THE GREAT DEPRESSION

By :Anubha Mathur( 10810008)Deep Pathak(10810020)Rishi Arora(10810051)

What ?The decade of the 1930s saw the Great Depression in the United States and many other countries. During this decade large numbers of people lived in poverty, desperately in need of more food, clothing, and shelter. Yet the resources that could produce that food, clothing, and shelter were sitting idle, producing nothing.

When ? From 1929 – late 1930’s

Why ?

Attributed to a number of reasons

The period that is called the Great Depression contained two periods of recession

The first began in 1929 to 1933

In the first recession the value of goods and services that the economy produced fell by about 42%

Recovery in the four years that followed was slow and not completed by the time the second recession began

Second Recession lasted 13 months from May 1937 - June 1938, output fell by 9%

Flow of Events

On Tuesday, October 29, 1929, the US stock market crashed

Many banks had also invested large portions of their clients' savings in the stock market and were forced to close

People rushed to banks that were still open to withdraw their money. This massive withdrawal of cash caused additional banks to close.

Having lost much of their own capital in either the Stock Market Crash or the bank closures, many businesses started cutting back their workers' hours or wages.

consumers began to curb their spending, refraining from purchasing such things as luxury goods

This additionally caused businesses to cut back wages or, more drastically, to lay off some of their workers.

Initially, the Banking sector was the worst hit

Bank Suspensions in the US

Year Suspensions

1929 659

1930 1350

1931 2293

1932 1453

1933 4000

1934 57

Source : Banking and Monetary Statistics, Board of Governors of the Federal Reserve System, 1943, pages 18 and 283.

Causes

Demand Driven theories• Large scale loss led to sudden reduction in

consumption and investment.• Due to panic and Deflation people avoided

losses by keeping off markets.• Holding money became profitable as prices

decreases day by day.

Inequality

• Some Economists believe that the US economy produced more as compared to consumption because consumers donot have enough income.

• Global Over-investment in heavy industry capacity compared to wages and earnings from independent business.

• The economy was overbuilt, and new factories were not needed Fed should have started large construction project.

Monetary policies• Federal reserve allowed money supply to reduce

by 1/3rd from 1929-1933.• Federal Reserve sat ideally while large banks like

New York Bank of US collapsed which causes more panic and thus widespread run on local banks.

• Due to Federal reserve act which require 40% gold backing of notes issued which during panic is redeemed for Fed gold causing further reduction in credit as Fed had hit its limit on allowable credit.

Economic Effects(Contd.)

Bank Failures• From 1929 to 1932, around 10,000 banks

failed which comprised of 40 percent of the 1929 total.

• About $2 billion deposits were lost during the same period.

• Bank failures and deposit losses were responsible for the contracting money supply.

Breakdown of International Trade

• Sharp Decline in Foreign Trade affected countries dependent on Exports.

• American Tarrif act which rises duties from 25 to 50%.

• American exports declined from $5.2billion in 1929 to $1.7bn.

• Collapse of exports made farmers to default loans as exports contains a huge share of farm harvests.

Increasing Debt and Deflation• Low margin requirements for buying stocks.• Banks began to fail as debtors stated defaulting and

depositors withdraw deposits.• Outstanding debt become heavier due to decrease in

price and income levels by 20-50% and debt remained at same dollar amount.

• Future Profits looking poor, capital investment and construction slowed or completely ceases.

• Value of cash started increasing than declining asset holdings.

• Banks stopped lending and this all processes turned 1930 recession into a 1933 great depression.

Effects of Great Depression

• Economic• Political• Social• Effects on other Countries

Economic Effects

•Mass Unemployment.•Massive fall in Industrial Production•Exports Fell Drastically•GNP plummeted by 30% in 4 years.

Economic Effects(Contd.)

Economic Effects(Contd.)Industrial Production

Economic Effects(Contd.)

GNP from 1930 to 1939

Year 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939

GNP (in %)

-9.4 -8.5 -13.4 -2.1 +7.7 +8.1 +14.1 +5.0 -4.5 +7.9

Political Effects

• Negative popularity of Herbert Hoover (Failure of Import duty Reforms).

• Lost to Franklin Roosevelt by a landslide margin (59 electoral votes against 472 of Roosevelt).

• Franklin Roosevelt introduced a series of policies which was called “The New Deal” which was a success ( Relief, Recovery & Reforms).

• Roosevelt emerged as a hero and remained in office for 3 terms (12 years).

Social Effects

• Mass Migration occurred because of the unemployment.

• People started moving to California ( Mainly from Oklahoma, Arkansas, Texas, Missouri).

• A total of approximately 15% of the Oklahoma population left for California.

• By 1950, four million individuals born in these 4 states lived outside the region.

• “Okies” and “Arkies”.

Effects on Other Countries (1929 to 1932)

• Australia – Dependence on Agriculture and Industrial exports. So, one of the hardest hit countries. Unemployment was at record high of 29%.

• Canada – Industrial production fell by second lowest level after the US. Unemployment was at the peak. The government employed a highly restrictive policy.

Effects on Other Countries (Contd.)

• Chile – Hit badly because 80% of Government Revenue came from exports of copper and nitrates. The League of Nations labeled Chile the country hardest hit.

• Effect on Britain – Ship production fell by 90%. Unemployment was at all time peak of 70% in north area. Led to “The National Hunger March” of Sept-Oct 1932.

Effects on India

• British Govt. Introduced a stringent tax policy.• Prices increased drastically.• Discontent of people was shown in “Namak

Satyagrah”.• Indian National Congress won with a high

percentage votes in First General elections held according to the ”Government of India Act 1935”.

How it ended?

• Increase in demand for Artillery and food during World War II

• Production and employment increased. • Speculation – US entered the World War II to

end its own crisis.