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As world trade slumped, demand for South African agricultural and mineral exports fell drastically. It is believed that the social discomfort caused by the depression was a contributing factor in the 1933 split between the "gesuiwerde" (purified) and "smelter" (fusionist) factions within the National Party and the National Party's subsequent fusion with the South African Party.

Soviet Union

Having removed itself from the capitalist world system both by choice and as a result of efforts of the capitalist powers to isolate it, the Great Depression had little effect on the Soviet Union. This was a period of industrial expansion for the USSR as it recovered from revolution and civil war, and its apparent immunity to the Great Depression seemed to validate the theory of Marxism and contributed to Socialist and Communist agitation in affected nations. This in turn increased fears of Communist revolution in the West, strengthening support for anti-Communists, both moderate and extreme.

United Kingdom

United States

Early response

Secretary of the Treasury Andrew Mellon advised President Hoover that shock treatment would be the best response: "Liquidate labor, 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 New Deal

Shortly after President Roosevelt was inaugurated in 1933, drought and erosion combined to cause the Dust Bowl, shifting hundreds of thousands of displaced persons off their farms in the midwest. From his inauguration onward, Roosevelt argued that restructuring of the economy would be needed to prevent another depression or avoid prolonging the current one. New Deal programs sought to stimulate demand and provide work and relief for the impoverished through increased government spending and institute financial reforms. The Securities Act of 1933 comprehensively regulated the securities industry. This was followed by the Securities Exchange Act of 1934 which created the Securities and Exchange Commission. Though amended, key provisions of both Acts are still in force. Federal insurance of bank deposits was provided by the FDIC, and the Glass-Steagall Act. The institution of the National Recovery Administration (NRA) remains a controversial act to this day. The NRA made a number of sweeping changes to the American economy until it was deemed unconstitutional by the Supreme Court of the United States in 1935.

Early changes by the Roosevelt administration included:

• Instituting regulations to fight deflationary "cut-throat competition" through the NRA.
• Setting minimum prices and wages, labor standards, and competitive conditions in all industries through the NRA.
• Encouraging unions that would raise wages, to increase the purchasing power of the working class.
• Cutting farm production to raise prices through the Agricultural Adjustment Act and its successors.
• Forcing businesses to work with government to set price codes through the NRA.

These reforms, together with several other relief and recovery measures are called the First New Deal. New regulations and attempts at economic stimulus through a new alphabet soup of agencies set up in 1933 and 1934 and previously extant agencies such as the Reconstruction Finance Corporation did not halt economic stagnation. By 1935, the "Second New Deal" added Social Security, a national relief agency (the Works Progress Administration, WPA) and, through the National Labor Relations Board, a strong stimulus to the growth of labor unions. Unemployment declined by over one-third in Roosevelt's first term (from 25% to 14.3%, 1933 to 1937), but faster than the economic upturn came 1938's "recession within a depression" and unemployment zoomed to 19%, then declined somewhat until the draft to fight World War II lowered it more. In 1929, federal expenditures constituted only 3% of the GDP. Expenditures as a proportion of GDP tripled between 1933 and 1939, accompanied by sizable deficits. The debt as a proportion of GNP rose under Hoover from 20% to 40%. Roosevelt kept it at 40% until the war began, when it soared to 128%. After the Recession of 1937, conservatives were able to form a bipartisan conservative coalition to stop further expansion of the New Deal and, by 1943, had abolished all of the relief programs. In 1946, large-scale relaxation of government controls over the wartime economy, including a sharp reduction of taxes, allowed for increased innovation in consumer goods and a marked increase in consumer spending. Unemployment rates also returned to normal levels.

Recession of 1937

In 1937 the American economy took an unexpected nosedive, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. The Roosevelt administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and by appointing Thurman Arnold to act; Arnold's effectiveness ended once World War II began and corporate energies had to be directed to winning the war.

The administration's other response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, an effort to increase mass purchasing power. Business-oriented observers explained the recession and recovery in very different terms from the Keynesians. They argued that the New Deal had been very hostile to business expansion in 1935–37, had encouraged massive strikes which had a negative impact on major industries such as automobiles, and had threatened massive antitrust legal attacks on big corporations. All those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than with the corporations, and tax policy became more favorable to long-term growth, according to this argument.

On the other hand, according to economist Robert Higgs, when looking only at the supply of consumer goods, significant GDP growth resumed only in 1946 (Higgs does not estimate the value to consumers of collective, intangible goods like victory in war). To Keynesians, the war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions, and industrial output would fall to pre-war levels. That incorrect Keynesian prediction that a new depression would start after the war failed to take into account massive savings and pent-up consumer demand, along with the ending of the restrictive wartime regulations in most consumer industries, and the cutting of high tax rates starting in 1946. In any case, government spending and changing regulations (first tightening them, then loosening them) appear to have contributed to the recovery, as consumer and producer behavior changed.

Keynesian models

In the early 1930s, before John Maynard Keynes wrote The General Theory, he was advocating public works programs and deficits as a way to get the British economy out of the Depression. Although Keynes never mentions fiscal policy in The General Theory, and instead advocates the need to socialize investments, Keynes ushered in more of a theoretical revolution than a policy one. His basic idea was simple: to keep people fully employed, governments have to run deficits when the economy is slowing because the private sector will not invest enough to increase production and reverse the recession.

As the Depression wore on, Roosevelt tried public works, farm subsidies, and other devices to restart the economy, but never completely gave up trying to balance the budget. According to the Keynesians, he needed to spend much more money; they were unable to say how much more. With fiscal policy, however, government could provide the needed Keynesian spending by decreasing taxes, increasing government spending, and increasing individuals' incomes. As incomes increased, they would spend more. As they spent more, the multiplier effect would take over and expand the effect on the initial spending. The Keynesians did not estimate what the size of the multiplier was. Keynesian economists assumed poor people would spend new incomes; however, they saved much of the new money; that is, they paid back debts owed to landlords, grocers and family , which might have then spent the money. Keynesian ideas of the consumption function have been challenged, most notably in the 1950s by Milton Friedman and Franco Modigliani.

Neoclassical approach

Recent work from a neoclassical perspective focuses on the decline in productivity that caused the initial decline in output and a prolonged recovery due to policies that affected the labor market. This work, collected by Kehoe and Prescott, decomposes the economic decline into a decline in the labor force, capital stock, and the productivity with which these inputs are used. This study suggests that theories of the Great Depression have to explain an initial severe decline but rapid recovery in productivity, relatively little change in the capital stock, and a prolonged depression in the labor force. This analysis rejects theories that focus on the role of savings and posit a decline in the capital stock.

Gold standard

Every major currency left the gold standard during the Great Depression. Great Britain was the first to do so. Facing speculative attacks on the pound and depleting gold reserves, in September 1931 the Bank of England ceased exchanging pound notes for gold and the pound was floated on foreign exchange markets.

Great Britain, Japan, and the Scandinavian countries left the gold standard in 1931. Other countries, such as Italy and the United States, remained on the gold standard into 1932 or 1933, while a few countries in the so-called "gold bloc", led by France and including Poland, Belgium and Switzerland, stayed on the standard until 1935-1936.

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 1931, 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. The connection between leaving the gold standard as a strong predictor of that country's severity of its depression and the length of time of its recovery has been shown to be consistent for dozens of countries, including developing countries. This partly explains why the experience and length of the depression differed between national economies .

Rearmament and recovery

The massive rearmament policies to counter the threat from Nazi Germany helped stimulate the economies of Europe in 1937-39. By 1937, unemployment in Britain had fallen to 1.5 million. The mobilization of manpower following the outbreak of war in 1939 finally ended unemployment.

In the United States, the massive war spending doubled the GNP, either masking the effects of the Depression or essentially ending the Depression. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output to take advantage of generous government contracts. Productivity soared: most people worked overtime and gave up leisure activities to make money after so many hard years. People accepted rationing and price controls for the first time as a way of expressing their support for the war effort. Cost-plus pricing in munitions contracts guaranteed businesses a profit no matter how many mediocre workers they employed or how inefficient the techniques they used. The demand was for a vast quantity of war supplies as soon as possible, regardless of cost. Businesses hired every person in sight, even driving sound trucks up and down city streets begging people to apply for jobs. New workers were needed to replace the 11 million working-age men serving in the military. These events magnified the role of the federal government in the national economy. In 1929, federal expenditures accounted for only 3% of GNP. Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics charged that he was turning America into a socialist state. However, spending on the New Deal was far smaller than on the war effort.

Political consequences

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 1974, when the Nobel Prize in Economic Sciences was awarded to Friedrich Hayek notably for being "one of the few economists who gave warning of the possibility of a major economic crisis before the great crash came in the autumn of 1929" , and the beginning of monetarism, that the Keynesian approach was politically questioned, leading the way to neoliberalism.

Facts and figures

Effects of depression:

• 13 million people became unemployed.
• Industrial production fell by nearly 45% between the years 1929 and 1932.
• Home-building dropped by 80% between the years 1929 and 1932.
• From the years 1929 to 1932, about 5000 banks went out of business.

Other Great Depressions

There have been other downturns called a "Great Depression," but none has been as worldwide for so long. British economic historians use the term "Great depression" to describe British conditions in the late 19th century, especially in agriculture, 1873-1896, a period also referred to as the Long Depression. Several Latin American countries had severe downturns in the 1980s. Finnish economists refer to the Finnish economic decline around the breakup of the Soviet Union (1989-1994) as a great depression. Kehoe and Prescott define a great depression to be a period of diminished economic output with at least one year where output is 20% below the trend. By this definition Argentina, Brazil, Chile, and Mexico experienced great depressions in the 1980s, and Argentina experienced another in 1998-2002. This definition also includes the economic performance of New Zealand from 1974-1992 and Switzerland from 1973 to the present, although this designation for Switzerland has been controversial.

See also

Template:Multicol

• Aftermath of World War I
• America's Great Depression written by Murray Rothbard.
• Arthurdale
• Business cycle
• Cities in the Great Depression
• Depression cake
• Economic collapse

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• Gold as an investment
• Great Contraction
• Ivar Kreuger
• Keynesian economics
• Long Depression
• New Deal
• Recession
• Smoot-Hawley Tariff Act
• Wall Street Crash of 1929

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Notes

1. Hoover, Herbert. "3:9". The memoirs of Herbert Hoover.
2. Waren, Herbert Hoover and the Great Depression
3. Kehoe, Timothy J.; Prescott, Edward C. (2007). Great Depressions of the Twentieth Century. Federal Reserve Bank of Minneapolis.{{cite book}}: CS1 maint: multiple names: authors list (link)
4. Bernanke, Ben (March 2, 2004), "Remarks by Governor Ben S. Bernanke: Money, Gold and the Great Depression", At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia
5. Schlesinger, Jr., Arthur M. The Coming of the New Deal: 1933-1935. Paperback ed. New York: Houghton Mifflin, 2003. (First published in 1958) ISBN 0618340866; Schlesinger, Jr., Arthur M. The Politics of Upheaval: 1935-1936. Paperback ed. New York: Houghton Mifflin, 2003. (First published in 1960) ISBN 0618340874
6. ECONOMICS PRIZE FOR WORKS IN ECONOMIC THEORY AND INTER-DISCIPLINARY RESEARCH
7. http://news.bbc.co.uk/1/hi/business/7655472.stm
8. T. W. Fletcher, "The Great Depression of English Agriculture 1873-1896," The Economic History Review, Vol. 13, No. 3 (1961), pp. 417-432 in JSTOR
9. Abrahamsen Y, R.; Aeppli, E.; Atukeren, M.; Graff, C.; Müller; Schips, B. (2005). "The Swiss disease: Facts and artefacts. A reply to Kehoe and Prescott". Review of Economic Dynamics. 8 (3): 749–758. doi:10.1016/j.red.2004.06.003.{{cite journal}}: CS1 maint: multiple names: authors list (link)
10. Kehoe, T. J.; Ruhl, K. J. (2005). "Is Switzerland in a Great Depression?". 8. Review of Economic Dynamics: 759–775. {{cite journal}}: Cite journal requires |journal= (help)CS1 maint: multiple names: authors list (link)

Further reading

• Ambrosius, G. and W. Hibbard, A Social and Economic History of Twentieth-Century Europe (1989)
• Bernanke, Ben S. "The Macroeconomics of the Great Depression: A Comparative Approach" Journal of Money, Credit & Banking, Vol. 27, 1995 online at JSTOR
• Brown, Ian. The Economies of Africa and Asia in the inter-war depression (1989)
• Davis, Joseph S., The World Between the Wars, 1919-39: An Economist's View (1974)
• Eichengreen, Barry. Golden fetters: The gold standard and the Great Depression, 1919-1939. 1992.
• Barry Eichengreen and Marc Flandreau; The Gold Standard in Theory and History 1997 online version
• Feinstein. Charles H. The European economy between the wars (1997)
• Friedman, Milton and Anna Jacobson Schwartz. A Monetary History of the United States, 1867-1960 (1963), monetarist interpretation (heavily statistical)
• Galbraith, John Kenneth, The Great Crash, 1929 (1954)
• Garraty, John A., The Great Depression: An Inquiry into the causes, course, and Consequences of the Worldwide Depression of the Nineteen-Thirties, as Seen by Contemporaries and in Light of History (1986)
• Garraty John A. Unemployment in History (1978)
• Garside, William R. Capitalism in crisis: international responses to the Great Depression (1993)
• Haberler, Gottfried. The world economy, money, and the great depression 1919-1939 (1976)
• Hall Thomas E. and J. David Ferguson. The Great Depression: An International Disaster of Perverse Economic Policies (1998)
• Kaiser, David E. Economic diplomacy and the origins of the Second World War: Germany, Britain, France and Eastern Europe, 1930-1939 (1980)
• Keynes, John Maynard. "The World's Economic Outlook," Atlantic (May 1932), online edition
• Kindleberger, Charles P. The World in Depression, 1929-1939 (1983)
• Gernot Kohler and Emilio José Chaves (Editors) “Globalization: Critical Perspectives” Haupauge, New York: Nova Science Publishers (http://www.novapublishers.com/) ISBN 1-59033-346-2. With contributions by Samir Amin, Christopher Chase Dunn, Andre Gunder Frank, Immanuel Wallerstein
• League of Nations, World Economic Survey 1932-33 (1934)
• Madsen, Jakob B. "Trade Barriers and the Collapse of World Trade during the Great Depression", Southern Economic Journal, Southern Economic Journal 2001, 67(4), 848-868 online at JSTOR
• Mundell, R. A. "A Reconsideration of the Twentieth Century," The American Economic Review Vol. 90, No. 3 (Jun., 2000), pp. 327–340 online version
• Rothermund, Dietmar. The Global Impact of the Great Depression (1996)
• Tausch, Arno, with Christian Ghymers. "From the “Washington” towards a “Vienna Consensus”? A quantitative analysis on globalization, development and global governance". Hauppauge, N.Y.: Nova Science Publishers, 2007 (for info: https://www.novapublishers.com/catalog/).
• Tausch, Arno and Almas Heshmati (Eds.) "Roadmap to Bangalore? Globalization, the EU’s Lisbon Process and the Structures of Global Inequality" Hauppauge, N.Y.: Nova Science Publishers, 2008, with contributions by Franco Modigliani et al. (for info: https://www.novapublishers.com/catalog/).
• Tipton, F. and R. Aldrich, An Economic and Social History of Europe, 1890–1939 (1987)

For US specific references, please see complete listing in the Great Depression in the United States article.

External links

• Great Depressions of the Twentieth Century, edited by T. J. Kehoe and E. C. Prescott
• Theories of the Great Depression, R. L. Norman, Jr.
• America in the 1930s. Very large multi-mediated project on America in the Great Depression
• Recession? Depression? What's the difference? (About.com)
• An Overview of the Great Depression from EH.NET by Randall Parker.
• Great Myths of the Great Depression by Lawrence Reed
• Franklin D. Roosevelt Library & Museum for copyright-free photos of the period
• Economic Depressions: Their Cause and Cure by Murray Rothbard (1969)
• The Impact of the Great Depression in NI, on the Second World War online resource for NI
• Great Depression in the Deep South
• Lessons from the 1929 Crash and the Great Depression How to to avoid a 2008 Remake of the Keynesian Debacle
• Economic Recession

• 1930s
• Business cycle
• Great Depression
• Financial crises