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Historically Speaking

Historically Speaking: The Great Depression of the 1930s

By Tom Morrow

My parents lived through the Great Depression – a world-wide event that captivated the entire decade of the 1930s. My parents grew up in separate small farming communities in Iowa. My Dad always said, “We had plenty to eat, but we were like everyone else in town —  we didn’t have any money.”

The Great Depression began in August 1929, when the United States economy first went into an economic recession. Although the country spent two months with declining national gross domestic product (GDP), it was not until the Wall Street Crash in October 1929 that the effects of a declining national economy were felt, and a major worldwide economic downturn ensued.

The usual explanations as to “why” the depression occurred 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, all interacting to create a downward economic spiral of reduced spending, falling confidence and lowered production.

Industries that suffered the most included construction, agriculture as dust-bowl conditions persisted in the agricultural heartland. Also, shipping, mining, and logging as well as durable goods like automobiles and appliances that could be postponed. The nation’s economy hit bottom in the winter of 1932–33.

The Great Depression caused major political changes in America. Three years into the depression, President Herbert Hoover, who was widely blamed for not doing enough to combat the crisis, lost the presidential election of 1932 to Franklin Delano Roosevelt in a landslide. 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 of people for the first time in American history. For example, some immigrants went back to their native countries, and some native U.S. citizens went to Canada, Australia, and South Africa. It also resulted in the mass migration of people from badly hit areas in the Great Plains and the South to places such as California and the North, respectively. Racial tensions also increased during this time. By the 1940s immigration had returned to normal, and emigration declined.

By 1940, industry and the military started to build up for World War II, essentially ending the Great Depression.

The memory of the Depression 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.

Banks began to fail in October 1930 (one year after the crash) when farmers defaulted on loans. There was no federal deposit insurance during that time as bank failures were considered quite common. This worried depositors that they might have a chance of losing all their savings, therefore, people started to withdraw money and changed it into currency. As deposits taken out from the bank increased, the money supply decreased because the money multiplier worked in reverse, forcing banks to liquidate assets (such as call in loans rather than create new loans). This caused the money supply to shrink and the economy to contract and a significant decrease in aggregate investment. The decreased money supply further aggravated price deflation, putting further pressure on already struggling businesses.

The U.S. Federal Government’s commitment to the gold standard prevented it from engaging in expansionary monetary policy. 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.

For the rest of their lives our parents and grandparents who lived through the Great Depression often were frugal to the point of “hoarding” many simple, material items. Nothing was thrown away. It was that way for millions of Americans during the depressed thirties.

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