Business, Legal & Accounting Glossary
The Great Depression was the longest and most severe business slump in U.S. history. The Great Depression began with the Stock Market Crash in 1929 and didn’t fully end until the U.S. entered World War II in 1941. The causes of the Great Depression are hotly debated. But excessive stock market speculation, restrictive trade practices, Federal Reserve policies, and the collapse of the gold standard are all offered as reasons for the Great Depression. During the worst years of the Great Depression from 1929 to 1933, some 11,000 of America’s 25,000 banks failed and stocks lost 80% of their value; the Great Depression also saw the unemployment rate rise to 25%. The Great Depression soon spread beyond the U.S., abetting the rise of Nazi Germany. The Great Depression also had enormous political consequences in the U.S., causing a vast expansion of Federal economic intervention. The Great Depression propelled Congress into passing the Securities Exchange Act of 1934. which established the Securities and Exchange Commission, and the Glass-Steagall Act, which segregated commercial and investment banking for more than half a century.
The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as an example of how far the world’s economy can fall. The Great Depression originated in the United States; historians most often use as a starting date the stock market crash on October 29, 1929, known as Black Tuesday. The end of the depression in the U.S is associated with the onset of the war economy of World War II, beginning around 1939.
The depression had devastating effects in virtually every country, rich or poor. International trade plunged by half to two-thirds, as did personal incomes, tax revenues, prices, and profits. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by roughly 60 per cent. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as farming, mining and logging suffered the most. However, even shortly after the Wall Street Crash of 1929, optimism persisted; John D. Rockefeller said that “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.”
The Great Depression ended at different times in different countries; for subsequent history see Home front during World War II. The majority of countries set up relief programs, and most underwent some sort of political upheaval, pushing them to the left or right. In some states, the desperate citizens turned toward nationalist demagogues – the most infamous being Adolf Hitler – setting the stage for World War II in 1939.
The Great Depression was triggered by a sudden, total collapse in the stock market. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 per cent below the peak of September 1929. Together, government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the previous year, cut back their expenditures by ten per cent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.
In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices, in general, began to decline, but wages held steady in 1930, then began to drop in 1931. 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 US economy was the factor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts to shore up the economies of individual nations through protectionist policies, such as the 1930 U.S. Smoot-Hawley Tariff Act and retaliatory tariffs in other countries, exacerbated the collapse in global trade. By late in 1930, a steady decline set in which reached bottom by March 1933.
Secretary of the Treasury Andrew Mellon advised President Hoover that shock treatment would be the best response: “Liquidate labour, liquidate stocks, liquidate the farmers, liquidate real estate…That will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.” Hoover rejected this advice, and started numerous programs, all of which failed to reverse the downturn.
Hoover launched a series of programs to increase farm prices, which failed, expanded federal spending in public works such as dams, and launched the Reconstruction Finance Corporation (RFC) which aided cities, banks and railroads, and continued as a major agency under the New Deal. To provide unemployment relief he set up the Emergency Relief Agency (ERA) that operated until 1935 as the Federal Emergency Relief Agency. Quarter by quarter the economy went downhill, as prices, profits and employment fell, leading to the political realignment in 1932 that brought to power the New Deal.
The crisis had many political consequences, among which was the abandonment of classic economic liberal approaches, which Roosevelt replaced in the United States with Keynesian policies. It was a main factor in the implementation of social democracy and planned economies in European countries after World War II. (see Marshall Plan). Although Austrian economists had challenged Keynesianism since the 1920s, it was not until the 1970s, with the influence of Milton Friedman that the Keynesian approach was politically questioned, leading the way to neoliberalism.
Effects of depression in the United States:
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This glossary post was last updated: 1st May, 2020 | 2 Views.