Description
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in 1930 and lasted until the late 1930s or middle 1940s.
Research Reports on the Great Depression of 1929-30
PAI INTERNATONAL CENTRE FOR MANAGEMENT EXCELENCE
Executive Summary
The great depression was originated in USA as a starting date of the stoke market crashed on
October 29, 1929, known as "Black Tuesday". It was worldwide economic downturn started in most
countries in 1929 and ended at different time in different countries. It was started in 1929 and ended in
1939.
During the great depression the whole world economy was worsly affected. There were two
main causes of great depression.
New York stock market was crashed on 29 October 1929:-
Due to loss in stock market, investor had reduced consumptions, expenditure, demand etc.
People reduced borrowing though the lending rate reduced.
Failure of American banks:-
9000 banks of UK were failed in their business. Banks were not able to perform their role. On
account of that the business could not get loan to invest. It directly resulted in deduction in production,
employment, consumption, expenditure, demand etc. Stock of finished was remained unsold. Business
became unable to repay their loan to the banks and banks were failed in their business.
International trade was collapse and debt became heavier. In 1937 there was another recession. The
position became so worse that American people had to stand in a queue to get a loaf of bread.
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.
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TABLE OF CONTENTS
SUBJECT
Introduction
Objective
Methodology
Causes of Depression
Literature Survey
Data Presentation
Data Collection
Data Analysis
Conclusion
Limitations
Recommendations
Bibliography
PAGE NO.
6
Introduction
The great depression of 1930 was started from USA on October 29, 1930 and spread all over
the world.
To understand the term "depression", first of all we must have to understand about recession.
The difference between the two terms is not very well understood for one simple reason: There is not a
universally agreed upon definition. If you ask 100 different economists to define the term recession
and depression, you would get at least 100 different answers. I will try to summarize both terms and
explain the differences between them in a way that almost all economists could agree with.
What is recession?
A recession is decline in the GDP (Gross Domestic Products) for two or more consecutive quarter.
- The Standard News Paper
Recession is a time when a business activity has reached its peak and starts to fall until the time when
business activities bottoms out. When the business activities starts to rise again it is called and
expansionary period. By this definition, the average recession lasts about a year.
The business cycle dating committee (BCDC)
In short recession is a period in which business activities are falling continuous for three quarters.
Depression:-
Depression means a time of low economic activity distinguished from recession by being
prolonged and sustained, characterized by continuing falls in various types of business activities.
A depression is any economic downturn where real GDP (Gross Domestic Products) declines
by more than 10%.
In simple term, depression is a recession that lasts longer and has a larger decline in business
activities.
The great depression of 1930 was originated in United States as a starting date the Newyourk
stock market crashed on October 1929, known as black Tuesday. The great depression was a
worldwide economic down town starting in most of places in 1929 and ended at different time in
7
different countries. It was the largest depression on modern economy and it is used in 21'st century as
an example haw far the world's economy can fall. The whole world was worsly affected.
Before the great depression of 1930 any downturn in economic activity was referred as a
depression. The great depression of 1930 had two period of recession: October 1929 to march 1933
where real GDP (Gross Domestic Products) declined by 33% when a period of recovery, then there
was another recession. The great depression which brought widespread unemployment as demand
evaporated and business failed.
The depression had devastating effects in virtually every country, rich or poor. International
trade plunged by half to two-thirds, as did personal incomes, tax revenues, prices, and profits. Cities all
around the world were hit hard, especially those dependent on heavy industry. Construction was
virtually halted in many countries. Farming and rural areas suffered as crop prices fell by roughly 60
percent. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary
sector industries such as farming, mining and logging suffered the most. However, even shortly after
the Wall Street Crash of 1929, optimism persisted.
John D. Rockefeller said that "These are days when many are discouraged. In the 93 years of
my life, depressions have come and gone. Prosperity has always returned and will again."
In early 1930, credit was ample and available at low rates, but people were reluctant to add new
debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in
general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were
worse in farming areas, where commodity prices plunged, and in mining and logging areas, where
unemployment was high and there were few other jobs. The decline in the US economy was the factor
that pulled down most other countries at first, and then internal weaknesses or strengths in each
country made conditions worse or better.
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Objectives
To study why the great depression was occurred in USA.
To find out how it was spread all over the world in economy.
To assess at what extent various countries were worsly affected.
To identified the areas affected by the great depression.
To know impact of great depression in world's economy.
To find out the main causes of great depression.
To know remedial action for such depression in future.
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Methodology
Research Design:
A research design is the detailed blue print used to guide a research study towards its objective.
It helps to collect, measure and analysis of data.
The study undertaken is of Descriptive Historical Research Method Descriptive research is
those which are connected with describing the characteristics of the particular topic.
Secondary data:
Secondary data is collected through reference books on economy, journals, magazines and
articles etc.
I have collected data through website, magazine and articles etc. to describe the depression of
1929-30.
10
Literature Survey
The period from 1929 to 1941 marks one of the most extraordinary times in American history,
and the arts. The government's response to the economic turmoil of the Great Depression was, along
with the host of economic programs it established, to fund a multitude of public arts program designed
to remind American citizens close to being overwhelmed by "hard times," that there was, indeed,
something remarkable about being American. Literature, theatre, photography, music - all flourished
under the patronage of FDR and the New Deal.
The American people themselves responded in strikingly divergent ways to the multiple
challenges posed by the Great Depression. While the 1930s are traditionally portrayed as the decade of
Franklin D. Roosevelt and the New Deal, they were also the decade of California socialist Upton
Sinclair, union stalwart John L. Lewis, radical writer Richard Wright, and arch-isolationist Charles
Lindbergh. As these larger-than-life figures jostled for position on the national stage, millions of
ordinary Americans struggled to find work or put food on the table.
In this course we will examine the multiple responses of the American people and their leaders
to the crises of the 1930s. Students will read a wide variety of literary responses to the Depression as
well as primary source historical documents. We will discuss these texts in class with an eye toward
developing a better understanding of the way Americans thought and argued about the pressing issues
of the day. We will also consider how the controversies of the 1930s helped to shape modern America
and continue to linger in contemporary life.
The History and Literature of the Great Depression
With Professor Sean Malloy
(Spring 2006)
HIST134/LIT134
11
This paper argues that the collapse of stock prices in October 1929 generated temporary
uncertainty about future income which caused consumers to forego purchases of durable and semi
durable goods in late 1929 and much of 1930. Evidence that the stock market crash generated
uncertainty is provided by the decline in confidence expressed by contemporary forecasters. Evidence
that this uncertainty affected consumer behaviour is provided by the fact that spending on consumer
durables and semi durables declined immediately following the Great Crash and by the fact that there
is a negative historical relationship between stock market variability and the production of consumer
durables in the pre-war era.
Unemployment declined by over one-third in Roosevelt's first term (from 25% to 14.3%, 1933
to 1937). In Roosevelt's second term, the economy went into a short, sharp recession in 1937-38. In
1929, federal expenditures constituted only 3% of the GDP. The national 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, when unemployment dropped to 2% they abolished
WPA, CCC and the PWA relief programs; Social Security, however, remained in place.
The Great Crash and the Onset of the Great Depression
Christina D. Romer
University of California,
Berkeley - Department of Economics;
National Bureau of Economic Research (NBER)
June 1988
NBER Working Paper No. W2639
12
Causes of great depression
Failure of
American
Banks
Business
was unable
to repay
the loan
Non-
availability
of
Investment in
Business
Discreased
in Demand
Cut down
the
production
Reduction
in
Compstion
&
Expenditure
Unemployment
13
Main causes:
Mainly two incidents were responsible for the great depression.
1. The Newyork Stock market Crashed:
The Great Depression was occuredred by a sudden, total collapse in the stock market on
October, 29, 1929.Lot of people had lost their money. Because of loss people reduce their demand;
expenditure consumption etc.American people had lost trust in stock market. Share prices would fall
even more in 1932 as the depression deepened. By 1932, the stock market fell 89% from its September
1929 peak. It was at a level not seen since the nineteenth century.
Falling share prices caused a collapse in confidence and consumer wealth. Spending fell and
the decline in confidence precipitated a desire for savers to withdraw money from their banks.
2. Failure of American Banks:
Most businesses require loans for their normal operations.9000 banks of US were failed to
perform their role in business. In the first 10 months of 1930 alone, 744 US banks went bankrupt.
When the banking sector does not work properly, businesses cannot get loans and they have to curtail
their production and lay off workers. As they curtail production, they demand fewer products from
their suppliers and therefore their suppliers have to reduce their output and fire workers. If
manufacturers cannot sell their goods because the firm downstream does not need as many products as
before, they cannot generate enough revenue to repay their earlier loans. Businesses go bankrupt and
banks experience further problems as their balance sheet deteriorates due to non-performing loans.
Other Causes:
Smoot-Hawley Tariff
Act ovo Ivtcµvotiovoì Tµooc
Many economists have argued that the sharp decline in international trade after 1930 helped to
worsen the depression, especially for countries significantly dependent on foreign trade. Most
historians and economists partly blame the American Smoot-Hawley Tariff Act (enacted June 17,
1930) for worsening the depression by seriously reducing international trade and causing retaliatory
tariffs in other countries. Foreign trade was a small part of overall economic activity in the United
States and was concentrated in a few businesses like farming; it was a much larger factor in many other
countries.
14
Monetarists, including Milton Friedman and current Federal Reserve System chairman Ben
Bernanke, argue that the Great Depression was caused by monetary contraction, the consequence of
poor policymaking by the American Federal Reserve System and continuous crisis in the banking
system. In this view, the Federal Reserve, by not acting, allowed the money supply
Every major currency left the gold standard during the Great Depression. Great Britain was the
first to do so. To print the currency notes they must had to keep Gold Reserve. America had not
enough gold to print the currency notes. .
The lower aggregate expenditures in the economy contributed to a massive decline in income
and to employment that was well below the average.
During the Crash of 1929 preceding the Great Depression, margin requirements were only
10%. Brokerage firms, in other words, would lend $9 for every $1 an investor had deposited. When the
market fell, brokers called in these loans, which could not be paid back. Banks began to fail as debtors
defaulted on debt and depositors attempted to withdraw their deposits. Bank failures led to the loss of
billions of dollars in assets. Outstanding debts became heavier, because prices and incomes fell by 20-
50% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10
months of 1930, 744 US banks failed.
With the stock market crash and the fears of further economic woes, individuals from all
classes stopped purchasing items. This then led to a reduction in the number of items produced and
thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying
for items they had bought through instalment plans and their items were repossessed. More and more
inventory began to accumulate. The unemployment rate rose above 25% which meant, of course, even
less spending to help alleviate the economic situation.
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Different Views of the Great Depression
Monetarists View:
Monetarists highlight the importance of a fall in the money supply. They point out that between
1929 and 1932, the Federal Reserve allowed the money supply (Measured by M2) to fall by a third. In
particular, Monetarists such as Friedman criticize the decisions of the Fed not to save banks going
bankrupt. They say that because the money supply fell so much an ordinary.
Keynesian view:
Keynes emphasized the importance of a fundamental disequilibrium in real output Classical
economics assumed Real Output would automatically return to equilibrium (full employment levels);
but the great depression showed this to be not true.
Keynes said the problem was lack of aggregate demand. Keynes argued passionately that
governments should intervene in the economy to stimulate demand through public works scheme -
higher spending and borrowing.
Keynes heavily criticized the UK government's decision to try balance the budget in 1930
through higher taxes and lower benefits. He said this only worsened the situation.
16
Effect of depression on various countries
Australia
Australia's extreme dependence on agricultural and industrial exports meant it was one of the
hardest-hit countries in the Western world, amongst the likes of Canada and Germany. Falling export
demand and commodity prices placed massive downward pressures on wages. Further, unemployment
reached a record high of almost 32% in 1932, with incidents of civil unrest becoming common. After
1932, an increase in wool and meat prices led to a gradual recovery.
Canada
Harshly impacted by both the global economic downturn and the Dust Bowl, Canadian
industrial production had fallen to only 58% of the 1929 level by 1932, the second lowest level in the
world after the United States, and well behind nations such as Britain, which saw it fall only to 83% of
the 1929 level. Total national income fell to 56% of the 1929 level, again worse than any nation apart
from the United States.
France
The Depression began to affect France from about 1931. France's relatively high degree of self-
sufficiency meant the damage was considerably less than in nations like Germany. However, hardship
and unemployment were high enough to lead to rioting and the rise of the socialist Popular Front.
Germany
Germany's Weimar Republic was hit hard by the depression, as American loans to help rebuild
the German economy now stopped. Unemployment soared, especially in larger cities, and the political
system veered toward extremism. Repayment of the war reparations due by Germany were suspended
in 1932 following the Lausanne Conference of 1932. By that time Germany had repaid 1/8th of the
reparations. Hitler's Nazi Party came to power in January 1933.
17
Japan
The Great Depression did not strongly affect Japan. The Japanese economy shrank by 8%
during 1929-31. However, Japan's Minister of Finance (MoF) Osachi Hamaguchi implemented the
first version of Keynesian economic policies: first, by increasing deficit spending; and second, by
devaluing the currency. The MoF believed that the deficit spending could easily be paid for when
productivity improved.
The devaluation of the currency had an immediate effect. Japanese textiles began to displace
British textiles in export markets. The deficit spending however proved to be most profound. The
deficit spending went into the purchase of munitions for the armed forces. By 1933, Japan was already
out of the depression. By 1934 the MoF realized that the economy was in danger of overheating, and to
avoid inflation, moved to reduce the deficit spending that went towards armaments and munitions.
This resulted in a strong and swift negative reaction from nationalists, especially those in the Army,
culminating in an assassination attempt on the MoF, leading to his eventual demise from poor health
some months later. This had a chilling effect on all civilian bureaucrats in the Japanese government.
Latin America
Because of high levels of United States investment in Latin American economies, they were
severely damaged by the Depression. Within the region, Chile, Bolivia and Peru were particularly
badly affected. One result of the Depression in this area was the rise of fascist movement.
Netherlands
From roughly 1931 until 1937, the Netherlands suffered a deep and exceptionally long
depression. This depression was partly caused by the after-effects of the Stock Market Crash of 1929
in the United States, and partly by internal factors in the Netherlands. Government policy, especially
the very late dropping of the Gold Standard, played a role in prolonging the depression. The Great
Depression in the Netherlands led to some political instability and riots, and can be linked to the rise of
the Dutch national-socialist party NSB. The depression in the Netherlands eased off somewhat at the
end of 1936, when the government finally dropped the Gold Standard, but real economic stability did
not return until after World War II.
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South Africa
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.
Britain
Great Britain was suffering from an overvalued currency. The price of gold was responding to
its market and rising, which pushed the British pound to a level that the new British government
considered too high - an overvalued pound making the price of its exports higher and therefore
diminishing foreign trade. Great Britain shocked the world by going off the gold standard, and
switching to a managed currency proved beneficial. Britain was able not only to devalue its currency
but also to lower lending rates, which dropped to two percent, helping to simulate building and ease
depression.
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Data Collection & Analysis
Dates of the Great Depression in various countries (in quart
Country depression began recovery began
United States
United Kingdom
Germany
France
Italy
Japan
Canada
Belgium
The Netherlands
Sweden
Switzerland
Denmark
Poland
Czechoslovakia
Argentina
Brazil
India
South Africa
1929:3
1930:1
1928:1
1930:2
1929:3
1930:1
1929:2
1929:3
1929:4
1930:2
1929:4
1930:4
1929:1
1929:4
1929:2
1928:3
1929:4
1930:1
1933:2
1932:4
1932:3
1932:3
1933:1
1932:3
1933:2
1932:4
1933:2
1932:3
1933:1
1933:2
1933:2
1933:2
1932:1
1931:4
1931:4
1933:1
In US it started in Q3 1929 and recovery began in Q2 1933, in UK it started in Q1 1930 and
recovery started in Q4 1932. Surprisingly, In Canada and Germany (in Germany it started in Q1 1928
the economy worsened before it did in US. In Italy, Belgium, Argentina, Poland, Brazil it started with
US in Q3 1929.
As far as recovery is concerned, US is the last to start recovery in Q2 1933 along with Canada,
Denmark, Poland.
What was even more interesting is India is in the list as well. The Depression started in India
around Q4 1929 (one quarter after US). The recovery started in Q4 1931 implying India came out
quickest in the list.
20
Peak-to-trough decline in industrial production in various countries
(annual data)
Country
United States
United Kingdom
Germany
France
Italy
Japan
Canada
Belgium
The Netherlands
Sweden
Denmark
Poland
Czechoslovakia
Argentina
Brazil
Decline
46.8%
16.2%
41.8%
31.3%
33.0%
8.5%
42.4%
30.6%
37.4%
10.3%
16.5%
46.6%
40.4%
17.0%
7.0%
46.80%
41.80%
Series1
42.40%
37.40%
46.60%
40.40%
16.20%
31.30%
8.50%
33.00%
30.60%
16.50%
10.30%
17.00%
7.00%
21
The general price deflation evident in the United States was also present in other countries.
Virtually every industrialized country endured declines in wholesale prices of 30 percent or more
between 1929 and 1933. Because of the greater flexibility of the Japanese price structure, deflation in
Japan was unusually rapid in 1930 and 1931. This rapid deflation may have helped to keep the decline
in Japanese production relatively mild. The prices of primary commodities traded in world markets
declined even more dramatically during this period. For example, the prices of coffee, cotton, silk, and
rubber were reduced by roughly half just between September 1929 and December 1930. As a result,
the terms of trade declined precipitously for producers of primary commodities.
G ro s s D o me s t i c P ro d u c t o r Ex p e n d i t u re , 1 9 3 0
Item
Gross domestic product
Personal consumption expenditures
Gross private domestic investment
Exports of goods and services
Imports of goods and services
Government Expenditures
1930
91.2
70.1
10.8
4.4
4.1
10.0
1940
101.4
71.3
13.6 4.9
3.4
15.0
Government consumption expenditures and gross investment
Source: U.S. Bureau of Economic Analysis
April 30, 2008. Web: www.bea.gov
22
Facts and figures:
Effects of depression in the United States
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 business.
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Year
1932
1929-1933
1937
1939
1930
1933
1932
1933
1939
1933
1933
1933
1932
1932
1929
1929
1933
1929-1933
Country
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Germany
Germany
Australia
Canada
Canada
Canada
Canada
Canada
Particular
Unemployment
Industrial Production
Unemployment
Unemployment
Farming Price
Government Spending
Stock Value
GDP
Government Spending
Price Index
Industrial production
Industrial Price
Unemployment
Industrial Production
Gross National
Product
Total Income
Unemployment
Export
Decrease (%)
32
47
14.3
19
60
10
20
30
33
47
30
32
58
43
56
27
50
24
The National Income Accounts for the Great Depression in the U.S.
(1992 Prices)
GOVT.
PUR NET
YEAR GDP CONSUMPTION INVESTMT CHASES EXPORTS IMPORTS EXPORTS
1929 7 9 0 .9 5 9 3 .9 9 2 .4 1 0 5 .4 3 5 .6 4 6 .3 -10.7
1930 7 1 9 .7 5 6 2 .1 5 9 .8 1 1 6 .2 2 9 .4 4 0 .3 -10.9
1931 6 7 4 .0 5 4 4 .9 3 7 .6 1 2 1 .2 2 4 .4 3 5 .2 -10.8
1932 5 8 4 .3 4 9 6 .1 9 .9 1 1 7 .1 1 9 .1 2 9 .2 -10.1
1933 5 7 7 .3 4 8 4 .8 1 6 .4 1 1 2 .8 1 9 .2 3 0 .4 -11.2
1934 6 4 1 .1 5 1 9 .0 3 1 .5 1 2 7 .3 2 1 .4 3 1 .1 -9.7
1935 6 9 8 .4 5 5 0 .9 5 8 .0 1 3 1 .3 2 2 .6 4 0 .7 -18.1
1936 7 9 0 .0 6 0 6 .9 7 5 .5 1 5 2 .5 2 3 .7 4 0 .2 -16.5
1937 8 3 1 .5 6 2 9 .7 9 4 .0 1 4 7 .0 2 9 .9 4 5 .3 -15.4
1938 8 0 1 .2 6 1 9 .5 6 1 .3 1 5 7 .8 2 9 .6 3 5 .2 -5.6
1939 8 6 6 .5 6 5 4 .0 7 9 .5 1 7 1 .8 3 1 .2 3 6 .9 -5.7
The above table indicates that consumers, investment and government purchases were
generally increasing after 1933. Note however the decline in GDP and Investment in 1938. This was a
recession within the Depression.
As the above graph indicates that while the economy recovered somewhat from its state in
1933 the unemployment rate remained in the 15 percent range for the rest of the decade. The
unemployment rate did not drop from depression levels until the economic impact of World War II
was felt. The high level of demand during that war reduced the unemployment rate to minuscule
levels. While the unemployment rate should be the defining characteristic of economic depression the
standard definition is in term of GDP. The level of production did recover its previous high level of
1929 fairly quickly but this was still significantly below what the economy was capable of producing.
The output of an economy is measured by its Gross Domestic Product) GDP) and the graph below
shows the decline in production from its high point in 1929 to its low point in 1933 and its subsequent
recovery.
25
The rise in GDP after 1933 was not sufficient to drop the unemployment rate from depression
levels because while the GDP was growing the labour force also was growing. Furthermore increases
in productivity meant that for the same level of GDP there were fewer jobs. In order to bring down the
unemployment rate the rate of growth of GDP has to be greater than the sum of the growth rates of
productivity and the labour force. The table below tells what was happening to the components of
demand.
26
CONCLUSION:
The Great Depression was an example for modern economy that how far the economy can fall.
It was the greatest and deepens depression.
The Great Depression was a period of unprecedented decline in economic activity. It was
occurred between 1929 and 1939. During September and October a few firms posted disappointing
results causing share prices to fall. On October 28th (Black Tuesday), the decline in prices turned into a
crash has share prices fell 13%.Confidence of the people had evaporated and problems spread to the rest
of the financial system. Share prices would fall even more in 1932 as the depression deepened. By
1932, the stock market fell 89% from its September 1929 peak. It was at a level not seen since the
nineteenth century.
Falling share prices caused a collapse in confidence and consumer wealth. Spending fell and
the decline in confidence precipitated a desire for savers to withdraw money from their banks. In the
first 10 months of 1930 alone, 744 US banks went bankrupt and savers lost their savings. They also
tried to call in their loans before people had time to repay them. As banks went bankrupt, it only
increased the demand for other savers to withdraw money from banks. This failure of the banking
system was the most powerful cause of economic depression. Because of the banking crisis, Banks
reduced lending; there was a fall in investment. People lost savings and so reduced consumer
spending. The impact on economic Output fell, unemployment rose causing a negative multiplier
effect. With falling output, prices began to fall. Deflation created additional problems.
This global recession was exacerbated by imposing new tariffs such as Smoot-Hawley which
restricted trade further. The market crash marked the beginning of a decade of high unemployment,
poverty, low profits, deflation and lost opportunities for economic growth and personal advancement.
Although its causes are still uncertain, the basic cause was a sudden loss of confidence in the economic
future.
The initial government response to the crisis exacerbated the situation; protectionist policies
like the 1930 Smoot-Hawley Tariff Act, rather than helping the economy, Industries that suffered the
most included agriculture, mining, and logging as well as durable goods like construction and
automobiles that people postponed.
The economy eventually recovered from the low point of the winter of 1932-33, with sustained
changes 1937, when the Recession of 1937 brought back 1934 levels of unemployment. International
trade was collapse on account of Smooth Hawley's high tariff and debt became heavier. In 1933 there
27
were positive changes started in the economy. In 1933 shortly after President Roosevelt was
inaugurated in 1933. From 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 Unfortunately in 1937 there was
another recession in USA economy.GDP of the countries was declined year by year. But Prosperity
has always and will again.
28
LIMITATIONS
As the subject of research is too broad and has taken place in the past (1929), it may lack some
information.
The data is collected from secondary data recourses it may not in be required form and
credibility and methodology is unknown.
29
Recommendations
The great depression was occurred in 1929-1930.The whole world economy was worsly
affected by it. Today our Indian economy is also facing recession. We hope that is will get recovery
very soon, because prosperity has always returned and will again.
Following are the recommendations to overcome from it.
Government should increase their expenditure so money supply will enter in to the market,
employment will increase, consumption will increase, demand will increase, and price will rise
and so on. Thus the whole cycle will effectively run.
Government has been collecting revenue in the form of tax which results in reduction of
Public's demand and consumption therefore it should be reduce.
Government should reduce cash reserve ratio so the money supply will be more in the Bank.
The bank will be able to provide loan to the needy people and it will increase liquidity in
market.
The entire bank should reduce rate of lending money to the public so they will attract for
borrowing more money, consumption will increase etc.
Finally, proper implementation policy should be there, it will help to overcome from recession.
30
BIBLIOGRAPHY
News paper:-
Business Standard, February 2, 2009; Tushar Poddar
Magazine:-
Capitalism Magazine
Sowel Thomes - American literature II
www.bea.gov .
www.Yahoo.com
www.Gmail.com.
31
doc_887487912.docx
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in 1930 and lasted until the late 1930s or middle 1940s.
Research Reports on the Great Depression of 1929-30
PAI INTERNATONAL CENTRE FOR MANAGEMENT EXCELENCE
Executive Summary
The great depression was originated in USA as a starting date of the stoke market crashed on
October 29, 1929, known as "Black Tuesday". It was worldwide economic downturn started in most
countries in 1929 and ended at different time in different countries. It was started in 1929 and ended in
1939.
During the great depression the whole world economy was worsly affected. There were two
main causes of great depression.
New York stock market was crashed on 29 October 1929:-
Due to loss in stock market, investor had reduced consumptions, expenditure, demand etc.
People reduced borrowing though the lending rate reduced.
Failure of American banks:-
9000 banks of UK were failed in their business. Banks were not able to perform their role. On
account of that the business could not get loan to invest. It directly resulted in deduction in production,
employment, consumption, expenditure, demand etc. Stock of finished was remained unsold. Business
became unable to repay their loan to the banks and banks were failed in their business.
International trade was collapse and debt became heavier. In 1937 there was another recession. The
position became so worse that American people had to stand in a queue to get a loaf of bread.
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.
5
S.NO.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
TABLE OF CONTENTS
SUBJECT
Introduction
Objective
Methodology
Causes of Depression
Literature Survey
Data Presentation
Data Collection
Data Analysis
Conclusion
Limitations
Recommendations
Bibliography
PAGE NO.
6
Introduction
The great depression of 1930 was started from USA on October 29, 1930 and spread all over
the world.
To understand the term "depression", first of all we must have to understand about recession.
The difference between the two terms is not very well understood for one simple reason: There is not a
universally agreed upon definition. If you ask 100 different economists to define the term recession
and depression, you would get at least 100 different answers. I will try to summarize both terms and
explain the differences between them in a way that almost all economists could agree with.
What is recession?
A recession is decline in the GDP (Gross Domestic Products) for two or more consecutive quarter.
- The Standard News Paper
Recession is a time when a business activity has reached its peak and starts to fall until the time when
business activities bottoms out. When the business activities starts to rise again it is called and
expansionary period. By this definition, the average recession lasts about a year.
The business cycle dating committee (BCDC)
In short recession is a period in which business activities are falling continuous for three quarters.
Depression:-
Depression means a time of low economic activity distinguished from recession by being
prolonged and sustained, characterized by continuing falls in various types of business activities.
A depression is any economic downturn where real GDP (Gross Domestic Products) declines
by more than 10%.
In simple term, depression is a recession that lasts longer and has a larger decline in business
activities.
The great depression of 1930 was originated in United States as a starting date the Newyourk
stock market crashed on October 1929, known as black Tuesday. The great depression was a
worldwide economic down town starting in most of places in 1929 and ended at different time in
7
different countries. It was the largest depression on modern economy and it is used in 21'st century as
an example haw far the world's economy can fall. The whole world was worsly affected.
Before the great depression of 1930 any downturn in economic activity was referred as a
depression. The great depression of 1930 had two period of recession: October 1929 to march 1933
where real GDP (Gross Domestic Products) declined by 33% when a period of recovery, then there
was another recession. The great depression which brought widespread unemployment as demand
evaporated and business failed.
The depression had devastating effects in virtually every country, rich or poor. International
trade plunged by half to two-thirds, as did personal incomes, tax revenues, prices, and profits. Cities all
around the world were hit hard, especially those dependent on heavy industry. Construction was
virtually halted in many countries. Farming and rural areas suffered as crop prices fell by roughly 60
percent. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary
sector industries such as farming, mining and logging suffered the most. However, even shortly after
the Wall Street Crash of 1929, optimism persisted.
John D. Rockefeller said that "These are days when many are discouraged. In the 93 years of
my life, depressions have come and gone. Prosperity has always returned and will again."
In early 1930, credit was ample and available at low rates, but people were reluctant to add new
debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in
general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were
worse in farming areas, where commodity prices plunged, and in mining and logging areas, where
unemployment was high and there were few other jobs. The decline in the US economy was the factor
that pulled down most other countries at first, and then internal weaknesses or strengths in each
country made conditions worse or better.
8
Objectives
To study why the great depression was occurred in USA.
To find out how it was spread all over the world in economy.
To assess at what extent various countries were worsly affected.
To identified the areas affected by the great depression.
To know impact of great depression in world's economy.
To find out the main causes of great depression.
To know remedial action for such depression in future.
9
Methodology
Research Design:
A research design is the detailed blue print used to guide a research study towards its objective.
It helps to collect, measure and analysis of data.
The study undertaken is of Descriptive Historical Research Method Descriptive research is
those which are connected with describing the characteristics of the particular topic.
Secondary data:
Secondary data is collected through reference books on economy, journals, magazines and
articles etc.
I have collected data through website, magazine and articles etc. to describe the depression of
1929-30.
10
Literature Survey
The period from 1929 to 1941 marks one of the most extraordinary times in American history,
and the arts. The government's response to the economic turmoil of the Great Depression was, along
with the host of economic programs it established, to fund a multitude of public arts program designed
to remind American citizens close to being overwhelmed by "hard times," that there was, indeed,
something remarkable about being American. Literature, theatre, photography, music - all flourished
under the patronage of FDR and the New Deal.
The American people themselves responded in strikingly divergent ways to the multiple
challenges posed by the Great Depression. While the 1930s are traditionally portrayed as the decade of
Franklin D. Roosevelt and the New Deal, they were also the decade of California socialist Upton
Sinclair, union stalwart John L. Lewis, radical writer Richard Wright, and arch-isolationist Charles
Lindbergh. As these larger-than-life figures jostled for position on the national stage, millions of
ordinary Americans struggled to find work or put food on the table.
In this course we will examine the multiple responses of the American people and their leaders
to the crises of the 1930s. Students will read a wide variety of literary responses to the Depression as
well as primary source historical documents. We will discuss these texts in class with an eye toward
developing a better understanding of the way Americans thought and argued about the pressing issues
of the day. We will also consider how the controversies of the 1930s helped to shape modern America
and continue to linger in contemporary life.
The History and Literature of the Great Depression
With Professor Sean Malloy
(Spring 2006)
HIST134/LIT134
11
This paper argues that the collapse of stock prices in October 1929 generated temporary
uncertainty about future income which caused consumers to forego purchases of durable and semi
durable goods in late 1929 and much of 1930. Evidence that the stock market crash generated
uncertainty is provided by the decline in confidence expressed by contemporary forecasters. Evidence
that this uncertainty affected consumer behaviour is provided by the fact that spending on consumer
durables and semi durables declined immediately following the Great Crash and by the fact that there
is a negative historical relationship between stock market variability and the production of consumer
durables in the pre-war era.
Unemployment declined by over one-third in Roosevelt's first term (from 25% to 14.3%, 1933
to 1937). In Roosevelt's second term, the economy went into a short, sharp recession in 1937-38. In
1929, federal expenditures constituted only 3% of the GDP. The national 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, when unemployment dropped to 2% they abolished
WPA, CCC and the PWA relief programs; Social Security, however, remained in place.
The Great Crash and the Onset of the Great Depression
Christina D. Romer
University of California,
Berkeley - Department of Economics;
National Bureau of Economic Research (NBER)
June 1988
NBER Working Paper No. W2639
12
Causes of great depression
Failure of
American
Banks
Business
was unable
to repay
the loan
Non-
availability
of
Investment in
Business
Discreased
in Demand
Cut down
the
production
Reduction
in
Compstion
&
Expenditure
Unemployment
13
Main causes:
Mainly two incidents were responsible for the great depression.
1. The Newyork Stock market Crashed:
The Great Depression was occuredred by a sudden, total collapse in the stock market on
October, 29, 1929.Lot of people had lost their money. Because of loss people reduce their demand;
expenditure consumption etc.American people had lost trust in stock market. Share prices would fall
even more in 1932 as the depression deepened. By 1932, the stock market fell 89% from its September
1929 peak. It was at a level not seen since the nineteenth century.
Falling share prices caused a collapse in confidence and consumer wealth. Spending fell and
the decline in confidence precipitated a desire for savers to withdraw money from their banks.
2. Failure of American Banks:
Most businesses require loans for their normal operations.9000 banks of US were failed to
perform their role in business. In the first 10 months of 1930 alone, 744 US banks went bankrupt.
When the banking sector does not work properly, businesses cannot get loans and they have to curtail
their production and lay off workers. As they curtail production, they demand fewer products from
their suppliers and therefore their suppliers have to reduce their output and fire workers. If
manufacturers cannot sell their goods because the firm downstream does not need as many products as
before, they cannot generate enough revenue to repay their earlier loans. Businesses go bankrupt and
banks experience further problems as their balance sheet deteriorates due to non-performing loans.
Other Causes:
Smoot-Hawley Tariff
Act ovo Ivtcµvotiovoì Tµooc
Many economists have argued that the sharp decline in international trade after 1930 helped to
worsen the depression, especially for countries significantly dependent on foreign trade. Most
historians and economists partly blame the American Smoot-Hawley Tariff Act (enacted June 17,
1930) for worsening the depression by seriously reducing international trade and causing retaliatory
tariffs in other countries. Foreign trade was a small part of overall economic activity in the United
States and was concentrated in a few businesses like farming; it was a much larger factor in many other
countries.
14
Monetarists, including Milton Friedman and current Federal Reserve System chairman Ben
Bernanke, argue that the Great Depression was caused by monetary contraction, the consequence of
poor policymaking by the American Federal Reserve System and continuous crisis in the banking
system. In this view, the Federal Reserve, by not acting, allowed the money supply
Every major currency left the gold standard during the Great Depression. Great Britain was the
first to do so. To print the currency notes they must had to keep Gold Reserve. America had not
enough gold to print the currency notes. .
The lower aggregate expenditures in the economy contributed to a massive decline in income
and to employment that was well below the average.
During the Crash of 1929 preceding the Great Depression, margin requirements were only
10%. Brokerage firms, in other words, would lend $9 for every $1 an investor had deposited. When the
market fell, brokers called in these loans, which could not be paid back. Banks began to fail as debtors
defaulted on debt and depositors attempted to withdraw their deposits. Bank failures led to the loss of
billions of dollars in assets. Outstanding debts became heavier, because prices and incomes fell by 20-
50% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10
months of 1930, 744 US banks failed.
With the stock market crash and the fears of further economic woes, individuals from all
classes stopped purchasing items. This then led to a reduction in the number of items produced and
thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying
for items they had bought through instalment plans and their items were repossessed. More and more
inventory began to accumulate. The unemployment rate rose above 25% which meant, of course, even
less spending to help alleviate the economic situation.
15
Different Views of the Great Depression
Monetarists View:
Monetarists highlight the importance of a fall in the money supply. They point out that between
1929 and 1932, the Federal Reserve allowed the money supply (Measured by M2) to fall by a third. In
particular, Monetarists such as Friedman criticize the decisions of the Fed not to save banks going
bankrupt. They say that because the money supply fell so much an ordinary.
Keynesian view:
Keynes emphasized the importance of a fundamental disequilibrium in real output Classical
economics assumed Real Output would automatically return to equilibrium (full employment levels);
but the great depression showed this to be not true.
Keynes said the problem was lack of aggregate demand. Keynes argued passionately that
governments should intervene in the economy to stimulate demand through public works scheme -
higher spending and borrowing.
Keynes heavily criticized the UK government's decision to try balance the budget in 1930
through higher taxes and lower benefits. He said this only worsened the situation.
16
Effect of depression on various countries
Australia
Australia's extreme dependence on agricultural and industrial exports meant it was one of the
hardest-hit countries in the Western world, amongst the likes of Canada and Germany. Falling export
demand and commodity prices placed massive downward pressures on wages. Further, unemployment
reached a record high of almost 32% in 1932, with incidents of civil unrest becoming common. After
1932, an increase in wool and meat prices led to a gradual recovery.
Canada
Harshly impacted by both the global economic downturn and the Dust Bowl, Canadian
industrial production had fallen to only 58% of the 1929 level by 1932, the second lowest level in the
world after the United States, and well behind nations such as Britain, which saw it fall only to 83% of
the 1929 level. Total national income fell to 56% of the 1929 level, again worse than any nation apart
from the United States.
France
The Depression began to affect France from about 1931. France's relatively high degree of self-
sufficiency meant the damage was considerably less than in nations like Germany. However, hardship
and unemployment were high enough to lead to rioting and the rise of the socialist Popular Front.
Germany
Germany's Weimar Republic was hit hard by the depression, as American loans to help rebuild
the German economy now stopped. Unemployment soared, especially in larger cities, and the political
system veered toward extremism. Repayment of the war reparations due by Germany were suspended
in 1932 following the Lausanne Conference of 1932. By that time Germany had repaid 1/8th of the
reparations. Hitler's Nazi Party came to power in January 1933.
17
Japan
The Great Depression did not strongly affect Japan. The Japanese economy shrank by 8%
during 1929-31. However, Japan's Minister of Finance (MoF) Osachi Hamaguchi implemented the
first version of Keynesian economic policies: first, by increasing deficit spending; and second, by
devaluing the currency. The MoF believed that the deficit spending could easily be paid for when
productivity improved.
The devaluation of the currency had an immediate effect. Japanese textiles began to displace
British textiles in export markets. The deficit spending however proved to be most profound. The
deficit spending went into the purchase of munitions for the armed forces. By 1933, Japan was already
out of the depression. By 1934 the MoF realized that the economy was in danger of overheating, and to
avoid inflation, moved to reduce the deficit spending that went towards armaments and munitions.
This resulted in a strong and swift negative reaction from nationalists, especially those in the Army,
culminating in an assassination attempt on the MoF, leading to his eventual demise from poor health
some months later. This had a chilling effect on all civilian bureaucrats in the Japanese government.
Latin America
Because of high levels of United States investment in Latin American economies, they were
severely damaged by the Depression. Within the region, Chile, Bolivia and Peru were particularly
badly affected. One result of the Depression in this area was the rise of fascist movement.
Netherlands
From roughly 1931 until 1937, the Netherlands suffered a deep and exceptionally long
depression. This depression was partly caused by the after-effects of the Stock Market Crash of 1929
in the United States, and partly by internal factors in the Netherlands. Government policy, especially
the very late dropping of the Gold Standard, played a role in prolonging the depression. The Great
Depression in the Netherlands led to some political instability and riots, and can be linked to the rise of
the Dutch national-socialist party NSB. The depression in the Netherlands eased off somewhat at the
end of 1936, when the government finally dropped the Gold Standard, but real economic stability did
not return until after World War II.
18
South Africa
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.
Britain
Great Britain was suffering from an overvalued currency. The price of gold was responding to
its market and rising, which pushed the British pound to a level that the new British government
considered too high - an overvalued pound making the price of its exports higher and therefore
diminishing foreign trade. Great Britain shocked the world by going off the gold standard, and
switching to a managed currency proved beneficial. Britain was able not only to devalue its currency
but also to lower lending rates, which dropped to two percent, helping to simulate building and ease
depression.
19
Data Collection & Analysis
Dates of the Great Depression in various countries (in quart
Country depression began recovery began
United States
United Kingdom
Germany
France
Italy
Japan
Canada
Belgium
The Netherlands
Sweden
Switzerland
Denmark
Poland
Czechoslovakia
Argentina
Brazil
India
South Africa
1929:3
1930:1
1928:1
1930:2
1929:3
1930:1
1929:2
1929:3
1929:4
1930:2
1929:4
1930:4
1929:1
1929:4
1929:2
1928:3
1929:4
1930:1
1933:2
1932:4
1932:3
1932:3
1933:1
1932:3
1933:2
1932:4
1933:2
1932:3
1933:1
1933:2
1933:2
1933:2
1932:1
1931:4
1931:4
1933:1
In US it started in Q3 1929 and recovery began in Q2 1933, in UK it started in Q1 1930 and
recovery started in Q4 1932. Surprisingly, In Canada and Germany (in Germany it started in Q1 1928
the economy worsened before it did in US. In Italy, Belgium, Argentina, Poland, Brazil it started with
US in Q3 1929.
As far as recovery is concerned, US is the last to start recovery in Q2 1933 along with Canada,
Denmark, Poland.
What was even more interesting is India is in the list as well. The Depression started in India
around Q4 1929 (one quarter after US). The recovery started in Q4 1931 implying India came out
quickest in the list.
20
Peak-to-trough decline in industrial production in various countries
(annual data)
Country
United States
United Kingdom
Germany
France
Italy
Japan
Canada
Belgium
The Netherlands
Sweden
Denmark
Poland
Czechoslovakia
Argentina
Brazil
Decline
46.8%
16.2%
41.8%
31.3%
33.0%
8.5%
42.4%
30.6%
37.4%
10.3%
16.5%
46.6%
40.4%
17.0%
7.0%
46.80%
41.80%
Series1
42.40%
37.40%
46.60%
40.40%
16.20%
31.30%
8.50%
33.00%
30.60%
16.50%
10.30%
17.00%
7.00%
21
The general price deflation evident in the United States was also present in other countries.
Virtually every industrialized country endured declines in wholesale prices of 30 percent or more
between 1929 and 1933. Because of the greater flexibility of the Japanese price structure, deflation in
Japan was unusually rapid in 1930 and 1931. This rapid deflation may have helped to keep the decline
in Japanese production relatively mild. The prices of primary commodities traded in world markets
declined even more dramatically during this period. For example, the prices of coffee, cotton, silk, and
rubber were reduced by roughly half just between September 1929 and December 1930. As a result,
the terms of trade declined precipitously for producers of primary commodities.
G ro s s D o me s t i c P ro d u c t o r Ex p e n d i t u re , 1 9 3 0
Item
Gross domestic product
Personal consumption expenditures
Gross private domestic investment
Exports of goods and services
Imports of goods and services
Government Expenditures
1930
91.2
70.1
10.8
4.4
4.1
10.0
1940
101.4
71.3
13.6 4.9
3.4
15.0
Government consumption expenditures and gross investment
Source: U.S. Bureau of Economic Analysis
April 30, 2008. Web: www.bea.gov
22
Facts and figures:
Effects of depression in the United States
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 business.
23
Year
1932
1929-1933
1937
1939
1930
1933
1932
1933
1939
1933
1933
1933
1932
1932
1929
1929
1933
1929-1933
Country
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Germany
Germany
Australia
Canada
Canada
Canada
Canada
Canada
Particular
Unemployment
Industrial Production
Unemployment
Unemployment
Farming Price
Government Spending
Stock Value
GDP
Government Spending
Price Index
Industrial production
Industrial Price
Unemployment
Industrial Production
Gross National
Product
Total Income
Unemployment
Export
Decrease (%)
32
47
14.3
19
60
10
20
30
33
47
30
32
58
43
56
27
50
24
The National Income Accounts for the Great Depression in the U.S.
(1992 Prices)
GOVT.
PUR NET
YEAR GDP CONSUMPTION INVESTMT CHASES EXPORTS IMPORTS EXPORTS
1929 7 9 0 .9 5 9 3 .9 9 2 .4 1 0 5 .4 3 5 .6 4 6 .3 -10.7
1930 7 1 9 .7 5 6 2 .1 5 9 .8 1 1 6 .2 2 9 .4 4 0 .3 -10.9
1931 6 7 4 .0 5 4 4 .9 3 7 .6 1 2 1 .2 2 4 .4 3 5 .2 -10.8
1932 5 8 4 .3 4 9 6 .1 9 .9 1 1 7 .1 1 9 .1 2 9 .2 -10.1
1933 5 7 7 .3 4 8 4 .8 1 6 .4 1 1 2 .8 1 9 .2 3 0 .4 -11.2
1934 6 4 1 .1 5 1 9 .0 3 1 .5 1 2 7 .3 2 1 .4 3 1 .1 -9.7
1935 6 9 8 .4 5 5 0 .9 5 8 .0 1 3 1 .3 2 2 .6 4 0 .7 -18.1
1936 7 9 0 .0 6 0 6 .9 7 5 .5 1 5 2 .5 2 3 .7 4 0 .2 -16.5
1937 8 3 1 .5 6 2 9 .7 9 4 .0 1 4 7 .0 2 9 .9 4 5 .3 -15.4
1938 8 0 1 .2 6 1 9 .5 6 1 .3 1 5 7 .8 2 9 .6 3 5 .2 -5.6
1939 8 6 6 .5 6 5 4 .0 7 9 .5 1 7 1 .8 3 1 .2 3 6 .9 -5.7
The above table indicates that consumers, investment and government purchases were
generally increasing after 1933. Note however the decline in GDP and Investment in 1938. This was a
recession within the Depression.
As the above graph indicates that while the economy recovered somewhat from its state in
1933 the unemployment rate remained in the 15 percent range for the rest of the decade. The
unemployment rate did not drop from depression levels until the economic impact of World War II
was felt. The high level of demand during that war reduced the unemployment rate to minuscule
levels. While the unemployment rate should be the defining characteristic of economic depression the
standard definition is in term of GDP. The level of production did recover its previous high level of
1929 fairly quickly but this was still significantly below what the economy was capable of producing.
The output of an economy is measured by its Gross Domestic Product) GDP) and the graph below
shows the decline in production from its high point in 1929 to its low point in 1933 and its subsequent
recovery.
25
The rise in GDP after 1933 was not sufficient to drop the unemployment rate from depression
levels because while the GDP was growing the labour force also was growing. Furthermore increases
in productivity meant that for the same level of GDP there were fewer jobs. In order to bring down the
unemployment rate the rate of growth of GDP has to be greater than the sum of the growth rates of
productivity and the labour force. The table below tells what was happening to the components of
demand.
26
CONCLUSION:
The Great Depression was an example for modern economy that how far the economy can fall.
It was the greatest and deepens depression.
The Great Depression was a period of unprecedented decline in economic activity. It was
occurred between 1929 and 1939. During September and October a few firms posted disappointing
results causing share prices to fall. On October 28th (Black Tuesday), the decline in prices turned into a
crash has share prices fell 13%.Confidence of the people had evaporated and problems spread to the rest
of the financial system. Share prices would fall even more in 1932 as the depression deepened. By
1932, the stock market fell 89% from its September 1929 peak. It was at a level not seen since the
nineteenth century.
Falling share prices caused a collapse in confidence and consumer wealth. Spending fell and
the decline in confidence precipitated a desire for savers to withdraw money from their banks. In the
first 10 months of 1930 alone, 744 US banks went bankrupt and savers lost their savings. They also
tried to call in their loans before people had time to repay them. As banks went bankrupt, it only
increased the demand for other savers to withdraw money from banks. This failure of the banking
system was the most powerful cause of economic depression. Because of the banking crisis, Banks
reduced lending; there was a fall in investment. People lost savings and so reduced consumer
spending. The impact on economic Output fell, unemployment rose causing a negative multiplier
effect. With falling output, prices began to fall. Deflation created additional problems.
This global recession was exacerbated by imposing new tariffs such as Smoot-Hawley which
restricted trade further. The market crash marked the beginning of a decade of high unemployment,
poverty, low profits, deflation and lost opportunities for economic growth and personal advancement.
Although its causes are still uncertain, the basic cause was a sudden loss of confidence in the economic
future.
The initial government response to the crisis exacerbated the situation; protectionist policies
like the 1930 Smoot-Hawley Tariff Act, rather than helping the economy, Industries that suffered the
most included agriculture, mining, and logging as well as durable goods like construction and
automobiles that people postponed.
The economy eventually recovered from the low point of the winter of 1932-33, with sustained
changes 1937, when the Recession of 1937 brought back 1934 levels of unemployment. International
trade was collapse on account of Smooth Hawley's high tariff and debt became heavier. In 1933 there
27
were positive changes started in the economy. In 1933 shortly after President Roosevelt was
inaugurated in 1933. From 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 Unfortunately in 1937 there was
another recession in USA economy.GDP of the countries was declined year by year. But Prosperity
has always and will again.
28
LIMITATIONS
As the subject of research is too broad and has taken place in the past (1929), it may lack some
information.
The data is collected from secondary data recourses it may not in be required form and
credibility and methodology is unknown.
29
Recommendations
The great depression was occurred in 1929-1930.The whole world economy was worsly
affected by it. Today our Indian economy is also facing recession. We hope that is will get recovery
very soon, because prosperity has always returned and will again.
Following are the recommendations to overcome from it.
Government should increase their expenditure so money supply will enter in to the market,
employment will increase, consumption will increase, demand will increase, and price will rise
and so on. Thus the whole cycle will effectively run.
Government has been collecting revenue in the form of tax which results in reduction of
Public's demand and consumption therefore it should be reduce.
Government should reduce cash reserve ratio so the money supply will be more in the Bank.
The bank will be able to provide loan to the needy people and it will increase liquidity in
market.
The entire bank should reduce rate of lending money to the public so they will attract for
borrowing more money, consumption will increase etc.
Finally, proper implementation policy should be there, it will help to overcome from recession.
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BIBLIOGRAPHY
News paper:-
Business Standard, February 2, 2009; Tushar Poddar
Magazine:-
Capitalism Magazine
Sowel Thomes - American literature II
www.bea.gov .
www.Yahoo.com
www.Gmail.com.
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