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THE GREAT DEPRESSION PDF

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Business Cycles and the Great. Depression. Depressions (or recessions) occur when there is not enough demand for all the goods and services that an. Those who lived through the Great Depression will never forget it. In this chapter you will read several different descriptions of the Depression. As you reed them. The Great Depression in the United States began in and ended in Below you will see the great depression facts, causes and the great depression.


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The timing and severity of the Great Depression varied substantially In the United States, the Great Depression began in the summer of the Depression suggests that economic improvements of major trading about US-centred explanations for the global Great Depression (Romer, ). Why should students learn about the Great Depression? Our grandparents and great-grandparents lived through these tough times, but you may think that you.

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It is a more severe downturn than an economic recession, which is a slowdown in economic activity over the course of a normal business cycle. A depression is an unusual and extreme form of recession.

Depressions are characterized by their length, by abnormally large increases in unemployment, falls in the availability of credit often due to some form of banking or financial crisis , shrinking output as buyers dry up and suppliers cut back on production and investment, large number of bankruptcies including sovereign debt defaults, significantly reduced amounts of trade and commerce especially international trade , as well as highly volatile relative currency value fluctuations often due to currency devaluations.

Price deflation, financial crises and bank failures are also common elements of a depression that do not normally occur during a recession.

Great Depression: The best-known depression was the Great Depression, which affected most national economies in the world throughout the s. This depression is generally considered to have begun with the Wall Street Crash of , and the crisis quickly spread to other national economies.

A long-term effect of the Great Depression was the departure of every major currency from the gold standard, although the initial impetus for this was World War II see Bretton Woods Accord. In any case, the world economy has simply outgrown the capacity of additions to the world gold supply to accommodate the increase in world population and increased trade without periodic, painful revaluations of any currencies tied to gold.

Long Depression: New York police violently attacking unemployed workers in Tompkins Square Park, Starting with the adoption of the gold standard in Britain and the United States, the Long Depression — was indeed longer than what is now referred to as the Great Depression, but shallower.

However, it was known as "the Great Depression" until the s. Panic of The Panic of was an American financial crisis, built on a speculative real estate market. The bubble burst on May 10, in New York City, when every bank stopped payment in gold and silver coinage.

The Panic was followed by a five-year depression, with the failure of banks and record high unemployment levels.

Greek Depression: Beginning in , Greece sank into a recession that, after two years, became a depression. Greece's high amounts of sovereign debt precipitated the crisis, and the poor performance of its economy since the introduction of severe austerity measures has slowed the entire eurozone's recovery.

Greece's continuing troubles have led to discussions about its departure from the eurozone. The Great Depression of was a worldwide depression that lasted for ten years.

Its kickoff in the U. That's when traders sold It was triple the usual amount.

Over the next four days, stock prices fell 23 percent. That was the stock market crash of The Great Depression was a severe worldwide economic depression that took place during the s. The timing of the Great Depression varied across nations; in most countries it started in and lasted until the late s.

It was the longest, deepest, and most widespread depression of the 20th century. In the 21st century, the Great Depression is commonly used as an example of how far the world's economy can decline. The depression originated in the United States, after a fall in stock prices that began around September 4, , and became worldwide news with the stock market crash of October 29, known as Black Tuesday. Some economies started to recover by the mids.

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The Great Depression had devastating effects in countries both rich and poor. Unemployment in the U. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Facing plummeting demand with few alternative sources of jobs, areas dependent on primary sector industries such as mining and logging suffered the most. Although the United States had experienced several depressions before the stock market crash on October 27, , none had been as severe nor as long lasting before "Black Thursday" struck Wall Street.

Numbers soon proved the optimists incorrect. The depression steadily worsened. Forty percent of the farms in Mississippi were on the auction block on FDR's inauguration day. Although the depression was worldwide, no other country except Germany reached so high a percentage of unemployed. The poor were hit the hardest. By , Harlem had an unemployment rate of 50 percent and property owned or managed by blacks fell from 30 percent to 5 percent in Farmers in the Midwest were doubly hit by economic downturns and the Dust Bowl.

Schools, with budgets shrinking, shortened both the school day and the school year. The breadth and depth of the crisis made it the Great Depression. No one knew how best to respond to the crisis. President Hoover believed the dole would do more harm than good and that local governments and private charities should provide relief to the unemployed and homeless. By , some states began to offer aid to local communities. This helped only a very few. In , only 1. Cities, which had to bear the brunt of the relief efforts, teetered on the edge of bankruptcy.

By , Cook County Chicago was firing firemen, police, and teachers who had not been paid in 8 months. Those hurt the most were more stunned than angry.

The Great Depression of the 1930s

Many sank into despair and shame after they could not find jobs. The suicide rates increased from 14 to 17 per , Protest that did occur was local, not national: Resistance to protest often turned violent. In , four members of the Dearborn hunger march were shot and killed when 1, soldiers accompanied by tanks and machine guns evicted veterans living in the Bonus Army camp in Washington, D. FDR, after assuming the presidency, promoted a wide variety of federally funded programs aimed at restoring the American economy, helping relieve the suffering of the unemployed, and reforming the system so that such a severe crisis could never happen again.

However, while the New Deal did help restore the GNP to its level and did introduce basic banking and welfare reforms, FDR refused to run up the deficits that ending the depression required. Only when the federal government imposed rationing, recruited 6 million defense workers including women and African Americans , drafted 6 million soldiers, and ran massive deficits to fight World War II did the Great Depression finally end.

Economic historians usually attribute the start of the Great Depression to the sudden devastating collapse of U. Even after the Wall Street Crash of optimism persisted for some time. John D. Rockefeller said "These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again.

Together, government and business spent more in the first half of than in the corresponding period of the previous year. In addition, beginning in the mids, a severe drought ravaged the agricultural heartland of the U. By mid, interest rates had dropped to low levels, but expected deflation and the continuing reluctance of people to borrow meant that consumer spending and investment were depressed.

By May , automobile sales had declined to below the levels of Prices in general began to decline, although wages held steady in Then a deflationary spiral started in Conditions were worse in farming areas, where commodity prices plunged and in mining and logging areas, where unemployment was high and there were few other jobs.

The decline in the U. Frantic attempts to shore up the economies of individual nations through protectionist policies, such as the U. Smoot—Hawley Tariff Act and retaliatory tariffs in other countries, exacerbated the collapse in global trade. By late , a steady decline in the world economy had set in, which not reach bottomed until Money supply decreased a lot between Black Tuesday and the Bank Holiday in March when there were massive bank runs across the United States. There are also various heterodox theories that downplay or reject the explanations of the Keynesians and monetarists.

The consensus among demand-driven theories is that a large-scale loss of confidence led to a sudden reduction in consumption and investment spending. Once panic and deflation set in, many people believed they could avoid further losses by keeping clear of the markets. Holding money became profitable as prices dropped lower and a given amount of money bought ever more goods, exacerbating the drop in demand.

Monetarists believe that the Great Depression started as an ordinary recession, but the shrinking of the money supply greatly exacerbated the economic situation, causing a recession to descend into the Great Depression.

Economists and economic historians are almost evenly split as to whether the traditional monetary explanation that monetary forces were the primary cause of the Great Depression is right, or the traditional Keynesian explanation that a fall in autonomous spending, particularly investment, is the primary explanation for the onset of the Great Depression.

Today the controversy is of lesser importance since there is mainstream support for the debt deflation theory and the expectations hypothesis that building on the monetary explanation of Milton Friedman and Anna Schwartz add non-monetary explanations. There is consensus that the Federal Reserve System should have cut short the process of monetary deflation and banking collapse.

If the Fed had done that the economic downturn would have been far less severe and much shorter. The overall course of the Depression in the United States, as reflected in per-capita GDP average income per person shown in constant year dollars, plus some of the key events of the period. In most countries of the world, recovery from the Great Depression began in In the U. The measurement of the unemployment rate in this time period was unsophisticated and complicated by the presence of massive underemployment, in which employers and workers engaged in rationing of jobs.

There is no consensus among economists regarding the motive force for the U.

The common view among most economists is that Roosevelt's New Deal policies either caused or accelerated the recovery, although his policies were never aggressive enough to bring the economy completely out of recession. Some people starved; many others lost their farms and homes. History Though the U. Besides ruining many thousands of individual investors, this precipitous decline in value of assets greatly strained banks and other financial institutions, particularly those holding stocks in their portfolios.

Many banks were consequently forced into insolvency. The failure of so many banks, combined with a general and nationwide loss of confidence in the economy, led to much-reduced levels of spending and demand and hence of production, thus aggravating the downward spiral.

The result was a drastically falling output and drastically rising unemployment; by , U. The United States had emerged from the war as the major creditor and financier of postwar Europe, whose national economies had been greatly weakened by the war itself, by war debts, and, in the case of Germany and other defeated nations, by the need to pay war reparations. So once the American economy slumped and the flow of American investment credits to Europe dried up, prosperity tended to collapse there as well.

The Depression hit hardest those nations that were most deeply indebted to the United States, i. In Germany, unemployment rose sharply beginning in late , and by early it had reached 6 million workers, or 25 percent of the work force. Britain was less severely affected, but its industrial and export sectors remained seriously depressed until World War II.

Many other countries had been affected by the slump by Almost all nations sought to protect their domestic production by imposing tariffs, raising existing ones, and setting quotas on foreign imports. The effect of these restrictive measures was to greatly reduce the volume of international trade: The American economy entered an ordinary recession during the summer of , as consumer spending dropped and unsold goods began to pile up, slowing production.

At the same time, stock prices continued to rise, and by the fall of that year had reached levels that could not be justified by anticipated future earnings. On October 24, , the stock market bubble finally burst, as investors began dumping shares in unison. A record Figure 1: The Dow Jones Industrial, —30 The stock market turned upward in early , again returning to early levels by April.

Optimism persisted for some time even after the Wall Street crash of In the fall of , 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 and the fall of , and by early thousands of banks had closed their doors. As the public increasingly held more currency and fewer deposits, and as banks built up their excess reserves, the money supply fell Though the Federal Reserve System did increase bank reserves, the increases were far too small to stop the fall in money supply.

Causes of The Great Depression The two classical competing theories of the Great Depression are the Keynesian demand- driven and the monetarist explanation. The consensus among demand-driven theories is that a large-scale loss of confidence led to a sudden reduction in consumption and investment spending.

Once panic and deflation set in, many people believed they could avoid further losses by keeping clear of the markets. Holding money became profitable as prices dropped lower and a given amount of money bought ever more goods, deteriorating the drop-in demand. Economists and economic historians are almost evenly split as to whether the traditional monetary explanation that monetary forces were the primary cause of the Great Depression is right, or the traditional Keynesian explanation that a fall in autonomous spending, particularly investment, is the primary explanation for the onset of the Great Depression.

There is consensus that the Federal Reserve System should have cut short the process of monetary deflation and banking collapse. If the Fed had done that the economic downturn would have been far less severe and much shorter. Figure 2: Crowd gathering at the intersection of Wall Street and Broad Street after the crash 4.

Views of Classical Economists Keynesian British economist John Maynard Keynes argued in The General Theory of Employment, Interest and Money that lower aggregate expenditures in the economy contributed to a massive decline in income and to employment that was well below the average. In such a situation, the economy reached equilibrium at low levels of economic activity and high unemployment.

By not lowering interest rates, by not increasing the monetary base and by not injecting liquidity into the banking system to prevent it from crumbling the Federal Reserve passively watched the transforming of a normal recession into the Great Depression.

Friedman argued that the downward turn in the economy, starting with the stock market crash, would have been just another garden variety recession if the Federal Reserve had taken aggressive action. In their view and like the monetarists, the Federal Reserve, which was created in , shoulders much of the blame; but in opposition to the monetarists, they argue that the key cause of the Depression was the expansion of the money supply in the s that led to an unsustainable credit-driven boom.

In the Austrian view, it was this inflation of the money supply that led to an unsustainable boom in both asset prices stocks and bonds and capital goods. Marxist Karl Marx saw recession and depression as unavoidable under free-market capitalism as there are no restrictions on accumulations of capital other than the market itself.

In the Marxist view, capitalism tends to create unbalanced accumulations of wealth, leading to over-accumulations of capital which inevitably lead to a crisis. This especially sharp bust is a regular feature of the boom and bust pattern of what Marxists term "chaotic" capitalist development. Wallace, Paul Douglas, and Marriner Eccles.

It held the economy produced more than it consumed, because the consumers did not have enough income. Thus, the unequal distribution of wealth throughout the s caused the Great Depression. Unemployment During the Great Depression The depression was more, of course, than an economic event. It reached into countless lives, creating hardship and tension that would be recalled even as the crisis itself eased. Loss of earnings, loss of work, or simply fears that loss would come could devastate people at all social levels.

The suicides of ruined investors in New York were paralleled by the vagrants' camps and begging that spread among displaced workers. White-collar unemployment, though not quite as severe, was also unparalleled.

In Germany , of four million white-collar workers had lost their jobs by Graduating students could not find work or had to resort to jobs they regarded as Figure 3 insecure or demeaning.

The Gold Standard The Great Depression that began at the end of the s was a worldwide phenomenon. By , Germany, Brazil, and the economies of Southeast Asia were depressed. By early , the economies of Poland, Argentina, and Canada were contracting, and the U. As Temin, Eichengreen, and others have shown, the larger factor that tied these countries together was the international gold standard. Every major currency left the gold standard during the Great Depression.

Great Britain was the first to do so. Japan, and the Scandinavian countries left the gold standard in Other countries, such as Italy and the U. According to later analysis, the earliness with which a country left the gold standard reliably predicted its economic recovery. For example, Great Britain and Scandinavia, which left the gold standard in , recovered much earlier than France and Belgium, which remained on gold much longer.

Countries such as China, which had a silver standard, almost avoided the depression entirely. This partly explains why the experience and length of the depression differed between national economies. Political Implications The Depression had profound political implications. In countries, such as Germany and Japan, reaction to the Depression brought about the rise to power of militarist governments who adopted the regressive foreign policies that led to the Second World War.

In countries, such as the United States and Britain, government intervention ultimately resulted in the creation of welfare systems and the managed economies of the period following the Second World War. In the United States Roosevelt became President in and promised a "New Deal" under which the government would intervene to reduce unemployment by work-creation schemes such as street cleaning and the painting of post offices.

Both agriculture and industry were supported by policies which turned out to be mistaken to restrict output and increase prices. The most durable legacy of the New Deal was the great public works projects such as the Hoover Dam and the introduction by the Tennessee Valley Authority of flood control, electric power, fertilizer, and even education to a depressed agricultural region in the south.

The New Deal was not, in the main, an early example of economic management, and it did not lead to rapid recovery.

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The big growth in the US economy was, in fact, due to rearmament. In Germany Hitler adopted policies that were more interventionist, developing a massive work-creation scheme that had largely eradicated unemployment by In the same year rearmament, paid for by government borrowing, started in earnest.

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