Great Depression

Which were the main causes of the Great Depression?

Period of rapid economic decline and crisis in the United States, 1929-39, characterized by immense unemployment and starvation, the effects of which were experienced globally. This interval of business degeneration was not the first in American history to carry the name "Great Depression"; the period from 1873 until 1897 was also so named and was marked by increases in unemployment. In many ways, the depression began years before the U.S. stock market crashed in October 1929; agricultural prices had been going steadily downhill for the entire decade (except for a slight uptick from 1924-25), making an already bad situation worse on America's farms and culminating in the Dust Bowl of the 1930s (Basingstoke, 23-30). During the free-spending 1920s, the U.S. government started down the protectionist road by enacting several tariffs, including the Fordney-McCumber Act and, in the 1930s, the Smoot-Hawley Tariff. Spending by the American people, without a comparable rise in wages, also led to a recession. But what may have really been the circumstance that caused the whole house of cards to fall was rampant speculation in the stock market. The Stock Market Crash, which came on October 24, followed by several days of frenzied selling, shocked the world. The U.S. government seemed frozen by the crisis; President Herbert Hoover refused to intervene, believing the fundamentals of the economy to be sound (Bernanke, 55-61).

As the emergency worsened, unemployment shot up, the gross national product collapsed, and the electorate's mood darkened. The passage of Smoot-Hawley, and the decision by the British to withdraw from gold backing for the pound, seemed to push the world deeper into depression. The end of reparations payments and the failure of banks in the United States and Europe exacerbated the distress. Industrial output in the United States alone shrank 10 percent a year from 1929 to 1932.

By 1932, industrial stocks had lost 80 percent of their value from just two years earlier. That year, New York Governor Franklin D. Roosevelt ran for president. Roosevelt had tackled the depression in New York with a series of measures intending to aid the unemployed and restart the economy. On his platform of giving the American people a New Deal, Roosevelt was elected as president in 1932. He went to work right away, calling in his inaugural address for emergency powers to combat the depression. He closed banks and forced Congress to enact the National Recovery Act to halt price slides, and employment programs to put the nation back to work. And although the Supreme Court struck down key parts of this program as unconstitutional on Black Monday, Congress enacted legislation tailored to fit the Court's narrow definition of constitutionality. The depression did not end until 1941, when prices and wages were back to their pre-1929 levels.

Apart from historical description of the events around the Great Depression, the main focus of the literature is on the causes, firstly of the recession and secondly of the subsequent recovery. Under the impact of ...