10 Econ The Great Depression

The Great Depression was a dramatic, worldwide economic downturn. The beginning of the Great Depression in the United States is associated with the stock market crash on October 29, 1929. The stock market crash, better known as “Black Tuesday” had devastating effects on industrialized countries. International trade declined sharply, as did personal incomes, tax revenues, prices, and profits. Cities all around the world were hit hard, especially those dependent on heavy industry. At the time, Herbert Hoover was President of the United States. The cause of the Great Depression is currently argued by three different theories about the failure of free markets. The first of the three focuses on the macroeconomic effects of money supply and the supply of gold which backed many currencies before the Great Depression, including production and consumption. The second theory focuses more on institutional economics, that point to under consumption and economic bubbles, wrongdoing by bankers and industrialists or incompetent government officials. The last theory focuses on the fact that the central government continuously contradicts itself. The economic impact of the Great Depression affected other countries like Australia, Canada, France, Germany, Latin America, Netherlands, South Africa, the Soviet Union, and the United Kingdom. The great depression caused unemployment rates to rise and caused instability in all countries.

Timeline 1920s: During World War I, federal spending grows three times larger than tax collections. At least an average of 600 banks fails each year. Organized labor declines throughout the decade. 1922: The conservative Supreme Court strikes down federal child labor legislation. 1923: President Warren Harding dies in office resulting in Calvin Coolidge becoming the next president. Supreme Court also nullifies minimum wage for women in District of Columbia. 1924: The stock market begins its spectacular rise. 1925: The top tax rate is lowered to 25 percent. 1928: The average prices of stocks rose 40 percent. The boom is largely artificial. 1929: Herbert Hoover becomes President. August 1929: Recession begins in August, two months before the stock market crash. October 1929: Stock market crashes. 1930: The Federal Reserve has cut the prime interest rate from 6 to 4 percent. The Smoot-Hawley Tariff passes on June making imports forming only 6 percent of the GNP. 1931: The GNP falls another 8.5 percent while unemployment rises to 15.9 percent. 1932: International stocks lost 60 percent of their value and tax rates are raised from 25 to 63 percent. 1933: President Franklin Roosevelt defeats Hoover in reelection and is inaugurated.

1934: The economy turns around: GNP rises 7.7 percent, and unemployment falls to 21.7 percent. A long road to recovery begins.