Era of Depression


The Greta Depression was one of the most devastating economic depressions in history. The initial occurrence of the depression was after the 1929 stock market crash that lasted for almost 10 years. Three years after the initial stock market crash, stock values depreciated at a rapid rate to up to 80% down from their original value. According to Tenim, this period also saw the collapse of an estimated 25,000 financial institutions due to various economic reasons such as inappropriate monetary policies, a decline in the value of property and loan default (Tenim, 1976). The introduction of price control which was initially intended to improve the situation only worsened the same. The depression era led to sky high unemployment level with unemployment figure reaching a historical high of 30% in 1932. This paper aims at exploring the era of depression, the factors that led to the Great Depression and the effects on the US economy.

Era of depression

The Great Depression is described as being the pervasive depression in the US history. This period lasted for almost ten years from 1929 to 1939. However, the effects of this depression were not only felt in the US but the global community experienced adverse economic effects. In previous depressions, the affected sectors of the economy such as the GDP, market prices and inflation levels had the tendency of resuming back to normal. However, an outstanding characteristic of the Great Depression is that ten years down the line, the GDP was still below the initial level that it was at the beginning of the depression. The years 1929 and 1933 were characterized by a decline in economic activities where the GDP fell more than 25% of the initial level at the beginning of the year 1929. This greatly affected the economy of the country where the previous economic growth for the previous quarter century was erased.

Perhaps the most affected part of the economy was industrial production where industrial production fell to over 50% of the initial total industrial output. Despite this, the economy showed some slight recovery between the years 1933 to 1937. However, this recovery was short-lived and the when the economy slumped back to recession. This unexpected changes in the economic outlook left many scholars and economists wondering how long the Great Depression would last. It is estimated that the era of Depression is one of the historic events that signed a historic unemployment figures with unemployment rate peaking above 25% in 1933. However, this figure is perceived to be a mere estimate and does not signify the correct situation on the ground. It is estimated that a large number of individuals were left out in determining the levels of unemployment during the Great Depression.

The banking system also experienced a number of problems in an economic approach. "This came as a result of depositors rushing to withdraw their money from banks due to the perception that the banks were bound to fail"(Friedman & Anna, 1998) .This I some of the reasons why many banks failed while others formed mergers in order to survive the depression era. It is estimated that the percentage drop in the number of banks in the US was 25%. However, it was not only the banking sector that was affected by the Great Depression. Other sectors of the economy were affected despite some sectors being more affected than others. The most affected individuals were the working class due to the large dependency on the employment sector. However, the effects spilt over to other sectors of the economy such as the agricultural sector where the average price of farmers' output fell by a half.

Prior to the Great Depression, the economic outlook was so positive that there was no anticipation of such a problem. Between 1921 and 1929, the individual output of workers grew by almost 5.9% annually for five consecutive years. However, the most notable characteristics during the 20s are the unequal balance in income distribution. There was also a slight situation similar to the recent financial crisis that was brought about by the housing bubble in the housing sector. During the early 20s, there was a slight housing construction boom that saw people rush to the suburbs. This however collapsed during the late 20s leading to serious economic impacts. "This period also saw a decline in the growth rate of the automobile industry as automakers had previously saturated the market in an attempt to control a larger market share" (Thomas & David, 1983). This led to the collapse of auto sales in the late 20s.

The reason why there was significant growth during the early 20s in the production sector is as a result of technological advancement during the period, electrification of most industrial processes, increased levels of innovativeness and the continued production of homogenous goods such as chemicals. This situation led to many firms investing in bulks in terms of new plants and equipments. "However after 1925, the level of innovativeness in the industrial sector greatly reduced leading to the period being described as the worst in the twentieth century for new product innovativeness" (Szostak 1935).

Causes of the Great Depression

The Great Depression had different psychological, cultural and political impacts on different countries. It is rumored that the rise of the Nazi party was as a result of the economic turmoil experienced in the early 1930. According to Keynes, President Roosevelt induced a variety of new programs after his election into office where he pledged that he would initiate a different strategy when it came to the country's budget (Keyens, 1964). However, it seen that the depression era led to a significantly low impact on the political climate in the US than other countries such as Germany. The impact of the Great Depression era was felt differently at different levels throughout the period.

Effects on individuals

The extent of the levels of unemployment played various roles in the lives of many individual globally. Many individuals were adversely affected financially though many of them were lucky to escape the severest of hardships during the depression era. According to Margo, most of the individuals who were affected by this period were workers with least skills or poorest attitudes (Journal of Economic Perspectives). There was another perception by workers who cited that having been employed for a long period of time made them less attractive to employers. This led to a concentration of unemployment especially the teens particularly during their early twenties and individuals over the age of fifty. Most of the individuals who experienced unemployment during the depression era experienced full time employment during the World War II. With the sky-rocketing unemployment figures, it was evident that most of the unemployed individuals were not responsible of their plight. This greatly led to an imbalanced income proportion with most of the unemployed generally feeling a severe sense of failure. Thus affected the psychological issues such as decisions to marry or have children which were mainly on the basis of psychological and economic reasons.

Effects on gender and race

Local governments and federal states introduced policies that favored men over the women in the labor aspect during the early 1930. There were also occurrences of married women being the first ones to be laid off. This was in line with the perception that employment opportunities should be reserved to the males in the society who were generally the breadwinners. Despite this bias in the profession field, the unemployment levels in men were higher than that of women. "Thus, reason for this was attributed to the labor market which was greatly segmented in the aspect of gender while the service industry which was dominated by women was less affected by the depression" (Schumpeter, 1939). However, there was little change on the basis of gender on the cultural outlook. The male continued to dominate the labor market while the women dominated the service sector. This implies that the depression era had little change in the cultural aspect. Many surveys conducted during the depression era found unemployment to be much higher among the blacks than the whites. Racial discrimination was found to play a big role in the outcome of most surveys depicting the same. A practical example of this is that many black workers were laid off to create room for white workers.

Cultural effects

In a cultural context, the depression era led to the great skeptism about the economic outlook and the cultural attitudes that favored hard work and consumption associated with the same. It was practically observed that the ideal of hard work was reinforced during the depression era. Most of the people who lived through the depression to the period after the II World War understood the importance of hard work. Despite being disposed to the thrift, people were taught to value their consumption opportunities. As it had been projected, one of the causes of the Great Depression was that people were a little bit held back in terms of consumption hence the period taught people to value their consumption behaviors.

Response to the era of depression

"The non-military spending of the federal government accounted for 1.5% of the GDP in 1929"(Rothermund,1996).However, this figure rose to 7.5% in 1939 which led to an increased burden on the federal government. Not only did the government have to provide temporary relief but it also had to provide temporary public works employment to counter the increasing rates of unemployment. The federal government also had to establish federal presence in institutions such as social security, pensions, financial regulation and the insurance sector. Perhaps one of the most notable attempts by the government to contain the situation was the introduction of securities regulation in 1930s. This arguably improved the efficiency, fairness and the stability of the US stock market. In a larger economic context, this implied that people didn't have to rush to their banks to make withdrawals in the occurrence of financial crisis rumors.

International Effects

It is believed that the Great Depression started in the US and spread to other parts of the world. It was also found out that the World War I was the root cause of the depression where the war had created weakness in the European economy especially the financial sector. There were undoubtedly economic effects on many Third World Economies as a result of the Great Depression. This is because, many Third World Countries were export reliant economic contraction was one of the key characteristic of the era of depression hence the economic effect on these countries.


It is evident that the era of depression had adverse effects on the US economy having been brought about by various factors. The severe economic crisis is considered to have been precipitated by US stock market crash and eventually led to an almost economic meltdown despite the economy having show significant growth during the earlier years. The Great Depression was unprecedented in its lengths and in the wholesale poverty and tragedy it inflicted on the general society both on the economic and cultural context. Despite most economists differing on the causes of the Great Depression, several causative factors such as the ones highlighted in this paper are generally accepted.

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