Great Depression

see also The Great Depression (disambiguation).

Dorothea Lange's Migrant Mother depicts destitute pea pickers in California, centering on Florence Owens Thompson, a mother of seven children, age twenty-nine, in Nipomo, California, March 1936.

The Great Depression was a massive economic decline that started in 1929 and ended in the late 1930s. All countries were affected; worst hit were the most industrialized, including the United States, Europe, and Japan. Cities around the world were hit hard, especially those based on heavy industry. Rural areas likewise were hurt as prices for crops plunged. Mining and lumbering areas were perhaps the hardest hit because there was little alternative economic activity.

Causes of the Great Depression

See Causes of the Great Depression

Depression Statistics

Selected US economic statistics during the course of the Great Depression. These facts provide the basis for an understanding of the actions and debate that surround this period of economic turmoil. In the U.S. "Most indexes worsened until the summer of 1932, which may be called the low point of the depression economically and psychologically." (Mitchell 404) Economic indicators show the American economy reached a nadir in summer 1932 to February 1933 then began a recovery that persisted until 1937, until the "Roosevelt recesssion" of 1937-1938 and its after effects of higher unemployment. Thus the Federal Reserve Index of Industrial Production hit its low of 4.119 on July 1, 1932 and was practically unchanged at 4.239 on March 1, 1933; however by July 1, 1933, it reached 6.674. (with 2002 = 100)[1]

Statistic	1929	1931	1933	1937	1938	1940
Real Gross National Product (GNP) (1)	101.4	84.3	68.3	103.9	96.7	113.0
Consumer Price Index (2)	122.5	108.7	92.4	102.7	100.8	100.2
Index of Industrial Production (2)	110	75	69	113	88	123
Money Supply M2 ($ billions)	46.6	42.7	32.2	45.7	45.5	55.2
Exports ($ billions)	5.24	2.42	1.67	3.35	3.09	4.02
Unemployment (% of civilian work force)	3.1	16.1	25.2	13.8	18.7	13.9

(1) in 1929 dollars (2) 1935-39 = 100

Sources: Source GNP: U.S. Dept of Commerce, National Income and Product Accounts[2]; Mitchell 446, 449, 451; Money supply M2[3]

Responses

File:Terminal island squatters.jpg

The Wares family, squatted on Terminal Island, Los Angeles, California, United States in 1930 because of the Great Depression.

The Wall Street crash of 1929 is widely considered to be the foremost event which marked the start of the world-wide financial crisis. While important, it was just one more marker of a distressed economy. In fact, in the United States, unemployment soared from approximately 5% to over 33%, while manufacturing output declined by one-third. Governments worldwide sought economic recovery by adopting restrictive autarkic policies such as high tariffs, import quotas and barter agreements and by experimenting with new plans for their internal economies.

Business and personal economic reactions to the depression created great problems throughout the United States and much of the world. The nmoney supply shrank by 1/3. meaning that banks were no longer able to loan to good business risks, or even to renew loans to old business customers. Business therefore had to contract its operations--but less inventory, and hire fewer workers. Consumers postponed purchases of housing, autos and appliances. General Motors, for example, saw its sales drop by 50% in the early 1930s. Very few large corporations went bankrupt, but with sales falling they cancelled new expansion projects, cut back on production, ended overtime, reduced hours per week, and laid off employees. When farm prices fell, some farmers went bankrupt and, in the US, many lost their land due to bank foreclosure. By late 1932, unemployment approached 25% of the urban labor force. On July 8, 1932, the Dow Jones Industrial Average plunged to 41.22. The nation responded by electing Franklin D. Roosevelt, who brought a complex series of New Deal programs designed to provide immediate relief, restore prosperity, and permanently reform the economy's weaknesses.

After the stock market collapse, the New York-based banks became concerned over the security of overseas loans and called in their loans to Germany and Austria. However, without the American money, Germany was unable to continue making World War I reparations payments to France and the United Kingdom. This chain reaction meant they, in turn, could not repay their war loans to America. All governments were forced to cease paying both reparations and war loan repayments. Most people could not afford many every day items.

The United States government tried to protect domestic industries from foreign competition by imposing the highest import duty in American history. In retaliation, other countries raised their tariffs on imports of American goods. As a result, world trade dropped by 62%, exacerbating the depression: global industrial production declined by 36% between 1929 and 1932.

File:BC relief.jpg

A relief camp in British Columbia, Canada.

In Canada, the Liberal Party lost the 1930 election to Richard Bedford Bennett and the Conservative Party. Campaigning on high tariffs and large scale spending, Bennett eventually reneged on most of these promises. The failure of his administration exacerbated the effects of the Great Depression on Canada. Like Roosevelt, Bennet tried to offer a "New Deal" to Canadians, such as unemployment insurance, shorter work periods and minimum wage. See Great Depression in Canada for more details.

In Germany, unemployment increased drastically fueling widespread disillusionment and anger. The institutions of the Weimar Republic, which had already been unable to maintain order in Germany, further deteriorated in the years from 1930 to 1932, while the Chancellor and finance expert Heinrich Brüning attempted to fix the economy by drastically cutting state spending. At the time, the NSDAP, or Nazi party, gained much popularity, winning the two general elections in 1932. This eventually led to the coming to power of Adolf Hitler as Chancellor on January 30, 1933 In Nazi Germany, economic recovery was pursued through rearmament, conscription, and public works programs. In Benito Mussolini's Italy, the economic controls of his state were tightened.

In the Netherlands, some projects were started to give people employment and boost the economy, such as the Amsterdamse Bos, a reforestation project near Amsterdam. In Heerlen, fabric merchant Schunck commissioned a new building in 1934 for his business, the hypermodern Glaspaleis (crystal palace) the tallest building in the city at the time.

In the United Kingdom, the Labour government of Ramsay MacDonald, and later the Conservative-dominated coalition "National Government", responded to the depression by imposing tariffs on all imports from outside the British Empire, by cutting public spending, and by abandoning the Gold Standard which reduced the cost of British exports (see Great Depression in the United Kingdom).

In the United States, President Herbert Hoover made efforts to control the situation. However he gravely underestimated the severity of the crisis, even reporting in 1929, that the worst effects of the recent stock market crash were behind them, and that the U.S. public had regained faith in the economy. Over the following months, it became apparent this was not the case, and Hoover in late 1930 asked for a $150 million public works program to help generate jobs. However, one of the major problems was that with deflation, the currency that you kept in your pocket could buy more goods as prices went down. Another was that there had been no federal oversight of the stock market or other investment markets, and with the collapse, many stock and investment schemes were found to be either insolvent or outright frauds. Unfortunately, many banks had invested in these schemes. By the end of 1930, there had been over 1300 bank failures; in 1931, nearly 2300 more banks failed. 1932 saw the collapse of the banking system; Milton Friedman's monetary theories suggest that the inexperience of the newly-created Federal Reserve in managing the money supply exacerbated the problem. With the banking system in shambles, and people holding on to whatever currency that they had, there was minimal cash available for any activities that would cause positive change.

The response of the Hoover administration helped little; instead of increasing the money supply, the Hoover administration did the exact opposite and raised interest rates, falsely believing that inflation was the real danger. Many in the Hoover administration believed that as wages fell, the cost of production would drop and, as a result, production would pick up again--the depression would be self-correcting. Nobody at that time foresaw the effects of a calamitous drop in the money supply. For this reason, the government's intervention in the economy, reduction of the money supply, raising of interest rates, and protectionist measures proved disastrous.

Like their counterparts abroad, many Americans were disillusioned with their system of government, believing that Hoover's policies had driven the country to ruin. Shanty towns populated by unemployed people at the time were often dubbed Hoovervilles, highlighting the President's fading popularity. During this period, several alternative political movements saw a considerable increase in membership. In particular, a number of high-profile figures embraced the ideals of Communism and the US Communist Party encouraged its followers to "Follow the Example of Mother Bloor", who embraced the movement. Radio speakers, such as Father Charles Coughlin, saw their listening audiences swell into the millions as they sought easy scapegoats for the country's woes.

Upon accepting the Democratic nomination for president (July 2, 1932), Franklin D. Roosevelt promised "a new deal for the American people", a phrase that has endured as a label for his administration and its many domestic achievements. Upon taking office in March 1933 he proposed the "New Deal" of multiple programs to promote relief for the destitute, recovery of the economy, and reform of its weaknesses. In 1933 Roosevelt was eclectic and took economic advice from many directions. Across the world all major countries intervened in their economies, trying to escape the worst effects of the depression.

The Depression

File:Hooverville.jpg

"Community Camp", a depression era shantytown in Oklahoma City, Oklahoma

Contrary to popular belief, the Stock Market Crash and Great Depression did not plunge all Americans into instant poverty. While the full effects of the Depression were imminent, they were not universally immediate. Indeed, following the October event on Wall Street, economists who underestimated the event felt that the crash of the market was simply a long over due, albeit major, market correction.

However when the market failed to rebound, and it became apparent that even highly regarded consumer goods manufacturers were in trouble (example, Atwater-Kent Radios, Willys-Overland, etc.) the effects began to impact the economy. Not only did name-brand product manufacturers fail, but their suppliers and retailers also failed.

Easy credit fuelled the consumer driven economy of the 1920s, and following the depression, credit availability began to tighten, both for business and consumers. With lenders restricting their credit availability, and moving quickly to secure their liabilities, employers who were hurt by the ripple effect of Wall Street were the first to be liquidated. As employers closed their companies, the ranks of the unemployed grew, which further complicated the banking situation by reducing income from credit lines, which cascaded into a liquidity crisis leading up to the banking panic of 1933.

Consumers who had taken advantage of credit sometimes were unable to meet the monthly payment and repossession of automobiles, furniture and household goods became .

Foreclosures on home mortgages rose throughout the period, and affected people in all income brackets. In a few localities the forced sale of personal property, drew neighbors who attempted to disrupt the proceedings as a form of protest of the action and support of the family under the eviction notice. The angry crowds also had the effect of scaring off potential bidders for auction goods. While this allowed neighbors to pay pennies on the dollar for their neighbors' possessions (which were usually given back to the family following the sale), it also did little to reduce the debt of the family being evicted.

The wealthy, who had significant investments in Wall Street, did experience losses; however those losses depended on how investments were structured. As a result, all but the very well-off curtailed their spending habits. Some of the wealthiest families, like the Kennedys, were virtually unfazed by the Stock Market Crash, and were able to continue living their lives largely as they had before the Depression. Others, like the Hellers, used independent investments to "float" for several years after the Crash, most bottoming out by the mid-1930's. Many wealthy American families found their extensive finances wiped out over night, and went literally "from riches to rags."

A massive series of bank runs in early 1933 caused 4,004 banks to close permanently that year, with an average of $900,000 in deposits. These banks were merged into stronger banks; many months later the depositors received about 85% of their money. It is an urban legend that millions lost their money in banks; rather they were forced to withdraw their deposits to pay their bills. The total of all deposits in all 9,106 banks that suspended 1929-33 was $6,886 million; losses to depositers were $1,336, or 19%. [Historical Statistics series X741-755]

High end consumer goods providers, such as the luxury automobile industry, saw their sales number dwindle. Cleveland, Ohio had the highest concentration of luxury automobile manufacturers outside of Detroit. Between 1929 and 1934, production of Peerless, Jordan, Stearns-Knight cars all ceased; Peerless, as a company, did survive, but did so by discontinuing automobile production and regrouping as a brewery.

Purchases of cheaper cars also slowed. General Motors attempted to encourage consumers to buy cars by advertising that “the sale of one car keeps an autoworker employed for three months, allowing that worker and his family to buy goods and services with their salary.” However a sizable percentage of Americans couldn't even pay for a tank of gas, let alone a new car and the entire auto industry struggled to maintain sales at a profitable level.

Buried machinery in barn lot. Dallas, South Dakota, May 1936

Drought first struck the Eastern United States in 1930. By 1931 it began moving westward where the weather pattern stalled over the Great Plains states. By 1934, the plains had been turned to desert. While weather was the catalyst for the Dust Bowl (a name coined in 1935), the root cause was poor farming and soil conservation techniques on land that was better suited to growing prairie grasses and native flowers than it was for growing corn. When the thin layer of top soil turned to a dry powder, and the winds swept through, dust storms resulted producing a filth and grime that was difficult to wash out of fabric and clean out of buildings. Once the top soil was depleted, the under layer of clay that remained proved unsuitable for cash crops, leading to farm failures and mortgage foreclosures.

Migrants who trekked west to California were called Okies, and Arkies, as they flooded the labor supply of the agricultural fields. Their story was dramatized in the famous novels The Grapes of Wrath and Of Mice and Men by John Steinbeck.

In the South, rural workers and share croppers migrated north by train with plans to work in auto plants around Detroit. In the Great Lakes states, farmers had been experiencing depressed market conditions for their crops and goods since the end of World War I. Family farms that had been mortgaged during the Twenties to provide money to “get through until better times” risked foreclosure when their owners failed to make payments. Unlike the dustbowl states, the midwest experienced near normal weather conditions in the 1930s, and farmers could make a living if they spent their incomes in a wise and prudent way. Unable to pay wages for hired help, families whose farms were located near railroad tracks often hired men who volunteered to work for food.

However, a large percentage of the American middle class was able to survive the ordeal. Those in professions where skills and jobs were considered “depression proof” (government positions, teachers in well-funded districts, doctors, lawyers, etc.) continued to work. Daily life was made more secure if these workers had little debt before the stock market crash, had liquid savings and generally lived without overt extravagances. American middle class households managed to get through the economic depression by adapting to conditions, spending wisely and avoiding unnecessary purchases.

One industry that flourished in America during the 1930s was the movie industry (Hollywood). The emergence of sound films in the late 1920s, combined with the escapism that film provided to a nation down on its luck, made the film industry one of the few that produced profits throughout the 1930s. Films commonly featured rich sets and carefree characters, allowing an increasingly depression-weary nation to leave its cares behind - if only for the duration of a movie. Shirley Temple's films were leading attractions, perhaps because her characters' unwavering hopefulness in the face of trying circumstances spoke to American audiences. Conversely, the film version of Steinbeck’s Grapes of Wrath (see above), now considered by many to be a masterpiece of American cinema, was a commercial disappointment when it debuted--possibly because it reminded too many moviegoers of the harsh realities of their own situations.

Movie genres that thrived during the 1930s were screwball comedies, lavish musicals (notably, The Wizard of Oz), Westerns and gangster movies.

International effects

Many nations experienced an economic decline, though the severity and timing differed from country to country. For example, the United Kingdom hit its trough in the third quarter of 1932, while France did not reach its low point until April of 1937. Charles P. Kindleberger has provided the best international account of the Depression so far in his book The World in Depression.

Asia

Asia was also hit by the Great Depression due to its dependence on the export of raw materials with Europe and America, predominantly rubber and tin for the automotive industry. Asian trade fell sharply as Americla and Europe were gripped by the depression. Firms in Asia responded by cutting their workforce and reducing wages.

In Japan, unemployment and poverty rose, disproportionately affecting the lower classes; these hardships were a factor in the rise of Japanese nationalism. However, compared to some, Japan was not too badly affected.

Canada

As America's largest trading partner in the 1930's, 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. For example, Canada's unemployment rate in 1933-34 reached its acme, when 26% of the population was unemployed. Western Canada was hit particularly hard during the nadir of the Depression, where a full recovery did not occur until the Second World War began in 1939. When the Depression ended, three parties were engendered in Canada: the CCF, Social Credit Party of Canada and the Union Nationale.

Like the rest of the world, Canada's economic resuscitation began only with the World War II.

End of the Great Depression

In the United States

For further details, see the main New Deal article.

It was not until the United States entered World War II that Roosevelt's ideas for massive public expenditures and deficit spending appeared to work. Roosevelt's administration, of course, had little choice but to increase expenditures, given the war effort. Many of the New Deal policies seemed to work exactly as predicted, winning over many Republicans, who had been the New Deal's greatest opponents. By the end of World War II, Democrats, Republicans and much of the U.S. public assumed that government spendings and deficits were key to economic growth. On the other hand, according to economist Robert Higgs, when looking only at the supply of consumer goods significant GDP growth only resumed in 1946. (Higgs assumes that collective goods like victory in the war were not valued by consumers.) (Source: Robert Higgs (1992), 'Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s,' The Journal of Economic History 52(1):41-60.)

From 1932 onward Roosevelt argued that a restructuring of the economy--a "reform" would be needed to prevent another depression. New Deal programs sought to stimulate demand and provide work and relief for the impoverished through increased government spending, by:

• instituting regulations which ended what was called "cut throat competition" (in which large players supposedly used predatory pricing to drive out small players);
• creating regulations which would raise the wages of ordinary workers, to redistribute wealth so that more people could purchase products.

The original implementation, in the form of the National Recovery Act, brought in direct unemployment relief, and allowed:

• business to set price codes;
• the NRA board to set labor codes and standards;
• the Federal government to insure the banking system and provide price supports for agriculture and mining.

This is referred to as the First New Deal. It was centered around the use of the alphabet soup of agencies set up in 1933 and 1934, along with the use of previous agencies, to regulate and stimulate the economy.

The theories behind the New Deal matched the later prescriptions of British economist John Maynard Keynes, who advocated increased government spending in a financial crisis. In 1929, federal expenditures constituted only 3% of the GDP. Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics accused him of turning America into a socialist, or even Stalinist state. The aims of the New Deal were as follows: to prevent the economy and banking system from going into a free fall; to provide effective relief until larger economic forces would end the slump; and to prevent those factors which had exacerbated the slump. The New Deal was both a program of national recovery and of reform. An interesting insight into what motivated Roosevelt came from the transition from the Hoover administration — both men agreed that it was a global maladjustment of prices, debts and production that was causing the slump. The disagreement came over whether the US government should act first to try and negotiate an end to the root causes internationally, which was Hoover's view, or act for domestic recovery and reform until the international situation could be resolved, which was FDR's view.

The New Deal was rooted in new ideas, but also in economic orthodoxy of balanced budgets, and restraint of federal power. It represented bigger and broader government than ever before, but not as big as government would later become: spending on the New Deal was far smaller than on the war effort. In short, federal expenditures went from 3% of the GDP in 1929 to about 33% in 1945. The big surprise was just how productive America became: spending financially cured the depression. Between 1939 and 1944 (the peak of wartime production), the nation's output more than doubled. Consequently, unemployment plummeted—from 19% in 1938 (already down from 1933's 24.9% peak) to 1.2% in 1944—as the labor force grew by ten million. The war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, that it would return to Depression conditions and industrial output would fall to its pre-war levels. There is general agreement that it was World War II which finally provided the United States Federal Government with the political will to buy its way out of the Depression and resolve the global monetary crisis by the imposition of the Bretton Woods system.

Others like Milton Friedman and Friedrich von Hayek, argued that the Great Depression did not resolve itself until after World War II, where the country's economy saw some form of normalcy: reductions in tariffs, lower taxes/spending, reduction of price controls, an end to rationing of goods. They, along with other microeconomists and free market thinkers, argue that the Great Depression was perpetuated by the New Deal's government influence into the economy, and also argued that the policy prescriptions under the Bretton Woods accord would create new economic problems of their own rather than solve current ones. They also argued that much of the regulation, legislation, and court rulings that came about during the great depression resulted in not the protection of competition but the protection of competitors at the expense of competition and consumers.

Political Perspectives on Causes and Cures

There are multiple competing interpretations about what caused the Great Depression. The debate is important because the public and policy makers ever since 1929 have demanded that such a disaster never again happen, so it is imperative to explain why. Economists do not agree on what caused the depression or what prolonged it. The political interpretations especially important in the USA are as follows:

Microeconomists: restrictions to blame

Many economists at the time argued that the sharp decline in international trade after 1930 helped to worsen the depression. Some also argued that the growing body of economic intervention after 1932 contributed to the markets inability to react to abrupt changes and kept unemployment high in some countries, such as the US. The British Empire promoted trade inside the Empire (and not with the U.S.A.) Germany promoted economic autarky in which countries received benefits (or threats) for trading with Germany.

Smoot-Hawley Tariff Act to blame

Most historians and economists assign the Smoot-Hawley Tariff Act of 1930 part of the blame for worsening the depression by reducing international trade and causing retaliation. As for the United States, foreign trade was a small part of overall economic activity; it was a much larger factor in most other countries. [4] The average ad valorem rate of duties on dutiable imports for 1921-1925 was 25.9% but under the new tariff it jumped to 50.0% in 1931-1935. In spite of the objection of more than a thousand members of the American Economic Association Hoover signed the tariff for several reasons. It embodied his recommendations of increased agricultural protection, and reorganizing the Tariff Commission. Hoover constantly praised the law for helping American farmers and the American home market; he ignored the threat to exporters. It became a major campaign issue in 1932, but Hoover rejected Roosevelt's charges that "the Hawley-Smoot Tariff is one of the most important factors in the present world-wide depression," and that "it has destroyed international commerce." Hoover responded, "So they would have us believe this world catastrophe and this destruction of foreign trade happened because the United States increased tariff on one-fourth of one-third of one-eighth of the world's imports. Thus we pulled down the world, so they tell us, by increases of less than one per cent of the goods being imported by the world." [Hoover State Papers, II, 343]

In dollar terms American exports declined from $5.2 billion in 1929 to $1.7 billion in 1933; but prices also fell so the physical volume of exports did not decline as much. 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.

Monetarism: Federal reserve to blame

Milton Friedman and Ben Bernanke stress the negative role of the Federal Reserve System. It cut the money supply by one-third from 1929 to 1932. There was much less money to go around, businessmen could not get new loans--and could not even get their old loans renewed. They had to stop investing. Not because they did not want to (as the Keynesian model said), but because banks could not lend them the money they needed. This interpretation blames the government and calls for a much more careful Federal Reserve policy. Bernanke became the Chairman of the Federal Reserve System in 2006.

The Far Left: capitalism to blame

The revolutionary left, including some socialists, together with communists and anarchists, saw the Great Depression as the beginning of capitalism's final collapse. Their remedy was to build up their movements to take over the labor unions, and perhaps eventually the government. The New Deal did change the laws to help unions grow--but they split into warring AFL and CIO factions and neutralized much of their potential political influence. Unions grew even faster during the war.

New Dealers: Business to Blame

Roosevelt and most of the New Dealers 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 intended to remedy that by empowering labor unions and farmers (which they did), and by raising taxes on corporate profits (they tried and failed). Regulation of the economy was a favorite remedy. Some of those regulations, such as establishing the Securities and Exchange Commission which regulates Wall Street, won widespread support and continue to this day. Most of the other regulations were abolished or scaled back in a bipartisan wave of deregulation 1975-85.

Keynesianism: public behaviour to blame

The British economist John Maynard Keynes coined the term "the paradox of thrift" to describe the deepening of the Great Depression after 1929. The paradox of thrift indicates that when people decide to save more this may end up causing people to save less. The increased savings (reduced spending) due to the panic following the stock market crash of 1929 left markets saturated, contributing to price deflation, perpetuating the Great Depression. When people decided to save more (spend less) businesses responded by cutting back on production and laying off workers. Businesses, cutting back on investment spending because they were pessimistic about the future as well, were also doing their share of causing a reduction in aggregate expenditures, reducing their investments, setting in motion a dangerous cycle: less investment, fewer jobs, less consumption and even less reason for business to invest. The lower aggregate expenditures in the economy contributed to a multiple decline in income well below full employment. The economy may reach perfect balance, but at a cost of high unemployment and social misery. At the lower income levels during the Great Depression savings were much lower than before-- hence, the paradox of thrift. As a result, Keynesian economists were increasingly calling for government to take up the slack.

The New Deal and Keynesian economics

In the early 1930s, before John Maynard Keynes wrote The General Theory, he was advocating public works programs and deficits as a way to get the British economy out of the Depression. Although Keynes never mentions fiscal policy in The General Theory, and instead advocates the need to socialize investments, Keynes ushered in more of a theoretical revolution than a policy one. Keynes's basic idea was simple. In order to keep people fully employed, governments have to run deficits when the economy is slowing because the private sector won't invest enough. Many politicians, however, failed to understand his idea.

As the Depression wore on, Franklin D. Roosevelt tried public works, farm subsidies and other devices to restart the economy, but he never completely gave up trying to balance the budget. As a result, unemployment remained high throughout the New Deal years; consumption, investment, and net exports-- the pillars of economic growth-- remained low. With fiscal policy, however, government could provide the needed increased spending by decreasing taxes, increasing government spending, increasing individuals' incomes. As individuals incomes would increase, they would spend more. As they spent more, the multiplier effect would take over and expand the effect on the initial spending. Expansionary fiscal policy thus involves decreasing taxes or increasing government spending to counteract cyclical unemployment and slow growth during a recession.

It was World War II, not the New Deal, that finally ended the crisis. Nor did the New Deal substantially alter the distribution of power within American capitalism; and it had only a small impact on the distribution of wealth among the American people.

Keynes's visit to the White House in 1934 to urge President Roosevelt to do more deficit spending was a debacle. A dazed, overwhelmed Roosevelt complained to Labor Secretary Frances Perkins, "He left a whole rigmarole of figures-- he must be a mathematician rather than a political economist." Keynes, equally frustrated with the encounter, later told Secretary Perkins that he had "supposed the President was more literate, economically speaking."

The recession of 1937 and recovery

The Roosevelt administration was under assault during FDR's second term, which presided over a new dip in the Great Depression in the fall of 1937 that continued through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. It was, in the largest measure, a result of a premature effort by the administration to balance the budget by reducing federal spending.

The administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the new dip. The president appointed an aggressive new direction of the antitrust division of the Justice Department, but this effort lost its effectiveness once World War II, a far more pressing concern, began.

But the administration's other response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the vitriolic pleas of the Treasury Department and responding to the urgings of the converts to Keynesian economics and others in his administration, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, an effort to increase mass purchasing power. The New Deal had in fact engaged in deficit spending since 1933, but it was apologetic about it, because a rise in the national debt was opposite of what the Democratic party had always preached. Now they had a theory to justify what they were doing. Roosevelt explained his program in a fireside chat in which he finally acknowledged that it was therefore up to the government to "create an economic upturn" by making "additions to the purchasing power of the nation."

Business-oriented observers explained the recession and recovery in very different terms from the Keynesians. They argued that the New Deal had been very hostile to business expansion in 1935-37, had encouraged massive strikes which had a negative impact on major industries such as automobiles, and had threatened massive anti-trust legal attacks on big corporations. All those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth.

External links

• Depression video clip 2 min.
• An Overview of the Great Depression from EH.NET by Randall Parker.

Films and TV

• The Crash of 1929 -- PBS [5]
• The Grapes of Wrath, Director: John Ford, 1940
• Of Mice and Men, filmed three times - in 1939, 1981 and 1992
• They Shoot Horses, Don't They?, Director: Sidney Pollack, 1969
• The Journey of Natty Gann, 1985
• Cradle Will Rock, Director: Tim Robbins, 1999
• Dogville, Director:Lars von Trier, 2003
• Seabiscuit
• Carnivàle, Fictional account of Depression era television series produced by HBO, (2003-2005)
• Cinderella Man, Directed by the Academy Award Winner Ron Howard, Starring Academy Award Winners Russell Crowe and Renée Zellweger, 2005

See also

• Aftermath of World War I
• Business cycle
• Cities in the great depression
• Economic collapse
• Great Depression in Canada
• Great Depression in Australia
• Great Depression in the United Kingdom
• Great Depression in France
• Great Depression in Italy
• Great Depression in Ireland
• Great Depression in Spain
• Great Depression in Latin America
• Great Depression in Germany
• Great Depression in Scandinavia
• Great Depression in South Africa
• Great Depression in Eastern Europe
• Great Depression in East Asia
• Great Depression in Japan
• New Deal

References

External Sources: World

• Ambrosius, G. and W. Hibbard, A Social and Economic History of Twentieth-Century Europe (1989)
• Bernanke, Ben S. "The Macroeconomics of the Great Depression: A Comparative Approach" Journal of Money, Credit & Banking, Vol. 27, 1995
• Brown, Ian. The Economies of Africa and Asia in the inter-war depression (1989)
• Davis, Joseph S., The World Between the Wars, 1919-39: An Economist's View (1974)
• Feinstein. Charles H. The European economy between the wars (1997)
• Garraty, John A., The Great Depression: An Inquiry into the causes, course, and Consquences 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)
• 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)
• Kaiser, David E. Economic diplomacy and the origins of the Second World War: Germany, Britain, France and Eastern Europe, 1930-1939 (1980)
• Kindleberger, Charles P. The World in Depression, 1929-1939 (1983)
• Madsen, Jakob B. "Trade Barriers and the Collapse of World Trade during the Great Depression"' Southern Economic Journal, Vol. 67, 2001
• Mundell, R. A. "A Reconsideration of the Twentieth Century' "The American Economic Review" Vol. 90, No. 3 (Jun., 2000), pp. 327-340

online at JSTOR

• Rothermund, Dietmar. The Global Impact of the Great Depression (1996)
• Salsman, Richard M. “The Cause and Consequences of the Great Depression” in The Intellectual Activist, ISSN 0730-2355.

Mr. Salsman argues that the Great Depression was fundamentally caused by statist government policy, and ended only when government policy became less statist and more laissez-faire.

“Part 1: What Made the Roaring ’20s Roar”, June, 2004, p. 16-24.

“Part 2: Hoover's Progressive Assault on Business”, July, 2004, pp. 10-20.

“Part 3: Roosevelt's Raw Deal”, August, 2004, pp. 9-20.

“Part 4: Freedom and Prosperity”, January, 2005, pp. 14-23.

• Tipton, F. and R. Aldrich, An Economic and Social History of Europe, 1890–1939 (1987)

Academic secondary sources: USA

• Archibald, Robert B. and David H. Feldman. "Investment during the Great Depression: Uncertainty and the Role of the Smoot-Hawley Tariff" Southern Economic Journal, Vol. 64, 1998
• Bakke E. Wright. The Unemployed Worker: A Study of the Task of Making a Living without a Job. (1940).
• Beito David. Taxpayers in Revolt (1989)
• Bernstein, Irving. Turbulent Years: A History of the American Worker, 1933-1941 (1970), the best history of labor in the era.
• Bernstein, Michael A. The Great Depression: Delayed Recovery and Economic Change in America, 1929-1939 (1989)
• Best, Gary Dean. Pride, Prejudice, and Politics: Roosevelt Versus Recovery, 1933-1938 (1991), conservative critique
• Blumberg Barbara. The New Deal and the Unemployed: The View from New York City (1977).
• Bordo, Michael D., Claudia Goldin, and Eugene N. White , eds., The Defining Moment: The Great Depression and the American Economy in the Twentieth Century(1998). Advanced economic history.
• Bremer William W. "Along the American Way: The New Deal's Work Relief Programs for the Unemployed." Journal of American History 62 (December 1975): 636-652. online at JSTOR in most academic libraries
• Brock William R. Welfare, Democracy and the New Deal (1988)
• Chandler, Lester. America's Greatest Depression (1970). good overview.
• Friedman, Milton and Anna J. Schwartz, A Monetary History of the United States, 1867-1960 (1963), classic monetarist explanation
• Himmelberg, Robert F. ed The Great Depression and the New Deal (2001) short overview
• Grant, Michael Johnston. Down and Out on the Family Farm: Rural Rehabilitation in the Great Plains, 1929-1945 (2002)
• Higgs, Robert. 1992. 'Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s,' The Journal of Economic History 52(1):41-60.
• Howard Donald S. The WPA and Federal Relief Policy (1943)
• Jensen, Richard J. "The Causes and Cures of Unemployment in the Great Depression," Journal of Interdisciplinary History 19 (1989) 553-83. online at JSTOR in most academic libraries
• Kennedy, David. Freedom from Fear: The American People in Depression and War, 1929-1945 (1999) standard scholarly history
• Kubik, Paul J. "Federal Reserve Policy during the Great Depression: The Impact of Interwar Attitudes regarding Consumption and Consumer Credit' Journal of Economic Issues, Vol. 30, 1996
• Lowitt, Richard and Beardsley Maurice, eds. One Third of a Nation: Lorena Hickock Reports on the Great Depression (1981)
• McElvaine Robert S. The Great Depression 2nd ed (1993)
• Mitchell, Broadus. Depression Decade: From New Era through New Deal, 1929-1941 (1964), standard scholarly overview of economic history
• Romasco Albert U. "Hoover-Roosevelt and the Great Depression: A Historiographic Inquiry into a Perennial Comparison." In John Braeman, Robert H. Bremner and David Brody, eds. The New Deal: The National Level (1973) v 1 pp 3-26.
• Rosen, Elliot A. Roosevelt, the Great Depression, and the Economics of Recovery (2005) argues productivity gains were more responsible for long-term recovery than New Deal
• Saloutos, Theodore. The American Farmer and the New Deal (1982).
• Sautter Udo. Three Cheers for the Unemployed (1991)
• Singleton, Jeff. The American Dole: Unemployment Relief and the Welfare State in the Great Depression (2000)
• Sitkoff, Harvard. A New Deal for Blacks (1978).
• Smiley, Gene. Rethinking the Great Depression (2002) economist blames Federal Reserve and gold standard
• Smith, Jason Scott. Building New Deal Liberalism: The Political Economy of Public Works, 1933-1956 (2005).
• Sternsher, Bernard ed., Hitting Home: The Great Depression in Town and Country (1970)
• Szostak, Rick. Technological Innovation and the Great Depression (1995)
• Temin, Peter. Did monetary forces cause the great depression (1976)
• Tindall George B. The Emergence of the New South, 1915-1945 (1967).
• Trattner Walter I. From Poor Law to Welfare State 6th ed. (1979)
• Trout Charles H. Boston, the Great Depression, and the New Deal (1977)
• Warren, Harris Gaylord. Herbert Hoover and the Great Depression (1959).
• Watkins, T. H. The Great Depression: America in the 1930s. (1993).
• Wheeler, Mark, ed. The Economics of the Great Depression (1998)
• Eugene N. White, "The Stock Market Boom and Crash of 1929 Revisited," The Journal of Economic Perspectives Vol. 4, No. 2 (Spring, 1990), pp. 67-83 online at JSTOR

External links

• Bernanke, "Money, Gold, and the Great Depression " (2004)
• America's Great Depression — an "Austrian" interpretation by Murray Rothbard
• America's Great Depression — Timeline
• The Causes of the 1929–33 Great Collapse: A Marxian Interpretation, by James Devine
• Farming in the 1930s (US)
• Keynes and Friedman on the Great Depression
• Theories on the Great Depression
• The Economics of the Great Depression
• About.com: 1929 Stock Market Crash
• The Great Depression (ingrimayne.saintjoe.edu)
• The Dirty Thirties — Images of the Great Depression in Canada
• The Main Causes of the Depression
• Depression unemployment rates, from U.S. Department of Labor, Bureau of Labor Statistics
• German and other books