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The Great The Great DepressionDepression1929 - 19391929 - 1939
© CICERO 2012
Economic DepressionEconomic Depression
In economics, a In economics, a depressiondepression is a term commonly is a term commonly used for a sustained downturn in the economy. It used for a sustained downturn in the economy. It is more severe than a recession (which is seen as is more severe than a recession (which is seen as a normal downturn in the business cycle). a normal downturn in the business cycle). Considered a rare but extreme form of recession, Considered a rare but extreme form of recession, the start of a the start of a depressiondepression is characterized by is characterized by unusual increases in unemployment, restriction unusual increases in unemployment, restriction of credit, shrinking output and investment, price of credit, shrinking output and investment, price deflation or hyperinflation, numerous deflation or hyperinflation, numerous bankruptcies, reduced amounts of trade and bankruptcies, reduced amounts of trade and commerce, as well as violent currency commerce, as well as violent currency devaluations. devaluations.
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History of DepressionsHistory of Depressions
Panic of 1797Panic of 1797
Depression of 1807Depression of 1807
Panic 1819Panic 1819
Panic 1837Panic 1837
Panic 1857Panic 1857
Panic 1873Panic 1873
Panic of 1907Panic of 1907
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Causes of the Great Causes of the Great DepressionDepression
Historians still argue over the specific Historians still argue over the specific long term and short term causes of long term and short term causes of the Great Depression.the Great Depression.
Theories or schools of thought have Theories or schools of thought have developed on the causes of the Great developed on the causes of the Great Depression.Depression.
Some of these theories are politically Some of these theories are politically motivated.motivated.
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Prime CausesPrime Causes
Credit InflationCredit Inflation Artificially Low Interest Rates by the Artificially Low Interest Rates by the
Federal Reserve and the Bank of Federal Reserve and the Bank of EnglandEngland
High TariffsHigh Tariffs Hurt other economies and made it hard Hurt other economies and made it hard
to pay the US back for WWI debts.to pay the US back for WWI debts. Retaliatory tariffs limit US marketsRetaliatory tariffs limit US markets
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Some FactsSome Facts
The Great Depression was the The Great Depression was the longest in modern US historylongest in modern US history
It affected millions of peopleIt affected millions of people It affected the entire industrial worldIt affected the entire industrial world It led to the New DealIt led to the New Deal Its impact can still be felt todayIts impact can still be felt today
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The 1920sThe 1920s
After WWI, the US turned inward and away After WWI, the US turned inward and away from international issuesfrom international issues
US banks made huge loans to the US banks made huge loans to the EuropeansEuropeans
American’s attitudes/values about American’s attitudes/values about consumption and saving changedconsumption and saving changed
Advertising influenced AmericansAdvertising influenced Americans American farmers were already in a American farmers were already in a
depressiondepression Modernization kept farmers in perpetual debtModernization kept farmers in perpetual debt
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Economic Collapse Economic Collapse (1929-1933)(1929-1933)
Credit had been exhaustedCredit had been exhausted Money was used to pay past debtsMoney was used to pay past debts Unsold inventories were risingUnsold inventories were rising Buying “on margin”Buying “on margin” Great Bull Market . . . speculative Great Bull Market . . . speculative
bubble schemebubble scheme In late October 1929, the market In late October 1929, the market
began to fallbegan to fall
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Black TuesdayBlack Tuesday
October 29, 1929 … a date that will October 29, 1929 … a date that will live in infamy…live in infamy…
Stock values dropped by 10 – 15 Stock values dropped by 10 – 15 billion dollars in just one daybillion dollars in just one day
Farm prices dropped even further , Farm prices dropped even further , after being low during the 1920safter being low during the 1920s
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New York Stock MarketNew York Stock Market
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United States’ Industrial United States’ Industrial Production from 1928-1939 Production from 1928-1939
data source: data source:
http://research.stlouisfed.org/fred2/data/INDPRO.txt
28 29 30 31 32 33 34 35 36 37 38 39 40 © CICERO 2012
Farm PricesFarm Prices
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UnemploymentUnemployment
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Reactions to the CrashReactions to the Crash "The decline is in paper values, not in "The decline is in paper values, not in
tangible goods and services . . . America is tangible goods and services . . . America is now in the eighth year of prosperity as now in the eighth year of prosperity as commercially defined. The former great commercially defined. The former great periods of prosperity in America averaged periods of prosperity in America averaged eleven years. On this basis we now have eleven years. On this basis we now have three more years to go before the tailspin."three more years to go before the tailspin."- Stuart Chase (American economist and - Stuart Chase (American economist and author), NY Herald Tribune, November 1, author), NY Herald Tribune, November 1, 1929 1929
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More ReactionsMore Reactions
"The end of the decline of the Stock "The end of the decline of the Stock Market will probably not be long, only Market will probably not be long, only a few more days at most." a few more days at most." - Irving Fisher, Professor of Economics - Irving Fisher, Professor of Economics at Yale University, November 14, 1929 at Yale University, November 14, 1929
"Financial storm definitely passed.""Financial storm definitely passed."- Bernard Baruch, cablegram to - Bernard Baruch, cablegram to Winston Churchill, November 15, 1929 Winston Churchill, November 15, 1929
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Other thoughts…Other thoughts…
January 20, 1931 January 20, 1931 "The country is not in good "The country is not in good condition." - Calvin Coolidge. condition." - Calvin Coolidge.
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Initial Reaction to the Initial Reaction to the DepressionDepression
President Hebert Hoover wasPresident Hebert Hoover was
slow to respond, believing thatslow to respond, believing that
the normal ebb and flow of businessthe normal ebb and flow of business
would quickly return.would quickly return. Hoover believed a balanced budget Hoover believed a balanced budget
would help.would help. Hoover also believed that direct federal Hoover also believed that direct federal
relief payment would destroy the relief payment would destroy the “individual’s” self-esteem.“individual’s” self-esteem.
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Bonus MarchBonus March World War I veterans marched on World War I veterans marched on
Washington in June 1932.Washington in June 1932. They demanded their promisedThey demanded their promisedwar bonuses.war bonuses. The government refused andThe government refused andforcibly evicted the men and their families.forcibly evicted the men and their families. General MacArthur, Major Dwight General MacArthur, Major Dwight
EisenhowerEisenhowerand Major George Patton led the attack.and Major George Patton led the attack. This turned many against Hoover.This turned many against Hoover.
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BUTBUT
He did increase the roleHe did increase the role
of the US government, of the US government,
more than any other more than any other
president to date. president to date. He was an engineer He was an engineer
and a social engineerand a social engineer
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SUPER PROGRESSIVE SUPER PROGRESSIVE ENGINEERENGINEER
Social Engineers could take and mold Social Engineers could take and mold societies and humans and create a new societies and humans and create a new and more perfect society. Take control and more perfect society. Take control of nature.of nature. A top Progressive writer, Thorsten VeblemA top Progressive writer, Thorsten Veblem
Theory of the Leisure Class, 1899Theory of the Leisure Class, 1899 The Engineers and the Price System, 1921The Engineers and the Price System, 1921
The Engineer wasThe Engineer was SUPERMANSUPERMAN Dams, Hydroelectric plants, Highways, Dams, Hydroelectric plants, Highways,
BuildingsBuildings
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Hoover, like FDR, was a Hoover, like FDR, was a CorporatistCorporatist
The state, businesses, unions, and public The state, businesses, unions, and public bodies should work together to make life bodies should work together to make life better for all.better for all.
Capitalists, left-wing Republicans, non-Capitalists, left-wing Republicans, non-socialist intellectuals, most Democrats, socialist intellectuals, most Democrats, and academics agreed.and academics agreed.
USA’s response to Mussolini and USA’s response to Mussolini and European movementsEuropean movements
Hoover was not a socialists or fascist, Hoover was not a socialists or fascist, thoughthough © CICERO 2012
Response to 1929 Response to 1929
He had the Fed resume credit inflation He had the Fed resume credit inflation (add $300 million after crash in 1929)(add $300 million after crash in 1929)
Asked companies to not cut workers’ Asked companies to not cut workers’ wageswages
Cut taxesCut taxes Increased Government Spending Increased Government Spending Deliberately ran a big deficit Deliberately ran a big deficit Increase government’s share of GNP Increase government’s share of GNP
from 16.4% in 1930 to 21.5% in 1931from 16.4% in 1930 to 21.5% in 1931
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% of GNP% of GNP
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No Direct Aid - No Direct Aid - UnconstitutionalUnconstitutional
Agricultural Marketing ActAgricultural Marketing Act $600M to $600M to farmers.farmers.
Reconstruction Finance CorporationReconstruction Finance Corporation (9 point (9 point program) December 1931: $3.8B by 1932program) December 1931: $3.8B by 1932
More major work projects in Hoover’s four More major work projects in Hoover’s four years than in the 30 previous years.years than in the 30 previous years.
San Francisco Bay Bridge, Los Angeles San Francisco Bay Bridge, Los Angeles Aqueduct, Hoover Dam, etc.Aqueduct, Hoover Dam, etc.
Emergency Relief and Construction Act Emergency Relief and Construction Act $3.9B$3.9B
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New Deal planner, Rexford New Deal planner, Rexford TugwellTugwell
“ “ We didn’t admit it at the time, but We didn’t admit it at the time, but practically the whole New Deal was practically the whole New Deal was extrapolated from programs that extrapolated from programs that Hoover started.”Hoover started.”
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1930: Democrats take 1930: Democrats take control of Congresscontrol of Congress
Hoover & Democrats pass the 1932 Hoover & Democrats pass the 1932 Revenue Act - the largest tax Revenue Act - the largest tax increase in US history in peacetime.increase in US history in peacetime.
Highest rates jumped from 25% to Highest rates jumped from 25% to 63%63%
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International RamificationsInternational Ramifications Hawley-Smoot Tariff, 1930Hawley-Smoot Tariff, 1930 Established highest average tariff in Established highest average tariff in
US historyUS history Other nations responded with their Other nations responded with their
own tariffs.own tariffs. Between 1929-1932, international Between 1929-1932, international
trade declined by halftrade declined by half This helped push the rest of the world This helped push the rest of the world
into Depression.into Depression.© CICERO 2012
Hoover claimed he was a Hoover claimed he was a Non-InterventionistNon-Interventionist
His own rhetoric hurt the economy.His own rhetoric hurt the economy. He was seen as pro-labor and anti-He was seen as pro-labor and anti-
business because he kept wages so business because he kept wages so high.high.
He weakened bankruptcy laws and He weakened bankruptcy laws and encouraged states to stop auctions.encouraged states to stop auctions.
Businesses and banks had no Businesses and banks had no confidence they would be protected confidence they would be protected and would not invest.and would not invest.© CICERO 2012
Roosevelt: New Deal and Roosevelt: New Deal and the First 100 Daysthe First 100 Days
““the only thing we have to fear is fear the only thing we have to fear is fear itself”itself”
Congress called into special session and Congress called into special session and passed:passed:
Federal Emergency Relief Adm., CCC, Federal Emergency Relief Adm., CCC, Reconstruction Finance Corp., TVA, Reconstruction Finance Corp., TVA, Federal Trade Commission, Agricultural Federal Trade Commission, Agricultural Adjustment Act, National Industrial Adjustment Act, National Industrial Recovery Act, mortgage relief, etc. Recovery Act, mortgage relief, etc.
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Roosevelt: New Deal and Roosevelt: New Deal and the First 100 Days, con’t.the First 100 Days, con’t.
New Deal tried to pump large amounts of New Deal tried to pump large amounts of money into the economy by providing jobsmoney into the economy by providing jobs
He hoped this would result in increased He hoped this would result in increased demand of goods and servicesdemand of goods and services
Roosevelt attempted to balance the Roosevelt attempted to balance the budgetbudget
Roosevelt never fully embraced the Roosevelt never fully embraced the concept of deficit spendingconcept of deficit spending
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Life During the DepressionLife During the Depression Physically and psychologically Physically and psychologically
devastating for many peopledevastating for many people Malnutrition was rampant, which Malnutrition was rampant, which
resulted in greater illnessesresulted in greater illnesses Self blame, self-doubt and self-worth Self blame, self-doubt and self-worth
became serious issuesbecame serious issues Men suffered more psychologicallyMen suffered more psychologically
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Life During the DepressionLife During the DepressionWomenWomen
The number of employed women grew The number of employed women grew slightlyslightly
Women were less likely to lose their jobsWomen were less likely to lose their jobs So-called women’s work, like clerical, So-called women’s work, like clerical,
teaching, and social-service, actually teaching, and social-service, actually increasedincreased
When the men left, women became When the men left, women became head of the householdhead of the household Feminist consciousness began to developFeminist consciousness began to develop
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Life During the DepressionLife During the DepressionChildrenChildren
Many children left school early.Many children left school early. Children took on more responsibilities.Children took on more responsibilities. More teenagers worked.More teenagers worked. This generation became more self This generation became more self
reliant.reliant. They learned to make more out of less. They learned to make more out of less. Many children were malnourished and Many children were malnourished and
sickly.sickly.© CICERO 2012
Life During the DepressionLife During the DepressionFamiliesFamilies
Families were dramatically affectedFamilies were dramatically affected At one time, nearly one fourth of all At one time, nearly one fourth of all
workers were unemployedworkers were unemployed Family incomes fell approximately 40 %Family incomes fell approximately 40 % Birthrates fellBirthrates fell Divorces fellDivorces fell Desertions soaredDesertions soared Families broke upFamilies broke up As many as 200,000 children became As many as 200,000 children became
vagrantsvagrants© CICERO 2012
Life During the DepressionLife During the DepressionMinoritiesMinorities
African Americans were already living in African Americans were already living in a Depression.a Depression.
By 1932, African American By 1932, African American unemployment was almost 50%.unemployment was almost 50%.
In theory, the New Deal programs did not In theory, the New Deal programs did not discriminate.discriminate.
African Americans switched to the African Americans switched to the Democratic party.Democratic party.
Mexican Americans suffered at least as Mexican Americans suffered at least as much and usually more than African much and usually more than African Americans.Americans.
The Indian Reorganization Act tried to The Indian Reorganization Act tried to help native tribes regain their heritage.help native tribes regain their heritage.
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Life During the DepressionLife During the DepressionMother NatureMother Nature
From 1930 to 1936, the plains of From 1930 to 1936, the plains of the Midwest experience drought.the Midwest experience drought.
This, coupled with poor soil This, coupled with poor soil conversation and high winds, conversation and high winds, causes tremendous dust storms.causes tremendous dust storms.
Storms left the lands useless and Storms left the lands useless and force people to leave or migrate.force people to leave or migrate.
Many went west to California.Many went west to California.© CICERO 2012
Dust Bowl ImagesDust Bowl Images
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Causes of the Great Causes of the Great DepressionDepression
Recently, several “schools of Recently, several “schools of thought” have emerged concerning thought” have emerged concerning the causes of the Depression.the causes of the Depression.
Currently, scholars are debating the Currently, scholars are debating the causes of the Depression.causes of the Depression.
Roosevelt’s actions have also come Roosevelt’s actions have also come under close scrutiny and criticism. under close scrutiny and criticism.
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Keynesian SchoolKeynesian School
John Maynard Keynes, British economistJohn Maynard Keynes, British economistThe General Theory of Employment, The General Theory of Employment,
Interest and Money,Interest and Money, 1936 1936 Keynes argued that the normal self-Keynes argued that the normal self-
correcting mechanisms were not correcting mechanisms were not sufficient in preventing severe recessions sufficient in preventing severe recessions or Depressions.or Depressions.
Traditionally, noninterventionist policy Traditionally, noninterventionist policy would allow for the normal economic would allow for the normal economic cycles to rectify down-turns in the cycles to rectify down-turns in the economy.economy.
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Classical EconomicsClassical Economics
During a recession, consumption falls During a recession, consumption falls due to a lack of savings/moneydue to a lack of savings/money
This in turn forces interest rates to dropThis in turn forces interest rates to drop Lower interest rates leads to increased Lower interest rates leads to increased
investment spending and demand investment spending and demand should remain constantshould remain constant
Businesses invest when they believe Businesses invest when they believe there is a potential for demand and there is a potential for demand and potential for profitspotential for profits
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Keynes’ ViewKeynes’ View
After 1929, businesses were less After 1929, businesses were less optimisticoptimistic
and did not invest.and did not invest. Keynes believed that the government Keynes believed that the government
needs to step in and create demand.needs to step in and create demand. This encourages deficit spending and This encourages deficit spending and
unbalanced budgets.unbalanced budgets. Keynesian view was very influential and Keynesian view was very influential and
revolutionary.revolutionary.© CICERO 2012
Monetarist ViewMonetarist View
““A Monetary History of the United A Monetary History of the United States,1867-1960.” Milton Friedman States,1867-1960.” Milton Friedman and Anna Schwartz, 1963.and Anna Schwartz, 1963.
The “Great Contraction” of the money The “Great Contraction” of the money supplysupply
Between 1929-1932, the supply of Between 1929-1932, the supply of money fell by 1/3.money fell by 1/3.
Federal Reserve did not prevent Federal Reserve did not prevent banks from going bankrupt.banks from going bankrupt.
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Austrian SchoolAustrian School Austrian economists Friedrich Hayek and Austrian economists Friedrich Hayek and
Murray Rothbard wrote “America’s Great Murray Rothbard wrote “America’s Great Depression,” 1963.Depression,” 1963.
Expansion of money during the 1920s led Expansion of money during the 1920s led to an unsustainable credit-driven boom.to an unsustainable credit-driven boom.
The Federal Reserve move to tighten the The Federal Reserve move to tighten the money supply in 1928 was too late.money supply in 1928 was too late.
Government interference, both by Hoover Government interference, both by Hoover and Roosevelt, only worsened and and Roosevelt, only worsened and extended the Great Depression extended the Great Depression
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Legacy of the DepressionLegacy of the Depression Federal government grew.Federal government grew. Public debt increased.Public debt increased. Social security programs put in place.Social security programs put in place. Rise of labor unions.Rise of labor unions. Conservatives viewed much of the Conservatives viewed much of the
New Deal as socialism.New Deal as socialism. Many believed that the Free Market Many believed that the Free Market
needed to be regulated.needed to be regulated.
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ReferencesReferencesSecular Stagnation and Great Depression, R. L. Norman, Jr. Dorfman, Joseph. Economic Mind in American Civilization (1959) vol 4 Dorfman, Joseph. Economic Mind in American Civilization (1959) vol 4
and 5 cover the ideas of all American economists of 1918-1933. and 5 cover the ideas of all American economists of 1918-1933. Friedman, Milton and Anna Jacobson Schwartz, A Monetary History of Friedman, Milton and Anna Jacobson Schwartz, A Monetary History of
the United States, 1867-1960 (1963) the United States, 1867-1960 (1963) Keynes, John Maynard, The General Theory of Employment, Interest and Keynes, John Maynard, The General Theory of Employment, Interest and
Money (1936) Money (1936) Atlantic Publishers & Distributors, 2007Atlantic Publishers & Distributors, 2007 Keen, Steve 2001. Debunking Economics Pluto Press Australia Limited Keen, Steve 2001. Debunking Economics Pluto Press Australia Limited
Sydney, Australia Sydney, Australia Meltzer, Allan H. 2003 A History of the Federal Reserve Volume I: 1913-. 2003 A History of the Federal Reserve Volume I: 1913-
1951 Chicago University Press, Chicago, IL 1951 Chicago University Press, Chicago, IL Rothbard, Murray N. 1963 Rothbard, Murray N. 1963 America's Great Depression D. Van Nostrand D. Van Nostrand
Company, Princeton, NJ Company, Princeton, NJ Rothbard, Murray N. A Rothbard, Murray N. A
History of Money and Banking in the United States: The Colonial Era : The Colonial Era to World War II (2002) to World War II (2002)
White, Eugene N. "The Stock Market Boom and Crash of 1929 Revisited" White, Eugene N. "The Stock Market Boom and Crash of 1929 Revisited" Journal of Economic Perspectives, Vol. 4, No. 2 (Spring, 1990)Journal of Economic Perspectives, Vol. 4, No. 2 (Spring, 1990)
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