The Great Depression consequences
for society. In the history of America, economic
What is The Great Depression?
It’s the longest
economic slump that ever happened in the whole history. It started in 1929 and
lasted until 1941. Great Depression affected almost all
industrialized countries and the US in particular. Throughout the 1930s, until
1939, the economy could not fully recover from the slum. Therefore, the entire
period was called the Great Depression – because of its duration and serious
consequences for society. In the history of America, economic crises have
occurred before, but none of them lasted more than four years. The Great
Depression experienced three times longer than the economic shocks of the past.
The longest and most severe depression that the
economy of the industrialized countries has ever experienced
Economic recession in the United States, Europe and
other industrialized countries
The biggest panic on the New York Stock Exchange,
followed by a devastating collapse of stocks and deposits.
A prolonged decline in the world economy, which
occurred in 1929 and finally ended in 1940.
it started and what caused it?
Twenties in America can
be characterized as a consumer revolution period with the following speculative
boom. From 1928 to 1929 the stock market was rapidly growing. The average value
of securities raised by 40% in a year, and the turnover of trade increased from
2 million stocks a day to 5 million. In
1920’s, the US experienced rapid economic growth.
Politicians, businessmen and economists were talking about the New Age followed
by further growth of welfare, full employment and prosperity of the nation. The path to prosperity was available to everyone, the
only thing you need to do is to invest savings in shares of industrial
Citizens were pursuing this
idea of rapid enrichment, so they have been investing all their savings in
corporate stocks, in order to subsequently sell them at a higher price. Therefore,
the value of securities grew with geometric progression. Americans even weren’t
stopped by inflated prices for shares, and they continued to buy them in the
hope of a good beneficiation in the future. To buy securities, investors have
actively been taking loans. Suchlike immense demand of shares created an
economic bubble, which according to the economic rules, would sooner or later
have to burst.
However, the only
collapse of the stock market was clearly not enough to initiate such an
enormous economic slump which will later enter history as the greatest crisis which
have ever occurred.
A few months before the
stock market declining, the US economy was already plunging into a recession:
industrial production was declining, while wholesale prices and household
incomes were falling.
The economic crisis of
the thirties was the deepest crisis of overproduction in the history of
capitalism. Almost four years the economy of the capitalist countries was in a
state of complete disorganization. But especially the crisis hit the main
country of the capitalist world – the United States of America.
The shortage of money
supply played an important role. At that time, money was determined by a gold
reserve, this limited the money supply. Meanwhile growing production, such brand
new types of commodities as cars, airplanes refrigerators, washing machines,
radio etc. appeared. The number of goods grew both by type and by quantity in
the market. As a result of the limited money supply and the growth of the
commodity mass, strong deflation arose – a fall in prices that caused financial
instability, bankruptcy of many enterprises, and non-repayment of loans. A
powerful multiplicative effect hit even the growing industries.
The population growth,
caused by improvements of living conditions and the development of public
medicine, led to significant property and social stratification. Economic
liberalism, prevailing in America since the end of the XIX century, caused such
situation that by 1929 year 1% of the population owned 60% of national wealth
and 15% % of the national income. Thus, a growing number of people were at risk
– in case of economic instability, their situation threatened to become
Among other reasons
that caused the crisis, economists call the inefficient monetary policy of the
US Federal Reserve System and increase of duties on imported goods. The
Smoot-Hawley Tariff Act, designed to protect domestic production, led to a
decrease in purchasing power. And since the 40 percent duty on almost 20.000
imports complicated the sale of European suppliers’ products to the US, the
crisis spread to the countries of the Old World.
On Thursday, October 29,
1929, when the Dow Jones Industrial Average index was at around 381.17, the
bubble burst and panic broke out on the New York Stock Exchange. Trying to get
rid of their shares before they completely depreciate, investors sold that day
12.9 million securities.
“Black Thursday” was the first link in the chain of
crisis of 1929. The stock market crash led to “black Friday”,
“black Monday” and “black Tuesday”. During this period shareholders
sold more than 30 million securities. Because of the exchange collapse,
thousands of investors according to estimates lost in total at least $ 30
billions. 37758703277041 US dollars – the amount in today’s equivalent – the
expression of 30 billion of that time today.
Following the bankruptcies
of shareholders, banks began to close one by one. Many of them, having lost all
the invested assets, had to answer for debts to depositors and shareholders.
Meanwhile, extremely frightened investors rushed to withdraw their money from
the surviving banks. The amount of money in circulation increased from $ 454
million in 1929 to $ 5,699 million at the end of 1932.
President Hoover tried
to stop this process. In 1931, he appealed banks to organize themselves in the
National Credit Corporation, a kind of mutual aid fund that would help banks
that are facing troubles. In 1932, the National Credit Corporation was
transformed into a “Reconstruction Finance
Corporation. The corporation, which had a capital of $ 3.5 billion, lent
public money to banks that are experiencing difficulties. This helped to slow
down the speed of the collapse of the banking system, during 1932, 40 banks
were ruined daily. Every day turned into dust $ 2 million, placed on bank
deposits. By the end of the year, the banking system had collapsed. On February
14, 1933, all banks in Detroit closed, and three weeks later, bank holidays
were announced all over the country.
After bankruptcies of
financial institutions, enterprises began to bankrupt – without possibility to
receive credits factories and any other organizations could not exist further.
The consequence of large-scale bankruptcy of enterprises was a catastrophic
increase in unemployment.
After a few months
after the stock market collapse, unemployment has taken threatening dimensions.
By March 1930, more than 4 million people were left without work. After a year,
this number doubled. The peak occurred in early 1933, when there were 16
million unemployed in America. Approximately 23% of the working-age population
of the United States was left without means of existence.
The Great Depression
changed the social appearance of America. If the workers who subsisted
“from paycheck to paycheck” lost their earnings, then the middle
class suffered the loss of all their savings and work besides it. Middle
Americans were rapidly getting poor. By the end of the third year of the Great
Depression, the middle class was on the verge of extinction. Yesterday’s
“white-collar” traded with trays of apples and worked as a bootblacks.
The homeless were pleased for the benefit of being at least a day in prison to
get shelter and some food.
Even the wealthiest
Americans had to tighten their belts. Everywhere the electricity was turned
off, Conrad Hilton closed whole floors in his hotels and switched off the
phones in rooms to save on them at 15 cents a month. The company Bethleem
Steel, fired 6,000 workers after evicted them from the houses that they built,
and then demolished these houses in order not to pay taxes on real estate.
In the early years of
the Great Depression, America’s economic growth declined by 31%. The US
industrial production fell by almost 50%, while the prices for agricultural
products fell by 53%. The threat of famine in the United States was real. This
threat spread in large industrial centers, and in most of the agricultural
areas, because about 10 states, in addition to the decline in agricultural
production, were struck by a powerful drought. As a result, it became
impossible in these states not just to produce agricultural products but also
to live. The population moved to more wealthy areas.
Citizens had no choice
but to go to demonstrations and protests. The most resonant demonstration
was the so-called “The Ford Hunger March” it is also
sometimes called «Ford Massacre» in Detroit in 1932, when dissatisfied
employees of the Ford plant, who were left without work were expressing
dissatisfaction. Police and private security of Henry Ford opened fire on the
protesters, whose victims were four people, and more than sixty workers were
injured. Reconstruction Finance Corporation had to lend $ 300
million to the states to fight unemployment. However, the
“non-targeted” use of money led to the fact that the corporation
allocated only $ 30 million to the states for the payment of unemployment
Every major currency
left the gold standard during the Great Depression.
Great Britain, Japan,
and the Scandinavian countries left the gold standard in 1931. Other countries,
such as Italy and the U.S., remained on the gold standard into 1932 or 1933,
while a few countries in the so-called “gold bloc”, led by France and
including Poland, Belgium and Switzerland, stayed on the standard until
According to analysis, the earliness with which a country left the gold
standard reliably predicted its economic recovery. For example, Great Britain
and Scandinavia, which left the gold standard in 1931, recovered much earlier
than France and Belgium, which remained on gold much longer. Countries such as
China, which had a silver standard, almost avoided the
depression entirely. The connection between leaving the gold standard as a
strong predictor of that country’s severity of its depression and the length of
time of its recovery has been shown to be consistent for dozens of countries,
including developing ones. This partly
explains why the experience and length of the depression differed between
Great Depression in Europe
The crisis quickly
spread to other countries, primarily Britain and Germany, France, bound by
mutual financial obligations with the United States. The collapse of the New
York Stock Exchange marked the beginning of a decade-long economic recession
that affected all industrialized countries in Western Europe.
The industrial regions
of Britain suffered immediately very strongly, as the demand for British
products vanished. By the end of 1930, unemployment had risen from 1 million to
2.5 million, while exports had declined by 50%. In 1933, 30% of Glasgow
residents were unemployed. Due to the significant decline in heavy industry,
unemployment in some cities reached 70%. The National Hungry March of 1932 was
the largest of many hungry marches that took place in Great Britain during the
1920s and 1930s. Approximately 200 thousand unemployed men were sent to labour
continued to operate until 1939.
In conjunction with
other anti-crisis measures by the end of 1933. England managed to achieve a
stabilizing effect. This is mainly due to the use of the UK’s advantages in
relations with other countries and a tough domestic economic course.
Already in 1934. the
rigid budgetary policy of economy starts to soften a little, as evidenced by
the growth of wages, the restoration of unemployment benefits, the reduction of
the income tax and other measures that helped to reduce social contradictions.
Crisis in Germany, was
particularly acute. This was primarily since its economy was entirely dependent
on foreign investment, which began to decline sharply from 1929, and in 1932 as
a result of the elimination of the Young Plan(of the plan of reparation
payments) generally disappeared. In this year crisis reached its culmination.
fell by 40%. Foreign trade fell by 60% (2.5 times). About half of all employed
in the national economy turned out to be unemployed. Only 20% of them received
unemployment benefits. The ruin of peasant farms began. There was a collapse of
In the years of the
crisis, social contradictions worsened, especially since the anti-crisis acts
taken by the government had an anti-work orientation: wages were reduced,
unemployment benefits were eliminated, a military regime was established in
The crisis in industry
was accompanied by an agrarian crisis: agricultural production fell by 40%.
Revenues of peasants were reduced almost twice, thousands of households were
sold for debts. Foreign economic relations were disrupted, the foreign trade
turnover decreased by 66%. The economy of France was thrown back to the level
of the late 19th century. The reduction in production caused huge unemployment.
Wages decreased (by 20%). A wave of strikes and demonstrations of workers swept
In the USSR the years
of the Great Depression coincided with the period of dekulakization and famine.
However, isolated from the world, the Soviet economy did not feel a significant
impact of the economic recession. At first glance, it looked like confirmation
of Marx’s theory of crises and contributed to the spread of communist and
socialist views in the world. When the Soviet trade mission in New York
announced 6 thousand vacancies, it received 100 thousand applications.
The first 100 days of
Roosevelt’s presidency were marked by intensive law-making activity. Measures
to overcome the Great Depression, undertaken by the Government of the United
States of America, were called the ” The
New Deal”. Reform began with the rescue of the banking system. Almost 10
days the US banks did not work. The
new president of the United States, Franklin Roosevelt, saw no alternative but
a new economic and political course, the main essence of which was to increase
government intervention in the economic and social life of the country.
In order to improve the
situation, a number of important laws were adopted. One of the most important
was the Federal Deposit Insurance Corporation on June 16, 1933. Commercial
banks were forbidden to work with securities, this right was received by
specialized financial organizations – thereby reducing the risks to which
depositors of the bank were exposed.
step for the unemployed came in the form of the Civilian Conservation Corps
(CCC), a program enacted by Congress to bring relief to young men between 18
and 25 years of age. The CCC was run in a semi-military style and enrolled
jobless young men in work camps across the country for about $30 per month.
About 2 million young men took part in this program during the 193Os.
Due to the law of the restoration of industry in various fields
of it laws of fair competition were adopted which fixed prices for products,
production levels, and determined sales markets.
May 13, 1933, Congress
passed the Agricultural Adjustment Act (AAA) to provide economic relief to
farmers. The AAA had a core to plan to raise crop prices by paying farmers a
subsidy to compensate for voluntary cutbacks in production. This law allowed to
increase prices for agricultural products.
Before the new
presidential elections, the Law on Social Insurance was adopted. Insurance was
provided for old age (pension) and unemployment (benefits).Thanks to the broad
support of the liberal democratic forces, FD Roosevelt was elected president
for a second term. The amount of public works has increased, the number of
people receiving benefits has enlarged. In 1938, the Fair Labor Standards Act
was adopted. The average length of the working week was set at 44 hours, child
labor was finally banned.
On March 6, President
Roosevelt declared a state of emergency in the country and closed all the
banks. They were divided into three groups: first “healthy” group
were opened after holidays, the second – banks, which, with the help of the
state, could work further, the rest were liquidated. The exchange of banknotes for gold was stopped.
The first 100 days of
Roosevelt’s presidency were marked by intensive legislative activity. Congress
authorized the creation of the Federal Deposit Insurance Corporation and the
Federal Emergency Management Administration, which was established by the Law
on the Restoration of the National Economy of July 16, 1933.
An important stage in
the fight against the Great Depression of the United States was the
organization of public works. At least 3 million unemployed Americans were
employed at the same time. The main areas of activity here were the development