the great depression essay intro

The Great Depression

“Regarding the Great Depression, … we did it. We’re very sorry. … We won’t do it again.” —Ben Bernanke, November 8, 2002, in a speech given at “A Conference to Honor Milton Friedman … On the Occasion of His 90th Birthday.”

In 2002, Ben Bernanke , then a member of the Federal Reserve Board of Governors, acknowledged publicly what economists have long believed. The Federal Reserve’s mistakes contributed to the “worst economic disaster in American history” (Bernanke 2002).

Bernanke, like other economic historians, characterized the Great Depression as a disaster because of its length, depth, and consequences. The Depression lasted a decade, beginning in 1929 and ending during World War II. Industrial production plummeted. Unemployment soared. Families suffered. Marriage rates fell. The contraction began in the United States and spread around the globe. The Depression was the longest and deepest downturn in the history of the United States and the modern industrial economy.

The Great Depression began in August 1929, when the economic expansion of the Roaring Twenties came to an end. A series of financial crises punctuated the contraction. These crises included a stock market crash in 1929 , a series of regional banking panics in 1930 and 1931 , and a series of national and international financial crises from 1931 through 1933 . The downturn hit bottom in March 1933, when the commercial banking system collapsed and President Roosevelt declared a national banking holiday . 1    Sweeping reforms of the financial system accompanied the economic recovery, which was interrupted by a double-dip recession in 1937 . Return to full output and employment occurred during the Second World War.

To understand Bernanke’s statement, one needs to know what he meant by “we,” “did it,” and “won’t do it again.”

By “we,” Bernanke meant the leaders of the Federal Reserve System. At the start of the Depression, the Federal Reserve’s decision-making structure was decentralized and often ineffective. Each district had a governor who set policies for his district, although some decisions required approval of the Federal Reserve Board in Washington, DC. The Board lacked the authority and tools to act on its own and struggled to coordinate policies across districts. The governors and the Board understood the need for coordination; frequently corresponded concerning important issues; and established procedures and programs, such as the Open Market Investment Committee, to institutionalize cooperation. When these efforts yielded consensus, monetary policy could be swift and effective. But when the governors disagreed, districts could and sometimes did pursue independent and occasionally contradictory courses of action.

The governors disagreed on many issues, because at the time and for decades thereafter, experts disagreed about the best course of action and even about the correct conceptual framework for determining optimal policy. Information about the economy became available with long and variable lags. Experts within the Federal Reserve, in the business community, and among policymakers in Washington, DC, had different perceptions of events and advocated different solutions to problems. Researchers debated these issues for decades. Consensus emerged gradually. The views in this essay reflect conclusions expressed in the writings of three recent chairmen, Paul Volcke r, Alan Greenspan , and Ben Bernanke .

By “did it,” Bernanke meant that the leaders of the Federal Reserve implemented policies that they thought were in the public interest. Unintentionally, some of their decisions hurt the economy. Other policies that would have helped were not adopted.

An example of the former is the Fed’s decision to raise interest rates in 1928 and 1929. The Fed did this in an attempt to limit speculation in securities markets. This action slowed economic activity in the United States. Because the international gold standard linked interest rates and monetary policies among participating nations, the Fed’s actions triggered recessions in nations around the globe. The Fed repeated this mistake when responding to the international financial crisis in the fall of 1931. This website explores these issues in greater depth in our entries on the stock market crash of 1929 and the financial crises of 1931 through 1933 .

An example of the latter is the Fed’s failure to act as a lender of last resort during the banking panics that began in the fall of 1930 and ended with the banking holiday in the winter of 1933. This website explores this issue in essays on the banking panics of 1930 to 1931 , the banking acts of 1932 , and the banking holiday of 1933 .

One reason that Congress created the Federal Reserve, of course, was to act as a lender of last resort. Why did the Federal Reserve fail in this fundamental task? The Federal Reserve’s leaders disagreed about the best response to banking crises. Some governors subscribed to a doctrine similar to Bagehot’s dictum, which says that during financial panics, central banks should loan funds to solvent financial institutions beset by runs. Other governors subscribed to a doctrine known as real bills. This doctrine indicated that central banks should supply more funds to commercial banks during economic expansions, when individuals and firms demanded additional credit to finance production and commerce, and less during economic contractions, when demand for credit contracted. The real bills doctrine did not definitively describe what to do during banking panics, but many of its adherents considered panics to be symptoms of contractions, when central bank lending should contract. A few governors subscribed to an extreme version of the real bills doctrine labeled “liquidationist.” This doctrine indicated that during financial panics, central banks should stand aside so that troubled financial institutions would fail. This pruning of weak institutions would accelerate the evolution of a healthier economic system. Herbert Hoover’s secretary of treasury, Andrew Mellon, who served on the Federal Reserve Board, advocated this approach. These intellectual tensions and the Federal Reserve’s ineffective decision-making structure made it difficult, and at times impossible, for the Fed’s leaders to take effective action.

Among leaders of the Federal Reserve, differences of opinion also existed about whether to help and how much assistance to extend to financial institutions that did not belong to the Federal Reserve. Some leaders thought aid should only be extended to commercial banks that were members of the Federal Reserve System. Others thought member banks should receive assistance substantial enough to enable them to help their customers, including financial institutions that did not belong to the Federal Reserve, but the advisability and legality of this pass-through assistance was the subject of debate. Only a handful of leaders thought the Federal Reserve (or federal government) should directly aid commercial banks (or other financial institutions) that did not belong to the Federal Reserve. One advocate of widespread direct assistance was  Eugene Meyer , governor of the Federal Reserve Board, who was instrumental in the creation of the  Reconstruction Finance Corporation .

These differences of opinion contributed to the Federal Reserve’s most serious sin of omission: failure to stem the decline in the supply of money. From the fall of 1930 through the winter of 1933, the money supply fell by nearly 30 percent. The declining supply of funds reduced average prices by an equivalent amount. This deflation increased debt burdens; distorted economic decision-making; reduced consumption; increased unemployment; and forced banks, firms, and individuals into bankruptcy. The deflation stemmed from the collapse of the banking system, as explained in the essay on the  banking panics of 1930 and 1931 .

The Federal Reserve could have prevented deflation by preventing the collapse of the banking system or by counteracting the collapse with an expansion of the monetary base, but it failed to do so for several reasons. The economic collapse was unforeseen and unprecedented. Decision makers lacked effective mechanisms for determining what went wrong and lacked the authority to take actions sufficient to cure the economy. Some decision makers misinterpreted signals about the state of the economy, such as the nominal interest rate, because of their adherence to the real bills philosophy. Others deemed defending the gold standard by raising interests and reducing the supply of money and credit to be better for the economy than aiding ailing banks with the opposite actions.

On several occasions, the Federal Reserve did implement policies that modern monetary scholars believe could have stemmed the contraction. In the spring of 1931, the Federal Reserve began to expand the monetary base, but the expansion was insufficient to offset the deflationary effects of the banking crises. In the spring of 1932, after Congress provided the Federal Reserve with the necessary authority, the Federal Reserve expanded the monetary base aggressively. The policy appeared effective initially, but after a few months the Federal Reserve changed course. A series of political and international shocks hit the economy, and the contraction resumed. Overall, the Fed’s efforts to end the deflation and resuscitate the financial system, while well intentioned and based on the best available information, appear to have been too little and too late.

The flaws in the Federal Reserve’s structure became apparent during the initial years of the Great Depression. Congress responded by reforming the Federal Reserve and the entire financial system. Under the Hoover administration, congressional reforms culminated in the  Reconstruction Finance Corporation Act and the Banking Act of 1932 . Under the Roosevelt administration, reforms culminated in the  Emergency Banking Act of 1933 , the  Banking Act of 1933 (commonly called Glass-Steagall) , the  Gold Reserve Act of 1934 , and the  Banking Act of 1935 . This legislation shifted some of the Federal Reserve’s responsibilities to the Treasury Department and to new federal agencies such as the Reconstruction Finance Corporation and Federal Deposit Insurance Corporation. These agencies dominated monetary and banking policy until the 1950s.

The reforms of the 1930s, ’40s, and ’50s turned the Federal Reserve into a modern central bank. The creation of the modern intellectual framework underlying economic policy took longer and continues today. The Fed’s combination of a well-designed central bank and an effective conceptual framework enabled Bernanke to state confidently that “we won’t do it again.”

• 1  These business cycle dates come from the National Bureau of Economic Research . Additional materials on the Federal Reserve can be found at the website of the Federal Reserve Bank of St. Louis.

Bibliography

Bernanke, Ben. Essays on the Great Depression . Princeton: Princeton University Press, 2000.

Bernanke, Ben, “ On Milton Friedman's Ninetieth Birthday ," Remarks by Governor Ben S. Bernanke at the Conference to Honor Milton Friedman, University of Chicago, Chicago, IL, November 8, 2002.

Chandler, Lester V. American Monetary Policy, 1928 to 1941 . New York: Harper and Row, 1971.

Chandler, Lester V. American’s Greatest Depression, 1929-1941 . New York: Harper Collins, 1970.

Eichengreen, Barry. “The Origins and Nature of the Great Slump Revisited.” Economic History Review 45, no. 2 (May 1992): 213–239.

Friedman, Milton and Anna Schwartz. A Monetary History of the United States: 1867-1960 . Princeton: Princeton University Press, 1963.

Kindleberger, Charles P. The World in Depression, 1929-1939 : Revised and Enlarged Edition. Berkeley: University of California Press, 1986.

Meltzer, Allan. A History of the Federal Reserve: Volume 1, 1913 to 1951 . Chicago: University of Chicago Press, 2003.

Romer, Christina D. “The Nation in Depression.” Journal of Economic Perspectives 7, no. 2 (1993): 19-39.

Temin, Peter. Lessons from the Great Depression (Lionel Robbins Lectures) . Cambridge: MIT Press, 1989.

Written as of November 22, 2013. See disclaimer .

Essays in this Time Period

• Bank Holiday of 1933
• Banking Act of 1933 (Glass-Steagall)
• Banking Act of 1935
• Banking Acts of 1932
• Banking Panics of 1930-31
• Banking Panics of 1931-33
• Stock Market Crash of 1929
• Emergency Banking Act of 1933
• Gold Reserve Act of 1934
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What was the Great Depression?

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Great Depression

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• Table Of Contents

The Great Depression, which began in the United States in 1929 and spread worldwide, was the longest and most severe economic downturn in modern history. It was marked by steep declines in industrial production and in prices (deflation), mass unemployment , banking panics, and sharp increases in rates of poverty and homelessness.

Four factors played roles of varying importance. (1) The stock market crash of 1929 shattered confidence in the American economy, resulting in sharp reductions in spending and investment. (2) Banking panics in the early 1930s caused many banks to fail, decreasing the pool of money available for loans. (3) The gold standard required foreign central banks to raise interest rates to counteract trade imbalances with the United States, depressing spending and investment in those countries. (4) The Smoot-Hawley Tariff Act (1930) imposed steep tariffs on many industrial and agricultural goods, inviting retaliatory measures that ultimately reduced output and caused global trade to contract.

In the United States, where the Depression was generally worst, industrial production between 1929 and 1933 fell by nearly 47 percent, gross domestic product (GDP) declined by 30 percent, and unemployment reached more than 20 percent. Because of banking panics, 20 percent of banks in existence in 1930 had failed by 1933.

Three factors played roles of varying importance. (1) Abandonment of the gold standard and currency devaluation enabled some countries to increase their money supplies, which spurred spending, lending, and investment. (2) Fiscal expansion in the form of increased government spending on jobs and other social welfare programs , notably the New Deal in the United States, arguably stimulated production by increasing aggregate demand. (3) In the United States, greatly increased military spending in the years before the country’s entry into World War II helped to reduce unemployment to below its pre-Depression level by 1942, again increasing aggregate demand.

In most affected countries, the Great Depression was technically over by 1933, meaning that by then their economies had started to recover. Most did not experience full recovery until the late 1930s or early 1940s, however. The United States is generally thought to have fully recovered from the Great Depression by about 1939.

Recent News

Great Depression , worldwide economic downturn that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world, sparking fundamental changes in economic institutions, macroeconomic policy, and economic theory. Although it originated in the United States , the Great Depression caused drastic declines in output, severe unemployment , and acute deflation in almost every country of the world. Its social and cultural effects were no less staggering, especially in the United States, where the Great Depression represented the harshest adversity faced by Americans since the Civil War .

Economic history

The timing and severity of the Great Depression varied substantially across countries. The Depression was particularly long and severe in the United States and Europe ; it was milder in Japan and much of Latin America. Perhaps not surprisingly, the worst depression ever experienced by the world economy stemmed from a multitude of causes. Declines in consumer demand , financial panics , and misguided government policies caused economic output to fall in the United States, while the gold standard , which linked nearly all the countries of the world in a network of fixed currency exchange rates , played a key role in transmitting the American downturn to other countries. The recovery from the Great Depression was spurred largely by the abandonment of the gold standard and the ensuing monetary expansion. The economic impact of the Great Depression was enormous, including both extreme human suffering and profound changes in economic policy .

The Great Depression began in the United States as an ordinary recession in the summer of 1929. The downturn became markedly worse, however, in late 1929 and continued until early 1933. Real output and prices fell precipitously. Between the peak and the trough of the downturn, industrial production in the United States declined 47 percent and real gross domestic product (GDP) fell 30 percent. The wholesale price index declined 33 percent (such declines in the price level are referred to as deflation ). Although there is some debate about the reliability of the statistics, it is widely agreed that the unemployment rate exceeded 20 percent at its highest point. The severity of the Great Depression in the United States becomes especially clear when it is compared with America’s next worst recession, the Great Recession of 2007–09, during which the country’s real GDP declined just 4.3 percent and the unemployment rate peaked at less than 10 percent.

The Depression affected virtually every country of the world. However, the dates and magnitude of the downturn varied substantially across countries. Great Britain struggled with low growth and recession during most of the second half of the 1920s. The country did not slip into severe depression, however, until early 1930, and its peak-to-trough decline in industrial production was roughly one-third that of the United States. France also experienced a relatively short downturn in the early 1930s. The French recovery in 1932 and 1933, however, was short-lived. French industrial production and prices both fell substantially between 1933 and 1936. Germany ’s economy slipped into a downturn early in 1928 and then stabilized before turning down again in the third quarter of 1929. The decline in German industrial production was roughly equal to that in the United States. A number of countries in Latin America fell into depression in late 1928 and early 1929, slightly before the U.S. decline in output. While some less-developed countries experienced severe depressions, others, such as Argentina and Brazil , experienced comparatively mild downturns. Japan also experienced a mild depression, which began relatively late and ended relatively early.

The general price deflation evident in the United States was also present in other countries. Virtually every industrialized country endured declines in wholesale prices of 30 percent or more between 1929 and 1933. Because of the greater flexibility of the Japanese price structure, deflation in Japan was unusually rapid in 1930 and 1931. This rapid deflation may have helped to keep the decline in Japanese production relatively mild. The prices of primary commodities traded in world markets declined even more dramatically during this period. For example, the prices of coffee, cotton, silk, and rubber were reduced by roughly half just between September 1929 and December 1930. As a result, the terms of trade declined precipitously for producers of primary commodities .

The U.S. recovery began in the spring of 1933. Output grew rapidly in the mid-1930s: real GDP rose at an average rate of 9 percent per year between 1933 and 1937. Output had fallen so deeply in the early years of the 1930s, however, that it remained substantially below its long-run trend path throughout this period. In 1937–38 the United States suffered another severe downturn, but after mid-1938 the American economy grew even more rapidly than in the mid-1930s. The country’s output finally returned to its long-run trend path in 1942.

Recovery in the rest of the world varied greatly. The British economy stopped declining soon after Great Britain abandoned the gold standard in September 1931, although genuine recovery did not begin until the end of 1932. The economies of a number of Latin American countries began to strengthen in late 1931 and early 1932. Germany and Japan both began to recover in the fall of 1932. Canada and many smaller European countries started to revive at about the same time as the United States, early in 1933. On the other hand, France, which experienced severe depression later than most countries, did not firmly enter the recovery phase until 1938.

The Great Depression: Causes, Impacts, and Recovery

Introduction.

The Great Depression remains one of the most harrowing periods in American history, a time when the nation’s economic foundations trembled, societal norms were challenged, and government intervention in economy and society reached new heights. The crisis, which lasted from 1929 until the onset of the global conflict of World War II, was not merely an American phenomenon but one that rippled across the globe, yet its most profound effects were felt on the American soil. An investigation into the Great Depression is not only an inquiry into an economic downturn but a chapter in history that illustrates the resilience and adaptability of the American spirit.

This essay endeavors to dissect the multi-faceted nature of the Great Depression, examining its causes, the extensive impact it had on the American populace, and the eventual path to recovery. It paints a picture of the era’s hardship, but also of innovation and courage in the face of adversity. By understanding this dark period in American history, we gain insight into the country’s socio-economic evolution and prepare ourselves with the knowledge to prevent or mitigate similar future crises.

Historical Context

Before the descent into economic darkness, America experienced what is often referred to as the “Roaring Twenties,” a decade marked by remarkable technological advancements, new social freedoms, and a buoyant economy that seemed to defy limitations. Innovations like the assembly line and mass production revolutionized industry, while a surge in consumerism, fueled by easy credit, kept factories humming and the stock market soaring. Jazz music and the Charleston dance craze symbolized a society in the throes of modernity, casting off the restrictive mores of the past.

However, beneath the sheen of prosperity, there were troubling signs. The agricultural sector, still a significant part of the economy, began to struggle due to overproduction and falling prices. Income inequality was at an all-time high, with the richest Americans reaping a disproportionate share of the decade’s economic gains. These economic disparities, coupled with a highly speculative stock market, created an unstable financial situation. It was a speculative bubble that could only expand so far before bursting.

As the 1920s progressed, speculation became rampant, with many investors buying stocks on margin, paying only a fraction of the value and borrowing the rest, with the assumption that the market’s upward trajectory was a constant. This speculative bubble was precarious, and when confidence wavered, it led to a cascading series of events that would trigger the greatest economic depression of the 20th century. The stage was set for a downturn, but few could anticipate the breadth and depth of the crisis that would soon engulf the nation and the world.

Causes of the Great Depression

The descent into the Great Depression, the deepest and longest-lasting economic downturn in the history of the Western industrialized world, was not the result of a singular event, nor can it be attributed to a lone cause. It was a complex confluence of factors that coalesced into a perfect storm of economic calamity. This section explores the multi-dimensional causes that led to the Great Depression.

The Stock Market Crash of 1929

Historians often cite the cataclysmic stock market crash that began on October 24, 1929, known as “Black Thursday,” as the inaugural event of the Great Depression. The speculative bubble that had been building through the 1920s, predicated on unwarranted optimism and leveraged investments, finally burst. Over the course of a few days, the market lost a significant portion of its value. This drastic decline in stock prices eroded wealth, both actual and perceived, leading to a precipitous drop in consumer spending and investment.

Bank Failures and Financial Contagion

In the wake of the stock market crash, a wave of bank failures followed, beginning in 1930 and stretching across the decade. Without the safeguards of modern deposit insurance, panic ensued as customers rushed to withdraw their funds, only to find that banks, heavily invested in the stock market or into loans that could not be repaid, were unable to return their deposits. These banking collapses further exacerbated the already declining levels of consumer confidence and spending.

Decrease in Consumer Purchasing

The uncertainty and fear that gripped the nation had a chilling effect on consumer purchasing. As individuals lost their life savings and fear of unemployment spread, the natural reaction was to cut spending to a minimum. This retreat from consumption led to a reduction in the production of goods, further leading to a surge in unemployment, creating a vicious downward spiral as a result.

The Drought and Dust Bowl

Compounding the urban and industrial financial crises was an ecological disaster unfolding in the American heartland. A severe drought, beginning in 1930 and lasting for nearly a decade, devastated agricultural production in the Great Plains. Known as the Dust Bowl, this period saw massive dust storms that not only destroyed crops but also displaced hundreds of thousands of destitute farmers, adding to the migratory pressures and urban unemployment plaguing the cities.

International Trade and Protective Tariffs

The global nature of the depression was further deepened by trade policies. The enactment of the Smoot-Hawley Tariff in 1930, which raised tariffs on thousands of imported goods to record levels, prompted retaliatory tariffs from America’s trading partners. This tariff war contributed to a significant decrease in international trade, furthering the global economic decline and preventing the world economy from stabilizing or recovering.

Conclusion of Causes

In conclusion, the causes of the Great Depression were numerous and interconnected. The stock market crash stripped away wealth and confidence, bank failures destroyed the financial system’s stability, the reduction in consumer purchasing curtailed production and led to mass unemployment, and the Dust Bowl and poor trade policies exacerbated the situation. These factors combined to create an economic downturn that would challenge the very fabric of American society.

Social and Cultural Impacts

The Great Depression exacted a heavy toll not only on the economy but also on the social and cultural fabric of American society. The widespread hardship and poverty reshaped daily life, altered family dynamics, and led to significant changes in the country’s cultural landscape.

Unemployment and the American Worker

At the height of the Depression in 1933, the unemployment rate in the United States approached 25%, leaving one in four workers without a job. The psychological and material impact of this massive unemployment was profound. Men, traditionally the breadwinners in the family, faced the demoralizing reality of being unable to provide for their households. This led to a range of social problems, including increased rates of malnutrition, illness, and strained family relationships.

Migration and the Search for Work

The economic pressures of the Dust Bowl, combined with the overall lack of jobs, instigated a significant internal migration within the United States. Thousands of families, particularly from Oklahoma, Texas, and neighboring states, referred to as “Okies,” traveled westward to California and other states, seeking work and better living conditions. These mass movements of people altered the demographics and social structures of many communities.

Hoovervilles and Shantytowns

The widespread homelessness caused by the Depression led to the creation of shantytowns, derogatorily named “Hoovervilles” after President Herbert Hoover, who was widely blamed for the economic downturn. These makeshift communities, constructed of cardboard, tar paper, glass, lumber, and other scavenged materials, became a common sight across America’s cities.

The Changing American Family

The strain of the Great Depression had significant effects on the American family. Marriage rates declined, as did birth rates. Many young people delayed marriage and starting a family due to economic instability. Gender roles within the family shifted as well, with some women entering the workforce to help make ends meet, challenging the traditional view of the male as the sole provider.

Cultural Expression During Hard Times

The harsh realities of the Depression were reflected in the era’s cultural expressions. Literature, music, and visual arts echoed the despair, resilience, and hope of the American people. Works like John Steinbeck’s “The Grapes of Wrath” captured the plight of the dispossessed and the indignities of poverty. Folk and blues music gave voice to the suffering and hardships faced by the common folk, with artists like Woody Guthrie becoming the musical chroniclers of the era.

Social Unrest and Political Radicalization

The economic desperation led to increased social unrest, with a rise in strikes, protests, and the radicalization of politics. Organizations such as the Communist Party USA gained members, and socialist ideas became more popular as people searched for alternatives to the failing capitalist economy.

Conclusion of Social and Cultural Impacts

In conclusion, the Great Depression left an indelible mark on American society. The widespread suffering led to fundamental changes in family dynamics, prompted significant internal migration, and fostered a cultural climate rich with artistic expression born from adversity. The era shaped a generation and redefined the country’s social and cultural landscape, the effects of which are still discernible today.

Government Response

The Great Depression required an unprecedented response from the United States government. The initial reaction under President Herbert Hoover was widely viewed as insufficient, but the election of Franklin D. Roosevelt in 1932 marked a significant shift in the federal government’s role in economy and welfare.

Hoover’s Policies

President Hoover, who took office in 1929, the year the crisis began, was initially reluctant to intervene drastically in the economy. He held the view that federal aid should be handled at the local level and that the government should not step in to prop up wages or prices. However, as the Depression worsened, Hoover began to implement some measures, such as the Reconstruction Finance Corporation (RFC) to provide emergency funding to banks, life insurance companies, and railroads.

The New Deal

With the election of Roosevelt, a new approach was introduced, known as the New Deal. The New Deal was a series of programs, public work projects, financial reforms, and regulations enacted by President Roosevelt between 1933 and 1939. It included initiatives such as the Civilian Conservation Corps (CCC), the Public Works Administration (PWA), and later, the Works Progress Administration (WPA), which aimed to provide immediate relief through job creation.

Social Security Act

One of the cornerstones of the New Deal was the Social Security Act of 1935, which provided a safety net for the elderly, the poor, and the sick. The act established unemployment insurance and aid to families with dependent children as well.

Banking Reforms

To stabilize the financial system, the Roosevelt administration implemented a series of banking reforms, including the Emergency Banking Act, which declared a four-day bank holiday, allowing banks to get their affairs in order to prevent insolvency. The Glass-Steagall Act was also passed to separate commercial and investment banking, reducing the risk of future collapses.

Agricultural Adjustments

The Agricultural Adjustment Act (AAA) was enacted to provide relief to farmers by reducing production to raise prices. Though initially successful in raising agricultural prices, it was not without controversy, as it displaced many tenant farmers and sharecroppers.

The Second New Deal

In response to continuing economic struggles and criticism, Roosevelt launched the Second New Deal in 1935, which focused on more extensive social welfare benefits, stricter controls over business, stronger support for unions, and higher taxes on the wealthy.

Long-term Impacts of the New Deal

The New Deal fundamentally changed the relationship between the government and the American people. It led to the establishment of a range of social safety nets and regulatory bodies intended to prevent future economic crises of this magnitude. While the New Deal did not end the Great Depression, it did alleviate some of the worst of its hardships, and many of its programs and reforms had lasting impacts on the nation.

Conclusion of Government Response

In conclusion, the government response to the Great Depression, particularly under the leadership of Franklin D. Roosevelt, represented a radical shift in the way the federal government interacted with the economy and addressed social issues. This response was characterized by a wave of new legislation and public works projects that not only aimed to provide immediate relief but also sought to reform the economic system and prevent future depressions.

The Great Depression and the Arts

The Great Depression had a profound impact on the arts in the United States. As the nation grappled with economic hardships, artists of all types captured the struggles, resilience, and life during these trying times. This period saw the emergence of significant cultural works and a new level of government involvement in the support of the arts.

Visual Arts and Government Support

Under the New Deal, the Works Progress Administration (WPA) established the Federal Art Project, which funded artists to create murals, paintings, and sculptures for public buildings. This initiative not only provided employment to artists but also aimed to boost national morale and bring art into everyday life. Artists like Thomas Hart Benton and Grant Wood portrayed the everyday lives of Americans, their work often reflecting the social realities and hardships of the time.

Literature as Social Commentary

The era’s literature often provided a critique of society and a voice for the downtrodden. John Steinbeck’s “The Grapes of Wrath” and “Of Mice and Men” addressed the plight of the poor and the migrant workers. Meanwhile, Zora Neale Hurston’s “Their Eyes Were Watching God” examined the African American experience in the South during this period.

Theatre and Performances

Theatre thrived as a form of escapism and social commentary. The Federal Theatre Project, another WPA program, produced plays that entertained while addressing social issues such as poverty and injustice. Notable productions like “The Cradle Will Rock” discussed the struggles of the working class and criticized the growing power of corporations and the wealthy.

Music as Reflection and Relief

Music during the Great Depression served both as a reflection of the tough times and a form of solace. Jazz, blues, and folk were especially popular, with artists like Billie Holiday and Woody Guthrie using their music to address social issues and express the mood of the nation.

Photography Documenting Reality

Photographers such as Dorothea Lange and Walker Evans worked for the Farm Security Administration to document the Depression’s impact. Their poignant images of displaced families and struggling farmers became iconic representations of the era, highlighting the human cost of the economic collapse.

Hollywood’s Golden Age

Despite—or perhaps because of—the economic hardships, the 1930s are often considered the Golden Age of Hollywood. The film industry provided an escape from the grim realities of daily life. Movies like “Gone with the Wind” and “The Wizard of Oz” became cultural landmarks that offered a sense of hope and adventure.

Conclusion of The Great Depression and the Arts

In conclusion, the Great Depression left an indelible mark on the American arts scene. With the federal government’s support, artists were able to produce work that not only served to document and provide commentary on the era but also offered a form of escape and comfort to a beleaguered populace. These contributions have since become a crucial part of America’s cultural heritage, reflecting a time of great adversity and the resilience of the human spirit.

Economic Recovery and the End of the Great Depression

The path to economic recovery from the Great Depression was long and arduous. It involved a combination of New Deal reforms, shifts in economic policy, and the onset of global circumstances that would ultimately lead to the end of the economic downturn in the United States.

Fiscal Policy Changes

The shift towards Keynesian economics, which advocated for increased government expenditures to counteract economic downturns, was a fundamental change in fiscal policy during this period. The Roosevelt administration, though initially conservative in its spending, began to increase government investment in the economy, leading to modest improvements in employment and production.

Industrial Mobilization and World War II

Arguably, the most significant boost to the American economy came with the advent of World War II. The need for military supplies and the reinstatement of the draft absorbed a large part of the labor force, substantially reducing unemployment. Factories that had lain dormant during the Depression sprang to life as the United States ramped up production to meet the demands of the war, facilitating a return to full employment and increased industrial output.

Shifts in Monetary Policy

Monetary policy also played a critical role in recovery. The United States’ departure from the gold standard in 1933 allowed for a more flexible monetary policy, which helped to stabilize the banking system and increase liquidity in the economy. This, in turn, facilitated investment and spending.

International Trade and the End of Isolationism

As the United States emerged from its isolationist stance in the late 1930s and early 1940s, increased international trade also contributed to the recovery. The Lend-Lease Act of 1941 allowed the U.S. to supply Allied nations with goods and services, further stimulating American industry.

The Impact of the New Deal Revisited

While the New Deal had provided immediate relief to many Americans, its long-term economic impact was a subject of debate. However, the structural reforms and social programs initiated during the 1930s laid the groundwork for a more robust and resilient economy that could support the wartime and postwar booms.

Postwar Prosperity

Following the end of World War II, the United States experienced an era of significant economic growth and prosperity. The GI Bill, a lasting piece of New Deal-inspired legislation, provided education and housing benefits for returning veterans, facilitating their reintegration into a peacetime economy that was more diversified and dynamic than the pre-Depression economy.

Conclusion of Economic Recovery and the End

In conclusion, the end of the Great Depression was the result of a multifaceted approach that included government intervention, industrial mobilization for war, and shifts in economic policy. The recovery was slow, and it took nearly a decade and a global conflict to fully achieve it. Nevertheless, the foundations laid during the Depression for economic management and social welfare would influence American policies and economic thought for generations to come.

The Great Depression remains one of the most profound events in American history, leaving an indelible mark on the nation’s collective memory. It was a period characterized by immense economic hardship, widespread unemployment, and profound social and cultural shifts. Yet, it was also a time of remarkable resilience, innovation, and change.

Through the examination of its causes, we have seen how a confluence of factors such as stock market speculation, banking failures, and flawed economic policies combined to trigger the worst economic downturn in modern history. The Depression’s social and cultural impacts were vast, influencing everything from family dynamics and societal roles to creative expressions in the arts. It challenged traditional values, provoked new forms of social activism, and brought about significant changes in American culture and lifestyle.

The role of the U.S. government, particularly under the leadership of President Franklin D. Roosevelt, was transformative. The New Deal marked a new era in federal involvement in the economy, providing relief, recovery, and reform through a series of bold and controversial programs. While not without its critics, the New Deal reshaped the relationship between the American people and their government, laying the groundwork for the modern welfare state.

The Great Depression and its aftermath also led to profound changes in economic thought and policy. The disaster spurred innovations in monetary and fiscal policy, influenced international trade policies, and led to the establishment of institutions and regulations intended to prevent such a crisis from recurring. It also served as a catalyst for economic recovery and growth, particularly as the nation mobilized for World War II, which would ultimately bring an end to the economic hardship of the 1930s.

In the arts, the Depression sparked a creative explosion that both reflected the struggles of the time and offered an escape from them. Works of literature, visual arts, theatre, music, and film from the era continue to resonate today, standing as testaments to the enduring human spirit in the face of adversity.

In the wake of the Great Depression, the United States emerged as a changed nation. The economic policies and institutions that were created in response to the crisis have shaped the economic landscape for decades. The experiences of those who lived through it fostered a greater sense of shared purpose and contributed to the unity and resolve that the nation would draw upon in the years to come, particularly during World War II and the postwar era.

As we look back on the Great Depression, it serves not only as a cautionary tale about the excesses and inequities that can lead to economic collapse but also as a story of hope, resilience, and the capacity for renewal. It is a period that underscores the importance of adaptability, the value of social and economic safety nets, and the critical role of government in mitigating the impacts of financial crises. The lessons learned from the Great Depression continue to inform our policies and our societal values, reminding us of the importance of vigilance and preparedness in ensuring economic stability and prosperity for future generations.

Class Notes on Causes and Effects of the Great Depression

• Overproduction
• Laissez Faire policies that left the economy unregulated
• Over speculation on the stock market
• Decline in foreign trade

While we have spoken about the 20’s as a time of great prosperity, it was a tad deceptive. Problems lie under the surface that would not be dealt with by the conservative administrations of Harding, Coolidge and Hoover.

The Great Depression did not begin in 1929 with the fall of the over inflated stock market. In fact the Depression began ten years earlier in Europe. As the depression raged on in Europe American’s believed they would be immune to its effects. Isolationist sentiments and conservative doctrine held that the less we had to do with Europe the better. As a result American polices never addressed the possibility of the United States entering a depression as well. Actually American policies actually contributed to our entry into the depression.

The early warning signs first came in the agricultural sector. Farmers continued to produce more and more food due to technological advances like the tractor. As production grew farm prices dropped. It was simply a matter of supply and demand. Framers reacted in the traditional manner and boosted production even further. Prices plummeted. Farmers began to default on their loans and the banks foreclosed. To make matters worse the central part of the nation was hit with a terrible drought. Farmers were devastated. The drought turned that portion of America into what was called “ The Dustbowl .”

In the 1920’s American economic policy was laissez faire. Businesses were left alone and for sometime things appeared to fine. American businesses reported record profits, production was at an all time high. The problem was that while earnings rose and the rich got richer, the working class received a disproportionally lower percentage of the wealth.

This uneven distribution of wealth got so bad that 5% of America earned 33% of the income. What this meant was that there was less and less real spending. Despite the fact that the working class had less money to spend businesses continued to increase production levels.

Purchasing dropped internationally as well. Since Europe was in a depression people there weren’t buying as much as businesses had estimated. Then the Fordney McCumber Tariff and the Hawley Smoot Tariff raised tariff levels to as much as 40%. Europe which was already angered at US foreign actions responded with high tariffs of their own. International trade was at a standstill.

At this point you should be asking the question “If no one buying and companies were increasing production levels, wasn’t there going to be a problem?” BINGO!!! The problem is known as overproduction . American businesses were producing far more than could be consumed. The result was lost profits and eventually debts. After a while many companies went out of business. Why would these companies continue to overproduce? There are several reasons. Some were managed poorly. Others were part of holding companies that placed layers and layers of companies, each relying on the others production levels like a pyramid. If one company in the pyramid reported lower production levels the others fell off and it looked bad. In many cases however crooked company owners reported earnings that were higher than they were actually were in order to drive up the stock price.

As a result of World War I America had emerged as the worlds leading creditor nation. Foreign powers owed the United States and its companies about a billion dollars annually. With declining trade in America, a demand for reparation from the United States and the continuing European depression this  debt went unpaid .

Throughout this period of time Americans (and it seems this included Harding, Coolidge and Hoover.) Truly felt they would be prosperous forever. They didn’t see or were unwilling to see the warning signs. With this confidence Americans began to increasingly invest in the stock market. The market began an unprecedented rise in 1928. By September 3 rd  1929 the market reached a record high of 381. Then the decline began. Many didn’t think it would last but on October 24 th  panic selling began as 12.8 million shares changed hands. Then came  Black Tuesday , October 29 th 1929. The market plummeted. By July the Dow reached a low of 41.22. Millions upon millions of dollars had been lost. Many who had bought on margin (credit) had to pay back debts with money they didn’t have. Some opened up the windows and jumped to their deaths. The depression had arrived.

Banks that had invested heavily in the stock market and real estate lost their depositors money. A panic  ensued as people lined up at the banks to get their money.  unfortunately for many the money just wasn’t there. As the amount of  money in circulation dropped deflation hit. Money was worth more but there was  little money to be had. The fed which had the power to put more money  into circulation did nothing (laissez faire). Workers were fired as  thousands of businesses closed down. Unemployment rose to  25-35%. In Toledo Ohio  fully 80% of the workers were unemployed! Real estate investments  flopped because with deflation a building that was once worth ten  million was now worth five. The mortgage and debt stayed the same but  the income was gone. Banks foreclosed on loans and took possession of  worthless properties that nobody could afford to buy. Between 1930  and 1932 over 9000 banks failed.

With all of this there Hoover announced to Americans that they should “stay the course” that the ship would right itself. After all, Hoover was a self made man, a rugged individualist. By the time Hoover recognized he had to do something it was too little and much too late.

Frequently Asked Questions about the Great Depression

The Great Depression was the result of a multitude of factors, each compounding the severity of the economic decline. One primary cause was the stock market crash of October 1929, which wiped out thousands of investors and eroded public confidence. However, the crash was just the tipping point following a decade of economic imbalance where the wealth gap was significantly widened by policies that favored the rich, and consumer spending was driven by credit rather than actual financial power.

The agricultural sector had already been suffering due to a decline in commodity prices and an overproduction crisis. This was exacerbated by poor land management practices that led to the Dust Bowl, further destabilizing rural economies. Banking failures were another major cause, as bank runs and the subsequent collapse of financial institutions wiped out savings and constricted the flow of money through the economy.

International trade also suffered due to protectionist policies, such as the Smoot-Hawley Tariff Act of 1930, which placed heavy taxes on imports, leading to a decline in trade volume and retaliatory measures from other countries. Lastly, a failure of leadership and policy to address these issues early on allowed the crisis to deepen, with the Federal Reserve failing to stabilize the banking system and the government initially reluctant to intervene significantly in the economy.

The Great Depression brought about unprecedented hardship for the American populace. Unemployment soared to around 25%, leaving families without steady incomes. This led to a widespread inability to afford basic necessities such as food, clothing, and shelter. Soup kitchens, bread lines, and Hoovervilles (shantytowns named derisively after President Hoover) became common sights.

The lack of economic security put a strain on family life. Many men, traditionally the breadwinners of their households, found themselves unable to support their families, which led to a sense of shame and despair. Some abandoned their families in search of work elsewhere, while the roles within the household often shifted, with women and children increasingly contributing to the family income.

The psychological impact of the Depression was also significant, with many Americans suffering from stress-related illnesses and mental health issues due to financial strain and uncertainty. Education was disrupted as schools faced closures and shortened academic years due to budget cuts, affecting literacy and career prospects for a generation of young Americans.

Despite the hardships, the Depression also fostered a sense of community and solidarity among many Americans, who banded together to help one another through charity, barter systems, and cooperative living arrangements.

The Dust Bowl was a severe environmental disaster that occurred during the 1930s in the American and Canadian prairies, at the same time as the Great Depression. It was characterized by a series of dust storms caused by prolonged periods of drought and decades of extensive farming without crop rotation, fallow fields, cover crops, or other techniques to prevent erosion. The loose, dry, topsoil was picked up by the winds and resulted in massive dust storms that blackened skies and damaged the agricultural capacity of the region.

This environmental catastrophe exacerbated the economic struggles of the Great Depression, particularly for farmers. As crops failed and farms became untenable, many agrarian families were forced to leave their land in search of work in other parts of the country, notably California. These migrants, often called “Okies” because so many came from Oklahoma, faced intense competition for jobs, discrimination, and difficult living conditions.

The Dust Bowl highlighted the vulnerabilities in agricultural practices and the need for sustainable farming methods. In response, the U.S. government instituted a range of new policies and programs designed to promote soil conservation and support farmers, changing the face of American agriculture and aiming to prevent such a disaster from occurring again.

The end of the Great Depression is largely attributed to the economic boom caused by World War II. The war effort led to a massive increase in industrial production as the United States became the “Arsenal of Democracy” for the Allied powers. The mobilization for war created millions of jobs, reinvigorating industries that had been dormant during the Depression and effectively ending widespread unemployment.

The U.S. government’s fiscal policies changed dramatically during the war. Expenditures increased substantially to fund the war effort, significantly boosting economic activity. The New Deal programs of the 1930s also laid the groundwork for recovery by providing relief to the unemployed, reforming financial systems, and investing in public infrastructure, although these alone were not sufficient to end the Depression.

Furthermore, the war brought about profound changes in the labor market. As men joined the military, women entered the workforce in unprecedented numbers, which not only supported the war economy but also led to shifts in social attitudes about gender roles and employment.

In essence, the economic demands of World War II necessitated an increase in production and labor that the Depression’s idle factories and unemployed workers could meet, thus pulling the United States out of the economic downturn. The post-war period then cemented the recovery, as returning soldiers contributed to a robust consumer economy, and policies like the GI Bill fostered educational opportunities and home ownership.

The Great Depression had a devastating impact on the global economy. It was not solely an American phenomenon; the economic downturn was felt worldwide. After the stock market crash in the United States, a wave of financial instability spread through Europe and beyond. Many countries were already struggling with the debts incurred during World War I and were reliant on American loans and investments, which dried up as the U.S. economy contracted.

International trade suffered significantly due to a combination of shrinking markets and protectionist tariffs like the United States’ Smoot-Hawley Tariff, which caused global trade to plummet. This led to a reduction in production and a sharp rise in unemployment around the world. Countries that were part of the gold standard found themselves unable to devalue their currencies to deal with the crisis, which worsened the deflationary spiral.

The economic distress contributed to political instability in many countries, leading to the rise of extremist movements, most notably the National Socialists in Germany. The economic conditions created by the Depression are often cited as factors that led to World War II, as countries sought ways to reinvigorate their economies through militarization and territorial expansion.

The Bonus Army was a group of 43,000 demonstrators – made up of 17,000 U.S. World War I veterans, together with their families and affiliated groups – who gathered in Washington, D.C., in mid-1932 to demand early cash redemption of their service certificates. These certificates were a form of bonus that had been promised to them for their service during World War I, to be paid in 1945.

The Bonus Army’s occupation of Washington represented the desperation and unrest felt by many Americans during the Depression. The veterans were struggling to make ends meet and saw the promised bonus as a lifeline. Their peaceful protests and encampments were met with a harsh response from the government, which included the use of cavalry, infantry, tanks, and tear gas to disperse the veterans – an action that led to widespread public outrage.

The clash highlighted the failure of the federal government to address the needs of the people adequately and represented the growing demand for more direct relief and economic reform. It also served as a catalyst for later legislation under the Roosevelt administration to provide more immediate support to struggling Americans.

The Great Depression had a profound effect on American politics, leading to a significant shift in the relationship between the government and the governed. The perceived failure of President Herbert Hoover’s administration to adequately address the crisis contributed to the landslide election of Franklin D. Roosevelt in 1932.

Under Roosevelt, the federal government took on a much more active role in the economy and the welfare of the people through the implementation of the New Deal, a series of programs, public work projects, financial reforms, and regulations. This period saw the creation of many institutions and policies that are still in place today, including Social Security, federal insurance of bank deposits, minimum wage laws, and the Securities and Exchange Commission (SEC) to regulate the stock market.

The political ideology in the country shifted from a preference for limited government to an expectation that the government should play a substantial role in economic stabilization and social welfare. This change laid the foundation for the modern American political landscape and shaped the policy debates that continue to this day.

Some of the key New Deal programs included the Civilian Conservation Corps (CCC), which provided jobs in environmental conservation; the Works Progress Administration (WPA), which created a variety of public works projects; the Tennessee Valley Authority (TVA), which aimed to modernize the region with electricity and flood control; and the Social Security Act, which established a system of old-age benefits, unemployment insurance, and welfare for the disabled and needy families.

The success of these programs is a matter of historical debate. Critics argue that they expanded federal power beyond its constitutional limits and did not end the Depression. Proponents, however, contend that the New Deal offered critical relief to millions of Americans and was instrumental in reforming the nation’s financial systems to prevent future depressions.

Economically, while the New Deal helped to lower unemployment and stimulate economic activity, it was not until the industrial mobilization of World War II that the Depression truly ended. Nevertheless, the New Deal’s social programs had a lasting positive impact, providing a safety net for the vulnerable, transforming the American landscape with new infrastructure, and reshaping the role of the federal government in the lives of Americans.

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Great Depression History

By: History.com Editors

Updated: October 20, 2023 | Original: October 29, 2009

The Great Depression was the worst economic crisis in modern history, lasting from 1929 until the beginning of World War II in 1939. The causes of the Great Depression included slowing consumer demand, mounting consumer debt, decreased industrial production and the rapid and reckless expansion of the U.S. stock market. When the stock market crashed in October 1929, it triggered a crisis in the international economy, which was linked via the gold standard. A rash of bank failures followed in 1930, and as the Dust Bowl increased the number of farm foreclosures, unemployment topped 20 percent by 1933. Presidents Herbert Hoover and Franklin D. Roosevelt tried to stimulate the economy with a range of incentives including Roosevelt’s New Deal programs, but ultimately it took the manufacturing production increases of World War II to end the Great Depression.

What Caused the Great Depression?

Throughout the 1920s, the U.S. economy expanded rapidly, and the nation’s total wealth more than doubled between 1920 and 1929, a period dubbed “ the Roaring Twenties .”

The stock market, centered at the New York Stock Exchange on Wall Street in New York City , was the scene of reckless speculation, where everyone from millionaire tycoons to cooks and janitors poured their savings into stocks. As a result, the stock market underwent rapid expansion, reaching its peak in August 1929.

By then, production had already declined and unemployment had risen, leaving stock prices much higher than their actual value. Additionally, wages at that time were low, consumer debt was proliferating, the agricultural sector of the economy was struggling due to drought and falling food prices and banks had an excess of large loans that could not be liquidated.

The American economy entered a mild recession during the summer of 1929, as consumer spending slowed and unsold goods began to pile up, which in turn slowed factory production. Nonetheless, stock prices continued to rise, and by the fall of that year had reached stratospheric levels that could not be justified by expected future earnings.

Stock Market Crash of 1929

On October 24, 1929, as nervous investors began selling overpriced shares en masse, the stock market crash that some had feared happened at last. A record 12.9 million shares were traded that day, known as “Black Thursday.”

Five days later, on October 29, or “Black Tuesday,” some 16 million shares were traded after another wave of panic swept Wall Street. Millions of shares ended up worthless, and those investors who had bought stocks “on margin” (with borrowed money) were wiped out completely.

As consumer confidence vanished in the wake of the stock market crash, the downturn in spending and investment led factories and other businesses to slow down production and begin firing their workers. For those who were lucky enough to remain employed, wages fell and buying power decreased.

Many Americans forced to buy on credit fell into debt, and the number of foreclosures and repossessions climbed steadily. The global adherence to the gold standard , which joined countries around the world in fixed currency exchange, helped spread economic woes from the United States throughout the world, especially in Europe.

Bank Runs and the Hoover Administration

Despite assurances from President Herbert Hoover and other leaders that the crisis would run its course, matters continued to get worse over the next three years. By 1930, 4 million Americans looking for work could not find it; that number had risen to 6 million in 1931.

Meanwhile, the country’s industrial production had dropped by half. Bread lines, soup kitchens and rising numbers of homeless people became more and more common in America’s towns and cities. Farmers couldn’t afford to harvest their crops and were forced to leave them rotting in the fields while people elsewhere starved. In 1930, severe droughts in the Southern Plains brought high winds and dust from Texas to Nebraska, killing people, livestock and crops. The “ Dust Bowl ” inspired a mass migration of people from farmland to cities in search of work.

In the fall of 1930, the first of four waves of banking panics began, as large numbers of investors lost confidence in the solvency of their banks and demanded deposits in cash, forcing banks to liquidate loans in order to supplement their insufficient cash reserves on hand.

Bank runs swept the United States again in the spring and fall of 1931 and the fall of 1932, and by early 1933 thousands of banks had closed their doors.

In the face of this dire situation, Hoover’s administration tried supporting failing banks and other institutions with government loans; the idea was that the banks in turn would loan to businesses, which would be able to hire back their employees.

FDR and the Great Depression

Hoover, a Republican who had formerly served as U.S. secretary of commerce, believed that government should not directly intervene in the economy and that it did not have the responsibility to create jobs or provide economic relief for its citizens.

In 1932, however, with the country mired in the depths of the Great Depression and some 15 million people unemployed, Democrat Franklin D. Roosevelt won an overwhelming victory in the presidential election.

By Inauguration Day (March 4, 1933), every U.S. state had ordered all remaining banks to close at the end of the fourth wave of banking panics, and the U.S. Treasury didn’t have enough cash to pay all government workers. Nonetheless, FDR (as he was known) projected a calm energy and optimism, famously declaring "the only thing we have to fear is fear itself.”

Roosevelt took immediate action to address the country’s economic woes, first announcing a four-day “bank holiday” during which all banks would close so that Congress could pass reform legislation and reopen those banks determined to be sound. He also began addressing the public directly over the radio in a series of talks, and these so-called “ fireside chats ” went a long way toward restoring public confidence.

During Roosevelt’s first 100 days in office, his administration passed legislation that aimed to stabilize industrial and agricultural production, create jobs and stimulate recovery.

In addition, Roosevelt sought to reform the financial system, creating the Federal Deposit Insurance Corporation ( FDIC ) to protect depositors’ accounts and the Securities and Exchange Commission (SEC) to regulate the stock market and prevent abuses of the kind that led to the 1929 crash.

The New Deal: A Road to Recovery

Among the programs and institutions of the New Deal that aided in recovery from the Great Depression was the Tennessee Valley Authority (TVA) , which built dams and hydroelectric projects to control flooding and provide electric power to the impoverished Tennessee Valley region, and the Works Progress Administration (WPA) , a permanent jobs program that employed 8.5 million people from 1935 to 1943.

When the Great Depression began, the United States was the only industrialized country in the world without some form of unemployment insurance or social security. In 1935, Congress passed the Social Security Act , which for the first time provided Americans with unemployment, disability and pensions for old age.

After showing early signs of recovery beginning in the spring of 1933, the economy continued to improve throughout the next three years, during which real GDP (adjusted for inflation) grew at an average rate of 9 percent per year.

A sharp recession hit in 1937, caused in part by the Federal Reserve’s decision to increase its requirements for money in reserve. Though the economy began improving again in 1938, this second severe contraction reversed many of the gains in production and employment and prolonged the effects of the Great Depression through the end of the decade.

Depression-era hardships fueled the rise of extremist political movements in various European countries, most notably that of Adolf Hitler’s Nazi regime in Germany. German aggression led war to break out in Europe in 1939, and the WPA turned its attention to strengthening the military infrastructure of the United States, even as the country maintained its neutrality.

African Americans in the Great Depression

One-fifth of all Americans receiving federal relief during the Great Depression were Black, most in the rural South. But farm and domestic work, two major sectors in which Black workers were employed, were not included in the 1935 Social Security Act, meaning there was no safety net in times of uncertainty. Rather than fire domestic help, private employers could simply pay them less without legal repercussions. And those relief programs for which African Americans were eligible on paper were rife with discrimination in practice since all relief programs were administered locally.

5 Causes of the Great Depression

By 1929, a perfect storm of unlucky factors led to the start of the worst economic downturn in U.S. history.

How Bank Failures Contributed to the Great Depression

Were financial institutions victims—or culprits?

9 New Deal Infrastructure Projects That Changed America

The Hoover Dam, LaGuardia Airport and the Bay Bridge were all part of FDR's New Deal investment.

Despite these obstacles, Roosevelt’s “Black Cabinet,” led by Mary McLeod Bethune , ensured nearly every New Deal agency had a Black advisor. The number of African Americans working in government tripled .

Women in the Great Depression

There was one group of Americans who actually gained jobs during the Great Depression: Women. From 1930 to 1940, the number of employed women in the United States rose 24 percent from 10.5 million to 13 million Though they’d been steadily entering the workforce for decades, the financial pressures of the Great Depression drove women to seek employment in ever greater numbers as male breadwinners lost their jobs. The 22 percent decline in marriage rates between 1929 and 1939 also created an increase in single women in search of employment.

Women during the Great Depression had a strong advocate in First Lady Eleanor Roosevelt , who lobbied her husband for more women in office—like Secretary of Labor Frances Perkins , the first woman to ever hold a cabinet position.

Jobs available to women paid less but were more stable during the banking crisis: nursing, teaching and domestic work. They were supplanted by an increase in secretarial roles in FDR’s rapidly-expanding government. But there was a catch: over 25 percent of the National Recovery Administration’s wage codes set lower wages for women, and jobs created under the WPA confined women to fields like sewing and nursing that paid less than roles reserved for men.

Married women faced an additional hurdle: By 1940, 26 states had placed restrictions known as marriage bars on their employment, as working wives were perceived as taking away jobs from able-bodied men—even if, in practice, they were occupying jobs men would not want and doing them for far less pay.

Great Depression Ends and World War II Begins

With Roosevelt’s decision to support Britain and France in the struggle against Germany and the other Axis Powers, defense manufacturing geared up, producing more and more private-sector jobs.

The Japanese attack on Pearl Harbor in December 1941 led to America’s entry into World War II, and the nation’s factories went back into full production mode.

This expanding industrial production, as well as widespread conscription beginning in 1942, reduced the unemployment rate to below its pre-Depression level. The Great Depression had ended at last, and the United States turned its attention to the global conflict of World War II.

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Home — Essay Samples — History — Great Depression — The Great Depression: Causes, Effects, and Lessons Learned

The Great Depression: Causes, Effects, and Lessons Learned

• Categories: Great Depression

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Published: Jan 29, 2024

Words: 763 | Pages: 2 | 4 min read

Table of contents

Causes of the great depression, effects of the great depression, references:, stock market crash of 1929, overproduction and underconsumption, bank failures and the collapse of the banking system, economic effects, social effects, political effects.

• Worster, D. (1979) Dust Bowl: The Southern Plains in the 1930s
• Klein, M. (2003). The Defining Moment: The Great Depression and the American Economy in the Twentieth Century.
• Soule, G. (1996). The Greatest American Bank Robbery: The Collapse of the Savings and Loan Industry.

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Article Contents

I. introduction, ii. narrative, iii. analysis, iv. what are the policy lessons, lessons from the 1930s great depression.

We thank Steve Broadberry and Ken Wallis for helpful discussions. Christopher Adam, Ken Mayhew, and, especially, Christopher Allsopp made very thoughtful comments on an earlier draft. The usual disclaimer applies.

• Article contents
• Figures & tables
• Supplementary Data

Nicholas Crafts, Peter Fearon, Lessons from the 1930s Great Depression, Oxford Review of Economic Policy , Volume 26, Issue 3, Autumn 2010, Pages 285–317, https://doi.org/10.1093/oxrep/grq030

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This paper provides a survey of the Great Depression comprising both a narrative account and a detailed review of the empirical evidence, focusing especially on the experience of the United States. We examine the reasons for and flawed resolution of the American banking crisis, as well as the conduct of fiscal and monetary policy. We also consider the pivotal role of the gold standard in the international transmission of the slump and leaving gold as a route to recovery. Policy lessons for today from the Great Depression are discussed, as are some implications for macroeconomics.

The Great Depression deserves its title. The economic crisis that began in 1929 soon engulfed virtually every manufacturing country and all food and raw materials producers. In 1931, Keynes observed that the world was then ‘in the middle of the greatest economic catastrophe . . . of the modern world . . . there is a possibility that when this crisis is looked back upon by the economic historian of the future it will be seen to mark one of the major turning points’ ( Keynes, 1931 ). Keynes was right; Table 1 shows some of the dimensions.

The Great Depression vs Great Recession in the advanced countries

Sources : 1929–38: Real GDP: Maddison (2010) western European countries plus western offshoots; Price level: League of Nations (1941) ; data are for wholesale prices, weighted average of 17 countries; Unemployment: Eichengreen and Hatton (1987) ; data are for industrial unemployment, weighted average of 11 countries; Trade volume: Maddison (1985) , weighted average of 16 countries.

2007–2010: IMF, World Economic Outlook Database, April 2010.

What are the key questions that we should ask about the Great Depression? Why the crisis began in 1929 is an obvious start, but more important questions are why it was so deep and why it lasted so long? Sustained recovery did not begin in the United States until the spring of 1933, though the UK trough occurred in late 1931 and in Germany during the following year. Why and how did the depression spread so that it became an international catastrophe? What role did financial crises play in prolonging and transmitting economic shocks? How effective were national economic policy measures designed to lessen the impact of the depression? Did governments try to coordinate their economic policies? If not, then why not? Why did the intensity of the depression and the recovery from it vary so markedly between countries?

Even in recovery, both the UK and the USA experienced persistent mass unemployment, which was the curse of the depression decade ( Table 2 ). Why did the eradication of unemployment prove to be so intractable? In 1937–8 a further sharp depression hit the US economy, increasing unemployment and imposing further deflation. What caused this serious downturn and what lessons did policy-makers draw from it?

The Great Depression in the United Kingdom and the United States

Note : Unemployment based on the whole-economy series constructed by Weir (1992) .

Sources : UK: Real GDP: Feinstein (1972) ; GDP deflator: Feinstein (1972) ; Unemployment: Boyer and Hatton (2002) ; Stock market prices: Mitchell (1988) . USA : Carter et al . (2006) .

By the late twentieth century, the memory of international financial seizure in the US and Europe, mass unemployment, and severe deflation had receded. However, during 2007–8, an astonishing and unexpected collapse occurred which caused all key economic variables to fall at a faster rate than they had during the early 1930s. As Eichengreen and O’Rourke (2010) report, the volume of world trade, the performance of equity markets, and industrial output dropped steeply in 2008. Moreover, a full-blown financial crisis quickly emerged. The US housing boom collapsed and sub-prime mortgages, which had been an attractive investment both at home and abroad, now became a millstone round the necks of those financial institutions that had eagerly snapped them up. In April 2007, New Century Financial, one of the largest sub-prime lenders in the US, filed for Chapter 11 bankruptcy. In August, Bear Stearns, an international finance house heavily involved in the sub-prime market, teetered on the verge of bankruptcy. The US Treasury helped finance its sale to J. P. Morgan during the following year. During 2008 the financial crisis developed with a sudden and terrifying force. In September, Freddie Mac and Fannie Mae, which together accounted for half of the outstanding mortgages in the US, were subject to a federal takeover because their financial condition had deteriorated so rapidly. At the same time Lehman Brothers, the fourth largest investment bank in the US, declared bankruptcy. It seemed as if financial meltdown was not only a possibility, it was a certainty unless drastic action was taken.

The crisis was not confined to the US. In August 2007, the French bank, BNP Paribas, suspended three investment funds worth €2 billion because of problems in the US sub-prime sector. Meanwhile, the European Central Bank was forced to intervene to restore calm to distressed credit markets which were badly affected by losses from sub-prime hedge funds. On 14 September 2007, the British public became aware that Northern Rock, which had moved into sub-prime lending after concluding a deal with Lehman Brothers, had approached the Bank of England for an emergency loan. Immediately the bank’s shares fell by 32 per cent and queues formed outside branch offices as frantic depositors rushed to withdraw their savings. Such was the pressure that Northern Rock was nationalized in February 2008. The run on Northern Rock was an extraordinary event for the UK. During the Great Depression no British financial institution failed, or looked like failing, but in 2007 there was immediate depositor panic. It was clear that without some assurance on the security of deposits other institutions were at risk. In 2009, UK GDP contracted by 4.8 per cent, the steepest fall since 1921.

A comparison of the catastrophic banking crisis in 1931 with that of 2007–8 shows that the countries involved in 1931 accounted for 55.6 per cent of world GDP, while the figure for the latter period is 33.5 per cent ( Reinhart, 2010 ; Maddison, 2010 ). This is the most widespread banking crisis since 1931 and it is also the first time since that date that major European countries and the United States have both been involved. The financial tidal wave was totally unexpected and was of such severity that immediate policy action was required to prevent total meltdown. For a while it seemed that the world stood at the edge of an abyss, a short step away from an even greater economic disaster than had occurred three-quarters of a century earlier.

In these circumstances, it has been natural to ask what the historical experience of the crisis of the 1930s has to teach us. The big lesson that has been correctly identified is not to be passive in the face of large adverse financial shocks. Indeed, aggressive monetary and fiscal policies were immediately implemented to halt the financial disintegration. Fortunately, countries were not constrained by the oppressive stranglehold of the gold standard. Both monetary and fiscal policies could be used to support economic expansion rather than to impose deflation or try to restore a balanced budget. Flexible exchange rates gave policy-makers the freedom to use devaluation as an aid to recovery. The exception was in the Eurozone, where weak member states, for example, Greece, Ireland, and Portugal, were forced to deflate their economies ( Eichengreen and Temin, 2010 , this issue).

In the United States, the Fed began aggressively to lower interest rates in January 2008 and by the year’s end had adopted a zero-rate policy. Quantitative easing was used on a massive scale during 2008 through to early 2010 and, as a result, the money supply rose dramatically. The American Restoration and Recovery Act, which became law in early 2009, earmarked $787 billion to stimulate the economy and was described by Christina Romer, distinguished economic historian of the great depression and Chair of the President’s Council of Economic Advisors, as ‘the biggest and boldest countercyclical action in American History’ ( Romer, 2009 ). In the UK, the Bank of England adopted the lowest interest rates since its foundation in 1694, quantitative easing was used aggressively, and bank bail-outs were funded where necessary. In October 2007 the guarantee for UK bank deposits was raised to £36,000 per depositor and further increased to £50,000 during the following year. In both countries, monetary and fiscal policies were pursued on a scale that would have been unacceptable during the 1930s but, crucially, these bold initiatives prevented financial meltdown. Fortunately, the crisis did not encourage the adoption of the beggar-thy-neighbour policies that helped to reduce the level of international trade so drastically during the 1930s.

This represents a dramatic contrast with the policy stances of 80 years ago. Thus far, the upshot is that a repeat of the Great Depression has been avoided ( Table 1 ). A dramatic financial collapse has been averted, economic recovery, though tenuous, is progressing, and unemployment has not reached the levels that some commentators feared when the downturn began. As we shall see, the ‘experiment’ of the 1930s shows only too clearly the likely outcome in the absence of an aggressive policy response.

The 1930s has more to offer. In particular, we can look not only at the downturn but also the recovery phase. Here the issues that had to be addressed included re-regulation of the banking system, avoiding a double-dip recession, and dealing with the various legacies of the depression which included long-term unemployment and the need for a new, post-gold-standard, macroeconomic policy framework.

This paper proceeds in the following way. Section II provides a narrative of events, section III delivers an analysis of the 1930s depression, and section IV identifies important policy lessons from that experience.

(i) The context of the Great Depression

It is sensible to begin an investigation of the Great Depression with an analysis of the world’s most powerful economy, the USA. During the 1920s America became the vital engine for sustained recovery from the effects of the Great War and for the maintenance of international economic stability. Following a rapid recovery from the post-war slump of 1920–1, Americans enjoyed until the end of the decade a great consumer boom, which was heavily dependent upon the automobile and the building sectors. High levels of investment, significant productivity advances, stable prices, full employment, tranquil labour relations, high wages, and high company profits combined to create the perfect conditions for a stock-market boom. Many contemporaries believed that a new age of cooperative capitalism had dawned in sharp contrast to the weak economies of class-ridden Europe ( Barber, 1985 ).

America was linked to the rest of the world through international trade as the world’s leading exporter and second, behind the UK, as an importer. Furthermore, after 1918 America replaced Britain as the world’s leading international lender. The First World War imposed an onerous and potentially destabilizing indebtedness on many of the world’s economies. Massive war debts accumulated by Britain and France were owed to both the US government and to US private citizens. Britain and France sought punitive damages from Germany in the form of reparations. But the post-war network of inter-government indebtedness eventually involved 28 countries, with Germany the most heavily in debt and the US owed 40 per cent of total receipts ( Wolf, 2010 , this issue).

Between 1924 and 1931 the US was responsible for about 60 per cent of total international lending, about one-third of which was absorbed by Germany. American investors, attracted by relatively high interest rates, enabled Germany both to discharge reparations responsibilities and to fund considerable improvements in living standards. Austria, Hungary, Greece, Italy, and Poland, together with several Latin American countries, were also considered attractive opportunities by US investors. By paying for imports and by investing overseas the US was able to send abroad a stream of dollars, which enabled other countries not only to import more goods but also to service their international debts. The fact that a high proportion of the borrowing was short term did not disturb the recipients ( Feinstein et al ., 1997 ).

The majority of the world’s economies were linked to each other by the gold standard, which had been suspended during the First World War, but its restoration was considered a priority by virtually all the major economic powers. It is easy to understand the appeal of the gold standard to contemporaries. The frightening inflations after 1918 and the severe deflation of 1920–1 made policy-makers yearn for a system that would provide international economic and financial stability. To policy-makers the gold standard represented a state of normality for international monetary relations; support for it was a continuation of the mindset that had become firmly established in the late nineteenth century ( Eichengreen and Temin, 2010 ). There was a widespread belief that the rules of the gold standard had imposed order within a framework of economic expansion during the 40 years before 1914 and order was certainly required in the post-war world. In particular, contemporaries believed that the discipline of the gold standard would curb excessive public spending by politicians who would fear the subsequent loss of bullion, an inevitable consequence of their profligacy. Unfortunately, the return to gold was accomplished in an uncoordinated fashion. Several countries (e.g. Belgium and France) adopted exchange rates that were not only significantly below their 1913 levels, but also provided a significant competitive advantage.

The reverse was true for the UK, which, in 1925, returned to gold at the 1913 exchange rate after a deflationary squeeze had made this possible. In general, financiers and bankers supported the return to gold at the pre-war exchange rate, but, as a result, sterling was overvalued and Britain’s export industries were disadvantaged. The achievement of international competitiveness through deflation was the dominant force determining domestic economic policy during the 1920s. Unfortunately, UK exports suffered from war-induced disruption. Markets which had been readily exploited before 1914 offered much reduced opportunities after 1918. UK difficulties would have been more manageable if the bulk of Britain’s exports had been in categories that were expanding rapidly in world markets. Unfortunately coal, cotton and woollen textiles, and shipbuilding faced severe international competition. Over-capacity led to high and persistent structural unemployment in the regions where these industries were dominant. During the 1920s, UK unemployment was double the pre-1913 level and also higher than in all the other major economic powers. On average, each year between 1923 and 1929, almost 10 per cent of the UK insured workforce was unemployed. The jobless were concentrated in the export-oriented staple industries. In those parts of the economy not exposed to foreign competition, unemployment was closer to pre-war levels.

A further problem for Britain, and many other countries too, was the uneven distribution of gold stocks. The US was gold rich throughout the 1920s, but, after the stabilization of the franc in 1926, the Bank of France began to sell its foreign exchange in order to purchase bullion ( Clarke, 1967 ). By 1929, the US and France had accumulated nearly 60 per cent of the world’s gold stock and their central banks sterilized much of their gold so that it did not inflate the money supply. In other words, both countries kept a high proportion of the world’s gold stock in their vaults and withdrawn from circulation. As a result, other countries were forced to deflate in order to compensate for a shortage of reserves. Unfortunately, the gold standard imposed penalties on countries which lost gold while the few which gained did so with impunity.

Gold shortages compelled UK policy-makers to impose relatively high interest rates in order to attract foreign funds—hot money—which bolstered the country’s inadequate bullion reserves. Unfortunately, potential domestic investors suffered as the real cost of credit rose. Nevertheless, as the membership of the gold standard club grew in the 1920s, policy-makers congratulated themselves that all major trading countries were bound together in a system that was dedicated to the maintenance of economic stability.

With the benefit of hindsight, it is clear that the international economy was in a potentially precarious position in 1929. Continuing prosperity was dependent upon the capacity of the US economy to absorb imports and to maintain a high level of international lending. If an economic crisis struck the US, how would the Federal Reserve deal with it? The Fed, created in 1913, was a relatively untested central bank. Would it act aggressively as lender of last resort if the banking system became stressed? Would its decentralized division into 12 regional reserve banks with monetary policy formulated by a seven-member Board demonstrate weakness or strength in fighting a depression? And, should a crisis materialize, would the gold standard’s rules force contracting economies to deflate, thus worsening their plight rather than providing a supportive international framework?

(ii) From boom to slump

In January 1928 the Federal Reserve ended several years of easy credit and embarked on a tight money policy. The Fed began a sale of government securities and gradually raised the discount rate from 3.5 to 5 per cent. The Fed was fully aware that a sudden rise in interest rates could be destabilizing for business and might bring a period of economic prosperity to an unhappy conclusion. To avoid this possibility, the monetary authorities aimed gently to deflate the worrying bubble on Wall Street by making bank borrowing for speculation progressively more expensive. Monetary policy-makers believed that by acting steadily rather than suddenly, speculation could be controlled without damaging legitimate business credit demands. It seemed a good idea at the time, but unfortunately this policy had serious unforeseen domestic and international repercussions. The new higher rates made more funds from non-bank sources available to the ever-rising stock market, and speculation actually increased. Many corporations used their large balances to fund broker’s loans, and investors who normally looked overseas found loans to Wall Street a more attractive option. Unfortunately, countries that had become dependent on US capital imports, for example, Germany, were suddenly deprived of an essential support for their fragile economies.

Adversely affected by Fed policies, the US economic boom reached a peak in August 1929 and after a few months of continuously poor corporate results the confidence of investors waned and eventually turned into the panic which became the Wall Street Crash in October 1929. After the stock-market collapse the Fed embarked on vigorous open-market operations and reduced interest rates. The Wall Street crash markedly diminished the wealth of stock holders and could well have adversely affected the optimism of consumers. But in late 1929 the market seemed to stabilize close to the level it had reached in early 1928. For several months it appeared that the US economy was recovering after a dramatic financial contraction. Overseas lending revived and interest rates throughout the world responded to the Fed’s monetary easing. Optimists saw no reason why vigorous economic expansion should not be renewed, as it had been in 1922.

The optimists were wrong. From the peak of the 1920s expansion in August 1929 to the trough in March 1933 output fell by 52 per cent, wholesale prices by 38 per cent, and real income by 35 per cent. Company profits, which had been 10 per cent of GNP in 1929, were negative in 1931 and also during the following year. The collapse in demand centred on consumption and investment which experienced unprecedented falls. Gross private domestic investment, measured in constant prices, had reached $16.2 billion in 1929; the 1933 total was only $0.3 billion. In 1926, gross expenditure on new private residential construction was $4,920m; in 1933 the figure had fallen to a paltry $290m. Consumer expenditure at constant prices fell from $79.0 billion in 1929 to $64.6 billion in 1933. Durables were especially affected; in 1929, 4.5m passenger vehicles rolled off assembly lines; in 1932, 1.1m cars were produced by a workforce that had been halved. Automobile manufacture and construction had been at the heart of the 1920s economic expansion but, as they fell, supporting industries tumbled, too. Inventories were run down, raw material purchases reduced to a minimum, and workers laid off. In particular, companies producing machinery, steel, glass, furniture, cement, and bricks faced a collapse in demand. The number of wage earners in manufacturing fell by 40 per cent, but many lucky enough to hang on to their jobs worked fewer hours and experienced pay cuts. The producers of non-durable goods, such as cigarettes, textiles, shoes, and clothing, faced more modest declines in output and employment.

The most dramatic price falls were in agriculture and a fall of 65 per cent in farm income was unsustainable for farm operators, especially if they were in debt. Unlike manufacturers, individual farms did not reduce output in response to low prices. Indeed, their reaction to economic distress was to produce more in a desperate attempt to raise total income. The result was the accumulation of stocks which further depressed prices. Nor could farmers lay off workers, as most only employed family members. As banks and other financial institutions foreclosed on farm mortgages, distress auctions caused so much local anger that the Governors of some states were obliged to suspend them. Farmers who were unable to pay their debts put pressure on the undercapitalized unit banks that served rural communities. As bank failures spread unease among depositors, the natural reaction of institutions was to engage in defensive banking. Loans were called in and lending, even for deserving cases, was curtailed; the banks gained liquidity by bankrupting many of their customers. Rural families were forced to reduce their purchases of manufactured goods, adding to urban unemployment. The bitter irony of starving industrial workers unable to buy food that farmers found too unprofitable to sell helped to undermine faith in the free-market economic system.

The slide from mid-1929 to spring 1933 was not smooth and continuous. Periodically, it seemed that the depression had bottomed out and recovery was under way. In spite of a destabilizing fall in consumption during 1930 ( Temin, 1976 ) it seemed possible that the economy would revive. This expectation was quashed by a wave of bank failures at the end of the year. Although mostly confined to small banks in the south east of the US, the failures gave depositors a warning sign. During the first half of 1931 the economy revived, but hopes were dashed in the aftermath of Britain’s abandonment of the gold standard in September, when a wave of bank failures served to undermine the diminishing faith of depositors who rushed to withdraw their money, thus making the closure of their banks inevitable. Many kept their withdrawn funds idle rather than trust another bank with their savings. Economic expansion in the summer and autumn of 1932 was reversed during the policy vacuum between Roosevelt’s electoral victory in November 1932 and his inauguration in March 1933. The uncertainties present during this ‘lame duck’ period led to a further wave of bank failures which became so serious that, by the time Roosevelt delivered his inaugural address in March 1933, the Governors of the vast majority of states had declared their banks closed to prevent almost certain failure ( Calomiris, 2010 , this issue). There was a sharp difference between the British experience, where no financial institution failed, and that of the US, where financial paralysis was the end result.

Friedman and Schwartz (1963) emphasized the contraction by one-third of the US money stock between 1929 and 1933, a reduction which they believe explains fully the severity of the depression. They accused the Federal Reserve of pursuing perverse monetary policies which transformed a recession into a major depression. It was, however, a combination of monetary and non-monetary causes, varying in intensity during these critical years, which accounts for the depth of this crisis (Gordon and Wilcox, 1981 ). Nevertheless, as Fishback (2010, this issue) shows, the judgement of the Fed was at times seriously flawed, although policy errors are sometimes more apparent with the benefit of hindsight. For example, because nominal interest rates had been reduced to a very low level, the Fed believed that it was pursuing an appropriate easy money policy. Indeed, it was difficult to see how interest rates could be forced lower. However, the monetary authorities failed to take account of the savage deflation which caused real interest rates to rise to punitive levels for borrowers. The central bank was convinced that it was pursuing an easy money policy when the reverse was the case. Moreover, when faced with a policy choice, the Fed always opted to follow the gold standard rule. As a result, during late 1931, and also during the winter of 1932–3, the Fed raised interest rates to protect the dollar from external speculation in order to halt gold losses. Unfortunately, this was the exact reverse of the low interest rate, easy credit policy needed to save the battered banking system. Little wonder that so many banks closed their doors. There is no doubt that monetary policy had serious adverse effects during the worst depression years.

Unemployment was one of the great curses of the depression. Widely accepted estimates show that the percentage of the US civilian labour force without work rose from 2.9 in 1929 to 22.9 in 1932 ( Table 2 ). Many classified as employed were on short time and some had also experienced wage cuts. Unlike Britain, the US had no national system of unemployment benefits; the jobless were subjected to a harsh regime which included dependence on miserly, poorly administered, local relief. Those most affected included the young, the old, and ethnic minorities, whose unemployment rates were relatively high. In addition, social workers stressed that those who had been out of work for long periods became increasingly unattractive to employers. Loss of income and employment uncertainty combined to reduce consumer spending.

Even fortunates who felt secure in their jobs and whose real incomes had risen were deterred by the persistent deflation. Why buy a motor vehicle, or a house, now, when both would be significantly cheaper in a few months’ time? Deflation increased the burden of existing debt and acted as a warning against the accumulation of new obligations. Deflation also intensified business uncertainty and further undermined the confidence necessary to make investment decisions. Traditionally, price falls were seen as one of the natural self-correcting mechanisms of the market economy. Deflation automatically led to a rise in real incomes, it was argued, and consumers would soon start a purchasing drive that would lift the economy out of recession. The persistent price falls over such a long period, however, brought about a paralysis in consumption and investment. Potential spenders wanted to wait until the price falls had reached their nadir before they committed themselves to major purchases and new debt.

Herbert Hoover was hard-working, energetic, and intelligent. He probably had a greater grasp of contemporary economics than any twentieth-century president and was confident enough to be his own economic advisor ( Stein, 1988 ). He was familiar with the current literature on business cycles and was not a man to stand aside and watch as recession accelerated into depression ( Bernstein, 2001 ). Hoover publicly urged business leaders to share scarce work rather than add to the unemployed, and pleaded with them not to cut wage rates, which had been the instant response of employers in 1920–1. Big business held out against wage cuts until mid-1931 when, faced with overwhelming financial losses, the dam broke and they could resist no more. Nominal wage cuts became common, as did mass lay-offs. Some critics see Hoover’s unwavering commitment to high wages and the maintenance of purchasing power as a serious mistake, which added to the severity of the downturn ( Ohanian, 2009 ; Smiley, 2002 ).

Hoover refused to listen to the pleas of 1,038 American economists who, in 1930, urged him to veto the Smoot–Hawley tariff bill. When it became law, this legislation raised US import duties and ultimately led to retaliatory action throughout the world. Not surprisingly, US foreign trade declined once the depression began to bite. The value of US exports was $7 billion in 1929 but only $2.5 billion in 1932; imports declined from $5.9 billion to $2 billion during the same period. Nevertheless, the US balance of payments remained in surplus. It was, however, the rapid income decline in countries that wanted to purchase US goods which was the most significant factor in causing the contraction in international trade ( Irwin, 1998 ). Hoover’s support of tariff increases demonstrated his consistency. His priority was to protect companies that paid high wages from competition from cheap imported goods ( Vedder and Gallaway, 1993 ).

In early 1932, following Hoover’s lead, Congress approved the Reconstruction Finance Corporation (RFC) with a remit to lend to distressed banks. The hope that the RFC, acting as lender of last resort, would bring stability to the financial system was compromised by a Congressional decision to publicize the names of all institutions that approached the RFC for financial help. Hoover also authorized a large increase in federal spending on work relief projects, but the federal budget, at 4 per cent of GNP, was too small to make a noticeable dent in the growing social distress. Inevitably, declining revenue forced the budget into deficit for fiscal year 1931. The deficit was too small to exert an expansionary effect on the economy but it did enable Roosevelt to attack Hoover during the election campaign of 1932 for failing to appreciate the necessity of economy in government. Ironically, the budget deficit of 1931 was the most expansionary of the entire decade, though no one at the time saw this as a benefit. In 1932, Hoover became so concerned about the domestic and foreign disapproval of the federal budget deficit that spending was reduced and the Revenue Act (1932) introduced a raft of substantial tax increases. In spite of his efforts, the budget remained in the red and, not surprisingly, unemployment remained stubbornly high. Unfortunately, Hoover’s understanding of contemporary economics led him to an unshakeable belief in the gold standard. He shared with many contemporary economists the view that fiscal and monetary policies must be directed to support gold rather than directly to promote domestic economic expansion or bank stability.

(iii) The transmission of the depression

It is easy to see that the year-on-year reduction in imports by the main industrial powers and the collapse of international lending placed many economies in great difficulty. In particular, a regular flow of dollars had been crucial to debtor countries, enabling them to buy goods and services and discharge their debt payments. Once the flow dried up, countries had to confront balance-of-payment and debt-repayment problems which were entirely unanticipated. Primary producers had to act quickly to reduce imports and boost their exports as the terms of trade moved sharply against them. Desperate to curb gold and foreign-exchange loss, they used restrictive monetary and fiscal policies to deflate their economies savagely. Public spending was slashed, wages were cut, and misery increased, but all to no avail. It was impossible to earn sufficient foreign currency, or to attract new international loans. Once the cure of deflation was judged more painful than the disease it was supposed to remedy, default on international loans was inevitable. When this happened, foreign investors panicked. In 1931, US lending virtually ceased and did not recover during the rest of the decade.

The key element in the transmission of the Great Depression, the mechanism that linked the economies of the world together in this downward spiral, was the gold standard. It is generally accepted that adherence to fixed exchange rates was the key element in explaining the timing and the differential severity of the crisis. Monetary and fiscal policies were used to defend the gold standard and not to arrest declining output and rising unemployment.

Contemporaries believed that the gold standard imposed discipline on all economies wedded to the system. But in operation the gold standard was not even-handed. As we have seen, states accumulating gold were not forced to inflate their currencies, but when gold losses occurred governments and central banks were expected to take immediate action in order to stem the flow. The action was always deflation but never devaluation ( Temin, 1993 ). Between 1927 and 1932 France experienced a surge of gold accumulation which saw its share of world gold reserves increase from 7 to 27 per cent of the total. Since the gold inflow was effectively sterilized, the policies of the Bank of France created a shortage of reserves and put other countries under great deflationary pressure. Irwin (2010) concludes that, on an accounting basis, France was probably more responsible even than the US for the worldwide deflation of 1929–33. He calculates that through their ‘gold hoarding’ policies the Federal Reserve and the Bank of France together directly accounted for half the 30 per cent fall in prices that occurred in 1930 and 1931. This illustrates a serious flaw in the operation of the interwar gold standard.

When US capital flows to Germany began to dry up in 1928, the German economy was already experiencing an economic downturn and, at the same time, had a formidable reparations debt to discharge. Germany was forced to deflate, even though already in the early stages of a depression. Soon mounting unemployment and violent political unrest gripped the country. In May 1931 Austria’s largest bank, the Credit-Anstalt, experienced such difficulty that speculators attacked the Austrian schilling. Austria’s gold and foreign-exchange reserves were inadequate and soon exhausted and the country was forced to introduce exchange controls. Speculators then turned to Germany, which had a weak economy, a suspect banking system, a high level of short-term debt, and worrying political divisions.

This was an opportunity for decisive coordinated intervention by the major economic powers. A flawed German economy faced the possibility of a catastrophic financial crisis, which, if not contained, could have serious ramifications for others. Who among the great powers would help? Britain was too financially enfeebled to offer more than marginal assistance. In June 1931 President Hoover acted by unilaterally proposing a moratorium, for 1 year, on reparation and war debts payments. The moratorium referred only to inter-government debt. Hoover expected private debts to be honoured. His intervention was opposed by the French, who were furious at the lack of consultation but more fundamentally believed that they lost more than they gained from the moratorium. France, with ample gold reserves, was in a position to assist, but the political conditions attached to its offer of help made it impossible for Germany to accept. In August 1931, Germany abandoned the gold standard, introduced exchange controls, and halted the free flow of gold and marks. Even though this was a time of falling prices, the horrors of post-war hyperinflation were fresh in the memory of the German public and policy-makers. As a result, the mark was not devalued and the government continued with the draconian deflation that had been introduced in accordance with gold-standard rules.

The speculative wave then engulfed sterling. There had been obvious signs of recession in the UK as early as 1928, when the curtailment of US lending affected UK international trade in services. About 40 per cent of UK overseas trade was with primary producing countries, which were forced immediately to restrict their spending when US credit dried up ( Solomou, 1996 ). The crisis worsened in 1929 as world demand collapsed and the UK experienced a sharp fall in the export of goods and services. Following gold-standard rules, real interest rates rose to defend sterling and public-expenditure cuts were imposed in an attempt to achieve budget balance. Like Austria and Germany, Britain was faced with the withdrawal of foreign deposits as the holders of sterling anticipated the potential loss to them from devaluation. The struggle to defend the pound was all to no avail. On 21 September Britain was forced to leave the gold standard, the first major country to do so, and devalue sterling. The devaluation was substantial; sterling, once free to float, fell by 25 per cent against the dollar, though, of course, it is the multilateral effects of devaluation rather than the bilateral which are the most significant. Speculators then attacked the US dollar, which, as we have seen, was defended by the Federal Reserve, though at the cost of compromising the banking system and intensifying an already serious depression.

Curiously, once free from the need to pursue a deflationary monetary policy to defend sterling, the Bank of England actually increased the bank rate. In spite of experiencing one of the largest price falls in modern history, policy-makers worried about the inflationary effects of devaluation. Fortunately, Britain had not lived through the horrors of hyperinflation, or, indeed, the high levels of inflation endured by the French before the stabilization of the franc in 1926. The fears of financial instability quickly subsided and from early 1932 interest rates were reduced and a nominal interest rate of 2 per cent was a persistent feature of the British economy for the remainder of the 1930s. In contrast, fiscal policy was not expansionary until the end of the decade and the attraction of an annual balanced budget remained ( Middleton, 2010 , this issue).

It is clear that unemployment was the major effect of the Great Depression as far as the UK is concerned. The proportion of workers who were unemployed rose to a peak of 17 per cent in 1932 ( Table 2 ). However, other indicators show that the impact of the crisis was relatively benign. No British bank or building society failed during these troubled years. Between 1929 and 1931, the peak-to-trough contraction in real GDP was a mere 5.4 per cent ( Table 2 ). Even in these crisis years, consumption remained relatively stable. The early exit from the gold standard and the robustness of the financial system created a platform for UK recovery which could be exploited. Indeed, between 1929 and 1937, the peak of 1930s performance, real GDP increased by 16.4 per cent. Unfortunately, 10.1 per cent of the insured population remained without work in 1938 and the numbers of long-tern unemployed were seemingly an intractable socio-economic problem ( Hatton and Thomas, 2010 , this issue). Nevertheless, the UK depression experience is a sharp contrast with that endured by the US ( Table 2 ). Even today, no US macro textbook would be complete without a section analysing the causes and the course of the Great Depression. In the UK, apart from persistent unemployment, the downturn was not deep and was over quickly, and the recovery was impressive.

However, 1931 was a watershed for UK economic policy. The gold standard was abandoned and sterling was devalued. Monetary policy was freed from its obligation to support the gold standard and could be used as a tool for economic expansion. The crisis also provided the incentive for Britain to turn away from an emotional commitment to free trade. The Imports Duties Act (1932) imposed a general 10 per cent duty on a range of imports. Within a few months, the Imperial Preference system instituted agreements between Commonwealth countries and Britain to favour each other’s exports.

Early UK recovery was helped by a favourable exchange rate, though within a few years that significant advantage had gone, as other countries devalued and as British tariffs improved the domestic trade balance. It was not foreign trade but a reflationary monetary policy that drove recovery. Cheap money stimulated the housing industry and, with building societies playing a promotional role, this sector became a visible sign of prosperity, particularly in the Midlands and the south-east of England. Unfortunately, the regions dominated by the old staple industries remained depressed. Apart from unemployment, UK macro performance during the recovery period was impressive. Between 1932 and 1937, GDP growth averaged 4 per cent ( Table 2 ).

In 1931, 47 countries were members of the gold-standard club. By the end of 1932 the only significant members were: Belgium, France, Netherlands, Poland, Switzerland, and the US ( Eichengreen, 1992 ). The year 1931 was a dramatic one, when a major financial crisis dealt a mortal blow to the gold standard while output and prices continued to decline throughout the world. Far from providing stability and fulfilling the expectations of its supporters, the gold standard was instrumental in forcing economies to deflate during a period of intense depression. Indeed, departure from gold was a prerequisite for recovery.

For a while the countries freed from the shackles of gold seemed overwhelmed by the enormity of their action. Policy-makers were concerned that devaluation might lead to inflation, so there was no immediate rush for expansionary economic policies. However, by 1935 it was clear that all the countries that had devalued their currencies in 1931 had performed far better than those who had opted for exchange control. In 1933, the US decided to leave the gold standard and devalue the dollar as it was clear that New Deal policies designed to inflate the economy were inconsistent with the rules of the game. Unlike Britain, the US was not forced to leave the gold standard but chose to do so. The performance of the gold bloc, headed by France, was increasingly dismal and in 1936 France, too, abandoned gold.

Devalued currencies gave exports a competitive edge which trade rivals remaining on gold sought to blunt by the imposition of tariffs, quotas, and bi-lateral trade agreements ( Eichengreen and Irwin, 2009 ). In Nazi Germany, a drive for greater self-sufficiency was added to strict exchange controls and these policies were accompanied by a reliance on bilateral rather than multilateral trade ( Obstfeld and Taylor, 1998 ). Japan and Italy also provide examples of autarkic imperialism. Liberal internationalism was no more. Individual countries, or groups, strove to minimize their imports and maximize their exports. Trade restrictions increased dramatically during the 1930s but even when there was some relaxation it was not multinational. With the Reciprocal Trade Agreements Act (1934), the US Congress authorized the President to negotiate bilateral tariff reductions with other countries. By 1939 the US had signed 20 treaties with countries accounting for 60 per cent of its trade ( Findlay and O’Rourke, 2007 ). Unfortunately, during the 1930s, multilateral trade gave way to bilateral arrangements as trading within blocs, of which Imperial Preference was one, grew more common. The outcome was trade diversion rather than creation.

(iv) The post-gold-standard world

Roosevelt (FDR) promised the American people ‘bold persistent experimentation’ and, although scholars see in the New Deal continuity with America’s past, the public saw decisive action and lots of it. Immediately on entering office the new President addressed the banking problem. A bank holiday closed all the nation’s banks and the President assured the public that they would only be permitted to re-open when an independent examination had declared them sound. Roosevelt’s assurances, and a raft of new regulations designed to curb the failings which Congress believed had helped to cause the depression, ushered in a period of banking stability. FDR’s decision to leave the gold standard and significantly devalue the dollar horrified conservatives but banished the need for the Fed to impose deflationary policies on a stricken economy. Indeed, after devaluation, the US became a safe haven for gold, especially from a troubled Europe. The gold flows generated an expansion of the money supply which helped to stimulate recovery.

From the exceptionally low base of 1933, real GDP grew rapidly at an average of over 8 per cent a year until 1937. After a check, growth between 1938 and 1941 was, at over 10 per cent, even more rapid. Between 1929 and 1933 real GDP fell by 27 per cent; between 1933 and 1937 it rose by 36 per cent ( Table 2 ). In 1937, the best year of the decade, output had just reached 1929 levels and there were as many people at work as there had been in the prosperous year of 1929. Unfortunately the labour force had grown by 6m and the unemployment rate, at 14.3 per cent, remained unacceptably high. Private investment failed to revive satisfactorily. Total gross private domestic investment (current $) rose from $1.4 billion in 1933 to $11.8 billion in 1937. The figure for 1929 was $16.2 billion. The recession of 1937–8 was a sudden and devastating blow to an economy functioning far below full capacity. Private investment was driven down to $6.5 billion and full recovery was held back for several years. The economy did not reach its long-run trend until June 1942.

The New Deal is difficult to evaluate economically, partly because of its lack of consistency ( Fishback, 2007 ). In the first New Deal, 1933–5, Roosevelt attacked the surpluses which many commentators believed had dragged the economy down. Farmers were paid to reduce the acreage on which they grew specified crops in the hope that reduced output would increase farm income and, indeed, revive the entire economy. The National Industrial Recovery Act (NIRA) encouraged cooperating businesses to curb competition, which was seen as potentially destabilizing as it led to price reductions. Minimum wages and maximum hours were supposed to increase consumer spending power and help spread the available work. It was a misguided attempt to regenerate the economy by producing less. This bureaucratic nightmare was declared unconstitutional by the Supreme Court in 1935.

FDR now abandoned the attempt to cooperate with business and advocated a more competitive society. He denounced the ‘economic royalists’, who, he maintained, were trying to thwart the will of the people by undermining his policies. In order to protect the vulnerable, who would be exposed to exploitation in this new competitive environment, the formation and growth of trades unions was promoted by the Labor Relations Act (1935), more popularly known as the Wagner Act. Roosevelt gained a stunning re-election victory in 1936 but by the following year the 1937-38 recession necessitated another change in direction. FDR, who had always disliked budget deficits, now came to accept that spending was a vital tool for recovery. Extra spending did bring about a revival.

The President’s frequent changes of direction are seen by his opponents as cynicism. His supporters praise him for pragmatism. It is hard to think of the twists and turns of New Deal policies having a uniformly positive effect on economic performance. On the positive side, the achievement of bank stability was an important plus, but Roosevelt’s poor relations with business and the administration’s inclination to balance increases in spending with new taxes did not create a favourable environment for private investment to flourish and negated the expansionary effects of federal spending.

The New Deal was not Keynesian. Neither fiscal nor monetary policy was used as a tool for economic revival. The reaction of many contemporaries to the problem of unemployment, for example, was to promote polices that would share work, promote high wages to aid purchasing power, remove married women from the workforce, and institute a compulsory age of retirement. Although the federal budget was in deficit for every year during Roosevelt’s presidency, these deficits were too small and unplanned to be described as Keynesian ( Fishback, 2010 ). The growing money stock did exert a positive influence, but its cause was the substantial flow of gold entering the banking system from troubled Europe rather than direct policy action by the Fed ( Romer, 1992 ). The inflow also imposed costs even though it provided advantages. The Fed became concerned at the potentially inflationary excess reserves held by member banks and, in 1936 and 1937, raised reserve requirements. The banks responded by reducing their lending. Coincident with this restriction, federal spending was reduced. The combination of restrictive monetary and fiscal policies plunged the economy into a serious yearlong downturn during which real GDP fell by 10 per cent and unemployment rose to 12.5 per cent. Fortunately, the recession bottomed out in May 1938, as both fiscal and monetary policy became expansionary. Recovery was rapid but prices continued to fall for another 2 years. This recession was a serious self-induced wound.

(v) Unemployment

Hatton and Thomas (2010) offer an explanation for the mass unemployment in both the US and the UK during the 1930s. Unemployment in the UK during the 1930s was similar to that of the 1920s. It was concentrated in the regions where the old staple industries, cotton textiles, coal mining, ship building, and iron and steel, dominated. However, in other parts of the country, a private housing boom, encouraged by low interest rates and rising real wages, created many jobs and there was employment growth, too, in the manufacture of consumer durables and in the service sector. By the mid-1930s, UK unemployment was primarily regional and structural.

In contrast, the US had enjoyed low unemployment during the 1920s. The stubborn refusal of unemployment to decline to pre-Depression levels as economic recovery got under way ensured that expenditure on relief was a new and major item in the federal budget. There were other differences between the 1920s and the 1930s. The Roosevelt administration encouraged the growth of trades unions and in the first New Deal, minimum wages and maximum hours raised both real wages and labour costs. Indeed, the support of both Hoover and Roosevelt for polices designed to prevent wage rates from falling helps to explain the extraordinary growth in money wages during a period of mass unemployment. The employed benefited, but real wages increased above market-clearing levels and, as a result, unemployment persisted.

Unlike British policy-makers, the New Dealers were totally opposed to ‘dole’ payments, which they feared would lead to a dependency culture. Instead, they stressed the benefits of work relief with a cash wage and hourly wage rates identical to those in the private sector. Hours worked were restricted so that take-home pay was not so munificent that private-sector work would be rejected if it was offered. Unfortunately, limited funding enabled only 40 per cent of workers eligible for work project placements to find employment on them. Rejected applicants were forced to accept relief from their counties, which was far less generous than that provided by Washington.

Mass unemployment was a worldwide phenomenon during the depression. Sweden, Denmark and Norway, like Britain, endured double-digit unemployment in both the 1920s and the 1930s ( Feinstein et al ., 1997 ). In Germany, the deflationary policies pursued even after the gold standard had been abandoned led to an unemployment total of 6m in 1933, roughly double that of the UK. The social and political distress in Germany, which played a significant part in the election of Hitler as Chancellor in 1933, was widely seen at the time as one of the unacceptable costs of unemployment. The eradication of unemployment was a Nazi priority and the new government acted swiftly by imposing a ‘new deal’ on Germany which was radically different from Roosevelt’s model. The Nazis abolished German trades unions and with them collective bargaining. A mass programme of public works financed by budget deficits was begun immediately. Industrial recovery emphasized the production of capital goods not consumer goods. Labour service, and the introduction of military conscription in 1935, helped to reduce the ranks of the jobless so that, in 1937, unemployment had been reduced to less than 2m. A striking feature of the labour market was the very modest growth in real wages which this totalitarian regime was able to control. When the market became tight and shortages appeared, there were no trades unions to help workers exploit their scarcity.

The contribution of Nazi work-creation schemes and the state’s ability to control wage growth explains why the decline of unemployment in Germany appeared a success story when compared to Roosevelt’s efforts in the US ( Temin, 1989 ). Depressed commentators in the free world wondered if the only way to eradicate unemployment was to embrace the policies of either Nazi Germany, or the Soviet Union. Neither option had great appeal. It was, however, preparation for war which sheltered Britain, France, and Germany from sharing the US experience during 1937–8. Expansionary fiscal policies sustained the European economies as they geared up for conflict and minimized the effects of this contraction.

(i) What caused the downturn?

Economic historians have traditionally viewed the large falls in real GDP that happened in the Great Depression as the result of large aggregate demand shocks. We think this is still appropriate and identify the main sources of these shocks. 1 However, the translation of adverse shifts in aggregate demand into an impact on output as well as the price level, implies that the aggregate supply curve was non-vertical and the reasons for this need to be explored. Moreover, it is now generally accepted that the shocks which started the downward spiral were greatly amplified by the financial crises which characterized the early 1930s. A further key aspect of the Great Depression is that recessionary impulses were not immediately countered by an effective policy response, and this also has to be explained. Here, a central role was played by the gold standard, the fixed exchange-rate system, of which all the major economies were members at the end of the 1920s.

The most important source of shocks to the world economy from the late 1920s onwards was the United States. This was not only because the collapse in output in the world’s largest economy was spectacular, but because other countries responded to deflationary changes in American monetary policy, notably at the end of the 1920s ( Eichengreen, 2004 ). At least since Friedman and Schwartz (1963) , monetary policy errors have been blamed by many economists; the M1 measure of the money supply fell by over 25 per cent between 1929 and 1933 and it is generally agreed that, notwithstanding the constraints of the gold standard, at least through early 1932, there was scope for the Federal Reserve to reverse this decline by an aggressive response. Instead, adhering to the real bills doctrine, it was believed that monetary policy was loose and expansionary policy was inappropriate, even though real interest rates were very high. More details can be found in the paper by Fishback (2010) .

Econometric analysis has supported the view that declines in the money supply tended to have negative effects on real output in the United States in the interwar period; however, the decline in output in the early 1930s was much bigger than would be predicted simply on the basis of the fall in M1 (Gordon and Wilcox, 1981 ). This might imply that there were other demand shocks working through autonomous falls in consumption and investment spending, as argued by Temin (1976) . A major additional factor was the spate of banking crises that engulfed the United States in the early 1930s when more than 9,000 banks failed (comprising about a seventh of total deposits).

In a seminal paper, Bernanke (1983) found that adding changes in deposits of failing banks to an equation to predict output based on money and price shocks substantially improved its predictive power. This should not be surprising since it is well known that systemic banking crises tend to be associated with large output losses ( Laeven and Valencia, 2008 ). Bernanke interpreted his result as an indication that bank failures implied a loss of services of financial intermediation, a ‘credit crunch’, in which output fell consequent on an adverse shift in the supply of loans. This claim, based on correlations at the macro level, has subsequently been strongly supported by micro-level research into bank behaviour ( Calomiris and Mason, 2003 a ; Calomiris and Wilson, 2004 ). So bank failures were an important channel for the transmission of monetary impulses to real-economy outcomes.

Friedman and Schwartz (1963) interpreted the bank failures as primarily a result of a ‘scramble for liquidity’ with the implication that, if the Federal Reserve had acted as a vigorous lender of last resort, they could largely have been averted, at least in 1930 and 1931. Bordo and Lane (2010, this issue) provide support for this view based on an econometric analysis using examiners’ reports on failed banks. That said, it is clear that the United States entered the 1930s with a weak financial system, under-capitalized and based on unit rather than branch banking, and that the probability that a bank would fail strongly reflected fundamentals and insolvency stemming from ex ante balance-sheet weakness rather than panic ( Calomiris and Mason, 2003 b ). It is also clear that high failure rates reflected weaknesses in regulation, notably in terms of capital adequacy, and prudential supervision, in particular because of inadequate standards at the state level; indeed, Mitchener (2007) estimated that the bank failure rate might have been halved had regulatory and supervisory practices across states improved by one standard deviation.

Obviously, a more resilient banking system would have coped better with the stress created by macroeconomic problems. The incorporation of a financial sector into a dynamic stochastic general equilibrium (DSGE) model of the interwar American economy gives similar insights. Christiano et al . (2003) found that shocks that raise liquidity preference (reduce bank deposits relative to currency holdings) lower funds for investment and contribute to a non-neutral debt deflation, but that a monetary policy rule that responded to these money demand shocks could have limited the fall in real GDP in the early 1930s to only about 6 per cent.

Where does the Wall Street Crash fit into this story? To the person in the street, the collapse of stock-market prices is surely the iconic aspect of the Great Depression. The Dow Jones industrial index fell from 381 to 198 between the peak in early September and mid-November 1929, while from peak to the trough in 1932 about five-sixths was wiped off stock-market values. The crash in the autumn of 1929 included the infamous Black Thursday and Black Tuesday (24 and 29 October). In contrast, economists and economic historians have generally thought that the Wall Street Crash played at most a minor role in the downturn. In part, this is because the fundamental value of a share reflects the discounted present value of future earnings and is thus an endogenous variable. That said, share price indices exhibit ‘excess volatility’—they jump about much more than can be explained by an efficient markets hypothesis ( Shiller, 2003 )—and probably were quite a bit ‘too high’ ex ante in 1929. 2 So there is scope to think in terms of an exogenous shock to share prices. The question then is how much effect might this have had on the real economy. The answer is probably a small impact on consumption through wealth effects and postponement of durables as a response to increased uncertainty ( Romer, 1990 ). There is good evidence that increases in uncertainty affected investment quite significantly through increased risk premia, but, that said, this does not seem to result from discrete events such as the stock-market crash ( Ferderer and Zalewski, 1994 ). So, overall, the impact of the Wall Street Crash on the real American economy was very modest in comparison with that of monetary policy and banking crises.

In sum, the collapse in economic activity was the result of large shocks, both monetary and expenditure, to aggregate demand interacting with a fragile financial system so as to magnify the impact. Discretionary policy responses were, at best, too little, too late, while automatic stabilizers were very weak in an economy with a small federal budget together with low tax rates and transfer payments. Although nominal interest rates fell by several percentage points, ex post real interest rates rose steeply, while bank failures and declining asset prices delivered a credit crunch.

For the typical small open economy in the rest of the world, the big problem as the Depression took hold was being subjected to deflationary pressure as world output and prices fell while being severely constrained in making a policy response by membership of the gold standard. The concept of the macroeconomic trilemma tells us that such a country can only have two of a fixed exchange rate, capital mobility, and an independent monetary policy. This last was typically given up while the gold standard prevailed, although in the globalization backlash that ensued capital controls were very widely adopted. It follows that a monetary-policy response to the deflationary shocks needed to be coordinated across countries (thereby allowing interest-rate differentials to remain unchanged) but, as Wolf (2010) explains, international coordination was out of the question. Indeed, non-cooperative behaviour was the order of the day, epitomized by France’s accumulation and sterilization of gold reserves.

Besides having no control over monetary policy, staying on the gold standard required reductions in prices and money wages and entailed high real interest rates and increased the risk of a banking crisis as balance sheets deteriorated. The decision not to leave the gold standard was influenced by the strength of worries about loss of monetary discipline and the degree of pain in terms of price falls and devaluations by important trading partners ( Wolf, 2008 ). Banking crises were experienced in many countries and were associated with weaknesses in banking systems as well as the deflationary pressures which stressed them ( Grossman and Meissner, 2010 , this issue). Banking crises were bad for the real economy, and countries which went through them were exposed to much larger decreases in real output ( Bernanke and James, 1991 ).

It is implicit in this discussion that the aggregate supply curve is positively sloped rather than vertical so that aggregate demand shocks have output as well as price-level effects. This seems to be borne out by the evidence. Bernanke and Carey (1996) , in a careful panel-data econometric study, found both that there was an inverse relationship between real wages and output and that this reflected incomplete (and indeed quite sticky) nominal wage adjustment in the presence of aggregate demand shocks. It is not fully understood why wages were so sticky, but ‘new-Keynesian’ arguments may be relevant. In particular, there is evidence to support an ‘insider–outsider’ explanation. Consistent with this, for the United States, it has been shown that the delay in nominal wage cuts was most pronounced in industries where there was market power ( Hanes, 2000 ). However, the impact of President Hoover’s attempts to persuade employers to agree not to cut wages may have also delayed wage cuts ( O’Brien, 1989 ). 3

The volume of international trade fell dramatically during the Great Depression, both absolutely and relative to GDP, and the period is notable for a surge in protectionism following the Smoot–Hawley Tariff imposed by the United States in 1930. For the advanced countries, real GDP fell by 16.7 per cent between 1929 and 1932, but import volumes fell by 23.5 per cent ( Table 1 ). Grossman and Meissner (2010) review the reasons for the decline in trade in some detail. Obviously a major factor is the fall in world incomes, but increasing barriers to trade clearly played a very significant role; although estimates of their contribution are sensitive to methodology, it seems likely to have been at least 40 per cent, as estimated by Madsen (2001) .

The goals of protectionist policies were typically to safeguard employment, to improve the balance of payments, and to raise prices. Unlike today, there were no constraints from World Trade Organization (WTO) membership. Protectionism is usually thought of as the triumph of special-interest groups but, in this period, it may be more a substitute for a macroeconomic-policy response. For example, Eichengreen and Irwin (2009) found that, on average, tariffs were higher in countries that stayed on gold longer. It seems unlikely that protection generally had any major impact on GDP during the downturn, because with retaliation there were offsetting effects on imports and exports. Eichengreen (1989) estimated that Smoot–Hawley raised American GDP in the short run by about 1.6 per cent after allowing for retaliation and effects on income in the rest of the world.

(ii) What drove the recovery?

The decline in economic activity across the world came to an end in 1932–3, although there were substantial output gaps for a long time afterwards. Changes in economic policy played a major role in promoting economic recovery on the demand side and to some extent by inhibiting it on the supply side. In the United States, the inauguration of the Roosevelt administration in 1933 ushered in the New Deal and most countries left the gold standard and embarked on a new macroeconomic policy regime. There is a large literature that seeks to account for the role of policy in macroeconomic outcomes in the post-Depression years, but, as this section shows, there remains room for debate.

In the United States, recovery after 1933 can be characterized as strong but incomplete. In the 4 years 1933–7, real GDP rose by 36 per cent compared with a fall of 27 per cent in the previous 4 years, taking the level in 1937 back to about 5 per cent above that of 1929. Assuming trend growth at the pre-1929 rate, however, there was still an output gap of some 25 per cent. From 1933 the New Deal swung into action with its alphabet soup of public-spending initiatives. It is natural to assume that this represented a substantial Keynesian fiscal stimulus but, as has been known since the calculations of Brown (1956) and Peppers (1973) , this was not the case.

Fishback (2010) points out that the New Deal was largely financed by tax increases and notes that the direct effects of fiscal stimulus were, at most, a very small part of the recovery. The federal deficit in 1936 was about 5.5 per cent of GDP and between 1933 and 1936 the discretionary increase probably amounted to around half of this figure. So, fiscal policy was not really tried. Would it have worked? This turns on the value of the fiscal multiplier. In the circumstances of the mid-1930s, with interest rates at or near the lower bound, there are good reasons to believe that, for temporary government spending increases, fiscal multipliers should be a good deal higher with much less crowding out than in normal times ( Hall, 2009 ). Gordon and Krenn (2010) provide estimates of the fiscal multiplier based on a vector autoregression (VAR) analysis of the impact of government expenditure on preparations for the Second World War in 1940–1 which are 1.8 in 1940 falling to 0.8 by the end of 1941. However, as Fishback (2010) notes, there are few estimates of the fiscal multiplier during the New Deal; his own research at the state level suggests a range of 0.9 to 1.7—perhaps a bit below Hall’s best guess of 1.7 for similar conditions. In any event, this would make dealing with the output gap of 1933 a daunting task.

The New Deal was a package of measures, some of which, notably NIRA in 1933 and later the National Labor Relations Act, were intended to increase the bargaining power of workers vis-à-vis employers and to prevent nominal wage declines. Cole and Ohanian (2004) , in the RBC tradition, argue that the effect was to raise real wages and unemployment compared with competitive market outcomes and that this accounts for a significant part of the shortfall of output in 1937 relative to the pre-1929 trend. Hatton and Thomas (2010) review the evidence for this claim and conclude that the New Deal may well have raised the equilibrium level of unemployment considerably; they find that the non-accelerating inflation rate of unemployment (NAIRU) was 12 percentage points higher in the American economy in the 1930s compared with the 1920s. So, it seems that the adverse supply-side impact of the New Deal probably outweighs any positive demand stimulus that it delivered.

Romer (1992) argued that the main stimulus to recovery in the United States was monetary policy, noting very rapid growth in the monetary base and M1 after 1933. This was driven by (largely unsterilized) gold inflows after the United States left the gold standard. M1 grew at nearly 10 per cent per year between 1933 and 1937 and Romer estimated that this was sufficient to raise real GDP in 1937 by about 25 per cent compared with what would have happened under normal monetary growth. She found a large reduction in real interest rates from 1933 and concluded that this had favourable impacts on investment spending. By implication, the positive effect of monetary policy on nominal GDP was a major reason why the federal debt-to-GDP ratio only went up from 16 per cent in 1929 to 44 per cent in 1939.

This account needs to be supplemented by explicitly considering how the United States escaped the liquidity trap, i.e. delivered monetary stimulus despite interest rates at the lower bound. The key here was ‘regime change’, as was originally stressed by Temin and Wigmore (1990) . They argue that leaving the gold standard was a clear signal that the deflationary period was over. Eggertsson (2008) , working with a standard DSGE model, built on this and provided some quantification. His argument is that Roosevelt’s actions on taking office, comprising leaving gold, announcing an objective of restoring the prices to pre-Depression levels, and implementing New Deal spending, amounted to a credible policy that delivered a major change in inflationary expectations which drove down real interest rates, matching the classic recipe for escape from the liquidity trap ( Svensson, 2003 ). Eggertsson’s calibration implied that the regime change accounted for about three-quarters of the recovery in output between 1933 and 1937. Interestingly, this kind of model makes the New Deal a major factor in promoting recovery, but through its indirect effects in changing expectations rather than through a Keynesian fiscal stimulus.

An important ingredient in recovery in the United States was rehabilitation of the banking system to put an end to the waves of bank failures and to ease the credit crunch; this was, indeed, a major priority for legislators. Both re-capitalization and re-regulation of the banks were required. Following a compulsory closure of all banks for 3 days for inspection of their books, the Roosevelt Administration passed an Emergency Banking Act in March 1933 and this was followed by the Banking Acts of 1933 (Glass–Steagall) and of 1935. About 4,000 banks were declared insolvent and not allowed to re-open after the ‘bank holiday’. Inter alia , these banking acts empowered the Reconstruction Finance Corporation (RFC), a government agency, to buy preferred stock in banks with voting rights that frequently entailed effective control, introduced federal deposit insurance, separated investment from commercial banking, and imposed interest-rate ceilings on bank accounts (regulation Q). However, nationwide branch banking continued to be prohibited.

This approach was successful in part, as Mitchener and Mason (2010, this issue) discuss. Deposit insurance, made permanent under the auspices of the Federal Deposit Insurance Corporation (FDIC), was important in ending the threat of further bank runs, as theory suggests it should ( Diamond and Dybvig, 1983 ). The RFC provided substantial capital; by March 1934 it owned stock in nearly half of all commercial banks and in June 1935 it owned more than a third of the capital ($1.3 billion in 6,800 banks) of the American banking system ( Olson, 1988 ). The RFC imposed conditions on banks which were a good substitute for market discipline on risk taking ( Calomiris and Mason, 2003 c ) and the RFC made money for the American taxpayer. Bank runs ceased and failures returned to normal low levels; the deposits-to-currency ratio which had fallen from 10.9 to 5.1 between 1929 and 1933 went back above 7. Bank lending, however, remained far below pre-Depression levels and deposit-to-reserve ratios continued to fall from 13 in 1929, to 8.2 in 1933, to 5 in 1937, when loans were a little over half but bank capital was over 80 per cent of the 1929 level. This reflected continued efforts by banks to reduce default risk at a time when they found it costly to raise new equity ( Calomiris and Wilson, 2004 ).

The regulatory response to the banking crises, captured by political interest groups intent on preserving unit banking and imbued with the ideology of the real bills doctrine, was highly unsatisfactory ( Calomiris, 2010 ). 4 Calomiris notes that the legislation was designed to support unit banking, yet this was the main structural weakness of the system which inhibited diversification of risks, prevented coordinated responses to shocks, restricted competition, and was a major source of banking instability. In contrast, the Glass–Steagall Act mandated the separation of commercial and investment banking, whereas the evidence is that banks which did both were better diversified and less likely to fail ( White, 1986 ) and that there were no good investor-protection reasons for this legislation ( Kroszner and Rajan, 1994 ). In the longer term, the downside of deposit insurance in terms of encouragement of greater risk taking was an important concern but politically it was impossible to remove; this might be seen as a significant cost of the ineffectiveness of the Federal Reserve as lender of last resort.

A key issue with macroeconomic policies to promote recovery is when to withdraw monetary and fiscal stimulus and revert to normal bank policy: too soon and a double-dip recession ensues, too late and inflation takes off. These ‘exit-strategy’ issues are considered by Mitchener and Mason (2010) . For the United States, the former problem materialized in 1937–8 when there was a short but severe recession in which real GDP fell by 10 per cent from peak to trough. This seems to have been consequent on a combination of monetary and fiscal policy tightening in which the former was probably more important ( Velde, 2009 ). This entailed a doubling of banks’ reserve requirements between August 1936 and May 1937, motivated by fear that excess reserves held by the banks might lead to a rapid rise in bank lending, together with the adoption of a policy to sterilize gold inflows as a result of which M1 growth stalled, and tax increases which saw the full-employment surplus rise by about 3.4 per cent of GDP ( Peppers, 1973 ), motivated by moves to re-balance the federal budget in the face of increases in the public debt-to-GDP ratio.

For countries in the rest of the world, a key factor in recovery was exit from the gold standard, as would be expected on the basis of the earlier discussion. On average, the earlier this happened the shallower was the downturn and the sooner recovery began, as was first shown in a very influential paper by Eichengreen and Sachs (1985) and has subsequently been confirmed for wider samples of advanced and middle-income countries by Bernanke (1995) and Campa (1990) . Bernanke (1995) points to leaving gold as permitting monetary expansion and leading to big declines in real interest rates.

In principle, going off gold also allowed countries with balance-of-payments deficits to escape from the deflationary pressures on fiscal policy that, with sterilization of monetary inflows in surplus economies, bore heavily as they tried to prevent a currency crisis ( Eichengreen and Temin, 2010 ). This might have allowed temporary fiscal stimulus to promote recovery but, as Wolf (2010) explains, for a variety of reasons including continued fear of inflation, many countries were reluctant to follow this path in the first half of the 1930s. Would the injection of fiscal stimulus have been successful? Almunia et al . (2010) obtain results that suggest it might well have been, given near liquidity trap conditions, and believe that there were positive results based on sizeable multipliers where it was employed, as in late-1930s France and Italy.

In similar vein, it should be noted that sovereign default was good for relatively rapid and strong recovery ( Eichengreen and Portes, 1990 ). Continuing to service debt as nominal GDP fell implied severe fiscal austerity and, not surprisingly, default was widespread both in Europe and Latin America in an era when the creditors were typically private bondholders, rather than banks, and creditor governments took a relatively relaxed attitude. 5

These themes can be further illustrated by considering economic recovery in the UK which is covered in some detail in Middleton (2010) . Compared with the United States, the UK experienced a relatively mild downturn, with real GDP falling by only about 5 per cent and an early recovery with real GDP returning to the 1929 level by 1934. 6 This fits the picture. The UK had a concentrated banking system but no universal banking and there were no bank failures. An early exit from the gold standard in September 1931 was a blessing in disguise and the result of a currency crisis driven by the fear that rising unemployment in an economy hard hit by falling exports was incompatible with continuation of deflationary policies ( Eichengreen and Jeanne, 1998 ). Devaluation permitted a ‘cheap-money’ policy together with a significant gain in competitiveness, and this accounts for much of the early recovery which started in a period of fiscal consolidation ( Broadberry, 1986 ). The UK did not default but, in 1932, achieved a significant reduction in debt-interest payments through conversion of a large war loan into lower-interest bonds. Unlike the United States, fiscal policy eventually played a significant part through the rearmament programme associated with a discretionary fiscal stimulus of about 3 per cent of GDP between 1935 and 1938; the evidence suggests a short-run fiscal multiplier of around 1.5 ( Thomas, 1983 ; Dimsdale and Horsewood, 1995 ).

(iii) What were the long-term implications of the Great Depression?

The Great Depression had long-lasting effects on economic policy and performance. In the UK it can be seen as a major step down ‘the road to 1945’ and the favourable reception in the 1940s and 1950s to the ideas of Beveridge and Keynes, while in the United States there is a widely held belief that it was the ‘defining moment’ in the development of the American economy ( Bordo et al ., 1998 ). Obviously, there is a danger of attributing to the Depression changes which would have come about anyway, but there is no doubt that the failures of the market economy in the 1930s were game-changing.

Clearly, one implication was a major re-thinking of macroeconomics by the economics profession which, in the Anglo-American world, rapidly adopted Keynesian thinking. This had implications for policy-making, although these need to be handled with care. In the United States, the main change was that it became generally accepted that the automatic stabilizers would not be over-ridden in pursuit of a balanced budget, and these were now much more powerful, with federal spending considerably bigger, but there was no move to trying to fine-tune the economy through Keynesian demand management ( De Long, 1998 ). In the UK, after the war, activist government intervention to prevent shortfalls of aggregate demand did become the norm and, by the 1950s and 1960s, short-term demand management was very prominent in a way that would have been unthinkable in the early 1930s. 7

There was also a legacy from the 1930s for the framework of macroeconomic policy in terms of the macroeconomic trilemma. The move to controls on international capital movements proved to be long-lasting; in most countries, they continued throughout the Bretton Woods period with the return to pegged exchange rates and freer international trade. These years were characterized by very small current-account positions, very high correlations of domestic savings and investment, and the insulation of domestic from foreign interest rates, thus allowing independent monetary policy ( Obstfeld and Taylor, 2004 ). This has been portrayed by Rodrik (2002) as the ‘Bretton Woods Compromise’ in terms of the acceptable limits on globalization required by domestic politics at the level of the nation state after the debacle of the 1930s.

The crisis of the 1930s surely also contributed to the massive increase in social transfers that characterized the OECD countries in the 50 years from 1930 to 1980, during which time the median percentage of GDP rose from a strikingly low 1.66 to 20.09 per cent ( Lindert, 2004 ). Here, too, the story should not be over-simplified—many other factors played a role, including population ageing, trends in income distributions, and rising prosperity. Nevertheless, the ‘defining moment’ hypothesis for the United States is perhaps at its most persuasive in terms of federal social-insurance schemes; Wallis (2010, this issue) sees a fundamental change in terms of fiscal federalism as the New Deal succeeded in putting rules in place that underpinned the political acceptability of inter-state transfers.

The Great Depression also had big implications for microeconomic policy; Hannah and Temin (2010, this issue) suggest that the immediate impact can be seen as a serious retreat from the capitalist free market, with a new emphasis on government interventions to correct market failures. This implies a greater role for regulation and, in most OECD countries, for state ownership. The short-term implication was undoubtedly a substantial reduction in the extent of competition in product markets, including the rise of cartels encouraged by government and the anti-competitive effects of protectionism. The weakening of competition turned out to be much more pervasive and long-lasting in the UK than in the United States ( Broadberry and Crafts, 1992 ; Shepherd, 1981 ).

It is well known that financial crises can have permanent adverse effects on the level and possibly also the trend growth rate of potential output and this is a major reason why such crises usually have serious fiscal implications, including big increases in structural deficits as a percentage of GDP. Thinking in terms of a production function, there will be direct adverse effects on the amount of capital as investment is interrupted, on the amount of labour inputs through hysteresis effects, and on TFP if R&D is cut back. Indirect effects—either positive or negative—may also be felt depending on the impact the crisis has on supply-side policy. Furceri and Mourougane (2009) estimate that for OECD countries a severe banking crisis reduces the level of potential output by about 4 per cent, while the review of the evidence in IMF (2009) , which covers lower-income economies, suggests 10 per cent; in neither case is long-run trend growth thought to be affected.

What does the experience of the United States in the 1930s reveal? One way to address the issue is through time-series econometrics where the shock in the 1930s has been a focal point in debates about deterministic or stochastic trends. 8 Here the evidence is rather inconclusive and the picture is muddied by the Second World War. In fact, assuming trend-stationarity and extrapolating the pre-1929 trend of per capita income growth into the long run gives quite a good approximation to actual experience, but a more careful look suggests a break in trend in 1929 comprising a levels decrease followed by a modest increase in trend growth through 1955 ( Ben-David et al ., 2003 ). The pre-1929 trend line was crossed in 1942.

More insight may be obtained by considering business-cycle peak-to-peak growth-accounting estimates, as in Table 3 . The obvious feature of the 1930s is that the financial crisis undermined growth in the capital stock. Had growth of the capital stock continued at the pre-1929 rate, by 1941 it would have been about 35 per cent larger and, accordingly, potential GDP perhaps 12 per cent bigger. Growth of labour inputs was sluggish, impaired by the impact of the New Deal. However, TFP growth was very strong, powered by sustained R&D, and Field (2003) labelled the 1930s the most technologically progressive decade of the twentieth century in the United States. This theme is pursued in Hannah and Temin (2010) .

Growth accounting decompositions, United States 1919–41 (% per year)

Notes : Δ A / A is TFP growth derived by imposing an aggregate Cobb–Douglas production function, Y = AK α L 1–α . L is measured in terms of hours worked.

Source : Derived from Kendrick (1961) .

A legacy of the depression was a large rise in the number of long-term unemployed workers and the share of unemployment which was long term. In the UK this was to a large extent the result of job losses in the traditional export industries interacting with the unemployment-insurance system to generate a group of workers who would have liked their old jobs back but could survive on the dole. These long-term unemployed workers seem to have experienced declining re-employment probabilities over time as they became discouraged, their human capital deteriorated, and employers regarded them as damaged goods ( Crafts, 1987 ). The plight of these workers scarred the period and, virtually excluded from the labour market, they did not hold down wage pressures ( Crafts, 1989 ). So, at any level of unemployment, wage pressure was greater than in the 1920s or, equivalently, hysteresis effects had raised the NAIRU—perhaps by about 1.5 percentage points.

The UK did not experience a banking crisis but its supply-side policy was greatly affected by the response to the shocks of the 1930s and the damage limitation of the period had persistent effects well into the post-war period. Booth (1987) pointed to the logic of the so-called ‘managed-economy approach’ that was adopted—namely, that it cohered in terms of trying to promote an increase in prices relative to wages through a combination of devaluation, tariffs, and cartels. This amounted to a big reduction in product-market competition which took a long time fully to reverse. In the late 1950s, tariffs were still at mid-1930s levels and about 60 per cent of manufacturing output was cartelized. The retreat from competition had adverse effects on productivity performance over several decades and provided the context in which industrial relations problems and sleepy management proliferated ( Broadberry and Crafts, 2011 ).

Finally, it should be noted that international trade did not return to pre-Depression levels until well after the Second World War. As of the late 1930s, it looked as though the increase in trade costs in the 1930s had ‘permanently’ reduced total trade (exports + imports) to income ratios by about 30 per cent for the advanced countries. Using modern research on the impact of trade on the level of income which allows for impacts on capital stock and TFP (rather than welfare triangles), following in the tradition of Frankel and Romer (1999) , suggests that the long-term effect would have been to reduce the level of GDP per person by about 15 per cent. 9

This section pulls out the strongest policy lessons from the 1930s that have emerged from the above. Some of these are well understood and, fortunately, in the Great Recession of the last 2 years many of the worst mistakes of 80 years ago have not been repeated. The economic history of the Great Depression is, of course, well known to key players such as Ben Bernanke and Christina Romer, who are distinguished contributors to the literature. We are, of course, aware that some things are different now—for example, there was no European Monetary Union or too-big-to-fail doctrine in the 1930s— and that policy decisions and outcomes were contingent on the circumstances of the time; nevertheless, we believe that there is value in re-visiting the experience of that decade.

Starting with monetary and fiscal policy, the headlines from the American experience are clear enough. Monetary policy bears a big responsibility for the early-1930s slump; subsequent research has refined rather than refuted the claims of Friedman and Schwartz (1963) . Monetary policy errors were of both commission and omission. Inappropriate tightening of policy precipitated the downturn, while the subsequent failure to provide greater monetary stimulus allowed recession to develop into depression. In particular, as Bordo and Lane (2010) show, the Federal Reserve failed in its role as lender of last resort and thus made the financial crisis much more serious. These mistakes were not repeated in 2008–9 when monetary policy was aggressively expansionary ( Wheelock, 2010 ).

In the 1930s recovery, by contrast, monetary growth provided a major impetus, while there was virtually no fiscal stimulus, even though it is reasonable to suppose that the fiscal multiplier was quite big. It is important not to be misled by the frenetic activity of the New Deal; fiscal policy did not fail, rather it was not tried. It should also be recognized that a strong recovery was rudely interrupted by the severe recession of 1937–8 and this seems to be explained by deflationary moves in both monetary and fiscal policy.

The British fiscal-policy experience offers rather different messages. In the rearmament phase of the later 1930s, fiscal stimulus had a substantial positive impact on real output. On the other hand, in the crisis at the start of the decade, attempts to prevent the budget deficit rising as the recession deepened reduced aggregate demand appreciably, with the structural deficit being reduced by over 2.5 per cent of GDP ( Middleton, 1985 ). The big difference compared with the present day is that the government attempted to over-ride the automatic stabilizers. 10 The context, in terms of the very unpleasant budgetary arithmetic arising from wartime borrowing and being on the gold standard, is important. 11 This drastically reduced freedom to manoeuvre in the face of fears of an adverse reaction from financial markets and of deflation. The lessons here are that falling prices greatly magnify worries about fiscal sustainability, and that, at times when fiscal policy is a valuable weapon, it is highly advantageous to enter the crisis with a history of fiscal prudence.

The experience of the 1930s tells us to expect that a legacy of the current crisis will be a substantial increase in long-term unemployment and economic inactivity. It seems clear that once again this will imply that the NAIRU goes up and the level of potential output goes down. The analysis in Guichard and Rusticelli (2010) suggests that the average increase in NAIRU through hysteresis effects, both across the OECD as a whole and also in the UK, could be around 0.75 percentage points. The adverse impact on the well-being of those who become long-term unemployed will be severe and sustained ( Clark et al ., 2008 ). As Hatton and Thomas (2010) point out, this represents a major challenge for active labour-market policies.

There is a further major lesson from the recovery phase of the 1930s, namely, the importance of regime change for escaping the liquidity trap. Exit from the gold standard by the United States in 1933, together with New Deal policies, changed inflationary expectations and produced a dramatic fall in real interest rates. More generally, abandoning the gold-standard rule restored independence of monetary policy which was valuable for many countries in a world with no policy coordination and bedevilled by wage stickiness. Devaluation promoted early recovery and made fiscal consolidation much less painful. Here was a classic case where adhering to the wrong policy rule made things worse.

This obviously has resonance for current Eurozone problems and, especially, for Greece, which does not have readily available the classic 1930s escape route of devaluation. Eichengreen and Temin (2010) argue that it is virtually impossible for a country to impose capital controls and leave the Eurozone and that, as the failure of the interwar gold standard illustrates, successful fixed exchange-rate systems generally need to be managed in ways that share burdens of adjustment between surplus and deficit countries. Wolf (2010) sees the Eurozone crisis as reinforcing the need for binding fiscal rules together with a credible commitment to a permanent European Stabilization Mechanism to preclude the financial crisis that sovereign default would bring.

At the beginning of the current crisis, international trade collapsed and it was widely remarked that there was a chilling parallel with the trade-wars period of the early 1930s with its seriously adverse implications for income levels in the long term. Subsequently, research has found that the contribution of trade barriers to falling world-trade volumes in 2008–9 was very small, perhaps only 2 per cent ( Kee et al ., 2010 ), which is well below estimates of 40 per cent or more in the Great Depression. It seems that the structure of world trade has changed in ways that make volumes much more sensitive to demand shocks; the evidence is reviewed by Grossman and Meissner (2010) .

This raises the important question of why we have seen creeping rather than rampant protectionism this time. Research on the interwar period by Eichengreen and Irwin (2009) finds that protectionist policies were less likely to be adopted by countries which left the gold standard early, i.e. where there was more freedom to adopt expansionary monetary and fiscal policies. They argue that this makes protectionism much less likely now because the scope for a macroeconomic policy response is much greater.

Even so, another big difference from the 1930s may also be relevant, namely, that now we have the trade rules overseen by the WTO including bound tariff agreements. Evenett (2009) points out that these tariff bindings have held. Unfortunately, it is also true that there is a great deal of leeway for WTO-legal increases in trade barriers, partly because in many cases tariffs are well below bound levels and partly because anti-dumping is not well addressed by the rules. This underlines the importance of reducing the scope for governments legally to raise levels of protection and emphasizes that there could be real value from concluding the Doha Round ( Hoekman et al ., 2010 ).

Banking crises were at the heart of the Great Depression in the United States. That experience and the wider evidence base tells us that such crises are typically very expensive in terms of the depth and length of the downturns with which they are associated and the fiscal legacy that they bequeath through increased structural deficits and government debt-servicing ( Laeven and Valencia, 2008 ). The costs are greater when pre-crisis regulation and supervision are weak ( Ahrend et al ., 2009 ), as is borne out by the variance of bank failure rates across the states of the USA in the 1930s.

Microeconomic analysis incorporating implications of asymmetric information predicts that there is the potential for serious market failures in the banking sector with attendant risks of banking crises; for example, a bank run (a coordination failure) can happen even though agents are rational and banks are solvent ( Diamond and Dybvig, 1983 ). Moral hazard leading to excessive risk-taking which is rational for banks may compound this problem in the context of free-riding in monitoring by depositors. Banks’ lending decisions do not take into account the (potentially large) social costs of bank failures via the threat to financial stability that they entail.

As the catastrophic experience of the United States in the 1930s makes clear, the policy implication is that there is a need both for regulation to reduce the possibility of a crisis by curtailing excessive risk-taking and also for crisis-management measures to reduce the impact of any crisis ( Freixas, 2010 ). The latter might include deposit insurance together with a central bank that acts effectively as a lender of last resort. The former might just comprise regulation that improves the quality of publicly available information to facilitate market discipline of banks. In practice, however, deposit insurance tends to exacerbate moral hazard, especially if implicit full-insurance guarantees are given de facto when banks are deemed too big to fail. This makes strict regulation of bank behaviour, for example, in terms of capital-adequacy rules, or of the size and/or scope of banking activities imperative ( Bhattacharya et al ., 1998 ).

In 1929, the United States had a badly regulated and under-capitalized banking system, an inexperienced and incompetent lender of last resort, and no federal deposit insurance. At the end of the crisis, responses were made both in terms of prudential regulation and crisis management. In 1933, ending the waves of banking crises was both an economic and a political imperative. As today, reliance on market discipline appeared unrealistic. The lender of last resort had failed. So, the solution was deposit insurance plus regulatory reform, and the political attractions of the former meant that it would be a permanent feature of the American banking system ( Calomiris, 2010 ). Many other countries have followed down this path, a choice reinforced by the present crisis. For this solution to work effectively, it is crucial that regulation is well designed. The lesson from the 1930s is that it most probably will not be, because vested interests are likely to hijack the politics of regulatory design. In particular, it is clear that the Glass–Steagall Act introduced unjustified restrictions on universal banking while failing to address the real structural problem, namely, unit banking. Nevertheless, given the scope for, and potentially large costs of, market failure in banking together with the unavoidable presence of deposit insurance, in principle, tighter regulation to contain moral hazard was appropriate both then and now. 12

In late 2008, the Queen pertinently asked why no one had seen the crisis coming. A similar question would have been entirely appropriate in 1931. In some sense, such a lack of foresight represents a failure of economics but it is important to be clear what this comprises. As the research reviewed in this essay shows, economics has powerful tools that explain the reasons for and the consequences of financial crises, ex post . There is no great mystery about what went wrong in the United States in the early 1930s and, in principle, it is known how to prevent a repetition. Forecasting the course of the depression ex ante would, however, have been extremely difficult, then as now. Inter alia , it would have required detailed knowledge of bank balance sheets and a model of when banks would fail, together with an estimate of the impact of bank failures on economic activity, plus an ability to predict the Federal Reserve’s policy moves and when the United States would leave the gold standard.

The key point is surely the need to take banking crises seriously. Microeconomic analysis based on incentive structures in the presence of asymmetric information explains why these are likely to happen ( Dewatripont and Tirole, 1994 ), while economic history tells us that they have been quite frequent and often very costly (Reinhart and Rogoff, 2009 ). This suggests that there is a clear need to supplement conventional macroeconomic forecasting models with models for policy analysis and simulation which incorporate a financial intermediation sector with incentive distortions and information frictions ( Bean, 2010 ) and with ‘early-warning’ models that focus on threats to financial stability.

Unfortunately, the latter are still far from satisfactory. For example, the preferred model in Davis and Karim (2008) gave the probability of a banking crisis in the UK in 2007 as 0.6 per cent while Giannone et al . (2010) show that the recent financial crisis was more severe on average in countries which had very high-quality financial regulation according to existing indicators! Moreover, economists have not yet identified with any precision ex post the initial conditions which made for greater vulnerability ( Claessens et al ., 2010 ). The policy implication is to recognize that maintaining financial stability is a policy objective that will not be achieved by inflation targeting but requires additional policy instruments.

Finally, it is worth noting that in some very important ways economics has had a good crisis and lessons from the 1930s have been well heeded. Accepting that the financial crisis was allowed to happen and was not predicted, at least the policy response based on economic analysis and historical experience prevented a repeat of the trauma of the Great Depression.

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Until relatively recently, this was also commonplace among macroeconomists, even those of a strong neoclassical persuasion. Since Cole and Ohanian (1999) there have been attempts to explain the Great Depression in a real business cycle (RBC) framework. This would naturally look to adverse total factor productivity (TFP) shocks as the recessionary impulse; in common with most economic historians—for example, Pensieroso (2007) and Temin (2008) —we do not believe that this venture has been successful. The strong point of RBC modelling of the 1930s has been to point out and seek to quantify impacts of the New Deal on aggregate supply during the recovery phase ( Cole and Ohanian, 2004 ). Indeed, in that tradition the term ‘Great Depression’ is applied to the whole of the 1930s for the United States on the grounds that, despite quite a strong recovery after 1933, real GDP remained well below what would have been predicted on the basis of 1920s trend growth.

Whether there was a ‘bubble’ in the 1929 stock market has been controversial. The most persuasive evidence that there was a substantial bubble comes from the pricing of loans to stockbrokers and the valuation of closed-end mutual funds; see Rappoport and White (1993) and De Long and Shleifer (1991) .

Bordo et al . (2000) constructed a DSGE model incorporating overlapping Taylor-wage contracts and found that sluggish wage adjustment could have been a powerful aspect of the transmission mechanism from monetary shocks to real output effects.

The real bills doctrine held that the Federal Reserve should simply supply credit to meet the needs of trade and should not seek to target monetary growth or inflation; adherents believed in the separation of investment and commercial banking.

Eichengreen and Portes (1990) list 12 ‘heavy’ and 16 ‘light’ sovereign defaulters; the former include Germany and Greece and the latter include Canada, France, Italy, and Spain.

This raises the question as to why British folklore thinks the 1930s were so bad. The answer probably relates to regional trends in unemployment. In particular, adjustment to declines in the export-staple industries concentrated in ‘Outer Britain’ proved very difficult, cf. Hatton and Thomas (2010) . This is symbolized by the Jarrow March, which took its participants in 1936 from the depressed North-east to the prosperous South-east.

The initial stance of the Labour government in the late 1940s was to embrace planning rather than fine-tuning. It should also be noted that there has been a vigorous debate among economic historians about the validity of the concept of a ‘Keynesian revolution’ in British economic policy-making; see Booth (2001) for an introduction and further references.

With a stochastic trend, a shock only has a temporary effect and the economy then returns to the previous trend growth path; in contrast, if the trend is a non-stationary stochastic process, shocks have an enduring effect on the future growth path and long-run forecasts are affected by historical events.

This is based on the point estimate of an elasticity of 0.5 for the effect of trade exposure on income found for the period 1960–95 by Feyrer (2009) using an improved estimation technique. As far as we know, a similar study has not yet been performed for the interwar years. For the pre-1914 period, Jacks (2006) found larger elasticities based on the original Frankel–Romer methodology.

The large UK budget deficit in 2009–10 of about 11 per cent of GDP mainly results from the fiscal impact of the crisis on top of a pre-existing structural deficit of about 3 per cent of GDP; discretionary fiscal stimulus was equivalent to only about 1.5 per cent of GDP ( IFS, 2010 ). But the key point is that there was no attempt through fiscal stringency to stop the deficit from increasing, quite unlike 1931.

Using the standard formula that for fiscal sustainability b > d ( r – g ) where b is the primary surplus/GDP, r is the interest rate on government debt, and g is the growth rate of nominal GDP with the data set from Middleton (2010) , in the late 1920s, d = 1.7, r = 4.6, and g = 2.5; if inflation is zero then b = 3.6 per cent, but if prices fell at 5 per cent per year, b rose to 12.1 per cent. Conversion of the war debt and gently rising prices in the post-gold-standard world changed this so that b fell below 2 per cent. The value of b is quite small in each of these scenarios if d is at the 1913 level of 0.25.

The claim that there is a market-failure-based justification for stronger regulation is related to the special features of banking that create instability risks and clearly does not generalize to a case for state intervention across the board on the grounds that the market economy as a whole has failed. That error was commonplace in the 1930s but should not be repeated now. It should also be apparent that 1930s experience does not offer a blueprint for the optimal details of regulation in the different world of today.

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What Was the Great Depression?

The 1929 stock market crash, the u.s. economy tailspin.

• Mistakes by the Federal Reserve
• The Fed's Tight Fist
• Hoover's Propped-Up Prices

U.S. Protectionism

• The New Deal

New Deal Success and Failure

The impact of world war ii, the bottom line, the great depression: overview, causes, and effects.

• Depression in the Economy: Definition and Example
• Economic Collapse
• Business Cycle
• Boom And Bust Cycle
• Negative Growth
• What Was the Great Depression? CURRENT ARTICLE
• Were There Any Periods of Major Deflation in U.S. History?
• The Greatest Generation
• U.S. Government Financial Bailouts
• Austerity: When the Government Tightens Its Belt
• The Economic Effects of the New Deal
• Gold Reserve Act of 1934
• Emergency Banking Act of 1933

The Great Depression was a devastating and prolonged economic recession that followed the crash of the United States stock market in 1929. It lasted through 1941, the same year that the U.S. entered World War II.

The period was marked by several economic contractions, including the stock market crash of 1929, banking panics in 1930 and 1931. and the Smoot-Hawley Tariff that crashed world trade. Other events and policies helped to prolong the Depression during the 1930s.

Economists and historians often cite the Great Depression as the most significant, if not the most catastrophic, economic event of the 20th century.

Key Takeaways

• The Great Depression was the greatest and longest economic recession in modern world history.
• The Depression ran from 1929 to 1941.
• Investing in the speculative market in the 1920s led to the stock market crash of 1929 and this wiped out a great deal of nominal wealth.
• Other factors also contributed to the Great Depression, including the Fed's inactivity followed by its overreaction.
• Presidents Hoover and Roosevelt both tried to mitigate the impact of the Depression with government policies.

Investopedia / Sabrina Jiang

It's hard to pinpoint exactly what caused the Great Depression but economists and historians generally agree that several factors led to this period of downturn. They include the stock market crash of 1929, the gold standard, a drop in lending, tariffs, banking panics, and contracted monetary policies of the Fed.

The U.S. stock market fell by nearly 50% and corporate profits declined by over 90% during a short depression known as the Forgotten Depression that lasted from 1920 to 1921. The U.S. economy enjoyed robust growth during the rest of the decade. The American public discovered the stock market and dove in headfirst during the Roaring Twenties period.

Speculative frenzies affected both the real estate markets and the New York Stock Exchange (NYSE) . Loose money supply and high levels of  margin trading  by investors helped fuel an unprecedented increase in asset prices.

The lead-up to October 1929 saw equity prices rise to all-time high multiples of more than 19 times after-tax corporate earnings. Coupled with the benchmark Dow Jones Industrial Index (DJIA) increasing 500% in just five years, this ultimately caused the stock market crash .

The NYSE bubble burst violently on Oct. 24, 1929, a day that has come to be known as Black Thursday . A brief rally occurred on Friday the 25th and during a half-day session on Saturday the 26th but the following week brought Black Monday (Oct. 28) and Black Tuesday (Oct. 29). The DJIA fell by more than 20% over those two days. The stock market would eventually fall almost 90% from its 1929 peak.

Ripples from the crash spread across the Atlantic Ocean to Europe, triggering other financial crises such as the collapse of the Boden-Kredit Anstalt, Austria’s most important bank. The economic calamity hit both continents in full force in 1931.

The 1929 stock market crash wiped out nominal wealth, both corporate and private, and this sent the U.S. economy into a tailspin. The U.S. unemployment rate was 3.2% in early 1929. It soared to over 25% by 1933.

The unemployment rate remained above 18.9% in 1938 despite unprecedented interventions and government spending by both the Hoover and Roosevelt administrations. Real per capita gross domestic product (GDP) was below 1929 levels by the time the Japanese bombed Pearl Harbor in late 1941.

The crash likely triggered the decade-long economic downturn but most historians and economists agree that it didn't cause the Great Depression by itself. Nor does it explain why the slump's depth and persistence were so severe. A variety of specific events and policies contributed to the Great Depression and helped to prolong it during the 1930s.

Mistakes by the Young Federal Reserve

The relatively new  Federal Reserve  mismanaged the supply of money and credit before and after the crash in 1929, according to monetarists such as  Milton Friedman  and acknowledged by former Federal Reserve Chair  Ben Bernanke .

The Fed was created in 1913 and it remained fairly inactive throughout the first eight years of its existence. Then it allowed significant  monetary expansion after the economy recovered from the 1920 to 1921 depression.

The total money supply grew by $28 billion, a 61.8% increase between 1921 and 1928. Bank deposits increased by 51.1%, savings and loan shares rose by 224.3%, and net life insurance policy reserves jumped by 113.8%. All this occurred after the Federal Reserve cut required reserves to 3% in 1917. Gains in gold reserves via the Treasury and Fed were only $1.16 billion.

The Fed instigated the rapid expansion that preceded the collapse by increasing the money supply and keeping the federal funds interest rate low during the decade. Much of the surplus money supply growth inflated the stock market and real estate bubbles.

The Fed took the opposite course by cutting the money supply by nearly a third after the bubbles burst and the market crashed. This reduction caused severe liquidity problems for many small banks and choked off hopes for a quick recovery.

World War II created international trading channels and reversed burdensome price and wage controls, which helped the country recover from the Great Depression.

The Fed's Tight Fist

As Bernanke noted in a November 2002 address, before the Fed existed, bank panics were typically resolved within weeks. Large private financial institutions would loan money to the strongest smaller institutions to maintain system integrity. That sort of scenario had occurred two decades earlier during the Panic of 1907 .

At that time, investment banker J.P. Morgan stepped in to rally Wall Street denizens to move significant amounts of capital to banks that were lacking funds when frenzied selling sent the NYSE spiraling downward and led to a bank run. Ironically, it was that panic that led the government to create the Federal Reserve to cut its reliance on individual financiers such as Morgan.

The heads of several New York banks had tried to instill confidence after Black Thursday by prominently purchasing large blocks of blue-chip stocks at above-market prices. These actions caused a brief rally on Friday but the panicked sell-offs resumed on Monday. The stock market has grown beyond the ability of such individual efforts in the decades since 1907. Only the Fed was big enough to prop up the U.S. financial system.

The Fed failed to do so, providing no cash injection between 1929 and 1932. Instead, it watched the money supply collapse and let thousands of banks fail. This and a collapsing financial sector led to deflation and spurred the following depression. Banking laws at the time made it very difficult for institutions to grow and diversify enough to survive a massive withdrawal of deposits (otherwise known as a run on the bank ).

The Fed's harsh reaction may have been the result of its fear that bailing out careless banks would encourage fiscal irresponsibility in the future. Some historians argue that the Fed created the conditions that caused the economy to overheat and then exacerbated an already dire economic situation.

Hoover's Propped-Up Prices

Herbert Hoover has often been characterized as a do-nothing president but he took action after the crash occurred. He implemented three major changes between 1930 and 1932:

• An increase in federal spending by 42% that resulted in massive public works programs such as the Reconstruction Finance Corporation (RFC)
• Taxes to pay for new programs
• A ban on immigration in 1930 to keep low-skilled workers from flooding the labor market

Hoover was mainly concerned that wages would be cut following the economic downturn. He reasoned that prices had to stay high to ensure high paychecks in all industries. Consumers would have to pay more to keep prices high.

But the public was burned badly in the crash, leaving many people without the resources to spend lavishly on goods and services. Nor could companies count on overseas trade because foreign nations weren't willing to buy overpriced American goods any more than Americans were.

Many of Hoover's other post-crash interventions and actions by Congress, such as wage, labor, trade, and price controls, damaged the economy's ability to adjust and reallocate resources.

The bleak reality forced Hoover to use legislation to prop up prices and wages by choking out cheaper foreign competition. He signed the Smoot-Hawley Tariff Act of 1930 into law following the tradition of protectionists and in the face of the protests from more than a thousand of the nation's economists.

The act was initially intended to protect agriculture but it swelled into a multi-industry tariff , imposing huge duties on more than 880 foreign products. Nearly three dozen countries retaliated and imports fell from $7 billion in 1929 to just $2.5 billion in 1932. International trade declined by 66% by 1934. Not surprisingly, economic conditions worsened worldwide.

Hoover's desire to maintain jobs as well as individual and corporate income levels was understandable but he encouraged businesses to raise wages, avoid layoffs , and keep prices high at a time when they naturally should have fallen. The U.S. suffered one to three years of low wages and unemployment , plus cycles of recession/depression, before dropping prices led to a recovery.

The U.S. economy deteriorated from a recession to a depression when it was unable to sustain these artificial levels with global trade effectively cut off.

President Franklin Roosevelt promised massive change when he was elected in 1933. The New Deal program that he initiated was an innovative, unprecedented series of domestic programs and acts that were designed to bolster American businesses, reduce unemployment, and protect the public.

The New Deal was loosely based on Keynesian economics and the idea that the government could and should stimulate the economy. It set lofty goals to create and maintain the national infrastructure , full employment, and healthy wages. The government set about achieving these through price, wage, and even production controls.

Some economists claim that Roosevelt continued many of Hoover's interventions, just on a larger scale. He kept a rigid focus on price supports and minimum wages and removed the country from the gold standard , forbidding individuals to hoard gold coins and bullion. He banned monopolistic business practices and instituted dozens of new public works programs and other job-creation agencies.

The Roosevelt administration also paid farmers and ranchers to stop or cut back on production. One of the most heartbreaking conundrums of the period was the destruction of excess crops despite the need of thousands of Americans for affordable food.

Federal taxes tripled between 1933 and 1940 to pay for these initiatives as well as new programs such as Social Security . These increases included hikes in excise taxes, personal income taxes, inheritance taxes, corporate income taxes, and an excess profits tax.

The New Deal led to measurable results including financial system reform and stabilization. It also boosted public confidence.

Roosevelt declared a bank holiday for an entire week in March 1933 to prevent institutional collapse due to panicked withdrawals . This was followed by a construction program for a network of dams, bridges, tunnels, and roads. These projects opened up federal work programs, employing thousands of people.

The economy showed some recovery but the rebound was far too weak for the New Deal's policies to be deemed successful in pulling America out of the Great Depression. Historians and economists disagree on the reason:

• Keynesians blame a lack of federal spending, saying that Roosevelt didn't go far enough in his government-centric recovery plans.
• Others claim that Roosevelt may have prolonged the Depression, just as Hoover did before him, by trying to spark immediate improvement instead of letting the economic/ business cycle follow its usual two-year course of hitting bottom and then rebounding.

A study by two economists at the University of California, Los Angeles estimated that the New Deal extended the Great Depression by at least seven years.

But it's possible that the relatively quick recovery that was characteristic of other post-depression recoveries may not have occurred as rapidly after 1929 because it was the first time the general public and not just the Wall Street elite lost large amounts in the stock market.

American economic historian Robert Higgs argued that Roosevelt's new rules and regulations came so fast and were so revolutionary that businesses became afraid to hire or invest.

Philip Harvey, a professor of law and economics at Rutgers University, suggested that Roosevelt was more interested in addressing social welfare concerns than in creating a Keynesian-style macroeconomic stimulus package .

Social Security policies enacted by the New Deal created programs for unemployment, disability insurance, old age, and widows' benefits.

Looking at employment and GDP figures, the Great Depression appeared to end suddenly around 1941 to 1942. This was the time when the U.S. entered World War II. The unemployment rate fell from eight million in 1940 to just over one million in 1943. However, more than 16 million Americans were conscripted to fight in the Armed Services. The real unemployment rate in the private sector grew during the war.

The standard of living declined due to wartime shortages caused by rationing. Taxes rose dramatically to fund the war effort. Private investment dropped from $17.9 billion in 1940 to $5.7 billion in 1943 and total private-sector production fell by nearly 50%.

The notion that the war ended the Great Depression is a broken window fallacy but the conflict did put the U.S. on the road to recovery. The war opened international trading channels and reversed price and wage controls. Government demand opened up for inexpensive products and that demand created a massive fiscal stimulus.

Private investments rose from $10.6 billion to $30.6 billion in the first 12 months after the war ended. The stock market broke into a bull run after a few short years.

When Did the Great Depression Start?

The Great Depression began after the stock market crash of 1929, which wiped out both private and corporate nominal wealth. This sent the U.S. economy into a tailspin and the effects eventually trickled out beyond the U.S. border to Europe.

When Did the Great Depression End?

The Great Depression ended in 1941 at around the same time the United States entered World War II. Most economists cite this as the end date because it was the time when unemployment dropped and GDP increased.

How Did the Great Depression End?

Conventional wisdom says that the U.S. was jolted out of the Great Depression by New Deal job creation combined with a flood of government investment in the private sector in preparation for the country's entrance into World War II. This is disputed by some economists who assert that the Depression would have ended earlier with less government intervention.

The Great Depression was the result of an unlucky combination of factors including a flip-flopping Fed, protectionist tariffs, and inconsistently applied government interventionist efforts. The depression could have been shortened or even avoided by a change in any one of these factors.

The debate continues as to whether the interventions were appropriate. Yet many of the reforms from the New Deal exist to this day. They include Social Security, unemployment insurance, and agricultural subsidies .

The assumption that the federal government should act in times of national economic crisis has become strongly supported. This legacy is one of the reasons why the Great Depression is considered one of the seminal events in modern American history.

Berkeley Economic Review. " In the Shadow of the Slump: The Depression of 1920-1921 ."

History. " Here Are Warning Signs Investors Missed Before the 1929 Crash ."

Federal Reserve Bank of Minneapolis. " The 1929 Stock Market: Irving Fisher Was Right ." Pages 1-2.

McGrattan, Ellen R., and Edward C. Prescott. "The 1929 stock market: Irving Fisher was right."  International Economic Review, Vol. 45, No. 4, 2004, Pages 991-1009.

History. " Great Depression History ."

Federal Reserve History. " Stock Market Crash of 1929 ."

Federal Reserve History. " The Great Depression ."

U.S. Bureau of Labor Statistics. " Databases, Tables & Calculators by Subject ."

Federal Reserve Bank of St. Louis. " Lessons Learned? Comparing the Federal Reserve’s Responses to the Crises of 1929-1933 and 2007-2009 ." Page 90.

The Federal Reserve Board. " Remarks by Governor Ben. S. Bernanke ."

Council on Foreign Relations. " What Is the U.S. Federal Reserve? "

Sieroń, Arkadiusz. "Inflation and income inequality."  Prague Economic Papers, Vol. 26, No. 6, 2017, Pages 633-645.

Kenneth D. Garbade. " Birth of a Market: The US Treasury Securities Market from the Great War to the Great Depression." MIT Press, 2012.

The Federal Reserve History. " The Panic of 1907 ."

Trading Sim. " Black Tuesday 1929 – 4 Things You Need to Know ."

Sautter, Udo. "Government and Unemployment: The Use of Public Works before the New Deal."  The Journal of American History, Vol . 73, No. 1, 1986, Pages 59-86.

Econlib. " Hoover's Economic Policies ."

CFI Education. " Smoot-Hawley Tariff Act ."

Library of Congress. " President Franklin Delano Roosevelt and the New Deal ."

Britannica. " New Deal ."

Fraser Economic Research Federal Reserve Bank of St. Louis. " The International Gold Standard and U.S. Monetary Policy From World War I to the New Deal ." Page 436.

JSTOR. " New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis ."

Independent Institute. " The Mythology of Roosevelt and the New Deal ."

National Bureau of Economic Research. " The Measurement and Behavior of Unemployment ." Page 216.

The National WWII Museum. " WWII Veteran Statistics ."

Skousen, Mark. "Saving the depression: A new look at world war II."  The Review of Austrian Economics, Vol. 2, No. 1, 1988, Pages 211-226.

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The Great Depression Essay

The students learn about the events that led to the stock market crash, the concerns of the Depression, and the effects of the New Deal programs on the American people and the American economy. While reading and discussing these important issues in American History, the students choose an original Depression photograph [primary source] and create a story using historical facts. The project is one week in duration. A scoring guide and handout are utilized.

1. The student will conduct research using primary and secondary sources. 2. The student will write an essay using the provided format and criteria. 3. The student will present his/her work to class an an oral presentation.

Missouri Standards

Goal 1.2 Conduct research to answer questions and evaluate information and ideas. Goal 1.4 Use technological tools and other resources to locate, select, and organize information. Goal 2.1 Plan and make written, oral and visual presentations for a variety of purposes and audiences.

Kansas Standards

Benchmark 2: The student uses a working knowledge and understanding of individuals, groups, ideas, developments, and turning points in the era of the Great Depression through World War II in United States history (1930-1945).

The student:

1. (A) analyzes the causes and impact of the Great Depression (e.g., overproduction, consumer debt, banking regulation, unequal distribution of wealth).

2. (A) analyzes the costs and benefits of New Deal programs. (e.g., budget deficits vs. creating employment, expanding government: CCC, WPA, Social Security, TVA, community infrastructure improved, dependence on subsides).

3. (A) analyzes the debate over expansion of federal government programs during the Depression (e.g., Herbert Hoover, Franklin Delano Roosevelt, Alf Landon, Huey Long, Father Charles Coughlin).

Benchmark 3: The student writes technical text using the writing process.

1. Develops a technical text focused on one main purpose. (Ideas and Content: prewriting, drafting, revising: N,E,T,P)

2. Clearly defines the main idea with selection of concise, logical details that meet the reader’s informational needs. (Ideas and Content: prewriting, drafting, revising: N,E,T,P)

3. Analyzes and understands implications and consequences of plagiarism (e.g. ethical, legal, professional). (Ideas and Content: prewriting, drafting, revising: N,E,T,P)

4. Cites references for all sources of information and includes summarized and paraphrased ideas from other authors. (Ideas and Content: prewriting, drafting, revising: N,E,T,P)

5. Constructs a bibliography with a standard style of format (e.g. MLA, APA, etc.). (Ideas and Content: prewriting, drafting, revising: N,E,T,P)

6. Applies appropriate strategies to generate technical text (e.g. brainstorming, listing, webbing, working in pairs or cooperative groups, identifying information from print sources). (Organization:prewriting, drafting, revising: N,E,T,P)

7. Organizes information within each section, paragraph, list, or graphic in a logical and effective sequence to meet the reader’s informational needs. (Organization: prewriting, drafting, revising: N,E,T,P)

8. Composes a comprehensive piece with a constructive introduction, a relevant or sequential body, and a suitable conclusion. Organization: prewriting, drafting, revising: N,E,T,P)

9. Uses appropriate transitions to connect ideas within the piece (e.g. enumerated lists, bullets, headings, subheadings, complex outlining elements). (Organization: prewriting, drafting, revising: N,E,T,P

• http://www.infoplease.com/
• http://www.yahoo.com
• http://www.yahooligans.com
• Images in the Farm Security Administration-Office of War Information Collection (Library of Congress) America at the Crossroads - Great Photographs From the Thirties, Edited by Jerome Prescott, Smithmark, New York, 1995. American Odyssey, Gary Nash, Glencoe, New York, 1994. Highlights in American History, Grace Kachaturoff, Schaffer Publications, Torrance, California, 1995. Life During the Great Depression, Dennis Nishi, Lucent Books, San Diego, 1998.

The students will study the chapters on the Great Depression and Roosevelt’s New Deal using the school text American Odyssey. The class will read the text, complete guided readings, and study these issues while reading articles from Roosevelt’s Presidency and readings from Highlights in American History. The Depression Essay Project will be introduced during this unit. The use of primary sources and the need to access various Internet sources will enhance the learning process. Each student will choose a photograph from sources to include the KC Public Librarv Special Collection. The students can chose a photograph from the collections of Margaret Bourke-White or Dorothea Lange. Government archives have numerous photographs from the Depression. Additional historical information will be found by accessing Yahoo , Searchopolis , and Information Please Almanac. The students will gain additional knowledge about FDR by using the Project WhistleStop Web Site. After completing the research, the student will follow the format of the essay. The time frame will be distributed in order for the student to organize his/her time and information. A class period in the computer lab will be made available to the class. Each student will have the opportunity to share his/her insights in the form of an oral presentation.

DEPRESSION ESSAY

MAKE YOUR PHOTOGRAPH COME ALIVE!

In this project students will describe the life of a person or persons who suffered hardship and desperation during the Great Depression. The students will choose an authentic photograph from the Great Depression, which can be found using various resources. Students will describe the picture and give an identity to the person(s) in the picture and explain how the depression affected their life/lives. If a photograph is chosen without people, the students will create a person or family who lives [had lived] at the site. [The teacher will show several examples.] In addition, the student will explain how FDR’s New Deal helped restore, or did not restore, the lives of the individuals. A picture of the photograph must accompany the essay and its source documented. It is required that the students use proper mechanics and a five-paragraph essay format to tell this story. The format is as follows: Paragraph 1 This is a general paragraph that is interesting and captures the reader’s attention. Paragraph 2 This is the time to introduce the person [sl in the photo. Who is this? Where do/did they live? What was their life[s] like before the Depression? Paragraph 3 What was the Great Depression? Why did it occur? Explain how this person [s] was affected, and how the individual[s] came to be in the state as shown in the photograph. Paragraph 4 Explain what the New Deal was and how specific programs helped the person[s] in your photo. If there were negative aspects discuss and be specific. Paragraph 5 This is the conclusion of the essay. Describe what happened to the person[s] in the photograph. Describe lessons learned and/or how life[s] changed for this person[s].  

THIS IS THE TIME TO SHOW YOUR CREATIVE REPORTING TALENTS!

A scoring guide will be used to assess each student. The student will receive a copy of the scoring guide at the beginning of the project and a detailed explanation of the requirements of the project.

DEPRESSION ESSAY SCORING GUIDE

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Great Depression and New Deal: A General Resource Guide

Digital collections.

• Introduction
• Related Online Resources
• External Websites
• Print Resources and Search Tips

The digital collections available from the Library of Congress are rich in primary and secondary source materials from all periods of U.S. history. You will find a broad range of formats in the collections ranging from first-hand accounts (both written and recorded) to documentation of people and events during this period of history. Visual and performing artists responded through folk song, theatrical performances, and visual materials. This section of the guide will assist you in locating relevant collections and individual items using the Library's website.

• Browse Materials by Collection
• Browse Materials by Format
• Search LOC.gov by Keyword/Phrase

One way to begin researching digital materials available from the Library of Congress is to start by browsing by collection. Described and linked below are selected digital collections particularly rich in materials documenting life in the United States from the 1920s through the 1940s. Within each collection, it is possible to browse or search for materials within that collection—this can be helpful because these materials are often linked by a common creator, format, geography or subject area. Each digital collection may also include essays, links to related resources, bibliographies, illustrated timelines, etc. which can help to provide context fort understanding and exploring the materials.

For more information on searching, ways to narrow your search results, and for suggested keywords and phrases to use to help you get started, go to the "Search LOC.gov by Keyword/Phrase" tab here.

• After the Day of Infamy: "Man-on-the-Street" Interviews Following the Attack on Pearl Harbor This audio collection represents approximately twelve hours of opinions recorded in the days and months following the bombing of Pearl Harbor from more than two hundred individuals in cities and towns across the United States.
• American Life Histories: Manuscripts from the Federal Writers' Project, 1936 to 1940 This collection of life histories consists of approximately 2,900 documents, compiled and transcribed by more than 300 writers from 24 states, working on the Folklore Project of the Federal Writers’ Project, a New Deal jobs program that was part of the U.S. Works Progress (later Work Projects) Administration (WPA) from 1936 to 1940.
• California Gold: Northern California Folk Music from the Thirties Collected by Sidney Robertson Cowell This online presentation comprises 35 hours of folk music recorded in 12 languages representing numerous ethnic groups and 185 musicians. It includes sound recordings, still photographs of the performers, drawings of folk instruments, and written documentation from a variety of European ethnic and English- and Spanish-speaking communities in northern California in the 1930s.
• Chronicling America: Historic American Newspapers Search America's historic newspaper pages from 1789-1963. Use the advanced search feature to narrow your search to newspaper pages produced during the Great Depression and New Deal.
• Farm Security Administration/Office of War Information Black-and-White Negatives The photographs in this collection form an extensive pictorial record of American life between 1935 and 1944. This U.S. government photography project was headed for most of its existence by Roy E. Stryker, formerly an economics instructor at Columbia University, and employed such photographers as Walker Evans, Dorothea Lange, Russell Lee, Arthur Rothstein, Ben Shahn, Jack Delano, Marion Post Wolcott, Gordon Parks, John Vachon, and Carl Mydans. The project initially documented cash loans made to individual farmers by the Resettlement Administration and the construction of planned suburban communities. The second stage focused on the lives of sharecroppers in the South and migratory agricultural workers in the midwestern and western states. As the scope of the project expanded, the photographers turned to recording both rural and urban conditions throughout the United States as well as mobilization efforts for World War II.
• Farm Security Administration/Office of War Information Color Photographs Photographers working for the U.S. government's Farm Security Administration (FSA) and later the Office of War Information (OWI) between 1939 and 1944 made approximately 1,600 color photographs that depict life in the United States, including Puerto Rico and the Virgin Islands. The pictures focus on rural areas and farm labor, as well as aspects of World War II mobilization, including factories, railroads, aviation training, and women working.
• Federal Theatre Project, 1935 to 1939 This online presentation includes items selected materials including stage and costume designs, photographs, posters, playbills, programs, and playscripts, including productions of Macbeth and The Tragical History of Dr. Faustus as staged by Orson Welles, and Power, a topical drama of the period. Selected administrative documents from the project are also available.
• Florida Folklife from the WPA Collections, 1937 to 1942 This collection combines sound recordings and manuscript materials from four discrete archival collections made by Work Projects Administration (WPA) workers from the Joint Committee on Folk Arts, the Federal Writers' Project, and the Federal Music Project from 1937-42. This online presentation provides access to 376 sound recordings and 106 accompanying materials, including recording logs, transcripts, correspondence between Florida WPA workers and Library of Congress personnel, and a proposal to survey Florida folklore by Zora Neale Hurston. An essay by Stetson Kennedy, who worked with Hurston and other WPA collectors, reflects on the labor and the legacy of the WPA in Florida; and an extensive bibliography and list of related Web sites add further context about the New Deal era and Florida culture.
• Harris & Ewing Collection This collection of photographs includes glass and film negatives taken by Harris & Ewing, Inc., which provide excellent coverage of Washington people, events, and architecture, during the period 1905-1945. Harris & Ewing, Inc., gave its collection of negatives to the Library in 1955. The Library retained about 50,000 news photographs and 20,000 studio portraits of notable people. Approximately 28,000 negatives have been processed and are available for printing. (About 42,000 negatives still need to be indexed.)
• Historic American Buildings Survey/Historic American Engineering Record/Historic American Landscapes Survey These collections document achievements in architecture, engineering, and landscape design in the United States and its territories through a comprehensive range of building types, engineering technologies, and landscapes, including examples as diverse as the Pueblo of Acoma, houses, windmills, one-room schools, the Golden Gate Bridge, and buildings designed by Frank Lloyd Wright. Administered since 1933 through cooperative agreements with the National Park Service, the Library of Congress, and the private sector, ongoing programs of the National Park Service have recorded America's built environment in multiformat surveys comprising more than 581,000 measured drawings, large-format photographs, and written histories for more than 43,000 historic structures and sites dating from Pre-Columbian times to the twentieth century.
• Horydczak Collection The Theodor Horydczak Collection (about 14,350 photographs online) documents the architecture and social life of the Washington metropolitan area in the 1920s, 1930s, and 1940s, including exteriors and interiors of commercial, residential, and government buildings, as well as street scenes and views of neighborhoods. A number of Washington events and activities, such as the 1932 Bonus Army encampment, the 1933 World Series, and World War II preparedness campaigns, are also depicted.
• Eugene Meyer Papers The subject files, 1929-1959, of investment banker, financier, public official, and newspaperman Eugene Meyer (1875-1959) relating to his tenure as fifth chairman of the Federal Reserve Board, 1930-1933, consist of correspondence, memoranda, minutes of meetings, copies of congressional legislation, printed material, and other papers (2,134 items; 4,269 images). They represent a part of a larger collection of Meyer's papers available to researchers in the Manuscript Division Reading Room at the Library of Congress. Many of the digitized documents relate to efforts to address the effects of the Great Depression in the country following the stock market crash of 1929.
• National Screening Room: 1930-1939 Selected films produced between 1930 and 1939 in the U.S. which are available through the Library of Congress National Screening Room, which showcases the riches of the Library's vast moving image collection, designed to make otherwise unavailable movies, both copyrighted and in the public domain, accessible to the viewers worldwide.
• Posters: WPA Posters This collection consists of 907 posters produced from 1936 to 1943 by various branches of the WPA. Of the 2,000 WPA posters known to exist, the Library of Congress's collection of more than 900 is the largest. The posters were designed to publicize exhibits, community activities, theatrical productions, and health and educational programs in seventeen states and the District of Columbia, with the strongest representation from California, Illinois, New York, Ohio, and Pennsylvania. The results of one of the first U.S. Government programs to support the arts, the posters were added to the Library's holdings in the 1940s.
• Southern Mosaic: The John and Ruby Lomax 1939 Southern States Recording Trip This recording trip is an ethnographic field collection that includes nearly 700 sound recordings, as well as fieldnotes, dust jackets, and other manuscripts documenting a three-month, 6,502-mile trip through the southern United States. Beginning in Port Aransas, Texas, on March 31, 1939, and ending at the Library of Congress on June 14, 1939, John Avery Lomax, Honorary Consultant and Curator of the Archive of American Folk Song (now the American Folklife Center archive), and his wife, Ruby Terrill Lomax, recorded approximately 25 hours of folk music from more than 300 performers. These recordings represent a broad spectrum of traditional musical styles, including ballads, blues, children's songs, cowboy songs, fiddle tunes, field hollers, lullabies, play-party songs, religious dramas, spirituals, and work songs.
• Voices from the Dust Bowl: the Charles L. Todd and Robert Sonkin Migrant Worker Collection, 1940 to 1941 This online presentation of selections from a multi-format ethnographic field collection documenting the everyday life of residents of Farm Security Administration (FSA) migrant work camps in central California in 1940 and 1941.
• Woody Guthrie and the Archive of American Folk Song: Correspondence, 1940 to 1950 This manuscript collection highlights letters between Woody Guthrie and staff of the Archive of American Folk Song (now the American Folklife Center archive) at the Library of Congress. The letters were written primarily in the early 1940s, shortly after Guthrie had moved to New York City and met the Archive's assistant in charge, Alan Lomax. In New York, Guthrie pursued broadcasting and recording careers, meeting a cadre of artists and social activists and gaining a reputation as a talented and influential songwriter and performer. His written and, occasionally, illustrated reflections on his past, his art, his life in New York City, and the looming Second World War provide unique insight into the artist best-known for his role as "Dust Bowl balladeer."

Another way to browse digital collections is by format type. While searching an individual collection can sometimes provide more focused and streamlined results, searching across the collections by format accesses a greater range of materials and allows for greater serendipity in the results.

Individual URLs provide access to all digital materials that match a particular format type (examples are linked below) . From that format grouping, you will be able to "refine your results" using "facets" found in the left column of the screen—date, location, contributor, subject, language, etc.

• Audio Recordings (www.loc.gov/audio)
• Books/Printed Material (www.loc.gov/books)
• Films, Videos (www.loc.gov/film-and-videos) You can further limit your results by time period to: films produced between 1930 and 1939 OR films produced between 1940 and 1949
• Manuscripts/Mixed Materials (www.loc.gov/manuscripts)
• Maps (www.loc.gov/maps)
• Photos, Prints, Drawings (www.loc.gov/photos)

Formats are also available as a search "limit" from the search box found on the Library's home page, as well as on many other pages throughout the website. You will see a drop-down menu to the left of the search box, and from that you can select a format that you would like to limit your search to.

The broadest possible search for digital materials is by keyword or phrase for "Everything" using the search box found at the top of the The Library of Congress homepage (pictured below):

Because this is such a broad search, your results set may be extremely large, and may include materials in a wide variety of formats—including general webpages, news releases, legislation, blog posts, and catalog records (although this search does not natively search the Library of Congress Online Catalog ). In order to narrow your results, we encourage you to use search facets.

Use the facets (narrowing strategies) along the left side of the search screen to navigate your search results. Facets are particularly useful for quickly narrowing down a large set of results to the most relevant materials.  Narrower categories reveal themselves in stages, as you click through the facets. Facets categories available on the Library's website include:

• Original Format (Photographs, Legislation, Maps, Manuscripts, Books, etc.)
• Online Format (Image, PDF, Online Text, EPUB)
• Date - To narrow your results down by date, you will need to select the largest applicable time span, e.g.1900-1999, then decade, e.g. 1930-1939 & then year = 1937.
• Location : As with dates, use location facets to narrow down your results in stages—from a large geographical entity such as "United States," to smaller entities, such as a state, county, town, etc
• Subject - Select the link at the bottom of the initial list to view More Subjects >> You will then be able to view these either alphabetically or by number of matches.
• Part of [Library of Congress] Collection

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• Last Updated: Dec 14, 2023 11:50 AM
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124 Great Depression Topics to Write about & Examples

Welcome to our list of the Great Depression topics! Here, you will find writing ideas about the causes and effects of the Great Depression. You can also pick plenty of related issues to debate.

🔝 Top 10 Great Depression Topics to Write About

🏆 best great depression topic ideas & essay examples, 💡 good great depression essay topics, ⭐ interesting topics to write about great depression, ❓ great depression essay questions, 🔎 great depression research topics.

• The Stock Market Crash of 1929
• What Triggered the Great Depression?
• Lessons Learned from the Great Depression
• The Dust Bowl Disaster and Its Role in the Depression
• How Banks Caused the Collapse of the Economy
• Government’s Response to the Great Depression
• The Great Depression and International Relations
• Unemployment and Poverty During the Depression
• Hardship and Resilience in Literature of the Great Depression
• The Impact of the Great Depression on Population Movements
• Cause and Effects of The Great Depression The economic devastation of the 1920s led to the Great Depression and brought a tragedy for the whole society. Crash of stock market The crash of the stock market in 1929 ushered in the Great […]
• The Impact of the Great Depression on Canada Some of the measures that Bennett put in place included camps to support the old and sick as well as the distribution of aid to the unemployed and disadvantaged in the country.
• The Reality of the Great Depression in Steinbeck’s “The Grapes of Wrath” The journey of the Joad family and other significant characters in the story who played the roles in building the whole context take the path of meeting miserable economic situations.
• Great Depression and Cold War: Making of Modern America This paper will explore the causes of the Great Depression, the measures implemented within the New Deal, Cold War tensions, and the changes to the American society by the civil rights movement.
• John Steinbeck’s “The Grapes of Wrath” and the Great Depression The Grapes of Wrath begins by describing an occurrence of soil erosion in Dust Bowl Oklahoma that led to the destruction of crops, a decline in farming and farm produce and the migration of farmers […]
• The Three Main Causes of Great Depression This paper sheds light on the causes that led to the great depression in America According to Bordo and White, the great depression begun in 1929 and many people suffered because all the businesses had […]
• The Great Depression in Canada Before the onset of the Great Depression from the years 1919-1929, Canada had the fastest growing economy amongst the developing nations and the only blip to this record was the slight recession they suffered during […]
• Great Depression: Annotated Bibliography This is a secondary source, written in 2020, and its main idea is that shocks of uncertainty had the main effect on the changes during the Great Depression, which contributed to the fall in production.
• President Hoover’s Role During the Great Depression Although a significant percentage of the causative constituents emanated from the previous government’s economic strategies, President Hoover elevated the conditional outlier.
• Impact of the Great Depression and the New Deal on Minorities However, despite the intention to promote democracy and equality in the United States, the impact of the Great Depression was devastating, and the New Deal did not solve most problems among minorities.
• Social Work During the Great Depression and COVID-19 Pandemic Social workers during the COVID-19 pandemic were faced with a series of novice challenges similar to their counterparts in the Great Depression.
• The Great Depression: Prerequisites, Essence, and Consequences As a result of the crisis and the rise of protectionism, according to the League of Nations, world trade fell threefold from 1929 to 1933.
• How New Deal Represented Minorities and Ended the Great Depression The Civilian Conservation Corps and the Works Progress Administration were some of the many programs representing minorities in the New Deal.
• Public Enemies During the Great Depression In the 1930’s most people in America were feeling the impact of the Great Depression due to the crashed economy. During the great depression, most people were facing the challenges of starving and losing their […]
• The Concepts of Freedom and the Great Depression Furthermore, blacks were elected to construct the constitution, and black delegates fought for the rights of freedpeople and all Americans. African-Americans gained the freedom to vote, work, and be elected to government offices during Black […]
• Economic History of the US: The Great Depression The government’s immediate and unprecedented action brought the state out of the crisis and preserved the system of capitalism. In order to restore the security of Americans in the new deal, Congress and the President […]
• The Contribution of Former U.S. Presidents in Overcoming the Great Depression The Great Depression presents an event in which the U.S.developed progressive leadership policies to improve living standards. Modern politics in the U.S.has caused social divisions similar to the period of Unravelling.
• American History: Great Depression and Other Issues One of the causes of the Great Depression was the international economic woes of the United States of America. One of the actions taken by the Hoover administration to combat the depression was urging the […]
• The History of Great Depression The Great Depression was the most severe recession of the past centuries. It affected the whole world and lasted for approximately 12 years.
• The Great Depression, Volatility and Employee Morale A?” The purpose of the present investigation study is to understand the morale of employees in corporate America on how it affects the way the economy functions in the United States.
• Stories From the Great Depression: President Roosevelt At the same time, the era of the Great Depression was the time when many Americans resorted to their wit and creativity.
• Gender, Family, and Unemployment in Ontario’s Great Depression The introduction and all the background that Campbell gives are firmly in line with the goals of this course. The first part of the study is the business and the economic history.
• The Causes of the Great Depression: Black Tuesday and Panic Historians relate the end of the great depression to the start of the second-word war. The government then came up with packages that sought to lessen the effects of the depression.
• The Great Depression of 1929 This was the program that opened the eyes of the people to the fact that the depression era did not affect just the low bracket of society and that if they were to overcome it, […]
• The Great Depression Period Analysis The main causes for the Great Depression were a combination of unequally distributed wealth, the stock market crash, and eventually the bank failures.
• Great Depression and the American People’s Relationship With Their Government In this essay, I will try to trace the effects of the depression not just on the people who lived it but also among the present Americans.
• How the Great Depression Changed Americans During the depression, the population experienced intense pain and extensive misery and the event has been blamed for leading to calamities such as World War II and the rising to power of Adolf Hitler.
• America in 1920s: Great Depression Regarding the issue of credit exploration in the 1920s, and the contribution of the credit’s expansion into the process of onset of the Great Depression, it is necessary to refer to the facts from American […]
• History of the Great Depression and the New Deal According to the prominent American economist John Keyne, the main cause of the Great Depression was the shortage of money supply, which was dependant on the gold reserve, in the meantime, the industry output significantly […]
• Great Depression of Canada and Conscription During World War I in Canada Due to the depression in the United States, the people across the border were not able to buy the wheat produced and cultivated in Canada and as a result, the exports declined.
• The Great Depression in Steinbeck’s “The Grapes of Wrath” The family adjusted to the codes of conduct in the camp, and Tom even managed to find a job picking fruits at a local farm.
• Great Depression in “A Worn Path” by Eudora Welty The first few paragraphs of the story are dedicated specifically to painting the image of the old Afro-American woman in the mind of the reader by providing details on her appearance, closing, her manners of […]
• Great Depression in the United States The Great Depression of the 1930’s is the most significant economic crises in the history of the modern world and the United States, in particular.
• American Great Depression and New Deal Reforms What is definitely certain is that many factors like the shifting of the economy, unstable credit and financial system, poor government decisions, and the fact that the international economy was still recovering from ruinous effects […]
• Child Labor, Great Depression and World War II in Photographs The impression is of isolation and yearning for daylight, freedom, and a childhood foregone, in the midst of a machine-dominated world.
• The Great Depression in the US and Its Causes It was believed at the time that even if a person failed to pay back their loan, the seizure of assets to cover the cost of the loan in the form of stocks would have […]
• Women’s Rights in the Great Depression Period The pursuit of the workplace equality and the protection of women from unfair treatment by the employers were quite unsuccessful and slow due to the major division in the opinions.
• Great Depression – American History However, though the thicket of sarcasm and irony, one can see despair and disbelief in the power of art, as well as the doubt if art can actually be produced under the name of Hollywood: […]
• The Great Depression and the New Deal Phenomenon With time, due to the highly unequal distribution of income, as well as to the depression in farming regions, the buying capacity of Americans decreased significantly; this led to the inability to purchase the goods […]
• Gardens Role in Great Depression Although the main causes of the great depression are still vague and contentious to date, the overall outcome was unexpected and resulted in the universal loss of trust in the economic future.
• Roosevelt’s Plan to End the Great Depression When he assumed the presidency in 1932, Franklin acknowledged the challenges of the nation, and also the way to get them out of the great depression.
• Franklin D. Roosevelt’s Plans to End the Great Depression in His Presidency President Franklin Roosevelt rose to power at the time when the U.S.was facing hardships in the economy with the great depression badly affecting the economic activities of the country.
• Franklin Delano Roosevelt’s Plans to Combat the Great Depression He came to power in 1933 when the United States was in the middle of the Great Depression, and left in 1945 when the world, including the USA, was grappling with the effects of the […]
• Causes of Great Depression: Canada Great Depression Causes of great depression The fundamental causes of great depression in Canada were the decline in the spending. Crash in the stock market in the United State and Canada contributed to the great depression.
• Is the U.S. Headed Towards the Second Great Depression? This is one of the indicators economists observe to foresee the possibility of the economy diving in to a recession, or is already on the way to recession.
• Repercussion of Great Depression The US mortgage crisis that was the genesis of the financial crisis is blamed on the laxity of law enforcers or failure of the laws that have governed the financial market in the US.
• Why the Great Depression Occurred – a Public Budgeting Stand Point As observed by Romer, “the great depression took place in the late 1920s to the late 1930s and was the longest and most severe depression ever experienced in the industrialized Western world”.
• The Great Depression: A Diary The book covers very little on the normal lifestyle of the people in Youngstown before the crisis; all that it documents are the hardships that describe Ohio as a hopeless place to live.
• The Great Depression’ Influence on the World His book looks at the factors that have caused and prolonged the issues that have deprived many people of jobs and ability to come out of the atrocious conditions.
• In the Eye of the Great Depression It led to the formation of groupings in society due to their similarities in their plight to restore dignity and compassion to their lives.
• Causes of the Great Depression This was due to a prediction of the end of rise in the stock market thus; there was a nationwide stampede to unload the stocks.
• The Great Depression and the New Deal The Great Depression of 1929-40s refers to the collapse of the world economy. For instance, a democrat entitled as Glass believed in the dominance of the white, budget devoid of deficits, the statutory rights, as […]
• Monetary and Fiscal Policy during the Great Depression An expansionary monetary policy is any action by the Fed that results in an increase to the total output or aggregate demand in an economy.
• Economic Depression in USA The Depression of 1873-1879 This depression was as a result of the bankruptcy of the railroad investment firm of Jay Cooke and company and particularly the restrictive monetary policy of the federal government; this is […]
• The Actual Causes of the Great Depression In the period between the end of First World War and the onset of the great depression, United States enjoyed relatively stable economic conditions under the leadership of a string of republican presidents.
• Government Policy Interventions and the Great Depression Monetary policy is the process where the government intervenes by administering and controlling the amount of money in the economy using the Central Bank in many countries and the Federal Reserve in the United States.
• Problem of USA Exposed by the Great Depression The recession was triggered by various fiscal features such as the vast margin between the poor and the wealthy, government debts and surplus production of commodities only to mention a few.
• The Great Depression Effects on American Economy The main problem behind the stated Great Depression experienced in the United States in 1929 was the mismatch between the consuming capacity of the population of the United States and the production capacity of the […]
• Great Depression as a Worldwide Economic Decline Many people ceased to buy products leading to low production of the products. This led to lose of market for American industries and led to trade disagreements among nations.
• The Great Depression Crisis Other causes that led to a reduction in aggregate demand followed throughout the depression period and the effects were transmitted from the United States which was in essence the ‘epicenter’ of the depression to the […]
• The Great Depression in Latin America Leaders in Latin America acknowledged the need to change economic policies and promoted the discarding of the free-market model in favor of import substitution.
• The Causal-Effect Connection of the Great Depression According to majority of the authors and scholars, The Great Depression is the worst economic downturn in the history of the United States of America.
• Did Bank Distress Stifle Innovation During the Great Depression?
• How Does “The Cinderella Man” Depict Life During the Great Depression?
• Could the FED Have Prevented the Great Depression?
• How Did the Great Depression Affect a Generation?
• Did American Welfare Capitalists Breach Their Implicit Contracts During the Great Depression?
• How Does the Great Depression Affect the World Economy?
• Could the Great Depression Be Describes a Time of Desperation?
• How Did the Great Depression Pave the Road for Hitler?
• Did France Cause the Great Depression?
• How Did Demographics Cause the Great Depression?
• Did Hayek and Robbins Deepen the Great Depression?
• How Did Black People Face the Great Depression Differently?
• Did International Economic Forces Cause the Great Depression?
• How Did Governments Deal With Problems Caused by the Great Depression?
• Did Korekiyo Takahashi Rescue Japan From the Great Depression?
• How Did Great Britain, France, and the United States Respond to the Great Depression?
• Did Monetary Forces Cause the Great Depression?
• How Did the Great Depression Completely Destroy America?
• Did Sunspot Forces Cause the Great Depression?
• How Did WWII End the Great Depression?
• Did Technology Shocks Drive the Great Depression?
• How Does the Current Global Economic Recession Compare to the Great Depression?
• Did the Canadian Government Do Enough During the Great Depression?
• How Franklin Delano Roosevelt Handled the Great Depression in the U.S.?
• Did the Commercial Paper Funding Facility Prevent a Great Depression Style Money Market Meltdown?
• How Great Was the Great Depression?
• Did the Great Depression Affect Educational Attainment in the US?
• How Has Homelessness Changed Since the Great Depression?
• Did the New Deal Prolong or Worsen the Great Depression?
• How Did Income Inequality Lead to the Great Depression?
• The Agricultural Crisis During the Great Depression
• Government Relief Programs of the Depression Era
• How the Great Depression Impacted Minority Communities
• The Political Consequences of the Stock Market Crash
• Hoover vs. Roosevelt’s Approaches to Economic Recovery
• The Psychological Effects of the Great Depression on People and Families
• The Role of Government in Economic Recovery during the Great Depression
• The Legacy of Labor Unions and Workers’ Rights of the Depression Era
• Gender Roles, Employment, and Social Changes During the Depression Era
• The Legacy of the Great Depression as Seen in the Modern Economic Policy
• Economic Topics
• Cold War Topics
• Private Equity Research Ideas
• Social Democracy Essay Titles
• International Politics Questions
• Macroeconomics Topics
• American Revolution Topics
• Franklin Roosevelt Questions
• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2024, February 27). 124 Great Depression Topics to Write about & Examples. https://ivypanda.com/essays/topic/great-depression-essay-examples/

"124 Great Depression Topics to Write about & Examples." IvyPanda , 27 Feb. 2024, ivypanda.com/essays/topic/great-depression-essay-examples/.

IvyPanda . (2024) '124 Great Depression Topics to Write about & Examples'. 27 February.

IvyPanda . 2024. "124 Great Depression Topics to Write about & Examples." February 27, 2024. https://ivypanda.com/essays/topic/great-depression-essay-examples/.

1. IvyPanda . "124 Great Depression Topics to Write about & Examples." February 27, 2024. https://ivypanda.com/essays/topic/great-depression-essay-examples/.

Bibliography

IvyPanda . "124 Great Depression Topics to Write about & Examples." February 27, 2024. https://ivypanda.com/essays/topic/great-depression-essay-examples/.

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Summer School 7: The Great Depression, the New Deal and how it changed our economy

Robert Smith

Alex Goldmark

Audrey Dilling

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Find all the episodes from this season here . And past seasons here . And follow along on TikTok here for video Summer School .

When we last left the United States of America in our economic telling of history (in this episode of Summer School), it was the early 1900s and the country's leaders were starting to feel like they had the economic situation all figured out, with just one paper currency in circulation and a central bank to help stabilize the monetary supply.

Flash forward a decade or so, and the financial picture was still looking pretty good as America emerged from the first World War. But then, everything came crashing down with the stock market collapse of 1929. Businesses closed, banks collapsed, one in four people was unemployed, families couldn't make rent, the economy was broken. And this was happening all over the world.

Today we'll look at how leaders around the globe intervened to turn the international economy around, and in the process, how the Great Depression rapidly transformed the relationship between government and business forever.

• Laissez-faire economics
• The gold standard
• Fiat currency 
• The New Deal
• Keynesian economics

This series is hosted by Robert Smith and produced by Audrey Dilling. Our project manager is Devin Mellor. This episode was edited by Planet Money Executive Producer Alex Goldmark and fact-checked by Sofia Shchukina.

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NPR Source Audio – "Lost Situation," "Rumba Desolato," "Elmund Fandango," "Janus Dear," and "Back to the Great Depression" by John Pinamonti .