• Great Depression - Wikipedia
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  • Introduction

The Great Depression was an economic slump in North America, Europe, and other industrialized areas of the world that began in 1929 and lasted until about 1939.

Robert Reich (The Truth About the American Economy)

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The Great Depression had important consequences in the political sphere. In the UnitedStates, economic distress led to the election of the Democrat Franklin D. Roosevelt to thepresidency in late 1932. Roosevelt introduced a number of major changes in the structureof the American economy, using increased government regulation and massive public-worksprojects to promote a recovery. But despite this active intervention, mass unemploymentand economic stagnation continued, though on a somewhat reduced scale, with about 15percent of the work force still unemployed in 1939 at the outbreak of World War II. Afterthat, unemployment dropped rapidly as American factories were flooded with orders fromoverseas for armaments and munitions. The depression ended completely soon after theUnited States' entry into World War II in 1941. In Europe, the Great Depressionstrengthened extremist forces and lowered the prestige of liberal democracy. In Germany,economic distress directly contributed to Adolf Hitler's rise to power in 1933. The Nazis'public-works projects and their rapid expansion of munitions production ended theDepression there by 1936.

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At least in part, the Great Depression was caused by underlying weaknesses andimbalances within the U.S. economy that had been obscured by the boom psychology andspeculative euphoria of the 1920s. The Depression exposed those weaknesses, as it did theinability of the nation's political and financial institutions to cope with the viciousdownward economic cycle that had set in by 1930. Prior to the Great Depression,governments traditionally took little or no action in times of business downturn, relyinginstead on impersonal market forces to achieve the necessary economic correction. Butmarket forces alone proved unable to achieve the desired recovery in the early years ofthe Great Depression, and this painful discovery eventually inspired some fundamentalchanges in the United States' economic structure. After the Great Depression, governmentaction, whether in the form of taxation, industrial regulation, public works, socialinsurance, social-welfare services, or deficit spending, came to assume a principal rolein ensuring economic stability in most industrial nations with market economies.


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The Great Depression began in the United States but quickly turned into a worldwideeconomic slump owing to the special and intimate relationships that had been forgedbetween the United States and European economies after World War I. The United States hademerged from the war as the major creditor and financier of postwar Europe, whose nationaleconomies had been greatly weakened by the war itself, by war debts, and, in the case ofGermany and other defeated nations, by the need to pay war reparations. So once theAmerican 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 thatwere most deeply indebted to the United States, i.e., Germany and Great Britain. InGermany, unemployment rose sharply beginning in late 1929, and by early 1932 it hadreached 6 million workers, or 25 percent of the work force. Britain was less severelyaffected, but its industrial and export sectors remained seriously depressed until WorldWar II. Many other countries had been affected by the slump by 1931.

The economic situation in Germany (map2) was made worse by the enormous debtwith which the country had been burdened following the First World War. It hadbeen forced to borrow heavily in order to pay "reparations" to thevictorious European powers, as demanded by the Treat of Versailles (1919), andalso to pay for industrial reconstruction. When the American economy fell intodepression, US banks recalled their loans, causing the German banking system tocollapse.

The appeal of price controls is understandable

Though the U.S. economy had gone into depression six months earlier, the GreatDepression may be said to have begun with a catastrophic collapse of stock-market priceson the New York Stock Exchange in October 1929. During the next three years stock pricesin the United States continued to fall, until by late 1932 they had dropped to only about20 percent of their value in 1929. Besides ruining many thousands of individual investors,this precipitous decline in the value of assets greatly strained banks and other financialinstitutions, particularly those holding stocks in their portfolios. Many banks wereconsequently forced into insolvency; by 1933, 11,000 of the United States' 25,000 bankshad failed. The failure of so many banks, combined with a general and nationwide loss ofconfidence in the economy, led to much-reduced levels of spending and demand and hence ofproduction, thus aggravating the downward spiral. The result was drastically fallingoutput and drastically rising unemployment; by 1932, U.S. manufacturing output had fallento 54 percent of its 1929 level, and unemployment had risen to between 12 and 15 millionworkers, or 25-30 percent of the work force.

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The Depression spread rapidly around the world because the responses made bygovernments were flawed. When faced with falling export earnings theyoverreacted and severely increased tariffs on imports, thus further reducingtrade. Moreover, since deflation was the only policy supported by economictheory at the time, the initial response of every government was to cut theirspending. As a result consumer demand fell even further. Deflationary policieswere critically linked to exchange rates. Under the Gold Standard, which linkedcurrencies to the value of gold, governments were committed to maintaining fixedexchange rates. However, during the Depression they were forced to keep interestrates high to persuade banks to buy and hold their currency. Since prices werefalling, interest-rate repayments rose in real terms, making it too expensivefor both businesses and individuals to borrow.

Suicide rates are tied to the economy

he Great Depression was an economic slump in North America,Europe, and other industrialized areas of the world that began in 1929 and lasted untilabout 1939. It was the longest and most severe depression ever experienced by theindustrialized Western world.