What Is Great Depression?
In 1929, the great depression in the US curbed the worldwide economy. It lasted for more than ten years till 1939. This was the longest and most severe depression in the Industrialized western world. It created many fundamental changes in economic institutions, economic theory, and macroeconomic policy. Initially, the Great Depression was originated in the United States but it also created drastic declines in the global economy. As a result, unemployment rose and acute deflation spread over the country.
The great depression 1929 were represented the harshest trouble faced by Americans before the Civil war. This article explains the causes, effects, and economic history of various countries in detail.
Economic History
The great depression was a period of the economic crisis in America. But this affected the economy of all other countries in the world. The Great Depression has shown various severity in different times at different places across the country. The great depression affected various countries like the United States, Europe, Japan, and Latin America. The great depression affected the world economy and declined consumer demand. Also, they created financial panics and the misguided government policies also caused the fall of the economy of the United States.
In 1929, the ordinary recession in the summer began the Great Depression. This worsened the global economy till 1933. Because of this, the Industrial production of the US declined to 47 percent. Also, the gross GDP declined by 30 percent. The WPI of the US declined by 33 percent. As a result of the great depression, the unemployment rate reached 20 percent, which is the highest in the US. Even the great recession of the US in 2007-09 just reached the unemployment rate of about 4.3 percent.
Great Depression In Global Market
During the great depression period, millions of investors from all over the country came to the street overnight. Because of the crash of stock markets and the decline in the economy. Meanwhile, the great depression America spread over the other countries of the world. During the second half of the 1920s, Great Britain suffered from low growth and recession. But it faced a great depression after the 1930s, which is among one-third of the US depression. In early 1930, France also experienced a short downturn in its economy, but it recovered in 1932 and 1933. From 1933 to 1936, the industrial production of France faced a huge price drop.
In 1928, the German economy faced depression and it stabilized in the third quarter of 1929. The depression faced by German industrial production was equal to the United States. Many other countries like Argentina, Brazil, and Japan also suffered from slight depression because of the great depression 1929.
During the spring of 1933, the US began to recover and started to increase its GDP and WPI. In 1942, the US economy completely recovered. All other countries recovered from the Great depression at various times.
Explain The Causes Of Great Depression
Causes of the great depression in the United States was a decrease in spending, which does not mean the aggregate demand. As a result, the manufacturer sectors faced a huge depression in production and Also, the causes of the great depression. The source for the contraction in spending varies depending on various other reasons. As a result, Americans transmitted their investments in the form of gold standards. The great depression was a period of economic crisis, which was initiated by many other factors that also influenced the downturn of the global economy.
In 1929, the stock market of the US faced a huge decline and had a tight monetary policy aimed at limiting stock market speculation. The stocks of the US decreased in great height and decreased the automobile purchases and reduced the production. The banks of the US also closed and the depositors faced huge losses due to this action. President Franklin D. Roosevelt announced the bank holiday till 06th March 1933 to face a great depression America.
Many economists believed that the preservation of gold may help the country to come out of the great depression. So, the Americans started their investments in preserving the gold standards. Later this information spread among other countries and raised the imbalances in trade and asset flow of the gold in international markets. Britain accepted the gold standard after World war I and France accepted the gold standards before World war I. Many other countries have faced the financial crisis and banking panics as the effects of the great depression.
Impacts of Great Depression In International Trade And Lends
Many financial advisors spread the importance of linkage with other countries in the name of International trade. In the mid of 1920, Germany and Latin America extended their foreign lending. But the US started lending abroad after 1928 and 1929, This is because of the high-interest rates provided by the US stock market. Because of International trade and loans Germany has faced rapid inflation in the early 1920s. But the economy of Germany, Brazil, and Argentina have faced the downfall before the US faced the Great Depression.
In 1930, the United States enacted the Smoot-Hawley Tariff Act and created trade policies and to handle other complications. The Smoot-Hawley tariff act helped to boost the income from farms and it mainly concentrated on reducing the foreign competition in agricultural products. All other countries started concentrating on the correction of trade imbalances.
Economic Impact
People from various countries suffered a lot due to the devastating impact of the Great depression period. In the short term, the living standard of the living beings dropped on a large scale. About one-fourth of the labour forces from the industrialized countries could not find jobs for survival in the early 1930s. During the mid-1930s, the situation improved but was reached as before till the end of the decade.
The policy response to the great depression also changed the world economy in different ways. After world war II, many countries reinstalled the fixed currency exchange rates under the Bretton Woods system. Many countries adopted floating rates instead of the fixed exchange rates from 1973.
This article explained the economic history, causes, effects, and impacts of global depression in detail. From this article, we can learn why the great depression occurred, how it affected the global markets, and what are the methods that financial advisors took to save the country from the great depression are explained in detail.
FAQs on Great Depression
1. What exactly was the Great Depression?
The Great Depression was the most severe and longest-lasting economic downturn in the history of the modern industrialised world. It began in the United States following the stock market crash of October 1929 and lasted for approximately a decade. It was defined by massive unemployment, a severe drop in industrial production, widespread bank failures, and a drastic collapse in international trade.
2. What were the primary causes of the Great Depression?
The Great Depression was not caused by a single event but a combination of factors. The main causes include:
- The Stock Market Crash of 1929: The crash on 'Black Tuesday' destroyed billions of dollars in wealth and shattered investor confidence, leading to a massive reduction in spending.
- Widespread Bank Failures: Thousands of banks failed after investing depositors' money in the unstable stock market, leading to a credit crisis as customers rushed to withdraw their savings.
- Overproduction and Underconsumption: American industries and farms were producing far more goods than the average person could afford to buy, causing prices and profits to plummet.
- Flawed Government Policies: The Smoot-Hawley Tariff Act of 1930 worsened the downturn by triggering a global trade war, which crippled international commerce.
- Unequal Distribution of Wealth: A significant portion of the nation's wealth was concentrated in the hands of a few, limiting the overall purchasing power of the majority.
3. How did the Great Depression affect countries around the world?
The effects of the Great Depression were devastating and global. Economically, international trade plummeted by over 50%, personal incomes fell, and tax revenues collapsed. The social impact was equally severe:
- Mass Unemployment: In the US, unemployment soared to nearly 25%. In industrial nations like Germany, the rate was even higher, fuelling social unrest.
- Poverty and Homelessness: Millions lost their homes and life savings, leading to the rise of shantytowns and widespread poverty.
- Political Instability: The severe economic crisis led to the rise of extremist political movements, most notably Nazism in Germany, which exploited public discontent.
4. How did the Great Depression finally end?
The end of the Great Depression was a gradual process driven by two key factors. In the United States, President Franklin D. Roosevelt's New Deal programmes provided some relief and reform. However, the most decisive factor was the outbreak of World War II. The massive increase in government spending on military production and mobilization effectively eliminated unemployment and powered the full-scale economic recovery that the New Deal alone could not achieve.
5. Why is it called the 'Great' Depression and not just a recession?
It is called the 'Great' Depression due to its unprecedented scale, duration, and global impact, which set it apart from a typical recession. A recession is a temporary slowdown in the business cycle, but the Great Depression was far more extreme:
- Duration: A normal recession might last for several months, whereas the Great Depression lasted for about a decade (1929-1939).
- Severity: During the Depression, US GDP fell by nearly 30% and unemployment hit 25%. These figures are drastically higher than in a standard recession.
- Global Reach: While recessions can be regional, the Great Depression crippled economies across North America, Europe, and other industrialised nations simultaneously.
6. How did the Gold Standard make the Great Depression worse?
The Gold Standard, a system where a country's currency was tied to a fixed amount of gold, acted as a major transmitter of the economic crisis. When the US economy declined, countries remaining on the gold standard had to maintain their currency's fixed value. This often forced them to raise interest rates to prevent gold reserves from leaving their country. This policy tightened credit and choked economic activity at the worst possible time. Countries that abandoned the gold standard earlier were able to recover more quickly.
7. What was the 'New Deal' and how did it work?
The New Deal was a series of programs and reforms enacted by President Franklin D. Roosevelt in the US to combat the Great Depression. It focused on three main goals: Relief for the unemployed, Recovery of the economy, and Reform of the financial system. Key initiatives included creating the Social Security system, establishing the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits, and launching large-scale public works projects to create jobs and stimulate the economy.
8. How did the Great Depression impact India's economy under British rule?
The Great Depression severely impacted India, particularly its agricultural sector. The global collapse in demand caused the prices of India's key exports, such as wheat and jute, to fall by over 50%. This plunged Indian peasants and farmers, who were central to the economy, deep into debt. This widespread economic distress in rural India further intensified the nationalist movement for independence from British rule, as it highlighted the vulnerabilities of the colonial economic structure.
9. What long-term changes to economic policy resulted from the Great Depression?
The Great Depression fundamentally reshaped modern economics. Its most significant legacy was the widespread adoption of Keynesian economics, which advocates for active government intervention in the economy. This led to long-term changes, including:
- Government-led Stabilisation: The use of fiscal policy (government spending) and monetary policy to prevent extreme economic downturns.
- Creation of Social Safety Nets: The establishment of programs like unemployment insurance and social security to protect citizens from severe economic hardship.
- Stricter Financial Regulation: Stronger government oversight of banks and stock markets to prevent the kind of speculation that triggered the 1929 crash.
