The document examines whether the Great Depression was an inevitable consequence of the Wall Street Crash of 1929. It analyzes arguments that the Depression was caused by monetary policies of the Federal Reserve in the late 1920s that contracted the money supply, as well as the continuation of the gold standard. However, it also discusses critiques of these monetary arguments and argues that while monetary factors contributed, the Depression also stemmed from pre-existing poor conditions in the global and American economies. It concludes that the crash was not the sole trigger but rather interacted with other economic issues, policies, and psychology to produce the prolonged Depression of the 1930s.
The Great Depression - Presentation (Macroeconomics Perspective)Arjun Parekh
This brief presentation on 'The Great Depression' has been made from the point of view of understanding Macroeconomic factors that played an important role.
Bubble Spotting - The Great Wall Street Crash of 1929Benjamin Van As
The roaring twenties (1920's) ended with a bang - the 1929 Great Wall Street Stock Market crash wiped out many investors, and had an impact that could be felt around the world. This presentation (which forms part of a larger series on Market Bubbles) gives a short overview on what happened.
http://bubblespotting.blogspot.com/
The Great Depression - Presentation (Macroeconomics Perspective)Arjun Parekh
This brief presentation on 'The Great Depression' has been made from the point of view of understanding Macroeconomic factors that played an important role.
Bubble Spotting - The Great Wall Street Crash of 1929Benjamin Van As
The roaring twenties (1920's) ended with a bang - the 1929 Great Wall Street Stock Market crash wiped out many investors, and had an impact that could be felt around the world. This presentation (which forms part of a larger series on Market Bubbles) gives a short overview on what happened.
http://bubblespotting.blogspot.com/
The Great Depression (1929-39) was the deepest and longest-lasting economic downturn in the history of the Western industrialized world. In the United States, the Great Depression began soon after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors. Over the next several years, consumer spending and investment dropped, causing steep declines in industrial output and rising levels of unemployment as failing companies laid off workers. By 1933, when the Great Depression reached its nadir, some 13 to 15 million Americans were unemployed and nearly half of the country’s banks had failed. Though the relief and reform measures put into place by President Franklin D. Roosevelt helped lessen the worst effects of the Great Depression in the 1930s, the economy would not fully turn around until after 1939, when World War II kicked American industry into high gear.
this is one of the most demanding and soughted ppt searched by students .i have put many intellctual insights about reasons of great depression 1930 that not only falsified the economic classical theory of jb says but also noviated the birth of new econmical perspective.
The Great Depression (1929-39) was the deepest and longest-lasting economic downturn in the history of the Western industrialized world. In the United States, the Great Depression began soon after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors. Over the next several years, consumer spending and investment dropped, causing steep declines in industrial output and rising levels of unemployment as failing companies laid off workers. By 1933, when the Great Depression reached its nadir, some 13 to 15 million Americans were unemployed and nearly half of the country’s banks had failed. Though the relief and reform measures put into place by President Franklin D. Roosevelt helped lessen the worst effects of the Great Depression in the 1930s, the economy would not fully turn around until after 1939, when World War II kicked American industry into high gear.
this is one of the most demanding and soughted ppt searched by students .i have put many intellctual insights about reasons of great depression 1930 that not only falsified the economic classical theory of jb says but also noviated the birth of new econmical perspective.
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Great Depression of the American Economy
Great Depression was an austerely down trend in the economic activity of the world in the decade foregoing World War II. The time duration or rather the time for the Great Depression Was not fixed. It varied from countries to countries. However, in many countries it was experienced in the year 1930 and it lasted till the midst of 1940. The time duration for the Great Depression was for a longer period of time and it was considered the longest as well as the deepest depression of the twentieth century
The beginning point of the Depression was the fall or the crash in the stock market in U.S. The fall in the prices of stock began in the year 1929 on 4th September and the stock market crashed on the 29th of October in the year 1929. This day was known as the Black Tuesday.
The Great Depression affected severely all the sections and the class of the society in the countries including the rich and the poor. Profit Margin and the prices of the goods and services severely dropped and if the amount of revenue and taxes collected also had a devastating fall which had severe negative effect on the economy. The level of Unemployment rose in U.S. and it was depicted that around twenty percent of unemployment rate increased in U.S. whereas, in other countries the level of Unemployment rose to thirty three percent which was the highest ever increase in the rate of the unemployment process.
All the cities around the world were suffering due to this depression and especially those cities or countries whose backbone was heavy industry, construction industries because this industry totally turned downed and halted in various countries. Due to the depression the agriculture sector was also effected as because the prices of the crop also fell to around sixty percent.
Due to unemployment the primary sector was also affected, activities such as mining, logging and cash cropping was effected a lot.
There were various causes for the depression in the year 1929. These comprised of the primary weaknesses and definite events that led to a major depression and the way in which the severe depression profused from country to country was simply devastating. According to the historians the main cause or the real reason behind the great depression was failure of the bank and the crash or the fall of the stock market. However, the various monetarist economist such as Milton Friedman, Peter Temin and Barry Eichengreen states that the major cause behind the depression was the inappropriate action considered or adopted by the US Federal Reserve and the limited supply of the money and the decision of Britain for returning of gold standard before the World War.
The activity of business and the period of Boom and depression in the business and recession are considered or rather regarded as the normal activity for the business and are considered normal. However, what are t.
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The Great DepressionThe history of the United States.docxcherry686017
The Great Depression
The history of the United States economy has its roots in the European colonization of the 16th to 18th century. The independence of the thirteen colonies was established under the frontier, ingenuity and support from France and its allies. Since then, the economy of the United States has gone through a lot, for instance, the birth and evolution of the national debt which has expanded apparently without limits. Also, it is quite fascinating to point out the fact that the America’s economy grew to be the world’s leading economic superpower, in the 20th century, and it assumed the role of the greatest financial capital of the world (Fellows & Mike 39).
However, in the years following the America’s Great Depression, the United States’ trade deficit has continued to escalate, with much of America’s massive debt is now being now controlled by China, and a transfer of power appears to be in progress. Basically, this was a colossal financial deterioration that started in the late 1929 that continued into early 1940s (Rothbard 420).
The Great Depression, and even that’s now known as Black Thursday, was such a catastrophic time, not only in American, but also for most people across the entire world. As matter of fact, it was felt in a great deal of places ranging from North America to South America, and all the way to Europe and Japan. Also, cotton farmers and bankers felt the great impacts the depression. While most economists argue that there were several contributing factors to the Great Depression, it led to the most horrible economic crisis in the history of the economy of America.
Analysis of the causes
There are several causes of the Great Depression that are believed to have been the driving forces behind the worst economic situation in the America’s history. The crash of the United States stock market in 1929 was one of most commonly known primary factors that caused the Great Depression. For instance, the US experienced a tremendous surge in stock prices in 1920, but the Federal Reserve could not defend these prices by future earnings. However, in 1928 the Federal Reserve raised interest rates in order to slow rising stock prices. Nearly 2 months after the original crash in October, stockholders had lost over $40 billion dollars (Silverman 71). Although the stock market began to recover from some of its losses, by the end of the following year, it just was not enough and America truly entered what is called the Great Depression. The crash brought on a manifold of debates that are still active in today’s US economy ((Smith 76).
Failure of banks was another cause of the Great depression. As a matter more than 9,000 banks failed in the 1930s because Bank deposits were uninsured, and thus as banks failed people simply lost their savings. Unfortunately, surviving banks stopped being as willing to create new loans because they were overly concerned about their uncertain future as well as their survival in the grueling eco ...
The Great Depression was a major monetary droop in the 1930s. Numer.docxrtodd33
The Great Depression was a major monetary droop in the 1930's. Numerous Americans lost their positions, their investment funds, and their homes. In any case, the United States was not by any means the only influenced nation. The business droop influenced the whole world. Many quality Black Tuesday, when the New York Stock Exchange slammed in 1929, as the significant reason, yet one can not disregard the way that there was not only one single factor causing this financial defeat. Most antiquarians and financial analysts concur that the securities exchange crash was only one of numerous supporters of the droop. As a general rule, it was all the more a sign that things had just turned out badly. To comprehend the Depression's causes, one must go further back. The Great Depression came about because of a blend of efficient and political causes that had been developing since months preceding the accident.
After World War I finished, American ranchers made some troublesome memories making benefits. The homestead despondency of the 1920's was a contributing financial factor to the Great Depression. Ranchers were delivering a surplus and well over what American customers were obtaining. Costs of rural items fell around 40% by 1921 and stayed low for the remainder of the decade. A few ranchers were in so much deficiency they couldn't take care of the home loan on their homestead and needed to lease the land or even leave. Harsh occasions had hit other significant pieces of the economy, also, including vitality, coal mining, railways, shipbuilding, and materials. Organizations had a lot of stock and too barely any purchasers.
Likewise, high taxes and war obligations were political reasons for the Great Depression. America had loaned cash to the United Kingdom and other
European countries in World War I
reparations. This made numerous different economies become dependent on the U.S. economy. As the United States encountered this monetary downturn, numerous different countries were influenced as America demanded reimbursement. European nations couldn't bear to reimburse their obligations. Pressures were additionally exacerbated when the Hawley-Smoot Tariff Act was passed in 1930. In view of the goals of protectionism, this demonstration raised import obligations to secure American ranchers and specialists, bringing about world exchange decrease by 66% from 1929 to 1934 and worldwide financial strain.
The 1920's were a period of incredible financial and innovative development in America. World War I had quite recently finished, and Americans were prepared to take a break from the nervousness of world legislative issues. During this time, known as the Roaring Twenties, Americans were centered around bringing in cash and having a fabulous time. Manufacturing plants worked to make weapons and ammo for the war were restored to produce purchaser items. In any case, overproduction in industry brought about a financial reason for the Great Depression. .
The presentation tells about all the aspects that led to the great economic depression in 1929. All the historical, financial and other factors are looked upon with the help of online available data.
2studEnt Economic rEviEw vol. XXXiiThe Failure of In.docxrhetttrevannion
2
studEnt Economic rEviEw vol. XXXii
The Failure of
International
Multilateralism and the
Great Depression
Melissa Barrett, Senior Freshman
Almost 90 years after its beginning, the causes of the great depression
remain contested and uncertain. In this paper Melissa Barrett attempts
to decipher the chain of effects which caused the initial deflationary
episode to propagate into a deep depression. She explains how the gold
standard monetary became a catalyst of the deflationary crisis. This was
a symptom of an inadequacy in policymakers’ toolkit of response, due
to a lack of understanding and acknowledgement of the business cycle,
and international coordination. She concludes that these key failures
which were the root of policymakers’ miserable failure to mitigate the
crisis.
Introduction
This essay will argue that the primary causes of the Great Depression were the deflationary conditions of the mid 1920s, caused mainly by incompe-
tency in monetary policy. By extension, it is my contention that the internation-
al resentment caused by deflation was a reason behind the deep severity of the
Great Depression. Furthermore, any limited response was muted by the lack of
coordination between the world’s economy, and the prevailing attitude of narrow
national interest, rather than acknowledgement of the interdependent nature of
the global economy.
Deflation was incredibly problematic during the 1920s as it caused a rise
in the real value of debts, which brought already strained creditors to breaking
point. Deflation made paying back intergovernmental debts even more unfeasi-
ble, and this exacerbated the existing strain between countries in the post war
period. This strain was further worsened by debtor nations’ unrealistic expecta-
3
Economic History
tions and so it is the case that by 1923, the French still believed that the Germans
would make their reparation payments (Kemp, 1972).This was despite the fact
that the German mark was not stabilised until 1924, after a period of hyperinfla-
tion (Zacchia, 1976). Hjalmar Schacht, President of the Reichsbank from 1923 to
1930, wrote in 1931 that ‘the French attack upon German currency … was the
seed of that ever-growing lack of confidence which today hangs over the entire
world’ (Kindleberger, 1973).
Origin of deflation
A pertinent question to pose at this point is where did these deflationary
conditions come from? I will discuss two main causes of deflation, the housing
sector in the U.S and the Gold Standard. Both causes will be related back to a
European context. A single example which illustrates the immense importance
of the U.S to the international economy is seen in the fall of U.S exports when
the Federal Reserve raised interest rates in 1927. The fall in U.S exports was due
to other countries raising their own interest rates to keep in line with the domi-
nant currency of the world, the U.S dollar(Eichengreen, 2004).This was not an
advisab.
The Great Depression slides on what caused this period to how it affected Americans lives, including Roosevelt`s new deal plan to recover America`s economy
1. 1 BrianHaines
Was the Great Depression an inevitable consequence of the Wall Street Crash?
It is guaranteed that when a student produces work that includes explaining the negative
aspects of the 1930s, particularly the rise of Hitler, they will refer to the economic hardships,
such as that of American unemployment rising to ‘25 percent’1 that depicts the Great
Depression. They will then link this directly back to the Wall Street Crash of 1929 as though
the two episodes are bound together in one large event. This essay is to examine whether this
is fair and valid. Analysing four of the focal themes that historians have provided as causing
the Depression, the 1960s argument on Federal monetarism in the late 1920s; the poor
condition of the American economy in the 1920s, the 1970s historiographical movement
towards analysis of the poor world financial condition; and lastly the psychology of
Americans after the 1929 financial collapse, this essay will argue that the Great Depression
was not an inevitable consequence of the Wall Street Crash in itself. The poor condition of
the American and global economies provided settings that were bound to cause much longer
term deterioration in world finance. The Wall Street Cash for the most part was only the
trigger for things to come. The poor conditions pre-Wall Street Crash fused with the failure of
federal economic policy and the psychology of the American people, post-the crash, to make
the Great Depression.
It was not the Wall Street Crash by itself that caused the Great Depression of the 1930s.
Instead it was the monetary policies initiated by the Federal Reserve (the central bank of
America) before and after the Great Crash that turned a recession into a long term depression.
This argument comes from the two pioneer supporters of monetarism policy for the cause of
the Great Depression- Milton Friedman and Anna Schwartz. These two historians argued that
the Federal Reserve, because of its acknowledgement in 1928 and 1929 that the American
stock market was floating too high, and was therefore inclined to collapse, wished to curb
speculation and calm things down. In their attempt to achieve this, the Federal Reserve
undertook a policy of reducing the supply of money to the American people. Naturally, this
1 ‘Monetary Policy in the Great Depression:What the Fed Did, and Why’, Federal Reserve Bank of St. Louis
Review, http://research.stlouisfed.org/publications/review/92/03/Depression_Mar_Apr1992.pdf;consulted
06/01/2014
2. 2 BrianHaines
resulted in a demand for currency from the public. However, this high demand from the
American people resulted in fear of the effects of deflation, unemployment, and lower wages.
As a result the public started to undertake hoarding. This action meant that the idea of
consumption which represents the ‘Roaring Twenties’ came to an end. Schwartz and
Friedman supported their argument by providing a figure of ‘13 per cent’2 in the reduction of
velocity of money (the frequency at which one certain currency is used to buy products
produced in nation where the currency is used). For both, this reduction in consumption
resulted in a contraction of employment and production because, the need for employees for
businesses reduced. The negative impact on the American economy, through this reduction of
wages or complete employment, spread through all sectors of society. Friedman and
Schwartz’s conclusion therefore was that the Federal Reserve far too aggressive contraction
policy, rather than the Wall Street Crash on its own, caused the Great Depression.
The monetarist argument has faced a huge amount of revision. Dietmar Rothermund claims
that ‘big government’, whereby the state has a strong involvement and influence in the
function of the national economy, did not exist in the late 1920s and early 1930s. This
argument is supported with the statistic showing that the Federal Government claimed only
‘2.5 per cent’3 of the Gross National product (the total market value of all products produced
in a certain country in a single year), whereas a larger figure of ‘7.5 per cent’4 of GDP was
claimed by local level government. This brings into doubt the willingness of the Federal
Reserve and the American government to largely influence the American economy through
contraction. This critique continues with Friedman’s most acclaimed reviewer, Peter Temin.
Temin criticises the work of Friedman and Schmitz by arguing that monetarist failure by the
Federal Reserve, through causing a contraction in the currency velocity, would have resulted
in a sudden quick spike in short-term interest rates. He further adds that if monetarist policy
had caused the contraction that eventually caused the chaos of the Great Depression then this
spike would have been exponentially large, and as a result easily noticeable. Interest levels
through the inter-war period show short-term American interest rates increased from ‘3 per
cent’5 in 1927, when the monetarists argue the contraction of money supply began, to a peak
2 Milton.Friedman, The Great Contraction 1929-1933 (Princeton University Press,1964),p. 23
3 Dietmar. Rothermund, The Global Impact of the Great Depression (Routledge, 1996),p.49
4 Dietmar. Rothermund., The Global Impact of the Great Depression (Routledge, 1996)
5 ‘Monetary Policy in the Great Depression
http://research.stlouisfed.org/publications/review/92/03/Depression_Mar_Apr1992.pdf
3. 3 BrianHaines
of ‘less than 5 per cent’6 at the end of 1929. Long-term rates, peaking in 1929 and 1932,
generally remained at a constant level of ‘about 3 per cent from 1927 and 1935.7 Temin’s
critique that interest rates did not spike does have support with these figures, and the
argument of the Great Depression being caused by monetarism contraction is weakened.
Though there are problems for the monetarist historians, their argument is still relevant.
Support for their argument is provided in the form of a graph from David Wheelock’s
work, Monetary Policy in the Great Depression (1992). Wheelock’s graph presents the level
of real GDP (the total market value of all the recognised goods and services in a single year)
and the money supply in the United States between 1900 and 1945. The 1929 crash shows a
huge drop in American GDP, which is matched with a drop in the American money supply.
This contrasts to the 1920-21 recession, which is significant because this economic bump did
not turn into depression. Though the 1921 recession created a drop in GDP, by 1923 the level
was once again on the increase. This matches a general constant of ‘3.6 billion dollars’8 kept
in circulation in the American economy. Though not showing absolute proof a direct
causation, it does show a strong correlation between keeping the American economy out of
depression whilst being in the critical period of a recession, and keeping a large supply of
money in the economy. The contraction of the American money supply after 1928 did
contribute to the Great Depression of the 1930s, but it did not cause the Great Depression in
itself.
As well as being critiqued from the 1970s, the monetarist argument has been developed by
historians in the decades since, such as Temin, Ben Bernanke and Dietmar Rothermund. This
review has rightly focused on the support for the claim that a focal part of the cause of the
Great Depression was because of the continued use of the Gold Standard in America. The
Gold Standard, which was the policy by which nations fixed their currency to the price of
gold, resulted in a strong level for each currency; and the promise of fixed international
exchange rates, which were expected to remove uncertainty in trade. The problem was that
6 Monetary Policy in the Great Depression
http://research.stlouisfed.org/publications/review/92/03/Depression_Mar_Apr1992.pdf
7 Monetary Policy in the Great Depression
http://research.stlouisfed.org/publications/review/92/03/Depression_Mar_Apr1992.pdf
8 ‘Monetary Policy in the Great Depression
http://research.stlouisfed.org/publications/review/92/03/Depression_Mar_Apr1992.pdf;
4. 4 BrianHaines
this economic policy required countries to keep interest rates at a high level, whilst keeping
the currency level to the amount of gold in the country. Bernanke particularly argues that this
forced America away from initiating expansionary economic initiatives that could have
meant the beginning of early prosperity for the United States, not depression. This modern
monetarist analysis does have weight, with data showing a comparison between nations that
were forced to leave the standard and the time it took them to start on the path towards
financial recovery. Countries, such as Britain and Japan, that left the Gold Standard in 1931
showed near immediate improvement in their economies. Directly in 1931 Japan showed
rapid increase in its industrial production, so that by 1932 it had reached its 1929 level.
Britain, though slightly slower compared to Japan, started an early recovery and reached its
pre-1929 industrial production level by 1934. The United States left the Gold Standard in
1932 and, like the other two nations, began an immediate recovery; though its late movement
off meant that its industrial production did not reach its 1929 levels even in 1937.9 However,
it must be remembered that the Gold Standard would not have caused the Great Depression
by itself. If it could have then America’s depression would have dominated the 1920s.
Rather, the other factors which united with monetarism, and particularly the Gold Standard,
to cause the Great Depression need to be analysed.
So far this essay has examined the 1960s monetarism argument and the Gold Standard
revision of the 1970s. This essay has argued that the Federal Reserve economic policy of the
late 1920s and early 1930s, and the continuation of America on the Gold Standard, were not
the sole causes of the Great Depression. Instead poor monetarist actions interacted with other
sources to cause the Great Depression. This essay is to now look at one of these other causes,
the poor condition of the American economy before the Wall Street Crash.
A group that gains large attention from historians, such as Derek Aldcroft; Christina Romer,
Reis Ronald and Brian Duignan, when revising the condition of the American economy in the
1920s is that of those involved in agriculture. These historians explained the problems in
agriculture as resulting from the effects of First World War. The conflict, resulting in nation’s
having a high demand for agricultural goods, caused high prices in this sector of America.
With belief of future prosperity, farmers took out loans to invest in more land and improved
technology for the benefit of increased production and even better incomes. The problem
9 Milton.Friedman, The Great Contraction, p. 152
5. 5 BrianHaines
arose when the post-war world did not follow this expectation, motivated by the recovery of
European and Russian agricultural production. The demand for American agriculture
reduced, and along with this the price for agricultural goods dropped ‘50 percent from June
1920 through 1921, and stayed low throughout the decade’10. With this surprising reduction
in income, farmers found it difficult to pay back the loans they had taken out, and as a result
faced economic hardship. Mark Tauger highlights this hardship in the American south, where
farmers sometimes earned only ‘14 cents a day’11. This argument is emphasised when
remembered that ‘20 per cent’12 of the American labour force was directly involved in the
agricultural industry. To have such a high percentage of people within such a weak industry
supports the idea of a weak American economy in the 1920s. Therefore it could easily be
argued that the Great Depression, for a good proportion of the American people, had already
started by the mid-1920s. This would weaken the role of the Wall Street Crash’s role as
forcing the Great Depression in the 1930s.
Barry Eichengreen presents an argument that even those in the 1920s who were not involved
in agriculture, but in the new industries, faced financial problems. There is no doubt that the
1920s marked the growth of the importance for consumer goods. This statement is supported
with the statistic of the growth of sales in vehicles. In 1919 the number of motorcars sold was
‘2 million’13. By the time of the crash in 1929 the number increased to more than ‘5
million’14. The number of trucks bought between 1920 and 1928 increased from ‘1 million’15
to ‘3 million’16. This consumer culture could mean difficulties for the economy as a whole if
the demand for consumer goods quickly declined. This argument is illustrated with a good
representation of economies: industrial production. The year 1927 showed a short stagnation
in production with only 2.6 in Logarithms, whereas 1929 showed a peak of 2.8.17 This
coincided with Henry Ford’s decision to close his automobile production line for 6 months
for preparation for the beginning of production of the Model-A. Eichengreen argues that it is
only natural that in times of uncertainty towards the economy consumers wish to take more
10Mark. Trauger, Agriculture in World History (Routledge, 2010) p.226
11 Mark. Trauger, Agriculture in World History, p.226
12 Peter. Temin., Did Monetary Forces Cause the Great Depression? (W.W. Norton & Company, 1975), p. 172
13 Barry.Eichengreen, ‘The Origins and Nature of the Great Slump Revisited’, The Economic History Review, vol.
45, no.2 (1992)
14 Barry.Eichengreen, ‘The Origins and Nature’, The Economic History Review, p.215
15 Dietmar. Rothermund, The Global Impact of the Great Depression (Routledge, 1996), p. 49
16Dietmar. Rothermund, The Global Impact, p. 21
17 Christina.D.Romer, ‘The Nation in Depression’, Journal of Economic Perspectives, vol. 7, no. 2 (1993), p. 21
6. 6 BrianHaines
care on their spending and cut back first on the things they believe are luxuries, primarily
consumer goods, whilst focusing on food goods and others that are always required.
Thus Eichengreen’s argument that the American market of the 1920s was not stable and
likely to leave to mass contraction of spending, and thus unemployment, seems a valid
one. Here the common conception of the 1920s American economy as not just strong but
booming before the crash of 1929 has been reviewed towards more of a pessimistic picture.
This argument further weakens the role that the Wall Street Crash played in making the Great
Depression an inevitable event. Instead the Great Depression is an inevitable period
generating largely from this poor 1920s financial condition. The Wall Street Crash acts as a
trigger, along with the monetarist policy, to cause the Great Depression.
Studies, particularly by Peter Fearon and Derek Aldcroft, have stopped focussing solely on
America as the cause of the Depression, and have moved to looking at the world economy as
a whole, particularly the European economies during the 1920s and into the early-1930s.
What is pictured is a more pessimistic view of the 1920s that contrasts to the ideas of
American general excitement and prosperity that generally comes to mind when thinking of
the period. Aldcroft’s focal argument is that the Great Depression was going to happen once
the crash of 1929 occurred because of the continued policy of contraction; but more
importantly because of the fragile condition of the world economies before 1929. For
Aldcroft, there was not as big financial boom as has traditionally been argued. He supports
this claim with high figures of ‘2.5 million’18 unemployed respectably in Britain, Germany
and Italy at the end of 1925, and the inability for European nations to keep inflation low.
Additionally, France, as an example, had structural problems with ‘1:3 of Frenchmen’19
linked to agricultural work but receiving only ‘18 per cent’20of the total national income,
suggesting that too many resources were focused towards too low productive areas. Even
where there was slight prosperity it was, for the most part, fragile, emphasising the part that
borrowing of American money to the rest of the world took. In total America, by the
beginning of the 1930s, credited ‘3.3’21 billion dollars to economically desperate countries,
the German Republic being the most famous taking ‘800 million marks’22 throughout the
1920s, however there were other countries. Hungary, is an example, that in 1928 produced
18 Derek. Aldcroft, From Versailles to Wall Street, 1919-1929 (Allen Lane, 1977),p. 101
19 Derek. Aldcroft, From Versailles, p. 4
20 Derek. Aldcroft, From Versailles, p.10
21 Derek. Aldcroft, From Versailles, p.217
22 Eberhard. Kolb, The Weimar Republic (Routeledge, 1984), p. 60
7. 7 BrianHaines
out payments on capital services of ‘40 per cent’23 of the total capital inflow, and Estonia
where the figure was ‘70 per cent’24. Aldcroft’s well-founded central conclusion is that the
borrowing to large parts of the world in the 1920s, which did help Europe, for example in
increasing its industrial production after 1925 by more than ‘20 per cent’25, created ‘an
illusion of soundness and stability which did not exist in reality.’26The world was secure, and
the cracks kept hidden, as long as the borrowing continued. With the economic failure in
1929, when lending was forced to cease, the foreign economies were left to fight for
themselves, whilst repaying all they had borrowed from America. Naturally this caused
situations such as in Germany, where unemployment enlarged to ‘5 million’27 by 1931. This
process was generally the same for many other countries in Europe.
This movement from solely looking at the events of the inter-war period in America to
looking more at the global economic conditions has again revaluated the traditional,
responsible, part that the Wall Street Crash has played . Instead a larger picture of long-term
poor finance seems valid for making the Great Depression near to inevitable. The crash of
1929, for the most part, represents only the possibility as a trigger for these poor conditions to
take effect, and for the Great Depression to take hold.
So far this essay has examined three themes around what caused the Great Depression, of
monetarist policy around the Wall Street Crash, the fragile condition of the American
economy in the 1920s and the temperamental world economy in the 1920s. For the most part
this essay has focused on those in power and their responsibility for the Great Depression,
and weakened the role that the Wall Street Crash had in making the Great Depression an
inevitable event. Despite this, it must not be forgotten that individuals do have some part to
play in financial crisis. This last section will examine the psychology of the American people
after the 1929 crash, and its importance for causing the Great Depression. Reis Ronald
provides a statistic that ‘9 out of 10 Americans’28 were not affected directly by the 1929
23 Derek. Aldcroft, From Versailles, p.254
24 Derek. Aldcroft, From Versailles, p.254
25 Derek. Aldcroft, From Versailles, p.188
26 Derek. Aldcroft, From Versailles, p.245
27 Anthony. Nicholls,Weimar and the Rise of Hitler (PalgraveMacmillan,1969),p.151
28Reis. Ronald,The Great Depression and the New Deal: America’s Economy in Crisis, (Chelsea House
Publications,2011), p.21
8. 8 BrianHaines
financial stock collapse, because they did not own stock. Rather, as Duignan argues, it was a
fear by the public to spend. The crash, though not largely affecting people directly, gave
people shock and fear for the security of their prosperity. As a result, people wished to hold
onto their wealth and this led to a decline in demand of goods, employment, and production.
This in turn produced more fear, and a negative economic spiral developed. This argument
does have strength with Schwartz’s data showing industrial production, money income, real
income and consumerism levels all dramatically decreasing in early 1930. This suggests that
the Wall Street Crash was, though only a part of a combination of conditions that resulted in
the Great Depression, still a cause.
This essay has examined the main historiographical debates over what caused the Great
Depression during the 1930s. First looking at the 1960s monetarist argument of Friedman and
Schwartz, then analysing the conditions of the American economy and the global economy,
this essay finished with a look at the more traditional view of the Great Depression: that it
was caused by a lack of consumerism resulting from the Wall Street Crash. The argument
produced is that fragility in both the 1920s American and European economies, alongside the
lack of spending from the psychology of fear, and the Federal Reserve financial policy, made
the perfect combination for a depression that would impact America, and the world, in the
1930s. The Great Depression would not have occurred without all these conditions working
together; alone they were too weak of an influence. The key was when, at the end of 1929
and until the early 1930s, they were all included.
9. 9 BrianHaines
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Aldcroft. Derek, From Versailles to Wall Street, 1919-1929 (Allen Lane, 1977)
Bernanke. Ben, The Macroeconomics of the Great Depression: A Comparative Approach
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1986)
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Perspectives, vol. 7, no.2 (1993)
10. 10 Brian Haines
Trauger. Mark, Agriculture in World History (Routledge, 2010)
‘Causes of the Great Depression’, Forthcoming in the Encyclopaedia Britannica,
http://elsa.berkeley.edu/~cromer/great_depression.pdf;consulted 06/01/2014
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Bank of St. Louis Review,
http://research.stlouisfed.org/publications/review/92/03/Depression_Mar_Apr1992.pdf;consulted
06/01/2014