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Essential Characteristics Of The Great Depression

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I've always thought of the stock market crash as being the most important event of the "Great Depression".

(Link to source) On Black Tuesday, the twenty-ninth, the market collapsed. In the words of a gray haired Stock Exchange guard, "They roared like a lot of lions and tigers. They hollered and screamed, they clawed at one another

collars. It was like a bunch of crazy men. Every once in a while, when Radio or Steel or Auburn would take another tumble, you'd see some poor devil collapse and fall to the floor."

In a single day, sixteen million shares were traded--a record--and thirty billion dollars vanished into thin air. Westinghouse lost two thirds of its September value. DuPont dropped seventy points. The "Era of Get Rich Quick" was over. Jack Dempsey, America's first millionaire athlete, lost $3 million. Cynical New York hotel clerks asked incoming guests, "You want a room for sleeping or jumping?"

While the fall in the stock market is important, I now suspect that it was mainly a "surface characteristic". It was important in the way that a high body temperature might be important. It tells us something really bad was wrong, but we need to look closer for the underlying characteristics.

In this thread, I'm interested in the characteristics of the great depression: e.g. high unemployment. I'd like to gather the facts together, to form a picture of the characteristics and to answer the question of essential characteristics. For instance, if unemployment was high, I'd like to ask why employers weren't slashing wages.

For this thread, I am not so interested in the preceding historical events that caused the great-depression. I'd like to study the patient's current condition in the years from 1929 through 1934, before figuring out how he got the disease.

I hope some here are interested in the topic. I will add information to this thread as I discover it.

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There's a term for the disparity of the distribution of wealth between classes, I can't recall it, but I had done a paper in school about it being a huge force behind the crash. I'm going off memory for figures here, but hopefully it will give some direction where to look.

The top 0.5% of the wealth population had a combined income the same as the bottom 50%, that same .5% at the top accounted for 40% of all savings and over 75% of americans had no savings. There was so much surplus of goods on the market and hardly anyone could afford it all and the price of goods did not respond, so to create demand companies begin credit and installment programs which created a higher imbalance.

The production output increased dramatically and new factory improvements were put into place while wages rose slowly in caparison and the price of goods did not drop which dramatically increased profits and so stock shares soared and those able to invest became richer increasing that income gap. Eventually, the agriculture industry prices plummeted as the surplus finally forced the artificially high prices to give, but the artificial demand created by the credit programs kept the car, radio, and tech industries high and completely imbalanced the corporate sector wealth ditribution also.

The other imbalance of wealth and probably the most damaging was between the US and Europe. After the war, Europe was devastated, the factories wiped out, and since America was prosperous having not been touched, they borrowed heavy from us. They used that money to buy our goods since they could not produce their own, which inflated our export ratios. When Europe finally got to the point where they could produce goods again, America set high tariff rates to protect American companies that were so prosperous from foriegn competition. With Europe getting no American money except buy loaning, they started having trouble paying interest on debt, so stopped importing goods from America to recoup which if I recall was close to 20% of our sales.

It all really came down to too much credit. Even stock market specualtion at the time, the broker loans out to investors was too great pushing stock prices artificially high.

Hope some of this points you in the right direction of where to look.

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In this thread, I'm interested in the characteristics of the great depression. I'd like to gather the facts together, to form a picture of the characteristics and to answer the question of essential characteristics. For instance, if unemployment was high, I'd like to ask why employers weren't slashing wages.

I hope some here are interested in the topic. I will add information to this thread as I discover it.

Well, aren't you digging up good stuff B) First the Magna Carta and then this :dough:

I also would like to hear and think more about this, but at first thought I'd say the whole "get rich quick" premise (not necessarily limited to stocks) was the primary characteristic of the times.

As I understand it, stock analysis wasn't nearly as prevalent as it is today. In addition, most people wouldn't have used such tools anyway; their investment philosophy would be along the lines of "there's a sucker born every minute." So long as they felt the continually rising price of stocks would compel others to buy their stock at a higher price, they (most people) weren't concerned about whether a stock was a good long-term investment.

I suppose this premise is present today, but (hopefully) not to the same overpowering extent.

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I also would like to hear and think more about this, but at first thought I'd say the whole "get rich quick" premise (not necessarily limited to stocks) was the primary characteristic of the times.

What evidence would lead you to consider a "get rich quick" premise as an essential characteristic of the U. S. economy in the years 1929-1934?

(You said "primary" characteristic but the topic question asks about essential characteristics. Are they synonymous, for you as an anti-Objectivist?)

Edited by BurgessLau
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In this thread, I'm interested in the characteristics of the great depression: e.g. high unemployment. I'd like to gather the facts together, to form a picture of the characteristics and to answer the question of essential characteristics.

I think it's best to contrast the Depression with the period that preceded it: the "Roaring" economic growth under the Presidency of Calvin Coolidge. The latter was characterized by laissez-faire government, growing productive output, soaring stock prices, and abundant employment opportunities. The Hoover and Roosevelt Presidencies, on the other hand, brought unprecedented levels of statism, accompanied by vanishing business opportunities, stock market crashes, and mass unemployment.

The prosperity of the Twenties makes it clear that Americans were both willing and able to create wealth when the government let them. So the essential characteristic of the Depression, the one that not only explains but caused the others, was that the government began standing in the way of producers.

BTW, Richard Salsman has written a series of articles in The Intellectual Activist that you'll probably find useful, entitled "The Cause and Consequences of the Great Depression."

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In this thread, I'm interested in the characteristics of the great depression: e.g. high unemployment. I'd like to gather the facts together, to form a picture of the characteristics and to answer the question of essential characteristics. For instance, if unemployment was high, I'd like to ask why employers weren't slashing wages.

This is an intriguing topic (and a very well organized method for approaching it). I have a question for clarification: Are you looking only for economic/political essential characteristics or also for deeper philosophical ones too?

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I think it's best to contrast the Depression with the period that preceded it: the "Roaring" economic growth under the Presidency of Calvin Coolidge. The latter was characterized by laissez-faire government, growing productive output, soaring stock prices, and abundant employment opportunities.

I think that period of the roaring 20's economic growth was built on the premise that you could buy the future to live today, too many people living outside their means and the market caught up to them. What led to the crash had always fascinated me for some reason, but what actually took place after '29 was rather boring in school with all the acronyms and social welfare programs.

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I think that period of the roaring 20's economic growth was built on the premise that you could buy the future to live today, too many people living outside their means and the market caught up to them.

Bad loans do not cause economic growth; not when the loan is made; not in the years thereafter; and not when the loan matures and fails to be repaid. All a bad loan does is it increases the borrower's consumption (and decreases the lender's); it does not affect production.

(Note: A discussion on "Artifical Demand", "Excess Consumption" and related Keynesian ideas prompted by this thread has been made into a separate split-thread.)

Edited by softwareNerd
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Yeah, but isn't this the same period in history when the Fed was created and started inflating the money supply? If that is the case then suddenly everyone is able to spend more, and it creates the illusion of having unlimited money around, which makes people far more careless. If you keep pouring money into the economy at this point then it may seem to boom for a while, but that can't last forever as we have seen :P

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I've heard that on the evening before The Crash, a bill was signed in to Congress that would have made hostile corporate takeovers almost impossible. If that's true, it doesn't sound like a coincidence to me.

The Hoover administration was responsible for much higher government spending than any previous administration. And many Laisses-Faire advocates such as Salsman think Roosevelt's schemes drastically prolonged the Depression, since previous potentially catastrophic crashes had corrected themselves quickly.

But those are causes-- as to the actual statistics and qualities of life which characterized the depression, I don't know, except for personal accounts from my grandparents. Besides unemployment, I know food was scarce, and I know at the same time Roosevelt was torching mass quantities of produce.

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Good job, sN, there's plenty to work with here!

What evidence would lead you to consider a "get rich quick" premise as an essential characteristic of the U. S. economy in the years 1929-1934?
I'm now reading up on the Great Depression a bit, difficult when Keynesian arguments abound on the 'net. But before I return with a reply, let me ask you (in order to establish context) :
  • Do you disagree with my statement, and if so, are you offering an alternative?
  • What in the world is an "anti-Objectivist," and what evidence would lead you to consider me to be one?

By "primary" I mean moreso "necessary." Since I believe an essential characteristic (for you as a non-anti-Objectivist?) would necessarily be a single characteristic, I wished to present what might have been one of several necessary triggers for the Great Depression, whether this particular one was technically primary (as I believe at first thought) or not.

But so you don't believe to be misunderstanding your question: no, primary and essential are not synonymous to me (at least outside the context of myself qua undefined "anti-Objecitivist.")

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Thank you all for the replies.

CF, Yes, I've read Salsman's four-part series in TIA [June 2004, July 2004, Aug 2005 & Jan 2005]. Indeed, I was about to read them again when I decided to do my own investigation instead. I figure that will give me better context to understand the articles the second time around, and to really "chew" on them.

I have a question for clarification: Are you looking only for economic/political essential characteristics or also for deeper philosophical ones too?
Since those years also saw the rise of early communism, I suspect the political philosophy of the times might have contributed to the problems [probably a gross understatement]. That, in turn, was likely based on some incorrect, broader philosophical ideas.

I want to use this post as a "marker" to list the characteristics mentioned above.

  • Disparity of Wealth between rich and poor
  • Surplus of goods on the market
  • Too much credit: to consumers, to speculators and to Europeans who could not pay back
  • US running a high positive balance of trade (with Europe)
  • Short-term "get rich" premise and "sucker born every minute" aproach to investing (pre-1929)
  • Shoddy stock analysis (pre-1929)
  • unprecedented levels of statism, <-- essential
  • vanishing business opportunities,
  • mass unemployment
  • increases in the money supply
  • higher government spending
  • food was scarce, and ...at the same time Roosevelt was torching mass quantities of produce

That's quite a mixed list, and some seem to refer to pre-1929 characteristics while other seem to refer to post-1929 characteristics. The economic theory raised by some of these would make interesting threads of their own.

What led to the crash had always fascinated me for some reason, but what actually took place after '29 was rather boring in school with all the acronyms and social welfare programs.
The crash is what everyone talks about. However, consider this: what was the difference between the 1929 crash and the one we all just lived through? In 1929, the DOW-30 went from 381 to about 200 in a year's time. Look at the stock chart in that link and you will see that it merely retraced the last 1-year of exceptional bounce. While we all think of 1929 and the big crash, consider this: the crash brought the DOW to the level it was in mid-1928.

A person who put all his money into the Dow in mid-1928 would break-even when trading closed on "Black Tuesday" By Dec 1929, this person would have been up by over 10% on his initial investment of 18 months before -- after living throught the biggest crash of all time! What kind of crash is that? Further, by mid-1930, this investor was again up by 10% in just the first half of the year.

The real slide began in the middle of 1930, the part that is boring in the history books. This chart shows the real decline. From about 300 in mid 1930, the Dow declined to about 50 by the end of 1932. By 1939, it had only reached 150. So, on the face of it, the question is not: "what happened in 1929?" Rather, the important question seems to be: "what happened in 1930-32?"

Simply looking at the chart of the DOW during that time has been quite revelation to me. It's like the history books wanted to portray the years leading up to 1929 as a probelm, when the problem seems to be whatever happened after that.

I'm currently involved in some slow but necessary fact-gathering. First, I am creating a list of importnat events that took place in those years, including key legislation. Next, I am going to look at more data: money-supply, wage-rates, unemployment, and some of the other points listed above, to get a better picture about what was going on. I'd love to have important NYTimes headlines from those years, but I don't know if I want to put in that much work.

I'll post again when I have something to report.

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The crash is what everyone talks about. However, consider this: what was the difference between the 1929 crash and the one we all just lived through? In 1929, the DOW-30 went from 381 to about 200 in a year's time. Look at the stock chart in that link and you will see that it merely retraced the last 1-year of exceptional bounce. While we all think of 1929 and the big crash, consider this: the crash brought the DOW to the level it was in mid-1928.

A person who put all his money into the Dow in mid-1928 would break-even when trading closed on "Black Tuesday" By Dec 1929, this person would have been up by over 10% on his initial investment of 18 months before -- after living throught the biggest crash of all time! What kind of crash is that? Further, by mid-1930, this investor was again up by 10% in just the first half of the year.

You're right, the crash merely brought the market back into line with where it should have been, much as the crash we had brought the market back into line where it should have been. I don't know where you can look it up anymore, but I was looking at a chart of stock trends from the 40' till 2003 (when I was looking at it) and the chart went way out of whack with the coming of the .com boom. I blame our crash on the overinflated value of the tech industry, and really as it just bringing things back into line, not us losing out. At least in our time the market forces were spread out more evenly so the tech burst didn't bring everything else down like the car and radio industry did in the 30's.

I would think that the factors in the 20's that caused the market to skyrocket were masking the growing problems and inbalance with our economy. After the crash where the market came back into line with where it should have been, those factors were no longer masked and caused the market to slide down. I'm not sure, just my impression.

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I'm currently involved in some slow but necessary fact-gathering. First, I am creating a list of important events that took place in those years, including key legislation. Next, I am going to look at more data: money-supply, wage-rates, unemployment, and some of the other points listed above, to get a better picture about what was going on.
I've started to delve into this issue too. There seems to be plenty of evidence against a lot of the listed characteristics (including my excessive speculation-based one,) so I'm going to look further before I put more down.

It's like the history books wanted to portray the years leading up to 1929 as a problem, when the problem seems to be whatever happened after that.
Interesting...
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Simply looking at the chart of the DOW during that time has been quite revelation to me. It's like the history books wanted to portray the years leading up to 1929 as a problem, when the problem seems to be whatever happened after that.
The more I think about this (and look at the charts) the more striking I find it. Granted there may be other problems beyond a Dow drop that began in 1929, but from the Dow drop alone, it would seem like 1929 was, at worst a correction or panic, and that the Depression didn't really start until the 30's.

The big question to me is: was the Great Depression initially caused by problems more severe than other recessions/drops, or was it initially no worse than other recessions/drops but subsequently aggravated as no other recessions had been?

The former poses the problem (to me) that the economics conditions in 1929 don't seem to have been more extreme than those of other recessions, particularly after the 1929 stock low point. Pre-Depression, economic conditions don't seem (to me) bad enough to have warranted the collapse of the 30's.

I'm inclined to go for the latter, which would require identifying conditions that aggravated an otherwise "standard" recession, and (to the extent that no other Great Depressions have occured) checking to see that those same conditions have not simultaneously occured in any other time period.

*hunterrose resumes GD investigating*

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The original post asks for the essential characteristic of an economic depression. To do this we need to understand the nature of a depression, not resort to socialist economic theories from pop culture as Lathanar does above.

A depression is by definition an overall decrease in the total amount of wealth being generated by a given economy.

The decrease must be attributed to a decrease in one or more of the elements required for wealth generation.

If we assume that markets are essentially self-stabilizing (that is a topic for another thread) then that decrease must be caused by external natural or man-made interference with the market.

Natural disaster can generally be ruled out because it is only a factor when it is world-wide and unprecedented – any recurrent “disaster” is averaged out by global variations and planned for in futures markets.

Man-made factors that can cause a depression can be categorized by the two elements necessary for the creation of wealth: freedom and capital. Freedom is the essential factor necessary for production, but capital is what actually makes economic production possible. Destruction of capital can be outright - such as bombing factories and confiscating land, or more subtle – such as taxation and fiat currency. Destruction of freedom takes many forms, but two are especially significant: coercion of whom we are allowed to trade with, and coercion of the means of exchange (the money supply).

The Great Depression is called that because it was the first Depression in history – previous economic recession were called “panics” because they rarely lasted more than three months. What made it “Great” is the combination attack on all the essential requirements of economic production.

I leave the details for someone else, but here are the most important factors:

  • The Smoot-Hawley Tariff of 1930 destroyed the international division of labor. This (and similar policies here and abroad) is the primary cause of the global economic depression.
  • The inflationary policy of the Fed (est. 1913) created an artificial economic boom, which was finally unable to sustain itself after the Smoot-Hawley tarrif was passed. Contrary to most economists, the post-1930 contraction of the money supply was not the problem – it was the artificial expansion caused by the move to fiat currency. (Extending the inflationary policy would only have delayed the contraction and made the depression worse. See Austrian Trade Cycle Theory)
  • The massive regulatory and welfare state created by Hoover and FDR is what made the depression last so long.

The economy only recovered after some of the most extreme forms of FDR’s totalitarian policies were reigned in.

(BTW, the best book on the depression is Murray Rothbard’s America’s Great Depression.)

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Haha, Pop Culture Economics. I like that term, should start a course. I am curious to see how this thread turns out, I had always been taught and shown that the economy of the late 20's is what made the depression possible and started it.

The very late 20's. But I suppose that's not what you meant.

How many times are you going to repeat what you were taught ? In this forum, we prefer people who post what they think.

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(BTW, the best book on the depression is Murray Rothbard’s America’s Great Depression.)

Thanks for that link David, wish I had known about it before. One line of it caught my eye in particular:

Contrary to the underconsumption theory, a stable price level is not the norm, and inflating money and credit in order to keep the "price level" from falling can only lead to the disasters of the business cycle.

This is exactly what I was talking about, what I was mislabeling artificial demand (Although since I apparently don't 'think' I suppose no one will bother yet to try and help me find the right term for it). Reading up more on it now, I can see why the crash and the economy that led to it should not be seen as the cause for the depression, but I still think it was an indirect cause as a lot of the 'corrective' policies put into place wouldn't have made it without the crash as a backdrop.

I had forgotten about the Smoot-Hawley Tariff coming into place as it happened a bit after the crash, although talk about it in the news coincided with the crash. I was thinking more along the lines of the damage the Fordney-McCumber Tariff did when it raised tariffs to try and protect the farmer.

No one has mentioned the Dust Bowl yet. Or is that not considered a factor in what prolonged the depression?

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I'd like to second the suggestion for Rothbard's book. The money supply was inflated by over 50% during the decade of the twenties. FDR blamed capitalism for the inevitable result and used socialism to turn a recession into a decade long depression.

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(BTW, the best book on the depression is Murray Rothbard’s America’s Great Depression.)
Thanks for the link David. I'll definitely check it out.
No one has mentioned the Dust Bowl yet. Or is that not considered a factor in what prolonged the depression?
My guess is that this might have been a kick in the face of an economy that was already down.
The money supply was inflated by over 50% during the decade of the twenties.
When you say "money supply", do you mean currency -- i.e. more currency was being printed and circulated; or, do you mean M2 or M3 or some other such "broader" measure. (If it's mentioned in Rothbard's book, I'll find it there.)
The Smoot-Hawley Tariff of 1930 destroyed the international division of labor. This (and similar policies here and abroad) is the primary cause of the global economic depression.
That bill marked the downturn almost to the month. As I said in a previous post, the stock-market recovered from the exceptional boom+crash of 1929. Then, around the time of the Smoot-Hawley law one see it go into a slide.
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The Smoot-Hawley Tariff of 1930 destroyed the international division of labor. This (and similar policies here and abroad) is the primary cause of the global economic depression.
I'm not sure a large part of the blame should be laid at the feet of Smoot-Hawley. From what I've seen, it wasn't significantly worse than the previous Fordney-McCumber Tariff of 1922, and in 1929, US exports were $5 billion and imports $4 billion. GDP was $100 billion. I'll have to find more info.

The inflationary policy of the Fed (est. 1913) created an artificial economic boom... The post-1930 contraction of the money supply was not the problem – it was the artificial expansion caused by the move to fiat currency.
This seems interesting.

*goes in search of details*

The massive regulatory and welfare state created by Hoover and FDR is what made the depression last so long.
Sounds good. I like the pre, onset, and post influence division. It makes it easier to say "first those things happened, causing X. Then these things happened, worsening X to Y" etc.
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That bill marked the downturn almost to the month. As I said in a previous post, the stock-market recovered from the exceptional boom+crash of 1929. Then, around the time of the Smoot-Hawley law one see it go into a slide.

Also, let us not forget that Smoot-Hawley was proposed in 1929, before the crash. Stock prices reflect investors' expectations of future business opportunities--and as those opportunities evaporate, so do the prices.

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This is according to the U.S. Dept. of State:

For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934.
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Also, let us not forget that Smoot-Hawley was proposed in 1929, before the crash. Stock prices reflect investors' expectations of future business opportunities--and as those opportunities evaporate, so do the prices.

If I remember right from what I've looked up the last few days, two announcements, one that the tariff rates would be higher than proposed originally and the second that opposition against the tariff had crumbled coincided with two of the major crash days.

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