of output and prices from 1933 to 1937. If the regime change had not happened and the Hoover policy had continued, the economy would have continued its free fall in 1933, and output would have been 30% lower in 1937 than in 1933. The
recession of 1937–38 In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
, which slowed down economic recovery from the Great Depression, is explained by fears of the population that the moderate tightening of the monetary and fiscal policy in 1937 were first steps to a restoration of the pre-1933 policy regime.


Common position

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 Gross domestic product (GDP) is a monetary Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the ...
and
money supply In macroeconomics, the money supply (or money stock) refers to the total volume of money held by the public at a particular point in time in an economy. There are several ways to define "money", but standard measures usually include Circulati ...
on a stable growth path. When threatened by expectations of a depression,
central bank A central bank, reserve bank, or monetary authority is an institution that manages the and of a or formal monetary union, and oversees their . In contrast to a , a central bank possesses a on increasing the . Most central banks also have ...

central bank
s 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 In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This i ...
. At the beginning of the Great Depression, most economists believed in
Say's law In classical economics, Say's law, or the law of markets, is the claim that the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. So, production is the source o ...
and the equilibrating powers of the market, and failed to understand the severity of the Depression. Outright leave-it-alone
liquidationism In Leninist theory, liquidationism (russian: Ликвидаторство) is the ideological abandonment (liquidation) of the vanguard party's program, either in whole or in part, by party members. Concept According to the Bolshevik leader Vlad ...
was a common position, and was universally held by
Austrian School The Austrian School is a heterodox In religion, heterodoxy (from Ancient Greek Ancient Greek includes the forms of the Greek language used in ancient Greece and the classical antiquity, ancient world from around 1500 BC to 300 BC. It ...
economists. The liquidationist position held that a depression worked to liquidate failed businesses and investments that had been made obsolete by technological development – releasing
factors of production In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods a ...
(capital and labor) to be redeployed in other more productive sectors of the dynamic economy. They argued that even if self-adjustment of the economy caused mass bankruptcies, it was still the best course. Economists like
Barry Eichengreen Barry Julian Eichengreen (born 1952) is an American economist An economist is a professional and practitioner in the social science Social science is the Branches of science, branch of science devoted to the study of society, societies ...
and
J. Bradford DeLong James Bradford "Brad" DeLong (born June 24, 1960) is an economic historian who is a professor of economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), producti ...
note that President
Herbert Hoover Herbert Clark Hoover (August 10, 1874 – October 20, 1964) was an American politician and engineer who served as the 31st president of the United States The president of the United States (POTUS) is the head of state and head of gove ...

Herbert Hoover
tried to keep the federal budget balanced until 1932, when he lost confidence in his Secretary of the Treasury
Andrew Mellon Andrew William Mellon (; March 24, 1855 – August 26, 1937), sometimes A.W., was an American American(s) may refer to: * American, something of, from, or related to the United States of America, commonly known as the United States ...
and replaced him.Randall E. Parker, ''Reflections on the Great Depression'', Elgar Publishing, 2003, , p. 9 An increasingly common view among economic historians is that the adherence of many Federal Reserve policymakers to the liquidationist position led to disastrous consequences. Unlike what liquidationists expected, a large proportion of the capital stock was not redeployed but vanished during the first years of the Great Depression. According to a study by
Olivier Blanchard Olivier Jean Blanchard (; born December 27, 1948) is a French economist and professor who is a senior fellow at the Peterson Institute for International Economics The Peterson Institute for International Economics (PIIE), previously known as t ...
and
Lawrence Summers Lawrence Henry Summers (born November 30, 1954) is an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts f ...
, the recession caused a drop of net
capital accumulation Capital accumulation (also termed the accumulation of capital) is the dynamic that motivates the , involving the of money or any with the of increasing the initial monetary of said asset as a whether in the form of , , , or . The aim of cap ...
to pre-1924 levels by 1933. Milton Friedman called leave-it-alone liquidationism "dangerous nonsense". He wrote:


Heterodox theories


Austrian School

Two prominent theorists in the
Austrian School The Austrian School is a heterodox In religion, heterodoxy (from Ancient Greek Ancient Greek includes the forms of the Greek language used in ancient Greece and the classical antiquity, ancient world from around 1500 BC to 300 BC. It ...
on the Great Depression include Austrian economist
Friedrich Hayek Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian-British economist, and philosopher who is best known for his defence of classical liberalism. Hayek shared the 1974 Nob ...
and American economist
Murray Rothbard Murray Newton Rothbard (; March 2, 1926 – January 7, 1995) was an American heterodox economist Heterodox economics is any economic thought or theory that contrasts with orthodox schools of economic thought, or that may be beyond neoclas ...

Murray Rothbard
, who wrote ''
America's Great Depression ''America's Great Depression'' is a 1963 treatise A treatise is a formal Formal, formality, informal or informality imply the complying with, or not complying with, some set theory, set of requirements (substantial form, forms, in Ancient Gree ...
'' (1963). In their view, much like the monetarists, the
Federal Reserve The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series ...
(created in 1913) shoulders much of the blame; however, unlike the
Monetarists Monetarism is a school of thought A school of thought, or intellectual tradition, is the perspective of a group of people who share common characteristics of opinion or outlook of a philosophy Philosophy (from , ) is the study of gen ...
, they argue that the key cause of the Depression was the expansion of the
money supply In macroeconomics, the money supply (or money stock) refers to the total volume of money held by the public at a particular point in time in an economy. There are several ways to define "money", but standard measures usually include Circulati ...
in the 1920s which led to an unsustainable credit-driven boom.Murray Rothbard, ''America's Great Depression'' (Ludwig von Mises Institute, 2000), pp. 159–163. 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 Capital most commonly refers to: * Capital letter, an upper-case letter in any type of writing * Capital city, the area of a country, province, region, or state, regarded as enjoying primary status, usually but not always the seat of the gover ...
. Therefore, by the time the Federal Reserve tightened in 1928 it was far too late to prevent an economic contraction. In February 1929
Hayek Hayek, Hayki or AlHayki is a surname In some cultures, a surname, family name, or last name is the portion of one's personal name 300px, First/given, middle and last/family/surname with John Fitzgerald Kennedy as example. This shows a st ...
published a paper predicting the Federal Reserve's actions would lead to a crisis starting in the
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
and
credit px, Domestic credit to private sector in 2005 Credit (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, k ...
markets. According to Rothbard, the government support for failed enterprises and efforts to keep wages above their market values actually prolonged the Depression. Unlike , after 1970
Hayek Hayek, Hayki or AlHayki is a surname In some cultures, a surname, family name, or last name is the portion of one's personal name 300px, First/given, middle and last/family/surname with John Fitzgerald Kennedy as example. This shows a st ...
believed that the Federal Reserve had further contributed to the problems of the Depression by permitting the money supply to shrink during the earliest years of the Depression. However, during the Depression (in 1932 and in 1934) Hayek had criticized both the
Federal Reserve The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series ...
and the
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 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

Bank of England
for not taking a more contractionary stance. John Cunningham Wood, Robert D. Wood, ''Friedrich A. Hayek'', Taylor & Francis, 2004, , p. 115
Hans Sennholz Hans F. Sennholz (; ; 3 February 1922 – 23 June 2007) was a German-born American Austrian School The Austrian School is a Heterodox economics, heterodox Schools of economic thought, school of economic thought that is based on methodological i ...
argued that most boom and busts that plagued the American economy, such as those in 1819–20, 1839–1843, 1857–1860, 1873–1878, 1893–1897, and 1920–21, were generated by government creating a boom through easy money and credit, which was soon followed by the inevitable bust.
Ludwig von Mises Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and Sociology, sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberal ...

Ludwig von Mises
wrote in the 1930s: "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.e. the accumulation of savings made available for productive investment. 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."


Inequality

Two economists of the 1920s, Waddill Catchings and
William Trufant Foster 200px, William Trufant Foster William Trufant Foster (January 18, 1879 – October 8, 1950), was an American educator and economist, whose theories were especially influential in the 1920s. He was the first president of Reed College Reed College ...

William Trufant Foster
, popularized a theory that influenced many policy makers, including Herbert Hoover, ,
Paul Douglas Paul Howard Douglas (March 26, 1892 – September 24, 1976) was an American politician and Georgist Georgism, also called in modern times geoism and known historically as the single tax movement, is an economic ideology holding that, although ...
, and
Marriner Eccles Marriner Stoddard Eccles (September 9, 1890 – December 18, 1977) was an American banker A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporations that provide services as int ...

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 The distribution of wealth is a comparison of the wealth Wealth is the abundance (economics), abundance of Value (economics), valuable financial assets or property, physical possessions which can be converted into a form that can be used fo ...
throughout the 1920s caused the Great Depression. According to this view, the
root cause A root cause is an initiating cause of either a condition or a causal chainIn philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, Metaphysics, existence, Epistemology, knowled ...
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 Consumer spending is the total money spent on final goods and services by individuals and households. There are two components of consumer spending: induced consumption Induced consumption is the portion of consumption that varies with disposabl ...
. The economy was overbuilt, and new factories were not needed. Foster and Catchings recommended federal and state governments to start large construction projects, a program followed by Hoover and Roosevelt.


Productivity shock

The first three decades of the 20th century saw economic output surge with
electrification Electrification is the process of powering by electricity Electricity is the set of physical phenomena associated with the presence and motion Image:Leaving Yongsan Station.jpg, 300px, Motion involves a change in position In physics, mo ...

electrification
,
mass production Mass production, also known as flow production or continuous production, is the production of substantial amounts of standardized Standardization or standardisation is the process of implementing and developing technical standard A techni ...
, 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 Productivity is the efficiency Efficiency is the (often measurable) ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do th ...
of major industries in the U.S. and the effects of productivity on output, wages and the workweek are discussed by Spurgeon Bell in his book ''Productivity, Wages, and National Income'' (1940).


The gold standard and the spreading of global depression

The
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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 The price–specie flow mechanism is a model developed by Scottish economist David Hume David Hume (; born David Home; 7 May 1711 NS (26 April 1711 OS) – 25 August 1776) Cranston, Maurice, and Thomas Edmund Jessop. 2020 999999 or triple nin ...
, 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 In , deflation is a decrease in the general of goods and services. Deflation occurs when the rate falls below 0% (a negative ). Inflation reduces the value of over time, but sudden deflation increases it. This allows more goods and services t ...

deflation
). There is also consensus that protectionist policies, and primarily the passage of the
Smoot–Hawley Tariff Act The Tariff Act of 1930 (codified at ), commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, was a law that implemented protectionist Protectionism is the economic policy of restricting imports from other countries throug ...
, helped to exacerbate, or even ''cause'' the Great Depression.


Gold standard

Some economic studies have indicated that just as the downturn was spread worldwide by the rigidities of the
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, 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 attackIn economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and ...
s on the
pound Pound or Pounds may refer to: Units * Pound (currency) A pound is any of various units of currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Im ...
and depleting
gold reserves A gold reserve was the gold held by a national central bank, intended mainly as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, during the eras of the gold standard, and also as a store of va ...
, in September 1931 the
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 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

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 1931. Other countries, such as Italy and the US, remained on the gold standard into 1932 or 1933, while a few countries in the so-called "gold bloc", led by France and including Poland, Belgium and Switzerland, stayed on the standard until 1935–36. According to later analysis, the earliness with which a country left the gold standard reliably predicted its economic recovery. For example, The UK 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 The silver standard is a monetary system A monetary system is a system by which a government provides money in a country's economy. Modern monetary systems usually consist of the national treasury, the mint (facility), mint, central bank, the cen ...
, 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 A developing country is a sovereign state with a less developed Industrial sector, industrial base and a low Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no ...
. This partly explains why the experience and length of the depression differed between regions and states around the world.


Breakdown of international trade

Many economists have argued that the sharp decline in international trade after 1930 helped to worsen the depression, especially for countries significantly dependent on foreign trade. In a 1995 survey of American economic historians, two-thirds agreed that the
Smoot–Hawley Tariff Act The Tariff Act of 1930 (codified at ), commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, was a law that implemented protectionist Protectionism is the economic policy of restricting imports from other countries throug ...
(enacted June 17, 1930) at least worsened the Great Depression. Most historians and economists blame this Act 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 ''
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'' rate of duties on dutiable imports for 1921–1925 was 25.9% but under the new tariff it jumped to 50% during 1931–1935. In dollar terms, American exports declined over the next four years from about $5.2 billion in 1929 to $1.7 billion in 1933; so, not only did the physical volume of exports fall, but also the prices fell by about as written. Hardest hit were farm commodities such as wheat, cotton, tobacco, and lumber. Governments around the world took various steps into spending less money on foreign goods such as: "imposing tariffs, import quotas, and exchange controls". These restrictions 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": * "Countries that remained on the gold standard, keeping currencies fixed, were more likely to restrict foreign trade." These countries "resorted to protectionist policies to strengthen the
balance of payments The balance of payments (also known as balance of international payments and abbreviated B.O.P. or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., a quarter or a year) and the ...

balance of payments
and limit gold losses." They hoped that these restrictions and depletions would hold the economic decline. * Countries that abandoned the gold standard, allowed their currencies to depreciate which caused their balance of payments to strengthen. It also freed up monetary policy so that central banks could lower interest rates and act as lenders of last resort. They possessed the best policy instruments to fight the Depression and did not need protectionism. * "The length and depth of a country's economic downturn and the timing and vigor of its recovery are related to how long it remained on the
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. Countries abandoning the gold standard relatively early experienced relatively mild recessions and early recoveries. In contrast, countries remaining on the gold standard experienced prolonged slumps."


Effect of tariffs

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, although there is disagreement as to how much. In the popular view, the Smoot-Hawley Tariff was a leading cause of the depression.Barry Eichengreen, Douglas Irwin (March 17, 2009)
"The protectionist temptation: Lessons from the Great Depression for today"
VOX.
According to the U.S. Senate website the Smoot–Hawley Tariff Act is among the most catastrophic acts in congressional history


German banking crisis of 1931 and British crisis

The financial crisis escalated out of control in mid-1931, starting with the collapse of the in Vienna in May.William Ashworth, ''A short history of the international economy since 1850'' (2nd ed. 1962) pp. 237–244. This put heavy pressure on Germany, which was already in political turmoil. With the rise in violence of Nazi and communist movements, as well as investor nervousness at harsh government financial policies.Isabel Schnabel, "The German twin crisis of 1931". ''Journal of Economic History'' 64#3 (2004): 822–871. Investors withdrew their short-term money from Germany, as confidence spiraled downward. The Reichsbank lost 150 million marks in the first week of June, 540 million in the second, and 150 million in two days, June 19–20. Collapse was at hand. U.S. President Herbert Hoover called for a moratorium on Payment of war reparations. This angered Paris, which depended on a steady flow of German payments, but it slowed the crisis down, and the moratorium was agreed to in July 1931. 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 Romania ( ; ro, România ) is a country at the crossroads of Central Central is an adjective usually referring to being in the center (disambiguation), center of some place or (mathematical) object. Central may also refer to: Directions ...
and Hungary. The crisis continued to get worse in Germany, bringing political upheaval that finally led to the coming to power of Hitler's Nazi regime in January 1933.H. V. Hodson (1938), ''Slump and Recovery, 1929–1937'' (London), pp. 64–76. The world financial crisis now began to overwhelm Britain; investors around the world started withdrawing their gold from London at the rate of £2.5 million per day. Credits of £25 million each from the Bank of France and the Federal Reserve Bank of New York and an issue of £15 million fiduciary note slowed, but did not reverse the British crisis. The financial crisis now caused a major political crisis in Britain in August 1931. With deficits mounting, the bankers demanded a balanced budget; the divided cabinet of Prime Minister Ramsay MacDonald's Labour government agreed; it proposed to raise taxes, cut spending, and most controversially, to cut unemployment benefits 20%. The attack on welfare was 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
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, and suffered relatively less than other major countries in the Great Depression. In the 1931 British election, the Labour Party was virtually destroyed, leaving MacDonald as Prime Minister for a largely Conservative coalition.Sean Glynn and John Oxborrow (1976), ''Interwar Britain : a social and economic history'', pp. 67–73.


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 most economists is that Roosevelt's
New Deal The New Deal was a series of programs, public work projects, financial reforms, and regulations Regulation is the management of complex systems according to a set of rules and trends. In systems theory Systems theory is the interdisciplinar ...
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
reflationReflation is an act of stimulating the economy An economy (; ) is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods a ...
and rising nominal interest rates that Roosevelt's words and actions portended. It was the rollback of those same reflationary policies that led to the interruption of a recession beginning in late 1937. One contributing policy that reversed reflation was the
Banking Act of 1935 The ''Banking Act of 1935'' passed on August 19, 1935 and was signed into law by the president, Franklin D. Roosevelt Franklin Delano Roosevelt (, ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American ...
, which effectively raised reserve requirements, causing a monetary contraction that helped to thwart the recovery. GDP returned to its upward trend in 1938. According to
Christina Romer Christina Duckworth Romer (née Duckworth; born December 25, 1958) 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 administr ...

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 and partly due to deterioration of the political situation in Europe. In their book, ''
A Monetary History of the United States ''A Monetary History of the United States, 1867–1960'' is a book written in 1963 by Nobel Prize–winning economist Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who receiv ...
'',
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and c ...

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 The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a State (polity ...
. Former (2006–2014)
Chairman of the Federal Reserve The chair of the Board of Governors of the Federal Reserve System is the head of the Federal Reserve The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of Ame ...
Ben Bernanke Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist at the Brookings Institution The Brookings Institution, often referred to simply as Brookings, is an American American(s) may refer to: * American, something of, from, ...

Ben Bernanke
agreed that monetary factors played important roles both in the worldwide economic decline and eventual recovery. Bernanke also saw a strong role for institutional factors, particularly the rebuilding and restructuring of the financial system, and pointed out that the Depression should be examined in an international perspective.


Role of women and household economics

Women's primary role 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. The average birthrate for 14 major countries fell 12% from 19.3 births per thousand population in 1930, to 17.0 in 1935. In Canada, half of Roman Catholic women defied Church teachings and used contraception to postpone births. Among the few women in the labor force, layoffs were less common in the white-collar jobs and they were typically found in light manufacturing work. However, there was a widespread demand to limit families to one paid job, so that wives might lose employment if their husband was employed. Across Britain, there was a tendency for married women to join the labor force, competing for part-time jobs especially. In France, very slow population growth, especially in comparison to Germany continued to be a serious issue in the 1930s. Support for increasing welfare programs during the depression included a focus on women in the family. The Conseil Supérieur de la Natalité campaigned for provisions enacted in the Code de la Famille (1939) that increased state assistance to families with children and required employers to protect the jobs of fathers, even if they were immigrants. 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. Rural women made
feed sack dress Feed sack dresses, flour sack dresses, or feedsack dresses were a common article of clothing in rural US and Canadian communities from the late 19th century through the mid 20th century. They were made at home, usually by women, using the Flour sa ...
es and other items for themselves and their families and homes from feed sacks. In American cities, African American women quiltmakers enlarged their activities, promoted collaboration, and trained neophytes. Quilts were created for practical use from various inexpensive materials and increased social interaction for women and promoted camaraderie and personal fulfillment. Oral history provides evidence for how housewives in a modern industrial city handled shortages of money and resources. Often they updated strategies their mothers used when they were growing up in poor families. Cheap foods were used, such as soups, beans and noodles. They purchased the cheapest cuts of meat—sometimes even horse meat—and recycled the 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 1936 to achieve German economic self-sufficiency. The Nazi women's organizations, other propaganda agencies and the authorities all attempted to shape such consumption as economic self-sufficiency was needed to prepare for and to sustain the coming war. The organizations, propaganda agencies and authorities employed slogans that called up traditional values of thrift and healthy living. However, these efforts were only partly successful in changing the behavior of housewives.


World War II and recovery

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, though it did help in reducing unemployment.Referring to the effect of World War II spending on the economy, economist John Kenneth Galbraith said, "One could not have had a better demonstration of the Keynesian ideas." The rearmament policies leading up to World War II helped stimulate the economies of Europe in 1937–1939. By 1937, unemployment in Britain had fallen to 1.5 million. The mobilization of manpower following the outbreak of war in 1939 ended unemployment."Great Depression and World War II"
Library of Congress.
When the United States entered the war in 1941, it finally eliminated the last effects from the Great Depression and brought the U.S. unemployment rate down below 10%."Depression & WWII"
. Americaslibrary.gov.
In the US, 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.


Socio-economic effects

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, Nazi Germany#Nazi seizure of power, most famously in Germany in 1933. History of Newfoundland and Labrador#Political collapse, The Dominion of Newfoundland gave up democracy voluntarily.


Australia

Australia's dependence on agricultural and industrial exports meant it was one of the hardest-hit developed countries. Falling export demand and commodity prices placed massive downward pressures on wages. Unemployment 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, Canadian industrial production had by 1932 fallen to only 58% of its 1929 figure, the second-lowest level in the world after the United States, and well behind countries such as Britain, which fell to only 83% of the 1929 level. Total Measures of national income and output, national income fell to 56% of the 1929 level, again worse than any country apart from the United States. Unemployment reached 27% at the depth of the Depression in 1933.


Chile

The League of Nations labeled Chile 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 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, austerity measures, which succeeded in reestablishing Chile's creditworthiness, Chileans elected to office during the 1938–58 period a succession of center and left-of-center governments interested in promoting economic growth through government intervention. Prompted in part by the devastating 1939 Chillán earthquake, the Popular Front (Chile), Popular Front government of Pedro Aguirre Cerda created the Production Development Corporation (Corporación de Fomento de la Producción, CORFO) to encourage with subsidies and direct investments an ambitious program of import substitution industrialization. Consequently, as in other Latin American countries, protectionism became an entrenched aspect of the Chilean economy.


China

China was largely unaffected by the Depression, mainly by having stuck to the Silver standard. However, the U.S. silver purchase act of 1934 created an intolerable demand on China's silver coins, and so, in the end, the silver standard was officially abandoned in 1935 in favor of the four Chinese national banks' "legal note" issues. China and the British colony of Hong Kong, which followed suit in this regard in September 1935, would be the last to abandon the silver standard. In addition, the Nationalist Government also acted energetically to modernize the legal and penal systems, stabilize prices, amortize debts, reform the banking and currency systems, build railroads and highways, improve public health facilities, legislate against traffic in narcotics and augment industrial and agricultural production. On November 3, 1935, the government instituted the fiat currency (fapi) reform, immediately stabilizing prices and also raising revenues for the government.


European African colonies

The sharp fall in commodity prices, and the steep decline in exports, hurt the economies of the European colonies in Africa and Asia. The agricultural sector was especially hard hit. 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. There was widespread unemployment and hardship among peasants, labourers, colonial auxiliaries, and artisans. The budgets of colonial governments were cut, which forced the reduction in ongoing infrastructure projects, such as the building and upgrading of roads, ports and communications. The budget cuts delayed the schedule for creating systems of higher education. 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 125 to 25 centimes. In some areas, as in the Katanga Province, Katanga mining region, employment declined by 70%. In the country as a whole, the wage labour force decreased by 72.000 and many men returned to their villages. In Leopoldville, the population decreased by 33%, because of this labour migration. 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. French West Africa launched an extensive program of educational reform in which "rural schools" designed to modernize agriculture would stem the flow of under-employed farm workers to cites where unemployment was high. Students were trained in traditional arts, crafts, and farming techniques and were then expected to return to their own villages and towns.


France

The crisis affected France a bit later than other countries, hitting hard around 1931. While the 1920s grew at the very strong rate of 4.43% per year, the 1930s rate fell to only 0.63%. The depression was relatively mild: unemployment peaked under 5%, the fall in production was at most 20% below the 1929 output; there was no banking crisis. However, the depression had drastic effects on the local economy, and partly explains the February 6, 1934 riots and even more the formation of the Popular Front (France), Popular Front, led by Section française de l'Internationale ouvrière, SFIO socialist leader Léon Blum, which won the elections in 1936. Ultra-nationalist groups also saw increased popularity, although democracy prevailed into
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a global war A world war is "a war War is an intense armed conflict between states State may refer to: Arts, entertainment, and media Literatur ...
. France's relatively high degree of self-sufficiency meant the damage was considerably less than in neighbouring states like Germany.


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. The financial crisis escalated out of control in mid-1931, starting with the collapse of the Credit Anstalt in Vienna in May. This put heavy pressure on Germany, which was already in political turmoil with the rise in violence of Nazi and communist movements, as well as with investor nervousness at harsh government financial policies. Investors withdrew their short-term money from Germany, as confidence spiraled downward. The Reichsbank lost 150 million marks in the first week of June, 540 million in the second, and 150 million in two days, June 19–20. Collapse was at hand. U.S. President Herbert Hoover called for a moratorium on Payment of war reparations. This angered Paris, which depended on a steady flow of German payments, but it slowed the crisis down, and the moratorium was agreed to in July 1931. 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 became more frequent in July, and spread to Romania and Hungary. In 1932, 90% of German reparation payments were cancelled (in the 1950s, Germany repaid all its missed reparations debts). Widespread unemployment reached 25% as every sector was hurt. The government did not increase government spending to deal with Germany's growing crisis, as they were afraid that a high-spending policy could lead to a return of the hyperinflation that had affected Germany in 1923. Germany's Weimar Republic was hit hard by the depression, as American loans to help rebuild the German economy now stopped. The unemployment rate reached nearly 30% in 1932, bolstering support for the Nazi (NSDAP) and Communist (KPD) parties, causing the collapse of the politically centrist Social Democratic Party. Hitler ran for the Presidency in 1932, and while he lost to the incumbent Hindenburg in the election, it marked a point during which both Nazi Party and the Communist parties rose in the years following the crash to altogether possess a Reichstag majority following the July 1932 German federal election, general election in July 1932. Hitler followed an autarky economic policy, creating a network of client states and economic allies in central Europe and Latin America. By cutting wages and taking control of labor unions, plus public works spending, unemployment fell significantly by 1935. Large-scale military spending played a major role in the recovery.


Greece

The reverberations of the Great Depression hit Greece in 1932. 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.S. dollar, but this was unsustainable given the country's large trade deficit and the only long-term effects of this were Greece's foreign exchange reserves being almost totally wiped out in 1932. Remittances from abroad declined sharply and the value of the drachma began to plummet from 77 drachmas to the dollar in March 1931 to 111 drachmas to the dollar in April 1931. 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 1932 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. In 1939, the Greek industrial output was 179% that of 1928. These industries were for the most part "built on sand" as one report of the Bank of Greece put it, as without massive protection they would not have been able to survive. Despite the global depression, Greece managed to suffer comparatively little, averaging an average growth rate of 3.5% from 1932 to 1939. The dictatorial regime of Ioannis Metaxas took over the Greek government in 1936, and economic growth was strong in the years leading up to the Second World War.


Iceland

Icelandic post-World War I prosperity came to an end with the outbreak of the Great Depression. The Depression hit Iceland hard as the value of exports plummeted. The total value of Icelandic exports fell from 74 million kronur in 1929 to 48 million in 1932, and was not to rise again to the pre-1930 level until after 1939. Government interference in the economy increased: "Imports were regulated, trade with foreign currency was monopolized by state-owned banks, and loan capital was largely distributed by state-regulated funds". Due to the outbreak of the Spanish Civil War, which cut Iceland's exports of saltfish by half, the Depression lasted in Iceland until the outbreak of World War II (when prices for fish exports soared).


India

How much India was affected has been hotly debated. Historians have argued that the Great Depression slowed long-term industrial development. Apart from two sectors—jute and coal—the economy was little affected. However, there were major negative impacts on the jute industry, as world demand fell and prices plunged. Otherwise, conditions were fairly stable. Local markets in agriculture and small-scale industry showed modest gains.


Ireland

Frank Barry and Mary E. Daly have argued that: :Ireland was a largely agrarian economy, trading almost exclusively with the UK, at the time of the Great Depression. Beef and dairy products comprised the bulk of exports, and Ireland fared well relative to many other commodity producers, particularly in the early years of the depression.


Italy

The Great Depression hit Economy of Italy under fascism#The Great Depression, Italy very hard. As industries came close to failure they were bought out by the banks in a largely illusionary bail-out—the assets used to fund the purchases were largely worthless. This led to a financial crisis peaking in 1932 and major government intervention. The Industrial Reconstruction Institute (IRI) was formed in January 1933 and took control of the bank-owned companies, suddenly giving Italy the largest state-owned industrial sector in Europe (excluding the USSR). IRI did rather well with its new responsibilities—restructuring, modernising and rationalising as much as it could. It was a significant factor in post-1945 development. But it took the Italian economy until 1935 to recover the manufacturing levels of 1930—a position that was only 60% better than that of 1913.


Japan

The Great Depression did not strongly affect Japan. The Japanese economy shrank by 8% during 1929–31. Japan's Finance Minister Takahashi Korekiyo was the first to implement what have come to be identified as Keynesian economic policies: first, by large fiscal stimulus involving deficit spending; and second, by devaluing Yen, 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 and went into the purchase of munitions for the armed forces. By 1933, Japan was already out of the depression. By 1934, Takahashi realized that the economy was in danger of overheating, and to avoid inflation, moved to reduce the deficit spending that went towards armaments and munitions. This resulted in a strong and swift negative reaction from nationalists, especially those in the army, culminating in his assassination in the course of the February 26 Incident. This had a chilling effect (term), chilling effect on all civilian bureaucrats in the Japanese government. From 1934, the military's dominance of the government continued to grow. Instead of reducing deficit spending, the government introduced price controls and rationing schemes that reduced, but did not eliminate inflation, which remained a problem until the end of World War II. The deficit spending had a transformative effect on Japan. Japan's industrial production doubled during the 1930s. Further, in 1929 the list of the largest firms in Japan was dominated by light industries, especially textile companies (many of Japan's automakers, such as Toyota, have their roots in the textile industry). By 1940 light industry 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, Bolivia and Peru were particularly badly affected. Before the 1929 crisis, links between the world economy and Latin American economies had been established through American and British investment in Latin American exports to the world. As a result, Latin Americans export industries felt the depression quickly. World prices for commodities such as wheat, coffee and copper plunged. Exports from all of Latin America to the U.S. fell in value from $1.2 billion in 1929 to $335 million in 1933, rising to $660 million in 1940. But on the other hand, the depression led the area governments to develop new local industries and expand consumption and production. Following the example of the New Deal, governments in the area approved regulations and created or improved welfare institutions that helped millions of new industrial workers to achieve a better standard of living.


Netherlands

From roughly 1931 to 1937, the Netherlands suffered a deep and exceptionally long depression. This depression was partly caused by the after-effects of the Stock Market Crash of 1929 in the US, 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 fascist political party Nationaal Socialistische Beweging, 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.


New Zealand

Dominion of New Zealand, New Zealand was especially vulnerable to worldwide depression, as it relied almost entirely on agricultural exports to the United Kingdom for its economy. The drop in exports led to a lack of disposable income from the farmers, who were the mainstay of the local economy. Jobs disappeared and wages plummeted, leaving people desperate and charities unable to cope. Work relief schemes were the only government support available to the unemployed, the rate of which by the early 1930s was officially around 15%, but unofficially nearly twice that level (official figures excluded Māori and women). In 1932, riots occurred among the unemployed in three of the country's main cities (Auckland, Dunedin, and Wellington). Many were arrested or injured through the tough official handling of these riots by police and volunteer "special constables".


Poland

Poland was affected by the Great Depression longer and stronger than other countries due to inadequate economic response of the government and the pre-existing economic circumstances of the country. At that time, Poland was under the authoritarian rule of Sanation, Sanacja, whose leader, Józef Piłsudski, was opposed to leaving the
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until his death in 1935. As a result, Poland was unable to perform a more active monetary and budget policy. Additionally, Poland was a relatively young country that emerged merely 10 years earlier after being partitioned between German Empire, German, Russian Empire, Russian and the Austria-Hungary, Austro-Hungarian Empires for over a century. Prior to independence, the Russian part exported 91% of its exports to Russia proper, while the German part exported 68% to Germany proper. After independence, these markets were largely lost, as Russia transformed into Soviet Union, USSR that was mostly a closed economy, and Germany was in a tariff war with Poland throughout the 1920s. Industrial production fell significantly: in 1932 Anthracite, hard coal production was down 27% compared to 1928, steel production was down 61%, and iron ore production noted a 89% decrease. On the other hand, electrotechnical, leather, and paper industries noted marginal increases in production output. Overall, industrial production decreased by 41%. A distinct feature of the Great Depression in Poland was the de-concentration of industry, as larger conglomerates were less flexible and paid their workers more than smaller ones. Unemployment, Unemployment rate rose significantly (up to 43%) while nominal Wage, wages fell by 51% in 1933 and 56% in 1934, relative to 1928. However, real wages fell less due to the government's policy of decreasing cost of living, particularly food expenditures (food prices were down by 65% in 1935 compared to 1928 price levels). Material conditions deprivation led to strikes, some of them violent or violently pacified - like in Sanok (March 6, 1930), Lesko county (June 21 – July 9, 1932) and Zawiercie (April 18, 1930). To adopt to the crisis, Polish government employed deflation methods such as high Interest rate, interest rates, credit limits and budget austerity to keep a Fixed exchange rate system, fixed exchange rate with currencies tied to the gold standard. Only in late 1932 the government created a plan to fight the economic crisis. Part of the plan was mass
public works Public works are a broad category of projects, financed and constructed by the , for recreational, employment, and health and safety uses in the greater . They include public buildings (, s, s), (s, s, s, , s, s, s), (s, s, es), public servi ...

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scheme, employing up to 100,000 people in 1935. After Piłsudski's death, in 1936 the gold standard regime was relaxed, and launching the development of the Central Industrial Region (Poland), Central Industrial Region kicked off the economy, to over 10% annual growth rate in the 1936-1938 period.


Portugal

Already under the rule of a dictatorial junta, the Ditadura Nacional, Portugal suffered no turbulent political effects of the Depression, although António de Oliveira Salazar, already appointed Minister of Finance in 1928 greatly expanded his powers and in 1932 rose to Prime Minister of Portugal to found the Estado Novo (Portugal), Estado Novo, an authoritarian corporatist dictatorship. With the budget balanced in 1929, the effects of the depression were relaxed through harsh measures towards budget balance and autarky, causing social discontent but stability and, eventually, an impressive economic growth.


Puerto Rico

In the years immediately preceding the depression, negative developments in the island and world economies perpetuated an unsustainable cycle of subsistence for many Puerto Rican workers. The 1920s brought a dramatic drop in Puerto Rico's two primary exports, raw sugar and coffee, due to a devastating hurricane in 1928 and the plummeting demand from global markets in the latter half of the decade. 1930 unemployment on the island was roughly 36% and by 1933 Puerto Rico's per capita income dropped 30% (by comparison, unemployment in the United States in 1930 was approximately 8% reaching a height of 25% in 1933). To provide relief and economic reform, the United States government and Puerto Rican politicians such as Carlos E. Chardón, Carlos Chardon and Luis Muñoz Marín created and administered first the Puerto Rico Emergency Relief Administration (PRERA) 1933 and then in 1935, the Puerto Rico Reconstruction Administration (PRRA).


Romania

Romania was also affected by the Great Depression.


South Africa

As world trade slumped, demand for South African agricultural and mineral exports fell drastically. The Carnegie Commission of Investigation on the Poor White Question in South Africa, Carnegie Commission on Poor Whites had concluded in 1931 that nearly one-third of Afrikaners lived as paupers. The social discomfort caused by the depression was a contributing factor in the 1933 split between the "gesuiwerde" (purified) and "smelter" (fusionist) factions within the National Party (South Africa), National Party and the National Party's subsequent fusion with the South African Party. Unemployment programs were begun that focused primarily on the white population.


Soviet Union

The Soviet Union was the world's only socialist state with very little international trade. Its economy was not tied to the rest of the world and was mostly unaffected by the Great Depression. Its forced transformation from a rural to an industrial society succeeded in building up heavy industry, at the cost of millions of lives in rural Russia and Ukraine. At the time of the Depression, the Soviet economy was growing steadily, fuelled by intensive investment in heavy industry. The apparent economic success of the Soviet Union at a time when the capitalist world was in crisis led many Western intellectuals to view the Soviet system favorably. Jennifer Burns wrote: Due to having very little international trade and its policy of isolation, they did not receive the benefits of international trade once the depression ran its course, and were still effectively poorer than most developed countries at their worst sufferings in the crisis. The Great Depression caused mass immigration to the Soviet Union, mostly from Finland and Germany. Soviet Russia was at first happy to help these immigrants settle, because they believed they were victims of capitalism who had come to help the Soviet cause. However, when the Soviet Union entered the war in 1941, most of these Germans and Finns were arrested and sent to Siberia, while their Russian-born children were placed in orphanages. Their fate remains unknown.


Spain

Spain had a relatively isolated economy, with high protective tariffs and was not one of the main countries affected by the Depression. The banking system held up well, as did agriculture. By far the most serious negative impact came after 1936 from the heavy destruction of infrastructure and manpower by the Spanish Civil War, civil war, 1936–39. Many talented workers were forced into permanent exile. By staying neutral in the Second World War, and selling to both sides, the economy avoided further disasters.


Sweden

By the 1930s, Sweden had what America's ''Life magazine'' called in 1938 the "world's highest standard of living". Sweden was also the first country worldwide to recover completely from the Great Depression. Taking place amid a short-lived government and a less-than-a-decade old Swedish democracy, events such as those surrounding Ivar Kreuger (who eventually committed suicide) remain infamous in Swedish history. The Swedish Social Democratic Party, Social Democrats under Per Albin Hansson formed their first long-lived government in 1932 based on strong Interventionism (economics), interventionist and welfare state policies, monopolizing the office of Prime Minister of Sweden, Prime Minister until 1976 with the sole and short-lived exception of Axel Pehrsson-Bramstorp's "summer cabinet" in 1936. During forty years of hegemony, it was the most successful political party in the history of Western liberal democracy.


Thailand

In Thailand, then known as the Rattanakosin Kingdom, Kingdom of Siam, the Great Depression contributed to the end of the Prajadhipok#Last absolute monarch, absolute monarchy of King Rama VII in the Siamese revolution of 1932.


United Kingdom

The World Depression broke at a time when the United Kingdom had still not fully recovered from the effects of the World War I, First World War more than a decade earlier. The country was driven off the
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in 1931. The world financial crisis began to overwhelm Britain in 1931; investors around the world started withdrawing their gold from London at the rate of £2.5 million per day. Credits of £25 million each from the Bank of France and the Federal Reserve Bank of New York and an issue of £15 million fiduciary note slowed, but did not reverse the British crisis. The financial crisis now caused a major political crisis in Britain in August 1931. With deficits mounting, the bankers demanded a balanced budget; the divided cabinet of Prime Minister Ramsay MacDonald's Labour government agreed; it proposed to raise taxes, cut spending and most controversially, to cut unemployment benefits by 20%. The attack on welfare was totally unacceptable to the Labour movement. MacDonald wanted to resign, but King George V insisted he remain and form an all-party coalition " National Government". The Conservative and Liberals parties signed on, along with a small cadre of Labour, but the vast majority of Labour leaders denounced MacDonald as a traitor for leading the new government. Britain went off the gold standard, and suffered relatively less than other major countries in the Great Depression. In the 1931 British election, the Labour Party was virtually destroyed, leaving MacDonald as Prime Minister for a largely Conservative coalition. 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 Glasgow, Glaswegians were unemployed due to the severe decline in heavy industry. In some towns and cities in the north east, unemployment reached as high as 70% as shipbuilding fell by 90%. The National Hunger March, 1932, National Hunger March of September–October 1932 was the largest of a series of hunger marches in Britain in the 1920s and 1930s. About 200,000 unemployed men were sent to the work camps, which continued in operation until 1939. In the less industrial English Midlands, Midlands and Southern England, the effects were short-lived and the later 1930s were a prosperous time. Growth in modern manufacture of electrical goods and a boom in the motor car industry was helped by a growing southern population and an expanding middle class. Agriculture also saw a boom during this period.Stephen Constantine (historian), Constantine, Stephen (1983), ''Social Conditions in Britain 1918–1939'',


United States

Hoover's first measures to combat the depression were based on voluntarism by businesses not to reduce their workforce or cut wages but businesses had little choice: wages were reduced, workers were laid off, and investments postponed.Peter Clemens, ''Prosperity, Depression and the New Deal: The USA 1890–1954'', Hodder Education, 4. Auflage, 2008, , p. 114. In June 1930, Congress approved the
Smoot–Hawley Tariff Act The Tariff Act of 1930 (codified at ), commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, was a law that implemented protectionist Protectionism is the economic policy of restricting imports from other countries throug ...
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. Most countries that traded with the US increased tariffs on American-made goods in retaliation, reducing international trade, and worsening the Depression. In 1931, Hoover urged bankers to set up the National Credit Corporation so that big banks could help failing banks survive. But bankers were reluctant to invest in failing banks, and the National Credit Corporation did almost nothing to address the problem. By 1932, unemployment had reached 23.6%, peaking in early 1933 at 25%. Drought persisted in the agricultural heartland, businesses and families defaulted on record numbers of loans, and more than 5,000 banks had failed. Hundreds of thousands of Americans found themselves homeless, and began congregating in shanty towns – dubbed "Hoovervilles" – that began to appear across the country. In response, President Hoover and Congress approved the Federal Home Loan Bank Act, 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 (ERA) which included funds for
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programs such as dams and the creation of the Reconstruction Finance Corporation (RFC) in 1932. The Reconstruction Finance Corporation was a Federal agency with the authority to lend up to $2 billion to rescue banks and restore confidence in financial institutions. But $2 billion was not enough to save all the banks, and
bank run A bank run (also known as a run on the bank) occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system ( ...
s and bank failures continued. Quarter by quarter the economy went downhill, as prices, profits and employment fell, leading to the Realigning election, political realignment in 1932 that brought to power Franklin Delano Roosevelt. It is important to note, however, that after volunteerism failed, Hoover developed ideas that laid the framework for parts of the New Deal. Shortly after President Franklin Delano 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 and provide work and relief for the impoverished through increased government spending and the institution of financial reforms. During a "bank holiday" that lasted five days, the Emergency Banking Act was signed into law. It provided for a system of reopening sound banks under United States Department of Treasury, Treasury supervision, with federal loans available if needed. The Securities Act of 1933 comprehensively regulated the securities industry. This was followed by the Securities Exchange Act of 1934 which created the Securities and Exchange Commission. Although amended, key provisions of both Acts are still in force. Federal insurance of Deposit account, bank deposits was provided by the Federal Deposit Insurance Corporation, FDIC, and the Glass–Steagall Act. The Agricultural Adjustment Act provided incentives to cut farm production in order to raise farming prices. The National Recovery Administration (NRA) made a number of sweeping changes to the American economy. It forced businesses to work with government to set price codes through the NRA to fight
deflation In , deflation is a decrease in the general of goods and services. Deflation occurs when the rate falls below 0% (a negative ). Inflation reduces the value of over time, but sudden deflation increases it. This allows more goods and services t ...

deflation
ary "cut-throat competition" by the setting of minimum prices and Minimum wage, wages, labor standards, and competitive conditions in all industries. It encouraged unions that would raise wages, to increase the purchasing power of the working class. The NRA Schechter v. United States, was deemed unconstitutional by the Supreme Court of the United States in 1935. These reforms, together with several other relief and recovery measures, are called the First New Deal. Economic stimulus was attempted through a new Alphabet agencies, alphabet soup of agencies set up in 1933 and 1934 and previously extant agencies such as the Reconstruction Finance Corporation. By 1935, the "Second New Deal" added Social Security (United States), Social Security (which was later considerably extended through the Fair Deal), a jobs program for the unemployed (the Works Progress Administration, WPA) and, through the National Labor Relations Board, a strong stimulus to the growth of labor unions. In 1929, federal expenditures constituted only 3% of the Gross domestic product, GDP. The national debt as a proportion of GNP rose under Hoover from 20% to 40%. Roosevelt kept it at 40% until the war began, when it soared to 128%. By 1936, the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high at 11%, although this was considerably lower than the 25% unemployment rate seen in 1933. In the spring of 1937, American industrial production exceeded that of 1929 and remained level until June 1937. In June 1937, the Roosevelt administration cut spending and increased taxation in an attempt to balance the federal budget. The American economy then took a sharp downturn, lasting for 13 months through most of 1938. Industrial production fell almost 30 per cent within a few months and production of durable goods fell even faster. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising from 5 million to more than 12 million in early 1938. Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels. Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. As unemployment rose, consumers' expenditures declined, leading to further cutbacks in production. By May 1938 retail sales began to increase, employment improved, and industrial production turned up after June 1938. After the recovery from the Recession of 1937–38, conservatives were able to form a bipartisan conservative coalition to stop further expansion of the New Deal and, when unemployment dropped to 2% in the early 1940s, they abolished WPA, CCC and the PWA relief programs. Social Security remained in place. Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics charged that he was turning America into a Socialism, socialist state. The Great Depression was a main factor in the implementation of social democracy and planned economy, planned economies in European countries after World War II (see Marshall Plan). Keynesianism generally remained the most influential economic school in the United States and in parts of Europe until the periods between the 1970s and the 1980s, when
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and c ...

Milton Friedman
and other neoliberal economists formulated and propagated the newly created theories of neoliberalism and incorporated them into the Chicago School of Economics as an alternative approach to the study of economics. Neoliberalism went on to challenge the dominance of the Keynesian school of Economics in the mainstream academia and policy-making in the United States, having reached its peak in popularity in the election of the presidency of Ronald Reagan in the United States, and Margaret Thatcher in the United Kingdom.


Literature

The Great Depression has been the subject of much writing, as authors have sought to evaluate an era that caused both financial and emotional trauma. Perhaps the most noteworthy and famous novel written on the subject is ''The Grapes of Wrath'', published in 1939 and written by John Steinbeck, who was awarded both the Nobel Prize for literature and the Pulitzer Prize 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 Agriculture, agricultural industry occur during the Great Depression. Steinbeck's ''Of Mice and Men'' is another important novella about a journey during the Great Depression. Additionally, Harper Lee's ''To Kill a Mockingbird'' is set during the Great Depression. Margaret Atwood's Booker prize-winning ''The Blind Assassin'' 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 in the U.S. A number of works for younger audiences are also set during the Great Depression, among them the Kit Kittredge series of ''American Girl (book series), American Girl'' books written by Valerie Tripp and illustrated by Walter Rane, released to tie in with the dolls and playsets sold by the company. The stories, which take place during the early to mid 1930s in Cincinnati, focuses on the changes brought by the Depression to the titular character's family and how the Kittredges dealt with it. A theatrical adaptation of the series entitled ''Kit Kittredge: An American Girl'' was later released in 2008 to positive reviews. Similarly, ''Christmas After All'', part of the ''Dear America'' series of books for older girls, take place in 1930s Indianapolis; while ''Kit Kittredge'' is told in a third-person viewpoint, ''Christmas After All'' is in the form of a fictional journal as told by the protagonist Minnie Swift as she recounts her experiences during the era, especially when her family takes in an orphan cousin from Texas.


Naming

The term "The Great Depression" is most frequently attributed to British economist Lionel Robbins, whose 1934 book ''The Great Depression'' is credited with formalizing the phrase, though Hoover is widely credited with popularizing the term, informally referring to the downturn as a depression, with such uses as "Economic depression cannot be cured by legislative action or executive pronouncement" (December 1930, Message to Congress), and "I need not recount to you that the world is passing through a great depression" (1931). The term "Depression (economics), depression" 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, was described by then-president James Monroe 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. Financial crises were traditionally referred to as "panics", most recently the major Panic of 1907, and the minor Panic of 1910–11, though the 1929 crisis was called "The Crash", and the term "panic" has since fallen out of use. At the time of the Great Depression, the term "The Great Depression" was already used to refer to the period 1873–96 (in the United Kingdom), or more narrowly 1873–79 (in the United States), which has retroactively been renamed the Long Depression.


Other "great depressions"

Other economic downturns have been called a "great depression", but none had been as widespread, or lasted for so long. Various states have experienced brief or extended periods of economic downturns, which were referred to as "depressions", but none have had such a widespread global impact. The collapse of the Dissolution of the Soviet Union, Soviet Union, and the breakdown of economic ties which followed, led to a severe economic crisis and catastrophic fall in the Standard of living, standards of living in the 1990s in post-Soviet states and the former Eastern Bloc, which was even worse than the Great Depression.Who Lost Russia?
New York Times, October 8, 2000.
Even before Russia's 1998 Russian financial crisis, 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 Economy of Moldova, Moldova, Soviet Central Asia, Central Asia, and the Caucasus.


Comparison with the Great Recession

The late-2000s recession, worldwide economic decline after 2008 has been compared to the 1930s. The causes of the Great Recession seem similar to the Great Depression, but significant differences exist. The previous chairman of the Federal Reserve,
Ben Bernanke Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist at the Brookings Institution The Brookings Institution, often referred to simply as Brookings, is an American American(s) may refer to: * American, something of, from, ...

Ben Bernanke
, had extensively studied the Great Depression as part of his doctoral work at MIT, and implemented policies to manipulate the money supply and interest rates in ways that were not done in the 1930s. Bernanke's policies will undoubtedly be analyzed and scrutinized in the years to come, as economists debate the wisdom of his choices. Generally speaking, the recovery of the world's financial systems tended to be quicker during the Great Depression of the 1930s as opposed to the late-2000s recession. 1928 and 1929 were the times in the 20th century that the wealth gap reached such skewed extremes;Evans-Pritchard, Ambrose (September 14, 2010)
"IMF Fears 'Social Explosion' From World Jobs Crisis"
''The Daily Telegraph'' (London). "America and Europe face the worst jobs crisis since the 1930s and risk 'an explosion of social unrest' unless they tread carefully, the International Monetary Fund has warned."
half the unemployed had been out of work for over six months, something that was not repeated until the late-2000s recession. 2007 and 2008 eventually saw the world reach new levels of wealth gap inequality that rivalled the years of 1928 and 1929.


See also

* Causes of the Great Depression * Cities in the Great Depression * Entertainment during the Great Depression * List of Depression-era outlaws * Timeline of the Great Depression


General

* Causes of World War II * Causes of World War I * Economic collapse * International relations (1919–1939) * Interwar France * Involuntary unemployment * List of economic crises


References


Further reading

* Ambrosius, G. and W. Hibbard, ''A Social and Economic History of Twentieth-Century Europe'' (1989) * * Brendon, Piers. ''The Dark Valley: A Panorama of the 1930s'' (2000) comprehensive global economic and political history; 816p
excerpt
* Brown, Ian. ''The Economies of Africa and Asia in the Iinter-war Depression'' (1989) * Davis, Joseph S. ''The World Between the Wars, 1919–39: An Economist's View'' (1974) * Drinot, Paulo, and Alan Knight, eds. ''The Great Depression in Latin America'' (2014
excerpt
* 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) * John Kenneth Galbraith, Galbraith, John Kenneth, ''The Great Crash, 1929'' (1954), popular * 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) * Glasner, David, ed. ''Business Cycles and Depressions'' (Routledge, 1997), 800 pp
Excerpt
* Goldston, Robert, ''The Great Depression: The United States in the Thirties'' (1968) * Grinin, L., Andrey Korotayev, Korotayev, A. and Tausch A. (2016)
Economic Cycles, Crises, and the Global Periphery
'. Springer International Publishing, Heidelberg, New York, Dordrecht, London, ; * Grossman, Mark. ''Encyclopedia of the Interwar Years: From 1919 to 1939'' (2000). 400 pp. worldwide coverage * 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) * Hodson, H.V. ''Slump and Recovery, 1929–37'' (Oxford UP, 1938)
online
496 pp. annual histories * Kaiser, David E. ''Economic diplomacy and the origins of the Second World War: Germany, Britain, France and Eastern Europe, 1930–1939'' (1980) * Kehoe, Timothy J. and Edward C. Prescott, eds. ''Great Depressions of the Twentieth Century'' (2007), essays by economists on US, Britain, France, Germany, Italy and on tariffs; statistical * Kindleberger, Charles P. ''The World in Depression, 1929–1939'' (3rd ed. 2013) * Konrad, Helmut and Wolfgang Maderthaner, eds.
Routes Into the Abyss: Coping With Crises in the 1930s
' (Berghahn Books, 2013), 224 pp. Compares political crises in Germany, Italy, Austria, and Spain with those in Sweden, Japan, China, India, Turkey, Brazil, and the United States. * Latham, Anthony, and John Heaton, ''The Depression and the Developing World, 1914–1939'' (1981). * Madsen, Jakob B. "Trade Barriers and the Collapse of World Trade during the Great Depression", ''Southern Economic Journal'', ''Southern Economic Journal'' (2001) 67#4 pp. 848–6
online at JSTOR.
* Donald Markwell, Markwell, Donald. ''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), 462 pp. 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. 327–4
online version
* Psalidopoulos, Michael, ed. ''The Great Depression in Europe: Economic Thought and Policy in a National Context'' (Athens: Alpha Bank, 2012). . Chapters by economic historians cover Finland, Sweden, Belgium, Austria, Italy, Greece, Turkey, Bulgaria, Yugoslavia, Romania, Spain, Portugal, and Ireland
table of contents
* Romer, Christina D. "The Nation in Depression," ''Journal of Economic Perspectives'' (1993) 7#2 pp. 19–3
in JSTOR
statistical comparison of U.S. and other countries * Rothermund, Dietmar. ''The Global Impact of the Great Depression'' (1996
Online
* Tipton, F. and R. Aldrich, ''An Economic and Social History of Europe, 1890–1939'' (1987)


Contemporary

* Keynes, John Maynard. "The World's Economic Outlook", ''Atlantic'' (May 1932)
online edition
* Joseph Schumpeter, Schumpeter, Joseph (1930). "The Present World Depression: A Tentative Diagnosis". Available on JSTOR. * League of Nations, ''World Economic Survey 1932–33'' (1934).


External links


Rare Color Photos from the Great Depression
– slideshow by ''The Huffington Post''
EH.net
"An Overview of the Great Depression", by Randall Parker.

Extensive library of projects on America in the Great Depression from American Studies at the University of Virginia
The 1930s Timeline
year by year timeline of events in science and technology, politics and society, culture and international events with embedded audio and video. AS@UVA
Great Myths of the Great Depression
by Lawrence Reed
Franklin D. Roosevelt Library & Museum
for copyright-free photos of the period

American Studies at the University of Virginia
Great Depression in the Deep South

Soul of a People documentary
o
Smithsonian Networks

The Great Depression
at the History (U.S. TV channel), History Channel
"Chairman Ben Bernanke Lecture Series Part 1"
Recorded live on March 20, 2012, 10:35am MST at a class at George Washington University {{Authority control Great Depression, 1920s economic history 1930s economic history Financial crises World economy