The Great Depression
The world economy contracted for four years after 1929, and industrial output in the United States fell by nearly half. The crash was the trigger rather than the cause. What turned a severe recession into the worst depression in modern history was a series of policy decisions, each defensible at the time and disastrous in combination. The Federal Reserve let the money supply contract by about a third. Some 9,000 American banks failed between 1930 and 1933, each taking its depositors' savings and its borrowers' credit with it, and the Fed regarded the failures as purging weak institutions rather than as a systemic emergency. The Smoot-Hawley Tariff of 1930 raised American duties on some 20,000 goods, and around sixty countries retaliated; world trade fell by roughly two-thirds in three years. The gold standard transmitted it. Countries defending their parities had to raise rates into a collapse and cut spending into a slump, and those that left gold earliest — Britain in 1931, the United States in 1933 — recovered earliest. The failure of Creditanstalt in Vienna in May 1931 spread the banking crisis across Europe and brought down the German banking system. Unemployment reached about 25 per cent in the United States and 30 in Germany. The political consequences were the larger ones. The Nazi vote went from 2.6 per cent in 1928 to 37 in July 1932. Almost every institution of modern economic management — deposit insurance, central bank mandates, the IMF — was built afterwards, against this. Whether the lessons were learned is a question 2008 was the test of, and the response then was consciously modelled on what had not been done in 1930.
- Year: 1930 CE
- Category: Economic
