Great Depression

worldwide economic depression (1929–1939)

The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in 1930 and lasted until the late 1930s or middle 1940s. It was the longest, deepest, and most widespread depression of the 20th century.

Historians have since learned that FDR's vaunted New Deal, with its massive new government programs and antibusiness regulations, had done nothing to end the Great Depression. After six years of FDR, unemployment in 1939 still stood above 17%. ~ Arthur L. Herman
CONTENT : A - F , G - L , M - R , S - Z , See also , External links


Quotes are arranged alphabetically by author

A - F

The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. - Milton Friedman.
  • The Great Depression deserves its title. The economic crisis that began in 1929 soon engulfed virtually every manufacturing country and all food and raw materials producers.
    • Nicholas Crafts and Peter Fearon, "Lessons from the 1930s Great Depression", Oxford Review of Economic Policy, Volume 26, Number 3, 2010
  • The singer-songwriter has always played music that was stylistically rooted in the '30s and the Great Depression and the Dust Bowl. But the fact of the matter is that none of us remember the Depression firsthand.
  • The symptoms of the Depression were much easier to discern than its causes. Between 1929 and 1933 American gross national product fell by nearly half in nominal terms, or 30 per cent when allowance is made for the simultaneous decline in prices. The first sector to be severely affected was construction; by 1930, however, the collapse in activity had spread to agriculture, manufacturing and finance. Investment imploded; so did exports. This crisis of capitalism was not confined to the United States; it was a global phenomenon, as Figure 6.1 makes clear. The combined output of the world's seven biggest economies declined by close to 20 per cent between 1929 and 1932. But there were significant national and, indeed, regional differences in the timing and severity of the Depression. The United States was not the first to suffer, partly because monetary tightening there initially affected other countries by luring short-term capital back to New York, and partly because other central banks were restricting credit for reasons of their own. Argentina, Australia, Brazil, Canada, Germany and Poland all turned down sooner. But only two countries suffered such severe contractions as the United States. One was Germany, where construction had peaked as early as 1927. The other was Austria.
    • Niall Ferguson, The War of the World: Twentieth-Century Conflict and the Descent of the West (2006), p.  192
  • Recovery from the Depression plainly called for new economic policies in all countries; by 1933, as Roosevelt said, the traditional remedies favoured by his predecessor Herbert Hoover had been discredited. Any country that adhered tenaciously to the combination of sound money (the gold standard) and a more or less balanced budget was doomed to a decade of stagnation. Nor were tariffs the answer. However, there was a variety of different ways to engineer economic recovery. At one extreme were the policies of the Soviet Union, based on state ownership of the means of production, central planning and the ruthless coercion of labour. At the other, there was the British combination of currency devaluation, modest budget deficits and a protectionist imperial customs union. Other measures - such as the system of bank deposit insurance introduced in the United States - did not constitute a drastic break with the liberal economic order. Most countries adopted policies somewhere in between these two extremes, combining increased state involvement in employment, investment and the relief of poverty with looser fiscal and monetary policies and measures to limit the free flow and/or pricing of goods, capital and labour.
    • Niall Ferguson, The War of the World: Twentieth-Century Conflict and the Descent of the West (2006), p.  225
  • The key point is that the political consequences of these new economic policies varied much more between countries than the policies themselves. Only in some countries was the adoption of new economic policies subsequent to, if not actually conditional upon, a political switch to dictatorship. The English-speaking world saw a variety of departures from economic orthodoxy without any erosion of democracy. So too did Scandinavia; it was in the 1930s that the Swedish Social Democrats laid the foundations of the post-1945 European welfare state. Ironically, moves away from democracy in other countries were sometimes justified by the need for more stringently orthodox fiscal policies, on the ground that the parliamentary system, with its special interests represented in the legislature, made it impossible to run balanced budgets. In fact, unbalanced budgets provided a generally beneficial stimulus to demand. It should also be remembered that changes of monetary policy did not require any diminution of democracy since in most countries before the Depression central banks were not democratically accountable. Some had their independence from parliamentary control legally enshrined. Others - notably the Bank of England and the Banque de France - were still considered to be private firms, accountable to their shareholders rather than to voters, even if their role and mode of operation were governed by statute.
    • Niall Ferguson, The War of the World: Twentieth-Century Conflict and the Descent of the West (2006), pp. 225-226
  • The average man won't really do a day's work unless he is caught and cannot get out of it. There is plenty of work to do if people would do it.
    • Henry Ford as quoted in The Zanesville Sunday Times-Signal [Zanesville, Ohio] (15 March 1931): On reasons for the Great Depression.
  • The major lesson of the Great Depression that has affected our lives is the wrong lesson, a misinterpretation of the Great Depression. There is no doubt that the major lesson that was in fact learned from the Great Depression, whether it should have been or not, was the lesson that you could not count on the private enterprise system to maintain prosperity and that you had to rely heavily on government to play a major role. If you take the period before 1929, so far as public opinion in general is considered, government was regarded as a necessary evil. I think there was widspread support for the kind of views that Jefferson had expressed a century and a half erlier on the virtues of a small government and of limiting the role of government. The Great Depression changed that because the lesson that the public at large learned from the Great Depression was that it was the result of a failure of business, a failure of capitalism, that big business had let them down, and that in order to be safe in the future they would have to rely much more heavily on government. That was the lesson that was in fact learned from the Depression. As you know, in my opinion, the lesson that should have been learned, the right lesson, was that government let them down. That it was ismanagement of the monetary system that produced it and not a failure of the market system. But there is no doubt what the actual lesson learned was.
    • Milton Friedman, Interview with Parker in Randall E. Parker (ed.), Reflections on the Great Depression (2002)

G - L

  • There was something superficial in attributing anything so awful as the Great Depression to anything so insubstantial as speculation in common stocks.
    • John Kenneth Galbraith, Money: Whence It Came, Where It Went (1975) Chapter XIV, When The Money Stopped, p. 183-184.
  • In the large sense the primary cause of the Great Depression was the war of 1914-1918. Without the war there would have been no depression of such dimensions. There might have been a normal cyclical recession; but, with the usual timing, even that readjustment probably would not have taken place at that particular period, nor would it have been a "Great Depression."
    • Herbert Hoover, The Memoirs of Herbert Hoover: The Great Depression, 1929-1941 (1952) p. 2: Lead paragraph Chapter 1 : The origins of the Depression.
  • This is a nightmare, which will pass away with the morning. For the resources of nature and men's devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life … and will soon learn to afford a standard higher still. We were not previously deceived. But to-day we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.
    • John Maynard Keynes (1930), "The Great Slump of 1930" , in Essays in Persuasion; Referring to economics and the Great Depression.
  • The explanation of this book is that the 1929 depression was so wide, so deep, and so long because the international economic system was rendered unstable by British inability and U.S. unwillingness to assume responsibility for stabilizing it by discharging five functions:

    (1) maintaining a relatively open market for distress goods;
    (2) providing countercyclical, or at least stable, long­ term lending;
    (3) policing a relatively stable system of exchange rates;
    (4) ensuring the coordination of macroeconomic policies;
    (5) acting as a lender of last resort by discounting or otherwise providing liquidity in financial crisis.

    • Charles P. Kindleberger, The World in Depression, 1929-1939 (2nd ed, 1986), Ch. 14 : An Explanation of the 1929 Depression
  • Although I was not aware of it at the time, the experience of growing up during the Great Depression was to have a profound impact on my intellectual and professional career.
  • The early thirties brought what liberal economists called the great depression and Marxist economists described as the great crisis of capitalism. It dawned on me that the economic world order was unreliable, unstable, and, most of all, iniquitous. I sought intellectual contacts and friendship with a group of socialist students and also with a small handful of communist-oriented students and unemployed workers.
  • The world crisis which began in 1929, the longest ever known, caused people entirely unconnected with and even hostile to the working-class movement to speak of 'crisis' and even of the 'collapse of capitalism'. [...] The economic and financial smash of 1929 ruthlessly disposed of the Fordist illusion that capitalism was about to experience an era of lasting prosperity and harmony. Liberalism observed with horror that the actual course of world development ignored all its good advice. Today the doctrine of liberalism is practically dead, but, at least, its few remaining defenders can console themselves by noting the disastrous effects of economic nationalism.
  • My approach was to accept that industrial recessions had occurred from time to time over the preceding century with intervals of four to ten years, and that the problem was not why there was a recession in 1929, but why, having started, it had become so deep. What distinguished the outbreak of this particular sequence? One cannot give an account of the Great Depression in two paragraphs, but one can list the decisive elements. These are seven.
    1. In the U.S. economy prosperity coincided with a railway-construction-immigration-housing cycle. Congress having restricted immigration from 1924, the construction boom of the second half of the 1920s was weak, and the abnormal weakness of the first half of the thirties weakened the whole economy.
    2. Both domestic and international agricultural prices had been falling since the mid-1920s, capacity having grown faster than demand. Rural consumption was low, and in the United States an abnormal number of rural banks failed.
    3. Monetary and fiscal authorities believed that the best way to revive production was to reduce the flow of income and acted accordingly. This action presumably worsened the depression.
    4. The industrial slump was as bad in Germany as in the United States. The weakness of the one compounded the weakness of the other.
    5. Capitalists everywhere lost confidence and reduced their investment flows. This spiraled. Less investment meant less production, less income, more excess capacity, less investment, and so on.
    6. The New York Stock Exchange, which had talked itself into overconfidence in the late twenties, now talked itself down and reflected all the unpleasantness occurring elsewhere.
    7. One country after another left the gold standard, imposed exchange controls, and raised tariff levels. International trade fell by 30 percent in volume.
    • W. Arthur Lewis, lecture in September 1984, published in William Breit and Barry T. Hirsch (eds.), Lives of the Laureates (5th ed., 2009)
  • If you look back at the 1929 to 1933 episode, there were a lot of decisions made that, after the fact, people wished they had not made; there were a lot of jobs people quit that they wished they had hung on to; there were job offers that people turned down because they thought the wage offer was crappy. Then three months later they wished they had grabbed. Accountants who lost their accounting jobs passed over a cab-driver job, and now they're sitting on the street while their pal's driving a cab. So they wish they'd taken the cab-driver job. People are making this kind of mistake all the time. Anybody can look back over the '30s and think of decisions which would have made millions—purchasing particular stocks, all kinds of things. I don't see what's hard about this question of people making mistakes in the business cycle. From the individual point of view, it's obvious.

M - R

World War II ended the Great Depression with one of the great public-private industrial collaborations in the history of man. - Jon Meacham.
  • ... the Depression was a time of setbacks for women after the tremendous educational, social, political, and professional gains they had made through the twenties ... Working women, both in academia and elsewhere, were particularly singled out for pay cuts, demotions, and dismissals, justified by the argument that men raising families should be accorded preference in a time of diminished resources ... The cultural and economic sea change of the thirties offered but a glimpse of the greater turbulence to come.
  • And we've had four more years pass where the age cohort that is most Democratic and most pro-statist, are those people who turned 21 years of age between 1932 and 1952--Great Depression, New Deal, World War II--Social Security, the draft--all that stuff. That age cohort is now between the ages of 70 and 90 years old, and every year 2 million of them die. So 8 million people from that age cohort have passed away since the last election; that means, net, maybe 1 million Democrats have disappeared--and even the Republicans in that age group. [...] You know, some Bismarck, German thing, okay? Very un-American. Very unusual for America. The reaction to Great Depression, World War II, and so on: Centralization--not as much centralization as the rest of the world got, but much more than is usual in America. We've spent a lot of time dismantling some of that and moving away from that level of regimentation: getting rid of the draft.
  • Over the last few decades of colonialism, colonial possessions served capitalism as a safety valve in times of crisis. The first major occasion when this was displayed was during the great economic depression of 1929–34. During that period, forced labor was increased in Africa and the prices paid to Africans for their crops were reduced. Workers were paid less and imported goods cost a great deal more. That was a time when workers in the metropolitan countries also suffered terribly; but the colonialists did the best they could to transfer the burdens of the depression away from Europe and on to the colonies.
  • It was a product of the irrationality of the capitalist mode of production. The search for profits caused production to run ahead of people’s capacity to purchase, and ultimately both production and employment had to be drastically reduced. Africans had nothing to do with the inherent shortcomings of capitalism; but, when Europeans were in a mess, they had no scruples about intensifying the exploitation of Africa. The economic depression was not a situation from which Britain could benefit at the expense of Sweden or where Belgium could gain at the expense of the U.S.A. They were all drowning, and that was why the benefits of the colonies saved not only the colonizing powers but all capitalist nations.
  • Looking back the great American ‘stabilisation’ [and boom] of 1922-1929 was really a vast attempt to destabilise the value of money in terms of human effort by means of a colossal programme of investment [driven by too easy credit]... which succeeded for a surprisingly long period, but which no human ingenuity could have managed to direct indefinitely on sound and balanced lines. [and therefore it ended dramatically in the huge 1929 stock market crash followed by the Great Depression].
    • Dennis Holme Robertson in "How Do We Want Gold to Behave?." The International Gold Problem, Humphrey Milford (1932): As cited in; Also cited in: Murray N. Rothbard (2013) America's Great Depression (LFB) p. 1921.
  • Recovery measures work better when they raise confidence - as Franklin D. Roosevelt understood. His fireside chats, and his inaugural address proclaiming he would fight the Great Depression with the same resolve he would muster against a foreign foe, were aimed at reassuring Americans.
  • I don’t oppose all wars. What I am opposed to is a dumb war. What I am opposed to is a rash war. What I am opposed to is the cynical attempt by Richard Perle and Paul Wolfowitz and other armchair, weekend warriors in this administration to shove their own ideological agendas down our throats, irrespective of the costs in lives lost and in hardships borne. What I am opposed to is the attempt by political hacks like Karl Rove to distract us from a rise in the uninsured, a rise in the poverty rate, a drop in the median income, to distract us from corporate scandals and a stock market that has just gone through the worst month since the Great Depression. That’s what I’m opposed to. A dumb war. A rash war. A war based not on reason but on passion, not on principle but on politics.
    • Remarks of Illinois State Sen. Barack Obama Against Going to War with Iraq (2 October 2002); referencing the positions of former Pentagon policy adviser Richard Perle, Deputy Defense Secretary Paul Wolfowitz, and chief Bush political adviser Karl Rove.

S - Z

  • What ended the Great Depression? If you talk about the rest of the world, in Germany, it was the preparation for World War II. In economic terms that is fiscal policy. Not pump priming, because the pump priming notion is defective. When I put water in a country pump with a dry valve, a small amount of water is large enough to wet that valve so as to permit me to get any amount of water following it. The Keynesian multiplier says you have to put something in and you have to continually put something in. By the way, my disillusionment with straight monetary policy, orthodox policy like what Clark Warburton wrote about and what Friedman later came to write about, came when we had this "golden avalanche." We had this tremendous increase in central bank reserves. We were able to have, by this time I was at Harvard, interest rates which were really at bottom, often zero at times. And that did not operate with an infinitely elastic marginal efficiency of capital. So at that time you had to use the other macro tool of deficit fiscal policy.
    • Paul Samuelson, Interview with Parker in Randall E. Parker (ed.), Reflections on the Great Depression (2002)
  • Oh yes, and it was also valuable that the Chicago I went to was the best place in the world at that time in neoclassical economics. But that does not mean it was the best place in the world to understand the Great Depression. The Great Depression was not Euclidian geometry. I was very sensitive to this mismatch, that is to the fact that what I was learning in class could not rationalize for me that almost every bank in my neighborhoods in Northern Indiana and Illinois went broke and that almost all the money that my older brother had earned to go to college was lost. In a nutshell, about one third of the population had no jobs. And the two thirds who had jobs would not trade with them. The one third without jobs would gladly trade with them or gladly work for even less. But of course they couldn’t do that. To try and handle this kind of disequilibrium system with the historic tools of economics that were in the textbooks I was being assigned was impossible. So you can understand why, then, by complete good luck, I happily got out of Chicago.
    • Paul Samuelson, in Karen Ilse Horn (ed.) Roads to Wisdom, Conversations With Ten Nobel Laureates in Economics (2009)
  • I do not have a theory, nor do I know somebody else's theory that constitutes a satisfactory explanation of the Great Depression. It's really a very important, unexplained event and process, which I would be very interested in and would like to see explained.
  • During the Great Depression, levels of crime actually dropped. During the 1920s, when life was free and easy, so was crime. During the 1930s, when the entire American economy fell into a government-owned alligator moat, crime was nearly non-existent. During the 1950s and 1960s, when the economy was excellent, crime rose again.
  • In 1933, the Soviet and Nazi governments shared the appearance of a capacity to respond to the world economic collapse. Both radiated dynamism at a time when liberal democracy seemed unable to rescue people from poverty. Most governments in Europe, including the German government before 1933, had believed that they had few means at their disposal to address the economic collapse. The predominant view was that budgets should be balanced and money supplies tightened. This, as we know today, only made matters worse. The Great Depression seemed to discredit the political response to the end of the First World War: free markets, parliaments, nation-states. The market had brought disaster, no parliament had an answer, and nation-states seemingly lacked the instruments to protect their citizens from immiseration. The Nazis and Soviets both had a powerful story about who was to blame for the Great Depression (Jewish capitalists or just capitalists) and authentically radical approaches to political economy. The Nazis and Soviets not only rejected the legal and political form of the postwar order but also questioned its economic and social basis. They reached back to the economic and social roots of postwar Europe, and reconsidered the lives and roles of the men and women who worked the land. In the Europe of the 1930s, peasants were still the majority in most countries, and arable soil was a precious natural resource, bringing energy for economies still powered by animals and humans. Calories were counted, but for rather different reasons than they are counted now: economic planners had to make sure that populations could be kept fed, alive, and productive. Most of the states of Europe had no prospect of social transformation, and thus little ability to rival or counter the Nazis and the Soviets. Poland and other new east European states had tried land reform in the 1920s, but their efforts had proven insufficient. Landlords lobbied to keep their property, and banks and states were miserly with credit to peasants. The end of democracy across the region (except in Czechoslovakia) at first brought little new thinking on economic matters. Authoritarian regimes in Poland, Hungary, and Romania had less hesitation about jailing opponents and better recourse to fine phrases about the nation. But none seemed to have much to offer in the way of a new economic policy during the Great Depression.
  • From 1931 to 1935, I was an undergraduate at Cambridge in my father's old college, Gonville and Caius, which was particularly strong in medicine and the law. However, after two years of law I switched to economics, much to my father's disappointment. At that time the world was in the depth of the great depression and my motive for wanting to change subject was the belief, bred of youthful ignorance and optimism, that if only economics were better understood, the world would be a better place.
  • In the heart of the Great Depression, millions of American workers did something they'd never done before: they joined a union. Emboldened by the passage of the Wagner Act, which made collective bargaining easier, unions organized industries across the country, remaking the economy.
  • For me, growing up in the 1930s, the two motivations powerfully reinforced each other. The miserable failures of capitalist economies in the Great Depression were root causes of worldwide social and political disasters. The crisis triggered a fertile period of scientific ferment and revolution in economic theory.
  • Well, the Great Depression was on the way to being ended by the New Deal in the earlier thirties. A good part of that was done by restoring confidence, to use the word, and by Roosevelt being able to do that by getting the banks open. Then the devaluation of the dollar was a very important step in getting recovery going. So things were going quite well up until the interruption of the recession of 1937-38. That was real shock to Roosevelt and his people. They had every reason to believe that we were going to go back to 1932 or something like that. Then Roosevelt did take the wraps off of Keynesian policy at that time and so things were doing better in the recovery from that setback. Of course then preparation for the War began and the aid to the allies. So we had Keynesian fiscal policy without any of the restraints that were put upon it during peacetime. But eventually the War is what got out of it.
    • James Tobin, Interview with Parker in Randall E. Parker (ed.), Reflections on the Great Depression (2002)
  • The imagination of our investing (sic) public was greatly heightened by the discovery of a new phrase: discounting the future. However a careful examination of the quotations of many issues revealed that not only the future, but even the hereafter, was being discounted.
    • Max Winkler, investment economist, in "Paying the Piper", North American Review (January 1930)

See also

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