The Great Depression: Economic Causes & Repercussions (AP U.S. History Exam Study Guide)

0:14 The Great Depression from 1929 to about 1940 was a time when this nation really struggled economically. There were two distinguishing characteristics of the Great Depression, its severity and its length. Never before or since has an economic crisis been so bad or lasted so long. To this day, debates rage on what caused

0:36 the Great Depression. Some say the growing income and wealth inequality played a role. Yet inequality has been more extreme in other periods of history not marked by recession. Others point to increases in consumer debt in the 1920s caused by a shift toward consumer-oriented businesses such as automobiles and movies.

0:56 However, the economy had endured waves of innovation before without collapsing. And still others have pointed to margin loans that speculators took out to buy stocks that could only be paid back if stock prices kept going up. But even though stocks crashed in late 1929, they went right back up in the first half of 1930. And only then did

1:16 the economy go into free fall with the stock market following. So stock market losses don’t seem to explain the depression either. There are other schools of thought that say the causes of the Great Depression can be found in the banks and the monetary system. From 1929 to 1933, over 10,000 banks failed in the United States.

1:38 Some argue that simple panic was responsible. A few banks began to fail, everyone rushed to withdraw their deposits, and this led to a widespread collapse of the banks. Others point to the stinginess of the Federal Reserve in this period as the reason for the credit contraction that felled the banks. Another view is that the tariff passed by Congress in June 1930, the

1:58 Smoot-Hawley tariff, made it difficult for Germany to pay back its war reparations loans owed to the United States from World War I two decades before, and this stressed the banking system to the breaking point while also making the Great Depression a global event. Whichever of these theories is correct, what’s indisputable is that the depression was terribly severe. Economic

2:20 output went down by 25%, the largest drop ever. Unemployment reached a staggering 25%, and this figure does not include millions of previously employed people who gave up on finding a job altogether. Or the many who were underemployed, working fewer hours than they had before for less pay. As 40% of the nation’s

2:42 banks failed, the prices of goods also fell. This meant that producers, particularly farmers, found that sales of their goods were bringing in far less than expected. A cycle developed where deflation discouraged farms and businesses from production because the final sale price would be too low to recoup costs. But the other thing that scholars have

3:02 to try to explain about the Great Depression, along with the causes of its severity, are the causes of its extraordinary length. The depression was at its worst in the collapse of 1929 to 33, but the subsequent recovery was sufficiently weak and inconsistent that conventionally the entire 1930s are spoken of as the depression decade.

3:23 While there was increasing economic growth in the mid-1930s, a recession that hit in 1937-38 was almost as bad as the start of the depression itself. For the entire decade, the stock market never regained the levels of the 1920s. Some think that the reason the depression lasted as long as it did was

3:44 President Franklin D. Roosevelt’s New Deal program. This program spent billions of dollars and employed millions of people in an effort to stimulate the economy. Today, these kinds of initiatives are called Keynesianism after the economist John Maynard Keynes of the time. These New Deal programs were accompanied by new and intensive government regulation of business. Some think these

4:06 programs and regulations were responsible for the incomplete and inconsistent recovery after 1933 when Roosevelt came into office because the massive government spending and burdensome rules kept workers idle and discouraged business investment. In this view, FDR’s programs had a push-pull effect, some of them encouraging

4:27 recovery and others preventing it. While historians still differ on the causes and severity of the depression, one thing that is agreed upon was that Americans suffered through an entire decade that was very different from the prosperous 1920s.