The Great Depression

1. The Great Depression 1929 - 1939

2. Economic Depression • In economics, a depression is a term commonly used for a sustained downturn in the economy. It is more severe than a recession (which is seen as a normal downturn in the business cycle). Considered a rare but extreme form of recession, the start of a depression is characterized by unusual increases in unemployment, restriction of credit, shrinking output and investment, price deflation or hyperinflation, numerous bankruptcies, reduced amounts of trade and commerce, as well as violent currency devaluations.

3. History of Depressions Panic of 1797 Depression of 1807 Panic 1819 Panic 1837 Panic 1857 Panic 1873 Panic of 1907

4. Causes of the Great Depression • Historians still argue over the specific long term and short term causes of the Great Depression. • Theories or schools of thought have developed on the causes of the Great Depression. • Some of these theories are politically motivated.

5. Prime Causes • Credit Inflation • Artificially Low Interest Rates by the Federal Reserve and the Bank of England • High Tariffs • Hurt other economies and made it hard to pay the US back for WWI debts. • Retaliatory tariffs limit US markets

6. Some Facts • The Great Depression was the longest in modern US history • It affected millions of people • It affected the entire industrial world • It led to the New Deal • Its impact can still be felt today

7. The 1920s • After WWI, the US turned inward and away from international issues • US banks made huge loans to the Europeans • American’s attitudes/values about consumption and saving changed • Advertising influenced Americans • American farmers were already in a depression • Modernization kept farmers in perpetual debt

8. Economic Collapse (1929-1933) • Credit had been exhausted • Money was used to pay past debts • Unsold inventories were rising • Buying “on margin” • Great Bull Market . . . speculative bubble scheme • In late October 1929, the market began to fall

9. Black Tuesday • October 29, 1929 … a date that will live in infamy… • Stock values dropped by 10 – 15 billion dollars in just one day • Farm prices dropped even further , after being low during the 1920s

10. New York Stock Market

11. United States’ Industrial Production from 1928-1939 data source: http://research.stlouisfed.org/fred2/data/INDPRO.txt 28 29 30 31 32 33 34 35 36 37 38 39 40

12. Farm Prices

13. Unemployment

14. Reactions to the Crash • "The decline is in paper values, not in tangible goods and services . . . America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin."- Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929

15. More Reactions • "The end of the decline of the Stock Market will probably not be long, only a few more days at most." - Irving Fisher, Professor of Economics at Yale University, November 14, 1929 • "Financial storm definitely passed."- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

16. Other thoughts… • January 20, 1931 "The country is not in good condition." - Calvin Coolidge.

17. Initial Reaction to the Depression • President Hebert Hoover was slow to respond, believing that the normal ebb and flow of business would quickly return. • Hoover believed a balanced budget would help. • Hoover also believed that direct federal relief payment would destroy the “individual’s” self-esteem.

18. Bonus March • World War I veterans marched on Washington in June 1932. • They demanded their promised war bonuses. • The government refused and forcibly evicted the men and their families. • General MacArthur, Major Dwight Eisenhower and Major George Patton led the attack. • This turned many against Hoover.

19. He did increase the role of the US government, more than any other president to date. He was an engineer and a social engineer BUT

20. SUPER PROGRESSIVE ENGINEER • Social Engineers could take and mold societies and humans and create a new and more perfect society. Take control of nature. • A top Progressive writer, Thorsten Veblem • Theory of the Leisure Class, 1899 • The Engineers and the Price System, 1921 • The Engineer wasSUPERMAN • Dams, Hydroelectric plants, Highways, Buildings

21. Hoover, like FDR, was a Corporatist • The state, businesses, unions, and public bodies should work together to make life better for all. • Capitalists, left-wing Republicans, non-socialist intellectuals, most Democrats, and academics agreed. • USA’s response to Mussolini and European movements • Hoover was not a socialists or fascist, though

22. Response to 1929 He had the Fed resume credit inflation (add $300 million after crash in 1929) • Asked companies to not cut workers’ wages • Cut taxes • Increased Government Spending • Deliberately ran a big deficit • Increase government’s share of GNP from 16.4% in 1930 to 21.5% in 1931

23. % of GNP

24. No Direct Aid - Unconstitutional • Agricultural Marketing Act $600M to farmers. • Reconstruction Finance Corporation (9 point program) December 1931: $3.8B by 1932 • More major work projects in Hoover’s four years than in the 30 previous years. • San Francisco Bay Bridge, Los Angeles Aqueduct, Hoover Dam, etc. • Emergency Relief and Construction Act $3.9B

25. New Deal planner, Rexford Tugwell • “ We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”

26. 1930: Democrats take control of Congress • Hoover & Democrats pass the 1932 Revenue Act - the largest tax increase in US history in peacetime. • Highest rates jumped from 25% to 63%

27. International Ramifications • Hawley-Smoot Tariff, 1930 • Established highest average tariff in US history • Other nations responded with their own tariffs. • Between 1929-1932, international trade declined by half • This helped push the rest of the world into Depression.

28. Hoover claimed he was a Non-Interventionist • His own rhetoric hurt the economy. • He was seen as pro-labor and anti-business because he kept wages so high. • He weakened bankruptcy laws and encouraged states to stop auctions. • Businesses and banks had no confidence they would be protected and would not invest.

29. Roosevelt: New Deal and the First 100 Days • “the only thing we have to fear is fear itself” • Congress called into special session and passed: Federal Emergency Relief Adm., CCC, Reconstruction Finance Corp., TVA, Federal Trade Commission, Agricultural Adjustment Act, National Industrial Recovery Act, mortgage relief, etc.

30. Roosevelt: New Deal and the First 100 Days, con’t. • New Deal tried to pump large amounts of money into the economy by providing jobs • He hoped this would result in increased demand of goods and services • Roosevelt attempted to balance the budget • Roosevelt never fully embraced the concept of deficit spending

31. Life During the Depression • Physically and psychologically devastating for many people • Malnutrition was rampant, which resulted in greater illnesses • Self blame, self-doubt and self-worth became serious issues • Men suffered more psychologically

32. Life During the Depression Women • The number of employed women grew slightly • Women were less likely to lose their jobs • So-called women’s work, like clerical, teaching, and social-service, actually increased • When the men left, women became head of the household • Feminist consciousness began to develop

33. Life During the Depression Children • Many children left school early. • Children took on more responsibilities. • More teenagers worked. • This generation became more self reliant. • They learned to make more out of less. • Many children were malnourished and sickly.

34. Life During the Depression Families • Families were dramatically affected • At one time, nearly one fourth of all workers were unemployed • Family incomes fell approximately 40 % • Birthrates fell • Divorces fell • Desertions soared • Families broke up • As many as 200,000 children became vagrants

35. Life During the Depression Minorities • African Americans were already living in a Depression. • By 1932, African American unemployment was almost 50%. • In theory, the New Deal programs did not discriminate. • African Americans switched to the Democratic party. • Mexican Americans suffered at least as much and usually more than African Americans. • The Indian Reorganization Act tried to help native tribes regain their heritage.

36. Life During the Depression Mother Nature • From 1930 to 1936, the plains of the Midwest experience drought. • This, coupled with poor soil conversation and high winds, causes tremendous dust storms. • Storms left the lands useless and force people to leave or migrate. • Many went west to California.

37. Dust Bowl Images

38. Causes of the Great Depression • Recently, several “schools of thought” have emerged concerning the causes of the Depression. • Currently, scholars are debating the causes of the Depression. • Roosevelt’s actions have also come under close scrutiny and criticism.

39. Keynesian School John Maynard Keynes, British economist The General Theory of Employment, Interest and Money, 1936 • Keynes argued that the normal self-correcting mechanisms were not sufficient in preventing severe recessions or Depressions. • Traditionally, noninterventionist policy would allow for the normal economic cycles to rectify down-turns in the economy.

40. Classical Economics • During a recession, consumption falls due to a lack of savings/money • This in turn forces interest rates to drop • Lower interest rates leads to increased investment spending and demand should remain constant • Businesses invest when they believe there is a potential for demand and potential for profits

41. Keynes’ View • After 1929, businesses were less optimistic and did not invest. • Keynes believed that the government needs to step in and create demand. • This encourages deficit spending and unbalanced budgets. • Keynesian view was very influential and revolutionary.

42. Monetarist View “A Monetary History of the United States,1867-1960.” Milton Friedman and Anna Schwartz, 1963. • The “Great Contraction” of the money supply • Between 1929-1932, the supply of money fell by 1/3. • Federal Reserve did not prevent banks from going bankrupt.

43. Austrian School • Austrian economists Friedrich Hayek and Murray Rothbard wrote “America’s Great Depression,” 1963. • Expansion of money during the 1920s led to an unsustainable credit-driven boom. • The Federal Reserve move to tighten the money supply in 1928 was too late. • Government interference, both by Hoover and Roosevelt, only worsened and extended the Great Depression

44. Legacy of the Depression • Federal government grew. • Public debt increased. • Social security programs put in place. • Rise of labor unions. • Conservatives viewed much of the New Deal as socialism. • Many believed that the Free Market needed to be regulated.

45. References Secular Stagnation and Great Depression, R. L. Norman, Jr. Dorfman, Joseph. Economic Mind in American Civilization (1959) vol 4 and 5 cover the ideas of all American economists of 1918-1933. Friedman, Milton and Anna Jacobson Schwartz, A Monetary History of the United States, 1867-1960 (1963) Keynes, John Maynard, The General Theory of Employment, Interest and Money (1936) Atlantic Publishers & Distributors, 2007 Keen, Steve 2001. Debunking Economics Pluto Press Australia Limited Sydney, Australia Meltzer, Allan H. 2003 A History of the Federal Reserve Volume I: 1913-1951 Chicago University Press, Chicago, IL Rothbard, Murray N. 1963 America's Great Depression D. Van Nostrand Company, Princeton, NJ Rothbard, Murray N. A History of Money and Banking in the United States: The Colonial Era to World War II (2002) White, Eugene N. "The Stock Market Boom and Crash of 1929 Revisited" Journal of Economic Perspectives, Vol. 4, No. 2 (Spring, 1990)