Great Depression

The Great Depression was the longest and deepest downturn in economic activity in the history of the modern industrial world. It was the unintended consequence of practices that were unquestioned at the time of its outset, and it has since prompted a critical examination of those practices that has had a profound influence upon both economic theory and the practice of economic management.

In the United States, where it began in 1929, there was a deep and prolonged decline in production and a damaging rise in unemployment. Businesses and banks closed, people lost their jobs, homes, and savings; and in the absence of welfare programmes, many depended on charity to survive. By 1933, American unemployment had risen to a poverty-inducing 25 per cent of the working population, and it did not fall below a debilitating 15 per cent until the outbreak of the second world war.

Beyond the United States, it affected most of world’s industrial countries, many of which also experienced severe and prolonged declines in economic activity with similar - though often less severe - effects upon unemployment and poverty.

Studies of the great depression have attempted to discover why it had been deeper and more prolonged than anything that happened before or since, and although some uncertaities have been reduced, a definitive answer to that question has yet to be established.

(For an annotated list of the sequence of main events in the countries affected, see the Timelines subpage;

for more about events within the United States, see the article on the Great Depression in the United States;

for more about the events in countries outside the United States, see the Addendum subpage; and,

for a discussion of economic theories concerning causes and remedies, see the Tutorials subpage.)

The crisis in summary

The Great Depression started in the United States in 1929, reached its zenith in 1932 and lasted there until 1939. It spread to most industrialised countries, in most of which it was less severe and of shorter duration. In the United States it was accompanied for part of that period by the stock exchange crash of 1929 and the banking crisis of 1931 and a severe deflation; and resulted in a massive loss of output, with a 47 per cent fall in industrial production and a 30 per cent reduction in GDP, and persistently high unemployment, that peaked in 1933 at 25 per cent of the working population and was still about 15 per cent in 1939.

The development of the depression

Although it ended eleven years earlier, there are reasons to suppose that the first world war played a part in the development of the great depression. Professor Temin of MIT argues that it , in fact, the shock that set the process in motion, by producing a disruptive changes to its structure that required a difficult period of adaptation. The pattern of international capital movements in particular had been disrupted by the fact that when the war ended, the American economy was much stronger and European economies were much weaker, and by the fact that Britain had to repay the debts to America that it had incurred during the war. After a turbulent post-war period, during which there were deep but short-lived recessions on both sides of the Atlantic, growth returned to the United States economy but the German

according to John Maynard Keynes "...the world was enormously enriched by the constructions of the quinquennium from 1925 to 1929; its wealth increased in these five years by as much as in any other ten or twenty years of its history" .

Explanations: the question of causation

There have been a great number of attempts to establish the cause of what has come to be seen as an unprecedented self-inflicted injury, and a great deal of disagreement. However, the unprecedented feature of the great depression was not its initiation (there had been a succession of recessions in the United States throughout the previous eighty years , and it was no worse in its early months than the preceding recession of 1921 ) - but, rather, its unprecedented severity and persistent depth. That consideration and others suggest that any search for a single cause is likely to be confusing and inconclusive. For example, although the popular view that it was initiated by the stock market crash can be shown to be mistaken , it must be presumed to have contributed to its subsequent severity. Similarly, it can reasonably be presumed that although the 1931 banking panic could not have started the great depression, it intensified its subsequent severity.

Contributory factors

(the discussion in the following paragraphs is based upon material that is set out in more detail on the tutorials subpage)

Trade protection

U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934.