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The '''Great Depression''' was a severe, worldwide economic downturn which lasted from 1929 until around the beginning of [[World War II]] in the early 1940s.
The '''Great Depression''' was a severe, worldwide economic downturn which lasted from 1929 until around the beginning of [[World War II]] in the early 1940s.
In the United States (and in most other countries), the Depression had a number of very grave symptoms:
* GDP fell drastically, with declines of 30-50% in most countries.
* Prices for commodities like crops, petroleum, raw materials and coal fell very sharply. This was '''deflation''' and it made the burden of debt higher and sabotaged long-term planning.
* Unemployment soared, with the highest rates in heavy manufacturing. It reached 20-30% in major countries.
* Wage rates did NOT fall sharply, but hours per week of full-time workers fell. Workers were very reluctant to quit their jobs to look for a better one.
* Older workers without jobs were rarely hired; if they had jobs they delayed retirement.
* Teenagers had a very difficult time finding a first job; many stayed longer in school.
* Many men who were the breadwinner lost that role; many deserted their families and went on the road.
* Thousands of small banks in the U.S. closed--but none in Canada or Britain.
** When a bank closed its assets were sold off, and (in the U.S.) depositors after a few months received on average 85% of their deposits.
* Banks refused to lend money, and put their assets in safe government bonds.
* Farm income plunged more than half. Worst hit were export crops such as wheat, tobacco, and cotton.
* World trade (imports and exports) fell by three-fourths. In the U.S. imports and exports also fell but they were not large to begin with. Other countries were hurt much worse in this sector.
* Governments expecting the downturn to be short at first increased spending on public works, but soon ran out of money.
* Tax revenues for national, state and local governments fell sharply. Governments raised tax rates, which made it worse.
* Mortgages were foreclosed at record rates.
* Apartment owners often could not collect on rents; many went bankrupt.
* Private construction --both housing and commercial--plummeted, but public construction went up.
* Politically there was a widespread loss of faith in democracy; many countries turned to authoritarian regimes or dictatorships.
* The political results were negative for governments in power. In Britain this hurt the Labour party; in the U.S. it hurt the Republicans; in Canada it hurt the Liberal party.
==Causes==
==Causes==
Advocates of different economic systems have traded blame for the depression. The search for causes is important for two reasons. At the time it determined who was to blame and indicated what remedies were needed. The political realignment of the [[New Deal Coalition]] could take an anti-business tone because bankers were in bad odor in 1933 (just as they are in 2009).
Advocates of different economic systems have traded blame for the depression. The search for causes is important for two reasons. At the time it determined who was to blame and indicated what remedies were needed. The political realignment of the [[New Deal Coalition]] could take an anti-business tone because bankers were in bad odor in 1933 (just as they are in 2009).
As Schumpeter put it, policy does not allow a choice between depression and no depression, but between depression now and a worse depression later: "inflation pushed far enough [would] undoubtedly turn depression into the sham prosperity so familiar from European postwar experience, [and]... would, in the end, lead to a collapse worse than the one it was called in to remedy." For "recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another [worse] crisis ahead"
As Schumpeter put it, policy does not allow a choice between depression and no depression, but between depression now and a worse depression later: "inflation pushed far enough [would] undoubtedly turn depression into the sham prosperity so familiar from European postwar experience, [and]... would, in the end, lead to a collapse worse than the one it was called in to remedy." For "recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another [worse] crisis ahead"
This doctrine--that in the long run the Great Depression would turn out to have been "good medicine" for the economy, and that proponents of stimulative policies were shortsighted enemies of the public welfare--drew anguished cries of dissent from those less hindered by their theoretical blinders. British economist Ralph Hawtrey scorned those who, like Robbins and Hayek, wrote at the nadir of the Great Depression that the greatest danger the economy faced was inflation. It was, Hawtrey said, the equivalent of "Crying, 'Fire! Fire!' in Noah's flood."
This doctrine--that in the long run the Great Depression would turn out to have been "good medicine" for the economy, and that proponents of stimulative policies were shortsighted enemies of the public welfare--drew anguished cries of dissent. British economist Ralph Hawtrey scorned those who, like Robbins and Hayek, wrote at the nadir of the Great Depression that the greatest danger the economy faced was inflation. It was, Hawtrey said, the equivalent of "Crying, 'Fire! Fire!' in Noah's flood."
[[John Maynard Keynes]] also tried to bury the liquidationists in ridicule. Later on [[Milton Friedman]] would recall that at the Chicago University where he went to graduate school such dangerous nonsense was not taught--but that he understood why at Harvard-where such nonsense was taught-bright young economists might rebel, reject their teachers' macroeconomics, and become followers of Keynes. ''Friedman thought that Keynesianism was wrong--but not crazy.'' On analyst has commented, "the answers that Keynes produced were good enough for people to think they were right. But all he really did was give an aspirin for a brain tumor. It dulled the pain only slightly but enough to stop people looking for real answers....It might even be argued that, had the world econmomy recovered in the early thirties, [[Hitler]] might never have been able to appeal to German poverty, and [[World War II]] might also never have happened." <ref> Harry Schultz, ''Bear Market Investment Strategies'', Dow Jones-Irwin Co., 1981, pg. 215.</ref>
[[John Maynard Keynes]] also tried to bury the liquidationists in ridicule. Later on [[Milton Friedman]] would recall that at the Chicago University where he went to graduate school such dangerous nonsense was not taught--but that he understood why at Harvard-where such nonsense was taught-bright young economists might rebel, reject their teachers' macroeconomics, and become followers of Keynes. ''Friedman thought that Keynesianism was wrong--but not crazy.'' On analyst has commented, "the answers that Keynes produced were good enough for people to think they were right. But all he really did was give an aspirin for a brain tumor. It dulled the pain only slightly but enough to stop people looking for real answers....It might even be argued that, had the world econmomy recovered in the early thirties, [[Hitler]] might never have been able to appeal to German poverty, and [[World War II]] might also never have happened." <ref> Harry Schultz, ''Bear Market Investment Strategies'', Dow Jones-Irwin Co., 1981, pg. 215.</ref>