Great Depression in the United States

In the United States, the Great Depression began with the Wall Street Crash of October 1929. The stock market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth as well as for personal advancement. Altogether, there was a general loss of confidence in the economic future.[1]

Great Depression in the United States
1929–1941
Dorothea Lange's 1936 photo Migrant Mother is an iconic photograph associated with the Great Depression
LocationUnited States, quickly spreading around the world
President(s)Herbert Hoover
Franklin D. Roosevelt
Key eventsWall Street Crash of 1929
Smoot-Hawley Tariff Act
Widespread bank failures
Hitler's rise to power
Dust Bowl
New Deal
Hindenburg disaster
Recession of 1937–1938
 Preceded by
Roaring Twenties
Followed by 
World War II
Unemployed men outside a soup kitchen in Chicago, 1931

The usual explanations include numerous factors, especially high consumer debt, ill-regulated markets that permitted overoptimistic loans by banks and investors, and the lack of high-growth new industries. These all interacted to create a downward economic spiral of reduced spending, falling confidence and lowered production.[2] Industries that suffered the most included construction, shipping, mining, logging and agriculture (compounded by dust-bowl conditions in the heartland). Also hard hit was the manufacturing of durable goods like automobiles and appliances, whose purchase consumers could postpone. The economy hit bottom in the winter of 1932–1933; then came four years of growth until the recession of 1937–1938 brought back high levels of unemployment.[3]

US annual real GDP from 1910 to 1960, with the years of the Great Depression (1929–1939) highlighted
Unemployment rate in the US 1910–60, with the years of the Great Depression (1929–39) highlighted; accurate data begins in 1939, represented by a blue line.

The Depression caused major political changes in America. Three years into the depression, President Herbert Hoover, widely blamed for not doing enough to combat the crisis, lost the election of 1932 to Franklin Delano Roosevelt by a historically wide margin. Roosevelt's economic recovery plan, the New Deal, instituted unprecedented programs for relief, recovery and reform, and brought about a major realignment of American politics.

The Depression also resulted in an increase of emigration for the first time in American history. Some immigrants went back to their native countries, and some native U.S. citizens went to Canada, Australia and South Africa. There were mass migrations of people from badly hit areas in the Great Plains (the Okies) and the South to places such as California and the cities of the North (the Great Migration).[4][5] Racial tensions also increased during this time. By the 1940s, immigration had returned to normal, and emigration declined.

The memory of the Depression also shaped modern theories of economics and resulted in many changes in how the government dealt with economic downturns, such as the use of stimulus packages, Keynesian economics, and Social Security. It also shaped modern American literature, resulting in famous novels such as John Steinbeck's The Grapes of Wrath and Of Mice and Men.

Examining the causes of the Great Depression raises multiple issues: what factors set off the first downturn in 1929; what structural weaknesses and specific events turned it into a major depression; how the downturn spread from country to country; and why the economic recovery was so prolonged.[6]

Many banks began to fail in October 1930 when farmers defaulted on loans. There was no federal deposit insurance during that time as bank failures were considered a normal part of economic life. Worried depositors started to withdraw savings, so the money multiplier worked in reverse. Banks were forced to liquidate assets (such as calling in loans rather than creating new loans).[7] This caused the money supply to shrink and the economy to contract (the Great Contraction), resulting in a significant decline in aggregate investment. The decreased money supply further aggravated price deflation, putting more pressure on already struggling businesses.

A $10 US gold certificate. The U.S. used the gold standard until 1934 and controlled nearly half of the global gold supply during the inter-war period.

The U.S. Government's commitment to the gold standard prevented it from engaging in expansionary monetary policy.[clarification needed] High interest rates needed to be maintained in order to attract international investors who bought foreign assets with gold. However, the high interest also inhibited domestic business borrowing.[citation needed] The U.S. interest rates were also affected by France's decision to raise their interest rates to attract gold to their vaults. In theory, the U.S. would have two potential responses to that: allow the exchange rate to adjust, or increase their own interest rates to maintain the gold standard. At the time, the U.S. was pegged to the gold standard. Therefore, Americans converted their dollars into francs to buy more French assets, the demand for the U.S. dollar fell, and the exchange rate increased. One of the only things the U.S. could do to get back into equilibrium was increase interest rates.[citation needed]

In the late 20th century, Winner of the Swedish Central Bank Nobel Memorial Prize in Economic Sciences economist Milton Friedman and his fellow monetarist Anna Schwartz argued that the Federal Reserve could have stemmed the severity of the Depression, but failed to exercise its role of managing the monetary system and ameliorating banking panics, resulting in a Great Contraction of the economy from 1929 until the New Deal began in 1933.[8] This view was endorsed by Fed Governor Ben Bernanke who in 2002 said in a speech honoring Friedman and Schwartz:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry. But thanks to you, we won't do it again.[9][8]
— Ben S. Bernanke


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