The Great Depression

Mr. PeacockOctober 2014

Ms. Mosesso’s 9 Honors

Basic Economic Concepts

GDP:- Abbreviation for “Gross Domestic Product,”

which is the value of all finished goods and services produced within a country/economy/sector during a given time

- Commonly used as a means of measuring the economic performance of a country, for example the US’s GDP was $16.8 trillion for the year 2013

Basic concepts (cont.)

Commodities: - A marketable item produced to meet the

needs or demands of a population, commonly known as “goods and services”

Basic concepts (cont.)

Inflation: - A sustained increase in the price level of goods

and services within an economy over a period of time

- The “real value” of a currency decreases, meaning that a single denomination of currency can buy fewer goods

Basic concepts (cont.)

Deflation: - A decrease in the general price level of goods

and services within an economy over a period of time.

- The “real value” of a currency increases, meaning that a single denomination of currency can buy more goods.

- Deflation typically exacerbates the issues of a recession.

Basic concepts (cont.)

Recession: - A period of economic contraction, seeing a

general slowdown in economic activity. - This is indicated by a decrease in the GDP,

investment spending, and inflation.- This slowdown can lead to a sharp rise in

unemployment.

Basic concepts (cont.)

Depression: - A sustained, long-term downturn in economic

activity, which is considered to be more severe than a recession.

- Indicated by a sharp increase in unemployment, the collapse of the banking sector, breakdown of international trade, and varying fluctuations of currency (usually associated with inflation).

The Beginnings of the Great Depression

- A constant decline in stock prices on the New York Stock Exchange (NYSE) from September 4, 1929 would lead to the eventual stock market “crash” of October 29, 1929, referred to as “Black Tuesday.”

The Immediate Impact

- A 48% decline in industrial production- A 32% decline in the price of agricultural

goods- A 70% decline in foreign trade- A 607% spike in unemployment (this

translates to an unemployment rate of about 25%)

Statistics from Blum’s The European World: A History

US GDP from 1910-1960

The International Impact

The Causes of the Great Depression

- Even today there is no general agreement on the “true” causes of the Great Depression, as there is a major disparity between the assertions of both historians and economists.

- The prevailing, popular belief is that Depression was triggered by the 1929 stock market crash, and was compounded by the deflation in the price of commodities, declines in demand, and the breakdown of the international trade.

Causes (cont.)

- High rates of consumer debt, poorly regulated markets, and the lack of “high growth” new industries played a major role in creating the recession which preceded the outbreak of the Depression.

- Construction, agriculture, shipping, mining, logging, and industry were the most effected economic sectors.

- The “worst” period of the Depression was from the winter of 1932 to the spring of 1933.

Causes (cont.)

The Keynesian/Institutionalist Position - Based on John Maynard Keynes

“demand driven” theories of macroeconomics, advocates of this position argue that the Depression stemmed from the loss investor confidence in both commodity and investment spending.

Causes (cont.)

The Keynesian/Institutionalist Position - This severe decline in spending was

exacerbated when investors began to panic over the beginning of a sharp deflationary trend, causing them to withhold from investing in the market as prices dropped.

- This was done in the hope of earning greater buying power as currency gained an increased “real value.”

Causes (cont.)

The Monetarist Position- Proponents of this stance argue that the Great

Depression began as an ordinary recession; however, poor fiscal policies on the part of the national government caused the situation to spiral out of control.

- The onus of these poor decisions is often placed on the Federal Reserve, which worked to reduce the available money supply in a bid to prevent inflation.

FDR and The New Deal

New Deal Video

Inauguration Video

“Alphabet Soup”

The Dust Bowl

The Dust Bowl

- Brought about by a multi-year drought and the destruction of the native prairie ecosystem.

- Led to the near collapse of American agriculture in the Midwest, with the “panhandle” regions of Texas and Oklahoma being affected the most.

- Affected roughly 100,000,000 acres of land.

The Dust Bowl (cont.)

- The transition of dry grassland into arable land over the extent of 70 years eliminated the “virgin” layer of topsoil and protective, deep-rooted prairie grasses which kept this soil in check.

- This gradual degradation was exacerbated with the on set of mechanized agriculture at the beginning of the Twentieth century.

The Dust Bowl (cont.)- High winds would lead to the

formation of dust storms, referred to as “Black Blizzards,” which whipped up loose topsoil, blanketing both farms and cities alike throughout the Midwest with a thick layer of dust.

- The largest of these storms occurred on April 14, 1935, which is now referred to as “Black Sunday.”

Recovery

- During the opening “Hundred Days” of Roosevelt’s first term attempts were made to curb both the environmental and economic impact of the Dust Bowl.

- Many of these measures focused on stemming the further erosion of topsoil in the region, which led to the creation of massive “shelterbelts” meant to limit wind velocity.

Okies and the Western Migration- The Great Depression

created a demographic crisis in the American Great Plains and South, as farmers from Oklahoma, Texas, Arkansas, and Missouri fled both the economic and ecological disasters of the Depression years.

Okies (cont.)

- The destination for many of these displaced farmers was the Central Valley of California, where they sought work as farm hands and unskilled laborers.

- By 1937 approximately 15% of the population of Oklahoma had emigrated to California.

The Migration (cont.)

- Additionally, many first generation immigrants returned to their home countries during the Depression, and a number of American citizens emigrated to Canada, Australia, and South Africa, seeking to escape the financial ruin of this period.

The End of the Depression

- The modern historical view asserts that the Depression ended with the start of the Second World War in Europe, claiming that the massive increase in government spending during the war played a major role in the recovery process.

The End (cont.)

- Due to the demands of war production, unemployment fell to a low of 10% and by the end of the war instances of “underemployment” became more commonplace.

- Government war expenditures double economic growth rates from 1941-1945, thereby ending the effects of the Great Depression.

WWII Video