Great Depression - Wikipedia, the free encyclopedia. From Wikipedia, the free encyclopedia. The Great Depression was an economic downturn which started in 1. It centered in North America and Europe, but had devastating effects around the world, particularly in industrialized countries.
Cities all around the world were hit hard, especially those based on heavy industry. Unemployment and homelessness soared.
Construction was virtually halted in many countries. Farmers and rural areas suffered as prices for crops fell by 4. The Great Depression ended at different times in different countries; for subsequent history see Home front during World War II.
Palmer, Working-Class Experience: Rethinking the History of Canadian Labour 1800-1991 (1992); James Struthers, No Fault of Their Own: Unemployment and the Canadian Welfare State, 1914-1941. Federal programs to fight the Great Depression brought. Annie Land O'Berry headed major relief bureaucracies in the Tar Heel state during the Great Depression. Sign up for updates from the North Carolina History Project. 34 The Great Depression and the New Deal. Roosevelt’s New Deal tackled the Great Depression with massive federal programs designed to bring. Roosevelt’s early programs put millions of the unemployed back on. The Democrats under Lyndon B. Johnson won a massive landslide and Johnson's Great Society programs extended the New Deal. New Deal did not end the Great Depression but halted. Great Depression and the appropriate response of government. A few economists, like Irving Fisher (1932), applied the Quantity Theory of Money, which holds that changes in the money supply cause changes in the price level and.
Suggested causes of the depression. Scholars have not agreed on the exact causes and their relative importance. The search for causes is closely connected to the question of how to avoid a future depression, so the political and policy viewpoints of scholars are mixed into the analysis of historic events eight decades ago. Current theories may be broadly classified into two main points of view. First, there is orthodox classical economics: monetarist, Keynesian, Austrian Economics and neoclassical economic theory, all which focus on the macroeconomic effects of money supply, including production and consumption. Second, there are structural theories, including those of institutional economics, that point to underconsumption and overinvestment (economic bubble), or to malfeasance by bankers and industrialists.
There are multiple issues—what set off the first downturn in 1. In terms of the 1. Peter Temin and Barry Eichengreen) point to Britain's decision to return to the Gold Standard at pre- World War I parities ($4.
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Pound). Although some believe the Wall Street Crash of 1. Great Depression, there are other, deeper causes that explain the crisis. The vast economic cost of World War I weakened the ability of the world to respond to a major crisis.
Debt. Macroeconomists, including the current chairman of the U. S. Federal Reserve Bank Ben Bernanke, have revived the debt- deflation view of the Great Depression originated by Arthur Cecil Pigou and Irving Fisher. In the 1. 92. 0s, in the U. S. People who were deeply in debt when a price deflation occurred were in serious trouble—even if they kept their jobs, they risked default. They drastically cut current spending to keep up time payments, thus lowering demand for new products.
Furthermore, the debt became heavier, because prices and incomes fell 2. With future profits looking poor, capital investment slowed or completely ceased. In the face of bad loans and worsening future prospects, banks became more conservative in lending.
Our Generation has had no Great war, no Great Depression.
They built up their capital reserves, which intensified the deflationary pressures. The vicious cycle developed and the downward spiral accelerated. This kind of self- aggravating process may have turned a 1. Trade decline and the U.
S. Smoot- Hawley tariff act. Many economists at the time argued that the sharp decline in international trade after 1. Most historians and economists assign the American Smoot- Hawley Tariff Act of 1.
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Foreign trade was a small part of overall economic activity in the United States; it was a much larger factor in most other countries. Hardest hit were farm commodities such as wheat, cotton, tobacco, and lumber. According to this theory, the collapse of farm exports caused many American farmers to default on their loans leading to the bank runs on small rural banks that characterized the early years of the Great Depression. U. S. Federal Reserve and money supply. Monetarists, including Milton Friedman and Ben Bernanke, stress the negative role of the American Federal Reserve System in turning a small depression into a large one by cutting the money supply by one- third from 1. With significantly less money to go around, businessmen could not get new loans and could not even get their old loans renewed, forcing many to stop investing.
This interpretation blames the Federal Reserve, especially the New York branch, which was owned and controlled by Wall Street bankers. The Fed was not controlled by President Herbert Hoover or the U. S. Treasury; it was primarily controlled by member banks and businessmen and it was to these groups that the Fed listened most attentively regarding policies to follow.
In Milton Friedman's work, A Monetary History of the United States, he writes that the downward turn in the economy starting with the stock market crash would have been just another recession. In general, he states the problem was that some very large, very public bank failures, particularly the Bank of the United States, produced widespread runs on banks, and that the Federal Reserve sat idly by while bank after bank fell. He claims that if the Federal Reserve had acted by providing emergency lending to these key banks or simply bought government bonds on the open market to provide liquidity and increase the quantity of money after the key banks fell, all the rest of the banks that fell after the very large and public ones did would not have, the money supply would not have fallen to the extent it did, and would not have fallen at the speed it did. Labor force issues. A recent theory based on institutional analysis focuses on the terms of employment for the labor force.
For example, in the American agricultural sector farm prices fell about 5. That outcome was more in line with the predictions of Say's Law that states that supply and demand balance at full employment provided that labor (and other costs) remain flexible. Since farmers had only a residual claim on the revenue they received, the unit cost of a farmer's labor was automatically flexible. Prices were thus free to fall, and they fell far enough to match the roughly 5. Thus, agricultural markets cleared at full employment. Industry, however, depended on hired labor paid contractually agreed pay rates. Any hired factor, land, labor, or capital has a prior claim on enterprise revenue which makes for rigid costs and hence limits the flexibility of prices.
Thus, industrial prices were flexible only to the extent of profits, which were free to fall. They did, to the extent that corporate profits vanished by 1. At the time this difference in the behavior of farm and industrial prices was attributed to the fact that farmers were subject to auction markets of perfect competition while the industrial sector was dominated by large oligopolies. They thus had some control over prices.
Gardiner Means argued that corporations could . It also raises the question of why, wherever input prices such as oil, wheat, or cotton fell sharply, output prices reflected the drop in costs, and final output fell correspondingly less.
But a more compelling rebuttal comes from Japan, which did not suffer from the Great Depression. Japan's real economy grew by about 6% from 1. Japan's industrial economy was far more concentrated than the United States economy. In fact four firms controlled Japan's industrial sector: Mitsui, Mitsubishi Heavy Industries, Sumitomo, and Yasuda. Japan was hit by a serious recession in 1. Japan could cut prices because it did not depend on .
The bulk of the industrial labor force were regarded as . As such, workers got about 3. In addition, the Japanese government devalued the yen by about 5. Therefore, while world trade in total went into a sharp slump, Japanese exports boomed and Japanese industry prospered.
At the same time Say's Law appeared inoperable in the United States to explain unemployment where labor sought work at any wage, including in exchange for only food, but with little effect. In the American case it was only government created demand, begun with New Deal programs, and extended with World War II, that brought the nation out of the Great Depression. The conclusion of this institutional school of thought with the case of Japan is that Say's Law worked as advertised during the Great Depression. Where costs were rigid, prices fell little and so output plunged. Where costs were flexible, prices plunged and output held stable. Yet, the conclusion from the historical example of American labor, is to suggest Say's Law was not in effect. Business. Roosevelt primarily blamed the excesses of big business for causing an unstable bubble- like economy.
The problem was that business had too much power, and the New Deal was intended to remedy that by empowering labor unions and farmers (which it did) and by raising taxes on corporate profits (which they tried and failed). Regulation of the economy was a favorite remedy.
Most of the New Deal regulations were abolished or scaled back in 1. However the Securities and Exchange Commission, which regulates Wall Street, won widespread support and continues to this day. Insufficient government deficit spending. The British economist John Maynard Keynes argued that the lower aggregate expenditures in the economy contributed to a multiple decline in income, well below full employment. In this situation, the economy may reach perfect balance, but at a cost of high unemployment.
Keynesian economists were increasingly calling for government to take up the slack by increasing government spending. Effects. Australia. Australia's extreme dependence on agricultural and industrial exports, meant that it was one of the hardest- hit countries in the Western world, amongst the likes of Canada and Germany. Falling export demand and commodity prices placed massive downward pressures on wages. Further, Unemployment reached a record high of 2. After 1. 93. 2, an increase in industrial output and prosperity led to a gradual recovery.
Canada. Canada is sometimes considered to be the country hardest hit by the Great Depression. The economy fell further than that of any nation other than the United States, and it took far longer to recover.
However, unlike in the U. S., there were no bank failures in Canada. East Asia. France. Germany. Germany's Weimar Republic was also among the nations that were hit hardest by the depression, owing mostly to debts to the United States.