Economic Depression of the World 1929

The Great Depression has two meanings. One is the horrendous debacle of 1929-33 during which unemployment rose from 3 to 25 percent as the nation’s output fell over 25 percent and prices over 30 percent, in what also has been called the Great Contraction. A second meaning has the Great Depression as the entire decade of the thirties, the anxieties and apprehensions for which John Steinbeck’s The Grapes of Wrath is a metaphor. Much has been written about the unprecedented drop in economic activity in the Great Contraction, with questions about its causes and the reasons for its protracted decline especially prominent. The amount of scholarship devoted to these issues dwarfs that dealing with the recovery. But there indeed was a recovery, though long, tortuous, and uneven. In fact, it was well over twice as long as the contraction.

The economy hit its trough in March 1933. Whether or not by coincidence, President Franklin D. Roosevelt took office that month, initiating the New Deal and its fabled first hundred days, among which was the creation in June 1933 of its principal recovery vehicle, the NIRA — National Industrial Recovery Act.

1.In Economic terms, a decline in trade and general prosperity is called Depression

2. The Great Depression of 1929-34 was worldwide, starting with an agricultural recession followed by financial panic and collapse, known as the Wall Street Crash (Oct. 1929) in the USA.

3. The effects on the USA were catastrophic: by 1933 almost 14 million people were out of work and American President Hoover's efforts failed to make an impression on the crisis.

4. Nobody was surprised when the Republicans lost the presidential election of Nov. 1932. The new Democrat President, Franklin D. Roosevelt, introduced policies known as the New Deal to try and put the country on the road to recovery.

5. The Great Depression is turn affected financial institutions and money markets in other parts of the world and caused a run on the pound in the UK. The result was a decline in internal consumption and exports in industrialized countries, factory closures, and massive unemployment.

The Great Depression is referred to as the greatest and also the longest economic downturn or recession in modern history. It started in the USA and after that, had a rippling effect on the economies of the world. It is said that the Great Depression started with the USA stock market crash in October 1929. To be precise, the stock market crashed on October 24, 1929, which is known in American history as the “Black Thursday”.The impact of crashing the stock market resulted in panic among the investors in Wall Street, wiping out almost $30 billion from the stock market. This resulted in the crashing of other major financial institutions such as banks.

It is said that around 5000 banks went bankrupt as an aftermath of the stock market crash of 1929. One of such banks was Boden-Kredit Anstalt, which was Austria’s most important bank. There was a significant drop in consumer spending and investments that caused a major decline in industrial output and laying off employees from companies. By 1933, the unemployment rate had risen to 25%, and the GDP of the USA contracted to half of its value due to deflation. Around 15 million jobs were lost in the economy. The other significant impact of the Great Depression was that many farmers lost all their properties due to the drought and over-cultivation in Midwest America. This was termed as the “Dust Bowl” which destroyed agricultural lands.

Causes of the Great Depression

Great Depression is attributed to the combination of the following factors

  1. Tight monetary policies adopted by the central bank of America.
  2. The Stock market crash of 1929
  3. The failure of banks, which was the impact of the stock market crash as more people withdrew all their savings from the banks leading to closure.
  4. Reduction in purchases due to diminished savings.
  5. The passing of Smoot- Hawley tariff or the tariff Act of 1930, that imposed high taxes on imported goods. As retaliation for the same, trade partners imposed high tariffs on goods made in the USA, which resulted in a decline in world trade by around two-third between the periods of 1929-34.
  6. Environmental degradation by drought and farming practices that did not help in soil preservation created large areas of non-agricultural land. This was known as the Dust Bowl in history. This was coupled with dust storms which destroyed crops and livestock.

How the Great Depression ended

The end of the great depression can be attributed to many factors, the most prominent among them are:

1. The New Deal

The New deal refers to the policies that were put into effect by Franklin Roosevelt, the newly elected President of the United States. He orchestrated the policies like the Emergency Bank Act, the Emergency Farm Mortgage Act, and the Agricultural Adjustment Act. These policies were implemented with the aim of stabilizing the economy and providing security to the farmers and their crops. All these policies and other new policies paved the way for injecting stability in the economy and lower employment rates across the country.

2. World War II

Some economists suggest that the start of World War II was one of the factors of ending the Great Depression was due to the joining of the USA in war, the government spending shot up significantly, thus leading to more employment. This, coupled with sharp reduction at the end of World War II in areas of taxes and regulation, contributed to the end of the Great Depression. This completes the topic on the Great Depression, which was one of the longest periods of recession in world history. To learn more about such interesting concepts on Economics, 


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