It is true that the economies of nations evolve in cycles, and where there are highs, there are bound to be lows as well. This post will attempt to answer the question 'When was the Great Depression', which was a truly remarkable period in American history.
The effects of the Great Depression lingered on for many decades, and there are countless repercussions that arose as a direct result of this massive calamity. What is now described as a severe economic depression was much more than that at the time, and it affected most major nations all around the world.
What was the Great Depression
Students of Economics may be well aware of the concept of the economic business cycle. This is a cycle of events that affects all industrial nations (and even all sorts of industries for that matter), and it happens as a direct result of the fluctuations in the economy of the country or the industry.
On a nation-wide basis, this period of depression results in large rates of Great Depression unemployment, low productivity, low national income, and a general lowering of the standard of living of the people of the country.
A boom period, or a period of expansion, is always followed by a period of recession or contraction, and a depression is nothing other than a very severe form of economic recession.
The Great Depression is an effect that surfaced in the year 1929 and carried on till the 1930s and even the 1940s in some countries. There were many factors and events before the Great Depression itself that ultimately led to its surfacing.
The Great Depression originated in the United States with the fall in stock prices around September 4, and on October 29, 1929 the entire stock market crashed. This day is till today also known as 'Black Tuesday'.
The result of this stock market crash reverberated around all major cities in the world, and the nations dependent on heavy industries were the worst hit. Unemployment rate in the US alone rose up to 25%, and in some countries it even went as high as 33%.
When did the Great Depression Start
Many people agree that the stock market crash was the cause of the Great Depression, but there are many economists who claim that this was merely a symptom of the Depression, and not a cause in itself.
One would require detailed economic understanding to get to the bottom of this Depression entirely, but it is widely attributed to two factors - the ineptitude and weakening of the US Federal Reserve, and Britain's choice to return to the Gold Standard at the rates that were prevalent before World War I.
The truth is that when you operate in a free market where the forces of demand and supply are allowed to operate as they will, there are bound to be certain time when the economy on a whole will fall. The inability of the central bank to prevent this from occurring only compounds the problem further.
Even today, economists still debate if the Depression was a result of the free forces of demand and supply in the market, or if it was because the Reserve Bank failed to take adequate measures to control the money supply in the economy.
There are three main schools of thought that attempt to find the end point of the Depression in the US.
- Keynesian Thoughts: These people believe that lowered aggregate spending in the time led to the downturn, and the Government did not take adequate measures to correct this.
It is well-known that the Government must suffer a fiscal deficit to correct this problem, but Franklin Roosevelt did not carry this out completely. Moreover, the drop in international trade due to the Smoot-Hawley Tariff Act in June 1930 also led to the Depression spreading to other countries since the US was a major exporter at the time.
Even the factor of deflation that came into play meant that demand was subsequently lowered as people spent lesser on buying goods and services.
- Monetarist Thoughts: This school believes that the cause for the Depression was a crisis in the banking system, poor management by the Federal Reserve and the monetary contraction that occurred as a result.
This inactivity by the Federal Reserve led to a fall in the money supply by one third, and this could have been countered if the Federal Reserve had carried out emergency lending and the buying of Government bonds, both of which are methods to increase liquidity and the money supply in the economy.
- New Classical Thoughts: This school claims that the fall occurred because of lowered productivity, and this led to a further decline in labor force and capital stock as well. They claim that the intervention of the Government, which happened after the crash, was too little too late and it further strengthened the Depression rather than countering it.
The Great Depression Facts
No matter how bad the consequences were at the time, the Great Depression is something that taught the world about the worst that could happen with their economies, and this has prepared them to better handle such disasters in the future.
- On Black Tuesday the stock market fell by 12%, which was preceded and succeeded by many other falls. On this day alone, the Government lost $16 billion of the overall $30 billion loss.
- In 1932, around 40% of the US banks had failed.
- US unemployment reached a 25.2% high in 1933.
- The average American family income dropped by 40% between 1929 and 1932.
- 1939, when World War II started, is the approximate time when the Great Depression was over.
- People who lost their homes lived in Hoovervilles, named after Herbert Hoover, who was the President till Roosevelt took over in 1933.
- Nearly 50% of children were afflicted during this period.
- A lot of Americans turned to a life of crime at this time.
- The Empire State Building and the Golden Gate Bridge were constructed at this time, and provided jobs to many people.
All the facts in this post changed the nature of not just the US economy, but the world's economy as well. This was a truly testing time for many families, and there were many people who suffered irreversible losses. Though time has healed most wounds, the memories of these dark times still remains fresh in the mind.